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Monticello Fiber Price War Offers Key Lessons for Broadband Competition

Monticello Minnesota may be located 40 miles outside Minneapolis, but it is the center of the planet when it comes to FTTH competition. We have tried and cannot identify another community localed on planet earth with two separate FTTH networks going head to head across the entire community.

We have long written about Monticello, most recently to look at hypocritical criticism of the project (which gives me an opportunity to note a similar dynamic in Lafayette, Louisiana). And we have covered the disappointing news that the network has not produced enough revenue to make full bond payments.

Short explanation for how Monticello came to be unique in having two FTTH networks: Monticello had poor Internet access from Charter and telephone company TDS. Each refused to invest after local businesses and elected officials implored for better networks. Monticello started building its own FTTH network (Monticello FiberNet) and TDS sued to stop the project while suddenly decided to upgrade its slow DSL to fiber. Lawsuit was tossed out and Monticello finished its network.

In most community fiber networks, the DSL provider seems to fade away because it cannot offer the fast speeds of fiber or cable, so the market basically remains a duopoly with the community network replacing the telephone company (which continues to offer cheap, slow DSL to a small number of customers). But in Monticello, Charter and TDS engaged in a price war, which has really hurt the City's ability to generate enough revenue to pay its debt.

Price wars are very hard on new market entrants because they have to amoritze the cost of their investment whereas the incumbents often have already done so. This means incumbents can almost always offer lower prices if they are determined to do so.

In many communities, we have lacked clear evidence of predatory pricing - that is pricing below the actual cost of service to run competitors out of business. This would violate federal law (if any agency bothered to enforce it). Charter gave us that evidence in Monticello.

Since then, the deals have remained amazing in Monticello, far surpassing what cable-funded crazy people in DC pretend is competition between DSL and cable in the majority of the country.

TDS is now offering a deal that far surpasses anything available in the Minneapolis/Saint Paul metro - over 190 channels (including DVR and HD), 50 Mbps Internet (50 down, 20 up I believe), and telephone for $70/month for one year with no contract. The price goes up after year one, but doesn't go back to full price until after year 2 ... at which point you will likely get another deal if there are still more than 2 high speed choices in the market.

TDS Advertisement

TDS is also regularly running full page advertisements regularly in the local newspaper. How many local newspapers would love to see regular big-ad buys like this one? If enough communities build networks, perhaps the resulting advertising bumps will help local newspapers stay in print!

Charter has gone beyond newsprint and static billboards with a big truck advertising Monticello residents a free DVR that will save them $650/year (which is phrased in a way that makes you think they are charging WAYYYY too much for DVRs!).

Charter Advertising Truck

These advertising strategies are in addition to many door-to-door sales people from both TDS and Charter. Both are boosting local employment opportunities for these sales people far beyond what they would do absent Monticello FiberNet.

Existing Charter customers outside of Monticello might be interested in how cable promos in Monticello compare to in their communities where there is no real competition for the cable giant. Here is an 8 page glossy advertisement they have been using [pdf].

Charter is also going after small businesses with a 30 Mbps asymmetrical package for $55/month when bundled with business phone. I can only imagine how many businesses in areas without a real choice would like that deal.

Monticello FiberNet Biz Services

Charter Small Biz Advertisement

However, the Monticello FiberNet business service is far superior, particularly as it is symmetrical and fast upstream makes a huge difference for local businesses. Business services from the city owned FiberNet starts 10 Mbps symmetrical at $41.95 and the list sheet tops out at 100 Mbps for $350/month.

Update: Fibernet Business Services prices have decreased on the faster Internet connections. 30 Mbps symmetrical is $99/month and 100 Mbps symmetrical is $199/month.

We don't have enough information to compare what it would cost a business to connect multiple sites with point to point gigabit links, but we would guess there could be more than $1,000 savings each month from such a service based on FiberNet pricing vs Charter or TDS.

Going through all these deals, a few things have become apparent.

First, DSL and cable are not engaged in real competition. Adding a third player really changes the market in ways that satellite and 4G wireless Internet do not.

Second, most of the competition from the big corporations is aimed at taking subscribers from rivals by temporarily lowering prices rather than attempting to keep their own subscribers happy with their services. Most of the deals are only available to new customers, incentivizing households to regularly switch providers, which is costly to all competitors (churn). Community owned networks by contrast tend not to offer these short term promo deals and invest in keeping existing subscribers happy.

Third, the strategy of TDS and Charter would not be possible if they were not cross-subsidizing from distant, non-competitive markets. They may not be losing money on all the customers that take these deals, but the increased marketing costs and extremely low priced deals are aimed at driving a competitor from the market, not at merely preserving market share. Their ability to cross-subsidize (and the initial frivolous lawsuit) have damaged Monticello's business plan to the point where it has had to transfer public funds from the liquor store and negotiate with bond holders over a significant haircut.

And finally, whatever this network may end up costing city taxpayers, it will likely be less than the savings from all of these lower prices and indirect benefits such as not losing employers that could not be competitive when only having last-generation Internet access from unreliable DSL. That doesn't help the City to make its debt payments, but it sure makes Monticello a better place to live.

WindomNet Creates Jobs, Benefits for SW Minnesota - Community Broadband Bits Episode #64

The small town of Windom in southwest Minnesota has long been one of the smallest FTTH networks in the nation. I have long wanted to bring WindomNet General Manager Dan Olsen on our show because it has some of the best anecdotes in the world of community owned networks. We finally got him!

To understand WindomNet, you should know that it has fewer households than what many of us consider to be the minimum threshold for a viable triple-play FTTH network. Not only have they made it work, they have attracted numerous employers to town, as our interview discusses. It also kept a local employer located just outside of town in the area after a massive telelphone company operating in Minnesota found itself unable to provide the service that business requested. Tiny Windom ran a fiber out to the business and kept them in the region.

The network has expanded to nearby farm towns with the help of a broadband stimulus award. Even now, after bringing connections to a rural region that the big providers have largely ignored,
the big cable and CenturyLink lobbyists that live in the capital in Saint Paul have relentlessly lied about Windom, calling it a failure and presenting skewed figures to suggest the investment had not succeeded.

In our discussion, Dan and I explore the reality of WindomNet and how it is benefiting a much larger region beyond its own borders. Read all of our coverage about Windom here.

We want your feedback and suggestions for the show - please e-mail us or leave a comment below. Also, feel free to suggest other guests, topics, or questions you want us to address.

This show is 18 minutes long and can be played below on this page or subscribe via iTunes or via the tool of your choice using this feed.

Listen to previous episodes here. You can can download this Mp3 file directly from here.

Thanks to Break the Bans for the music, licensed using Creative Commons.

Countering Crazy Talk, Volume 3, for Episode #62 of Community Broadband Bits Podcast

Lisa Gonzalez and I are back with another back and forth reaction to some of the crazy claims made by opponents of community owned Internet networks. This is something we started with Episode 50 and continued in Episode 55.

For volume 3 of our Crazy Talk series, we address some recent claims made in opinion pieces, including the obviously-written-by-a-lobbyists op-ed in the Baltimore Sun and signed by Maryland State Senator Pugh.

We talk about claims that Chattanooga has failed (in which we recommend you go back to listen to episode 59 - our conversation with Chattanooga.

We dissect the claims that the US already has robust competition and that having several 4G wireless networks in any way impacts the wireline cable and DSL the vast majority of Americans are stuck with it.

And finally, we talk about Provo and why it is suddenly the most cited network by those opposing community owned networks.

We want your feedback and suggestions for the show - please e-mail us or leave a comment below. Also, feel free to suggest other guests, topics, or questions you want us to address.

This show is 20 minutes long and can be played below on this page or subscribe via iTunes or via the tool of your choice using this feed.

Listen to previous episodes here. You can can download this Mp3 file directly from here.

Thanks to Break the Bans for the music, licensed using Creative Commons.

Locally Owned Networks Protect Privacy and Limit Consumer Surveillance

Since the story broke about the NSA domestic spying practices, debate among concerned citizens has revolved around the Big Brother surveillance model. Most of us shudder at the thought of our federal agencies from DC watching, noting, and recording our actions. However, there is another type of Internet surveillance that largely escapes notice and likewise threatens our liberty. 

Both types of surveillance are perversely encouraged by a poorly regularly market that allows big corporations to profit from violating our privacy.

We have long known that our online habits are being recorded and combined with other personal data that allows companies to show us personalized ads. But Free Press recently offering a compelling explanation for how this model can harm us. From the Dana Floberg article:

And about those “personalized ads” — this isn’t about Facebook learning you prefer Coke over Pepsi. This is about corporations targeting us where we’re vulnerable. This is about your Latina neighbor who sees ads for risky high-interest credit cards. This is about your cousin who just got laid off and now sees ad after ad selling him dangerous fast-cash offers and subprime mortgages. This is about your friend who lives in a rougher part of town and sees higher prices whenever he shops online. This is about all of us.

These ads aren’t personalized — they’re predatory.

Floberg goes on to describe how shopping sites alter prices based on income and location so more affluent shoppers can access better prices and coupons. These sites both use and reinforce stereotypes as they take advantage of the most vulnerable in our society.

Without laws to protect consumers, there is little we can do to stop this predatory behavior. Just as the market encourages corporations to violate our privacy to sell its goods, big corporations are also profiting in their work with law enforcement at all levels.

An AP article by Anne Flaherty notes that AT&T charges $325 to activate a wiretap and $10 per day to maintain it. Verizon charges the government $775 for the first month and $500 per month after that to continue it. It is hard to believe these charges are in line with actual costs. 

Meanwhile, the other massive providers are undoubtedly aware of what allegedly happened when Qwest CEO Nacchio refused to help the NSA illegally spy on Americans - the NSA cancelled a lucrative contract with Qwest. This provides a major disincentive to follow the law, particularly when they can expect retroactive immunity after violating the law for years.

What would become of any provider who dared to say "no" to the NSA? We found out when Xmission, serving consumers via UTOPIA said "no" - absolutely nothing happened. No fearful complicity at local Xmission. Xmission is focused on serving its customers, not Wall Street.

Massive corporations collect information from millions of customers; the more data, the higher the value. Even if a municipal network tried to collect and sell private data, the opportunity to profit would be limited because their reach is localized. 

Community owned networks, whose focus is on serving the community rather than maximizing profit, have no reason to collect and sell data. In fact, it is a revenue source to avoid. With a local customer base and more accountability, selling data would violate the trust that gives their brand a competitive edge. When it comes to protecting privacy, supporting smaller scale providers that are rooted in the community is a far better protection than anything Washington, DC, can or will provide.

AT&T and American Eagle spying image created by the Electronic Frontier Foundation and available via Wikimedia Commons.

No High-Speed in Manchester: European Commission Rules Preempt Local Authority

Though we often discuss some of the ways European nations have surpassed the U.S. in Internet network investment, they also have some counter-productive rules that limit investment. The Manchester Evening News recently published an article about a plan to bring high speed Internet to a deprived area of 30,000 homes where access is either slow or absent. From the article:

European rules ban public subsidy being used to fund infrastructure where – in theory – a company could roll it out instead.

The Manchester Council planned to use public funding to bring the homes into the 21st century, but the European Commission blocked the plan. Because Internet providers say there is not enough demand for broadband access in the areas, they are not compelled to build there.

Sound familiar?

“Part of this involves trying to address the digital divide which means that some parts of Manchester have little or no high speed broadband coverage because commercial internet service providers, such as BT, Virgin and Talk Talk and others, claim there is not enough demand. We have tried hard to address this but it has become clear that Europe-wide regulations mean our hands our tied and we cannot help provide connections where the private sector is able, but not willing, to do so," [said Manchester Coun Nigel Murphy].

This serves as a reminder that Europe also has a variety of bad policy approaches that privilege massive corporations over local authority. We hope to see people there step to defend their rights to be locally self-reliant.

Responding to More "Crazy Talk" - Community Broadband Bits Podcast #55

Following up on our first "Responding to Crazy Talk" episode last month, we decided to publish a second edition this week. Again, Lisa Gonzalez and I respond to real arguments made by those who oppose community owned Internet networks.

Today, we used three arguments from a debate in 2011 that included myself, Jim Baller, Jeff Eisenach, and Rob Atkinson. We chose three arguments from Rob Atkinson for this audio show but strongly recommend watching the entire debate as it examines these issues from more perspectives.

We deal with the term "overbuilding" and competition more generally to discuss how these arguments are quite detrimental to the best solutions for expanding access in rural areas.

The second argument is the classic one that it is simply harder to build networks in the U.S. because we are such a large, spacious country and that statistics from other countries are misleading merely because they are smaller or more dense.

And the final claim is that subscribers are generally happy with what they have and do not need faster connections.

Let us know if you like this format and what questions we should consider the next time we do it. We want your feedback and suggestions for the show - please e-mail us or leave a comment below. Also, feel free to suggest other guests, topics, or questions you want us to address.

This show is 20 minutes long and can be played below on this page or subscribe via iTunes or via the tool of your choice using this feed. Search for us in iTunes and leave a positive comment!

Listen to previous episodes here. You can can download this Mp3 file directly from here.

Thanks to Eat at Joe's for the music, licensed using Creative Commons.

Muni Network Debate in Charlotte Observer

In a recent op ed in the Charlotte Observer, Christopher Mitchell delves into why North Carolina ranks last in per capita subscribers to a broadband connection. The state, through its legislature, is held hostage by large providers such as Time Warner, CenturyLink, and AT&T. David Hoyle, a retired Senator who admitted pushing bills written by Time Warner Cable, signed his name to an op-ed arguing cities should not have the authority to make their own decisions in this regard.

Readers know that Time Warner and CenturyLink (formerly EMBARQ) targeted Wilson's Greenlight, leading to restrictive barriers for any similar initiatives. In his opinion piece, Chris delves into how those providers create an environment that kills opportunity for the people of North Carolina and how local publicly owned networks could restore those opportunities.

The Observer edited the original piece for length, but we provide the full version:

If you think you’re being ripped off by the cable and telephone companies, you aren’t alone. These companies rank at the top of the most hated corporations in America, year after year. Given a recent report from the Federal Communications Commission, North Carolinians have more reasons to be angry than most Americans.

Released last month, the FCC’s annual Internet Access Services [pdf] report shows North Carolina last among U.S. states in percentage of households subscribing to high-speed Internet connections as defined in the National Broadband Plan. 

seal-north-carolina.jpg

This news comes on the heels of State Representative Brawley announcing that House Speaker Tillis told him he had a “business relationship” with Time Warner Cable after Brawley introduced legislation opposed by the cable giant. But one alleged relationship does not explain how North Carolina fell to last place in that FCC ranking.

The deeper problem is power Time Warner Cable, AT&T, and CenturyLink have at the General Assembly. These companies successfully lobbied for two flagship bills that increased prices, limited competition, and generally hurt consumers and businesses throughout the state.

Back in 2006, the General Assembly bowed to industry pressure and passed a bill for statewide video franchising. Local governments lost their right to oversee companies offering television services or require them to build out to everyone. North Carolina was promised a new age of cable competition and lower prices.

Prices continued to rise – a 2009 study from the University of Minnesota actually noted that North Carolina’s prices were among the fastest rising in the nation. But even now, most families still have the same limited options for cable and Internet service.

Fed up and recognizing that the cable and phone giants would never allow competition to prosper, the City of Wilson took matters into its own hands by building its own next-generation fiber optic network. Completed by 2009, the network has been a success and Wilson is the first community in North Carolina to have universal access to a gigabit – about 100x faster than cable speeds.

Time Warner Cable, AT&T, and CenturyLink lobbied against Wilson from the start and engaged in a multi-year effort in Raleigh to revoke the authority of any local government in the state to build a similar network. For five years, they worked with the now infamous ALEC, the American Legislative Exchange Council, to push bills that would effectively ban local governments from building networks.

Follow the Money Logo

In 2011, the new Speaker of the House, Representative Tillis, ushered just such a bill through the House after receiving $37,000 from the telecom companies in the previous election cycle. Though he ran unopposed, he received significantly more from that industry than any other candidate, according to a  report from the National Institute for Money in State Politics called “Dialing up the Dollars.”

Strictly speaking, the bill was not technically a ban. We call these “leprechaun-unicorn bills” because a local government effectively has to find a leprechaun riding a unicorn to meet the standard necessary to build a network.

What it really did was revoke local judgment for state authority – something Republicans regularly decry in other circumstances. Opponents of the bill consistently argued that these decisions should be made at the local level, by those who will live with the consequences for better or for worse.

These two bills are essential to understanding why North Carolina has such poor access to the Internet and ever-increasing cable prices. Consumer protections typically come from the market (competition) or government (regulation). But these big companies are too powerful for other private companies to compete against and local governments have no regulatory power to protect consumers. Big cable and phone companies have little fear of competition and little motivation to invest in regionally or globally competitive upgrades.

The Institute for Local Self-Reliance is tracking over 400 local governments across the nation that have invested in telecommunications networks and very few have regretted it. Just outside North Carolina, the cities of Bristol, Chattanooga, Danville, and a few others offer some of the fastest network connections at the lowest prices in the entire United States. If even 10 percent of these networks actually were failures, cable lobbyists wouldn’t have to spend millions lobbying states to revoke local authority to build them.

The General Assembly should return authority to local communities and trust them to make decisions. But as long as big cable and phone companies maintain their “business relationship” with elected officials, you can expect to see more decisions made in Raleigh rather than at the local level.

For the whole story on the war against Greenlight, you can download a copy of our case study, The Empire Lobbyies Back: How National Cable and DSL Companies Banned The Competition in North Carolina.

Responding to "Crazy Talk" - Community Broadband Bits Episode #50

For our 50th episode, we're trying something new: Lisa and I respond to three common claims made by opponents of community owned networks. We owe these three particular arguments to the Executive Director of the trade association of Wisconsin telephone companies. Each of the clips we respond to come from claims he made at a workshop at the 2012 WiscNet conference.

We play a short claim by him and then Lisa and I respond to it. For this show, we look at claims that telephone companies already serve everyone with broadband, that the rapid iteration of mobile phone technology delegitimizes public sector investment in networks, and that public investment "crowds out" private investment.

These are very common arguments offered every time a community considers building its own network, but they are quite weak. As Joey Durel, Mayor of Lafayette, so often reminds us, the big companies don't win by having good arguments. They win by buying steaks and football tickets -- lobbying. Campaign contributions help too.

At any rate, let us know if you like this format and what questions we should consider the next time we do it. We want your feedback and suggestions for the show - please e-mail us or leave a comment below. Also, feel free to suggest other guests, topics, or questions you want us to address.

This show is 12 minutes long and can be played below on this page or subscribe via iTunes or via the tool of your choice using this feed. Search for us in iTunes and leave a positive comment!

Listen to previous episodes here. You can can download this Mp3 file directly from here.

Thanks to Eat at Joe's for the music, licensed using Creative Commons.

Accusation of Corruption in Favor of Time Warner Cable in North Carolina General Assembly

Veteran North Carolina legislator Rober Brawley resigned as Chairman of the state Finance Committee, reports local WRAL. According to WRAL's @NCCapitol blog, the Republican from Iredall read his resignation letter during a recent floor debate. He criticized Speaker of the House Thom Tillis, questioning Tillis' ethics and accusing him of special legislative favors specifically for Time Warner Cable.

One bone of contention was a bill introduced by Brawley to expand the service area for the municipal cable network MI-Connection in Mooresville. From the letter as quoted in the article:

"You slamming my office door shut, standing in front of me and stating that you have a business relationship with Time Warner," Brawley wrote. "MI Connections is being operated just as any other free enterprise system and should be allowed to do so without the restrictions placed on them by the proponents of Time Warner."

Stop the Cap covered the background of that bill in its article about this accusation:

House Bill 557, introduced by Brawley, would have permitted an exception under state law for the community-owned MI Connection cable system to expand its area of service to include economic development sites, public safety facilities, governmental facilities, and schools and colleges located in and near the city of Statesville. It would also allow the provider to extend service based on the approval of the Board of County Commissioners and, with respect to schools, the Iredell County School Board.

In 2010 - 2011, Tillis received $37,000 from the telecommunications industry including a $1,000 contribution each from AT&T, Time Warner Cable, and Verizon. At the time of the contribution, Tillis had already won an election in which he ran unopposed and session was just about to start. He is a darling of ALEC, the American Legislative Exchange Council which exists to help corporations rewrite state laws in their favor.

Shortly thereafter, lawmakers passed HB 129 and created insurmountable barriers for local communities interested in building publicly owned telecommunications networks. Other Republican lawmakers who supported the bill received significant contributions from the same clique. We now know Tillis is willing to honor his "business relationships."

Brawley is no stranger to controversy. He introduced a bill this session that would have eased many ethics reforms passed in recent years. Included in the proposed changes was a repeal on a ban of gifts from lobbyists and relaxing requirements that lobbyists disclose those gifts. Earlier this year, Brawley stated to an @NCCapitol reporter:

"I believe in the integrity of people, including legislators and, in over 30 years of serious involvement, have not seen any situation that these [ethics] laws would have prevented or improved."

For those of us who have watched the way Time Warner Cable and others have corrupted the political process in many states, these allegations come as no surprise but are noteworthy for who is making them and the specific allegation of a "business relationship" between Time Warner Cable and the Speaker of the House.

Government Funded Interstates and Fraud

In the coming years, we will continue to see groups and elected officials funded by the big cable and telephone companies try to delegitimize any public sector investment in Internet networks. We have already endured a year of mostly-frivolous charges against BTOP and BIP stimulus programs. At times like this, it may be helpful to look back to other times in history when the federal government engaged in a new program to build essential infrastructure.

This comes from Earl Swift's excellent The Big Roads: The Untold Story of the Engineers, Visionaries, and Trailblazers Who Created the American Superhighways. Please buy it at a local bookstore, not from Amazon.

In fact, the committee did turn up some rotten business. In New Mexico, investigators found that contractors ran roughshod over road officials, exhibiting "open contempt" for construction specs and quality controls as "a continuing course of conduct over a period of almost ten years." They got away with it, Blatnik's people found, because the state didn't know enough to object; its highway department was managed by unskilled laborers who had been advanced up the ranks without a lick of training. Some state men testified that they didn't know how to test roadbed materials, so they OK'ed all that came before them. Their boss admitted he wasn't schooled on how to do this work until after it was finished. The committee discovered on stretch of highway that was in the act of collapsing even as New Mexico officials signed off on it.

The bureau stopped payments to New Mexico until it got itself together, and did the same to Massachusetts and Oklahoma.

There will be mistakes and we will undoubtedly find a case of fraud or two. That doesn't mean the government shouldn't be making these essential investments. And don't even get me off on all the far worse shenanigans of big private companies... Adelphia and Qwest are toward the top of that list.