lawsuit

The Minnesota Independent took Pawlenty's Administration to task last week for its decision to give more money to the telecom company front group Connected Nation. To be clear, this is not the money for infrastructure (yet - time will tell how the state encourages the feds to allocate the grants). This was the mapping money.

Peter Fleck, of PF Hyper blog, put it well:

“My understanding is that we have allowed the companies that have not provided the needed broadband coverage in our state to steer the broadband mapping process itself because of a stated need for confidentiality. That need is questionable,” said Fleck.

“And it puts the state in a position where if the maps show there is no problem with broadband coverage, then we won’t need legislation, regulation, or any other policies and it creates the risk that the telecom industry can continue to provide inadequate coverage to underserved areas — usually areas of low-density and low-income. And because of the inadequacy of these maps, eventually we will have to undertake broadband mapping again at taxpayer expense. To me, this is an irresponsible use of public money.”

The story also quotes me and links back to our story on Connected Nation in Minnesota.

I want to note that states and federal agencies can demand more in terms of better maps and data transparency. It is somewhat disingenuous to lay the blame solely at the doorstep of this telecom-front organization when elected officials refuse to demand more from an industry that has long retained legions of lobbyists. Make no mistake, Connected Nation's conflict of interest is a serious problem, but we need our elected officials to stand up to the telecommunications companies and demand better mapping data. We had higher hopes from the NTIA, but clearly that was misplaced.

More recently, Sharon Schmickle of MinnPost wrote about plans for a publicly owned network in Cook County, Minnesota. It touches on the major issues that many communities face when deciding whether to build their own network.

I wanted to add some comments to it that will add perspective to the story - I encourage you to read the whole Schmickle piece because I pick only a few points below to expand upon.

Regarding Cook County's application for broadband stimulus funds, the incumbent phone provider to much of the area (Qwest), has brought a we-won't-build-it and we-won't-let-you-build-it-either attitude. Local businesses and the Forest Service cannot even get a T-1 line (which would offer about 1.5 megabits and would probably cost $800/month give or take $500 depending on Qwest's mood at the time). The phone lines are in such a state of disrepair that dial-up is even slower than average and businesses can go days without any telecom services.

Dana MacKenzie, the information systems director for the County, previously told the MN Broadband Task Force that when the single connection to the area goes down (somewhere on the road to Duluth), all telecom stops up there. No redundancy means no credit card transactions, no 9-11 service, no nothing until the line is repaired. Profit-maximizing companies have little incentive to provide redundancy when residents have no real choice in providers.

Unfortunately, Jack Geller lets these companies too far off the hook. I find Geller, a member of the state's broadband task force, to be a deep-thinking person, so I hope this quote was out of context.

"Whether you agree or disagree with how good a job your incumbent providers are doing, you have to admit that they have invested millions of dollars in your community," Geller said. "Now we are saying we need more, and the government should provide it … should use taxpayer dollars to compete with the private sector."

These companies have not invested millions out of charity - they were originally granted a government-sponsored monopoly to ensure they would be profitable and they have continued to make profits while refusing to invest in better networks (here, I aim my criticism at the large, absentee companies - the smaller independent telcos that are rooted in their communities have continued investing in the community).

As for whether taxpayer dollars should compete with the beneficiaries of government-granted monopolies (though such monopolies ceased to exist, their legacy continues to shape our telecom landscape), I think the answer is muddier than he suggests. Further, most community networks emphatically do not use taxpayer dollars, so the argument is largely academic anyway. Jack and I have previously discussed the role of government competing with the private sector, but that is different from phrasing it as "taxpayer dollars" that are funding the networks - something almost guaranteed to result in a knee-jerk reaction opposing the idea (creating more heat than light rhetorically).

Finally, I think Jack's larger point would be that private companies cannot, even if they were willing, build out the networks that are needed in many rural areas. The costs are too high and returns too low. This is something I agree wholeheartedly on - which is why I find it ludicrous that some still think the private sector is capable of building this essential infrastructure throughout the country without continuing to damage our ability to compete with peer nations. And it remains frustrating that these companies, who will not build the needed networks, have the money and lobbyists to prevent others from doing it.

A final criticism of Shmickle's piece is that I was disappointed to see her treat the Monticello lawsuit as though it had any merit. It was thrown out by every court in Minnesota at the earliest opportunity - the only reason it lasted so long is because we have a massive backlog of cases and too few judges. It was a frivolous lawsuit meant to delay competition and it succeeded. It was an abuse of the justice system that has successfully scared other communities from exercising their legitimate power for fear of being locked in an expensive court battle (is there any other kind?) that would drain their resources despite an inevitable victory. Large companies like TDS have lawyers for this very reason - they probably profited from their court loss due to the delay of more than a year whereas Monticello had to hire representation to respond.

Photo by Jackanapes, used under creative commons license.

In a quick followup, the Minnesota Supreme Court has affirmed the obvious by refusing to review the Appeals Court decision in the TDS (acting as "Bridgewater") v. Monticello case. This means the Appeals Court decision stands; Minnesota cities have the authority to bond for broadband networks. Read our previous coverage of this case here.

When TDS originally sued Monticello, the City had to place the investor money (raised via non-recourse revenue bonds) into escrow for the duration of the case. If the case were not resolved by June 19, 2009, Monticello would have had to return the funds to the investors, leaving it unable to finance the project. Bonding again would have almost definitely resulted in less favorable terms than those achieved before the economic meltdown.

Following the Appeals Court decision, on June 2, 2009, TDS could have had up to 30 days to request review from the Supreme Court. John Baker, an attorney from Greene Espel who represented the City throughout the process, asked the Supreme Court to expedite the review in order to prevent TDS from merely using its thirty days to run out the clock (thus winning the war while having lost every single battle).

Today, the Supreme Court sided with the Appeals Court and an obvious reading of Minnesota law: Minnesota cities are well within their authority to bond for and build broadband networks.

Monticello will immediately start work on the city's publicly owned fiber-to-the-home network. TDS has argued that such a network would now be redundant as they built a fiber network while abusing the courts to stall for time. However, it remains to be seen if TDS is truly connecting all homes with fiber, or is still using copper for that final connection (much like AT&T does in its U-Verse). The top TDS advertised speeds are 25 down and 10 up, which can be achieved with VDSL.

If TDS has truly built a fiber-to-the-home network, Monticello will be the first place in the U.S. with competing full fiber networks. However, I'm not sure that TDS will be able to compete with FiberNet Monticello on some fronts as TDS offers it television via a partnership with a satellite company. Monticello will undoubtedly have more local content and probably better customer service.

Lest you think the court battle is over, Monticello is entitled to recover some of its costs due to the lawsuit. TDS never had a good case, using the courts to delay the City's network by some 362 days or so. However TDS had to post a $2.5 million surety bond at the beginning to ensure it would be able to pay in the event that they lost and Monticello can prove damages. Additionally, TDS still has crafty lawyers that will undoubtedly try again to disrupt the City's network using any means necessary.

Monticello's elected officials and city staff have shown considerable courage throughout this ordeal - refusing to be bullied by their incumbent. Others may have been content to back off once TDS actually began investing in their City (though incumbents have frequently made promises under the threat of competition that they never made good on). It certainly would have been the easier path. But they held strong, backed by the 74% positive vote on the referendum to build the network.

Thanks to them, all Minnesota communities now have a court precedent to strengthen their resolve if they decide a publicly owned broadband network is necessary for their vitality in the 21st century.

TDS used the courts to blunt competition, creating an entire year they could use to entrench themselves. Monticello has lost a year and will now have to modify its business plan in light of the changed market. At least the citizens of Monticello will soon have a choice - the publicly owned FiberNet Monticello or a beefed-up TDS network at discounted prices (which would not have existed absent FiberNet Monticello).

Monticello, a small town in Minnesota just outside the metro area, once again prevailed in court against frivolous charges from TDS Telecom, the incumbent telephone provider (doing business as Bridgewater in the court case).

Monticello, after learning that neither TDS nor Charter were interested in building a modern broadband network in the community, spent years studying the issue and eventually opted to build their own network. After the city secured revenue bonds to pay for the project in spring 2008, TDS began a campaign to delay the network -- a tactic commonly used against community broadband networks across the country.

They filed a lawsuit they could not win, but it prevented Monticello from starting the network. While they waited on the court date, Monticello lost the construction season and investor money sat in escrow. Despite winning court victory after court victory, the citizens of Monticello are unable to build the network they voted for with a stunning 74% yes on the referendum.

When the lawsuit was dismissed from district court, TDS waited as long as possible before appealing the decision in fall 2008. Due to the overburdened and under-staffed courts, the Court of Appeals took another half year to rule. Today, the Court handed down the judgment, finding in favor of Monticello:

Therefore, based on a plain and obvious interpretation of the term "public convenience" and the general intent of the legislature to promote telecommunications, the district court did not err in dismissing the action for failure to state a claim.

Regardless, even if this court were to accept Bridgewater‘s reading of the statute, the Fiber Project arguably qualifies as a utility or utility-like project. A Minnesota statute generally restricting the ability of Minnesota municipalities to issue bonds for projects outside of their jurisdiction provides an exception for bonds issued to finance property for "municipal public utilities." Minn. Stat. § 471.656 (2008). That same statute defines "municipal public utilities" as "the provision by a municipality of electricity, natural gas, water, wastewater removal and treatment, telecommunications, district heating, or cable television and related services."

The main question that remains is this: will TDS find it more profitable to appeal again and delay the inevitable competition? Our courts are overburdened enough, wasting the Court's time with frivolous lawsuits that are nothing more than a delaying tactic is frustrating.

Now more than ever, we need to prevent deep-pocketed incumbents from using the courts to stifle competition. If we let these companies act in bad faith 100 years ago, we would still be trying to electrify the country.

Update: Ars Technica has covered this story and included this:

Drew Petersen, who heads up corporate communications for TDS, was predictably disappointed with the ruling. "The Appeals Court decision sends a chilling message to the private business community operating in the state of Minnesota. The decision will likely discourage other private enterprises from doing or expanding their business in Minnesota."

Drew Petersen is 100% wrong. As the actions of his company demonstrate, a community that takes responsibility for its future encourages investment. Monticello's actions resulted in significant investments from TDS - which previously probably could not locate the city on a map of the communities they serve. While TDS has thus far been able to use the courts to prevent competition, the mere threat of competition has forced TDS to improve its services in Monticello.