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TDS Ups Ante in Monticello with Predatory Pricing

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By christopher on October 29, 2009

Monticello Minnesota, the small community located 40 miles northwest of the Twin Cities, recently returned to the news when its telephone incumbent, TDS, began offering a fast 50/20 Mbps residential broadband connection for $50/month.

Nate Anderson, of Ars Technica, covered both the story and backstory (something he has extensively reported).

But the entire congratulatory press release glosses over a key fact: the reason that Monticello received a fiber network was the town's decision to install a municipal-owned fiber network to every home in town… spawning a set of TDS lawsuits that went all the way to the Minnesota Supreme Court, which ruled in favor of the town.

I might also note that the press release and much of the coverage also glosses over a one-year contract and early termination fee (though it isn't clear if this is applied in all circumstances). However, Nate nails the story by framing it with the title "Want 50Mbps Internet in your town? Threaten to roll out your own."

We spoke to TDS about the situation last year, and its director of legislative and public relations told us that TDS didn't act earlier because it didn't actually know that people really, really wanted fiber; once the referendum was a success, the company moved quickly to give people what it now knew they wanted.

Of course, TDS did not start rolling fiber after the referendum. They waited. It was only after the City successfully bonded for the project that TDS acted (first by filing a lawsuit to block competition and second by investing in their network to be competitive when the doomed lawsuit would inevitably be dismissed). TDS did not change course because they suddenly realized that people wanted better broadband, they did it because they knew that they would have to invest or perish when confronted with actual competition.

Nate's article looks at other communities that have followed a similar trajectory. This story seems to have inspired another excellent post by Phillip Dampier at Stop the Cap: Municipalities: If You Threaten to Build It Yourself, Your Faster Speeds Will Come.

I take some issue with the title - hollow threats are rarely enough. While the threat of competition may be enough, in some circumstances, to temporarily boost investment from incumbents, only actual competition will ensure that investment continues and rates remain affordable.

Karl Bode picked up on the story which led to some interesting posts in the comment section ... especially toward the bottom when other TDS customers weigh in on their inability to get broadband at any speed. I have to fully agree with this commenter:

This might be one of the few instances when I feel a telecom did the wrong thing by offering FTTH. If TDS actually cared about being providing faster and better service to their customers they would be wiring cities that don't have a FTTH alternative.

After fighting, delaying and losing FTTH all in an attempt to maintain their monopoly, TDS has developed a new strategy. Undercut muni FTTH till it fails. They can subsidize FTTH in monticello with money from the rest of their network. As soon as muni fiber fails they can shut down or raise price of their own fiber network.

Maybe I'm wrong. Maybe Monticello MN population 10,000 (very rural) is such as lucrative market that TDS is a visionary by offering FTTH. That must be why verizon wires only rural cities and sells off urban and suburban ones. [sarcasm noted]

The commenter goes on to note that if people continue signing up with TDS (after overwhelmingly supporting the referendum to build the network), they will suffer from the fallout of not being able to pay off the revenue bonds and TDS will resume its poor practices if competition ceases.

fnm-prices.pngThough TDS grabbed headlines with its bold (read: predatory) 50/20 offering, Monticello Fibernet is no slouch. See prices on right - no contracts, no "introductory" prices, and all connections are symmetrical. Some have asked me how Monticello will respond to the new pricing and speeds from TDS and I do not know the answer.

I think it important to note that Monticello owns the network, but the network is operated by, and services offered by Hiawatha Broadband Communications, not the municipal government. Though HBC (a company out of SE MN with a great reputation for customer support and meeting community needs) is far more responsive that the incumbents, Monticello has different constraints upon it than most community fiber networks where the services are offered by the network owner.

TDS-fiber.pngMeanwhile, this graphic from the comments of Karl Bode's DSL reports story reveals a fundamental truth: Monticello citizens have a unique opportunity. No one outside the community has access to faster speeds or lower prices. They have the deal with same annoying practices where the user very rarely achieves the advertised speeds and price spikes following the "introductory" period. Further, many of the DSL packages require a phone package as well, making prices higher than advertised.

Link: 
Monticello Times on award presentation to Monticello Fibernet
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News Cut Blog from Minnesota Public Radio

Ranking Broadband Stimulus Applications in Minnesota

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By christopher on September 11, 2009

Our focus on the broadband stimulus is almost entirely on last-mile infrastructure because it is the most challenging and expensive problem to solve before all Americans will have affordable access to the broadband networks they need in the modern era. As we are most familiar with Minnesota, we decided to take an in-depth look on who is proposing what projects in our state.

Total Infrastructure Grants Requested for Last Mile solely in MN: at least $240 million
Total Infrastructure Loans Requested for Last Mile solely in MN: at least $85 million

Groups seeking stimulus funds to deliver last-mile broadband access in Minnesota have asked for hundreds of millions of dollars. By my tally, some 17 applicants are seeking to serve Minnesota with last-mile access (I threw out applications pertaining to middle mile infrastructure, digital divide, and those last-mile projects that combine Wisconsin and North Dakota areas) have requested some $240 million in grants and $85 million in loans.

If one assumes that the total amount of money is divided evenly among the states, this is somewhere around 3x as much stimulus money that will be awarded to Minnesota applicants over the course of the multiple rounds of funding.

At some point, this list will have to be winnowed and prioritized, so let's delve into it. All applications still must survive the peer review process (ensuring they met NTIA/RUS requirements), the incumbent challenges (incumbents can veto applications by showing that targeted areas already have broadband advertised to them), and the prioritization of surviving projects by each state (no one seems sure of how this will happen in Minnesota, our Governor is too busy not running for President in 2012).

There are two applications that should be jettisoned immediately, Arvig Telephone Company and Mid-State Telephone Company, both of which are owned by TDS Telecom. [Update: I have now heard conflicting reports on whether Arvig is, in fact, a subsidiary of TDS]

When NTIA formulated the stimulus rules, it ignored Congressional intent by allowing any private company to apply despite the requirement that the company act in the public interest.

Though NTIA ignored the intent of Congress, states like Minnesota should absolutely use that criteria in deciding how to rank projects. You may recall that TDS Telecom filed a frivolous lawsuit against the city of Monticello, which was tossed out of court at the earliest opportunity, but TDS continued obstructing the community's plans until the company ran out of appeals (our coverage here. TDS Telecom abused the court system by using it to delay a network approved by 74% of voters for more than a year in an attempt to prevent competition in the community. Few companies have abused the public trust more egregiously; they should be prohibited from receiving public money.

Further, government grants should certainly not be given to such a profitable company in order to expand their slow DSL services rather than offering the higher speeds that are needed by communities in 2010 and beyond.

Minnesota should prioritize publicly owned networks when it comes to public dollars. Unlike networks run by absentee network owners, these networks are directly accountable to the citizens of the community. Thus, projects like Lake County, Cook County, and City of Windom should all be front-runners. These grants are expensive in the short term, but they are investing in a technology that will last decades, rather than already-obsolete DSL. Rural Minnesotans need broadband, but extending speeds that already lag behind needs is not a wise use of public money.

Other smart projects that will deserve a hard look are the cooperatives that have applied - they have been borrowing from the federal government for years to extend state-of-the-art fiber networks to rural communities. Unlike companies like TDS and Qwest, they find it economical to bring fast and affordable access to their subscribers because they put community needs before profits. This is a model that needs to be expanded in rural areas.

Finally, we also support the applications of Donny Smith in several areas - his Jaguar Communications company runs an open network, allowing competitors to serve the community (again, something that other private companies avoid in order to maximize profits). He is working in several Minnesota regions to build fiber-to-the-home networks.

Basic Information about some MN Broadband Grant Applications available here - apparently, this does not include all applications aimed at Minnesota, but just applicants based in Minnesota.

Photo by Jackanapes, used under creative commons license.

Community Broadband in July/August Broadband Properties Magazine

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By christopher on August 26, 2009

The July/August issue of Broadband Properties features a number of stories relating to community broadband. Editor Masha Zager explains how the stimulus rules hurt communities:

The NOFA explicitly calls 768/200 Kbps broadband “sufficient access to broadband service to facilitate rural economic development,” but how many jobs will this kind of broadband really attract to a depressed area? How many new services can service providers sell over such networks? Will the networks support public needs for distance education or health care? And how long will it be before the equipment has to be replaced? In the words of a rural telco manager I spoke with recently, “You want to put money into something long-term if you’re going to start building networks. Don’t build something you’ll have to throw away in two or three years.”

Steve Ross takes a look at two networks in Minnesota - the much discussed Monticello FiberNet and a proposed network in Lake County (see Lake County Fiber Network Project FAQ):

Lake County is a rural area in northeastern Minnesota. Its planned network requires 800 miles of fiber to more than 7,300 homes and 500 businesses – every premises in the area that has electricity or telephone service now. It’s the first project of National Public Broadband (www.nationalpublicbroadband.org), a nonprofit helping communities develop and operate municipal fiber networks. NPB’s CEO is Tim Nulty, director of the ECFiber project awaiting funding in Vermont.

Steve discusses the crap that TDS is pulling to again prevent competition in Monticello. Despite being laughed (albeit slowly) out of court in their attempt to stop the city from building a fiber network, they are now attempting to incite a bondholder lawsuit by spreading more FUD (fear, uncertainty, and doubt). Interestingly, Steve suggests that TDS' numbers do not add up and that they are advertising fiber services while offering advanced DSL (not that any other private companies have similarly lied).

Finally, I recommend "Texas School District Delivers Online Learning Over Fiber." This is another why-rent-when-you-can-own story. Just as many other schools districts have found, they should own the networks rather than lease circuits from private providers. It results in better services at lower prices.

Ultimately, the economic inefficiency of leasing fiber, the anticipation of more bandwidth-intensive interactive learning programs and the proposed expansion of the number of network endpoints led the school district to investigate implementing its own fiber infrastructure. In addition to saving the cost of leasing lines, building its own fiber network enabled the district to have complete control over its network.

However, these networks should be built as part of a larger plan. It hardly makes sense for the schools to pay for an entire network that will likely overlap the network other community institutions needs. Therefore, these networks should be built in conjunction with a larger publicly owned network to ensure the entire community can benefit.

Monticello Lawsuit Saga Over; MN Supreme Court Declines Review

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By christopher on June 16, 2009

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).

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FiberNet Monticello
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