A Closer Look at FiberNet Monticello

Monticello has been all over the muni broadband news lately, in the wake of a letter it sent to bondholders [pdf] alerting them that the City would no longer make up the difference between the revenues produced by the system and the debt payments. This came shortly after the company managing the network decided to step down.

Over the next year, the reserve fund will make up the difference while the City and bondholders come to some sort of an agreement.

The Star Tribune today published a good synopsis of the situation:

City administrator Jeff O'Neill said that the city has no intention of abandoning FiberNet's 1,700 customers, including about 130 businesses.

"This system isn't going anywhere," he said. "We're not going out of business."

Despite the problems, he said the city has one of the fastest Internet systems in the country that has driven down prices and improved services by providing competition.

The article also notes that prior to the City-owned network, the telephone company (TDS) provided very poor DSL service that was harming area businesses with slow and very unreliabile phone and broadband services. Without FiberNet Monticello, we don't know how many businesses would have been forced to relocate to be competitive in the digital economy.

We decided to dig a little deeper to get a sense of what Monticello has received for its investment and difficulty. We previously examined the prices charged by Charter cable in town and found that households taking that deal were saving $1000/year.


We also noted that Charter was almost certainly engaging in predatory pricing. After talking with other networks, we would guess that Charter is losing between $30 and $50 (conservatively) per subscriber per month. Charter is literally losing hundreds of dollars each year for every subscriber that takes the offer in its bid to run the City network out of business. It can do this for years by subsidizing from other markets where they do not face real competition.

Prior to FiberNet Monticello, Charter was the lone local cable provider and served most of the market. In response to competition, cable providers rarely change listed prices but instead individually negotiate lower prices with households or run much longer promotional offers. If we assume that only 20% of Monticello households have benefited by lower prices (either by switching to FiberNet Monticello or by getting a lower rate from Charter), that is 1000 households. Some of those households took the predatory pricing deal, resulting in extraordinary high savings but most probably saved less. Let's assume the average household savings was only $20/month, or $240/year. Spread over the 1000 households, the savings to the community is conservatively $240,000/year. Of course, that doesn't put a value on the iPads or HD TVs that Charter has been giving away as promotional items for new customers.

TDS had a de facto monopoly on telephone until the city began offering services (Charter still does not offer telephone). When presented with another choice, TDS cut its telephone rates almost in half - from around $40 for local service to $25. The City offers telephone service for less though it has more features. If TDS had not cut its price in response to the community network, the community would have paid more than $1 million in extra telephone charges by now (assuming Monticello still subscribes to landline telephone at the same level as the rest of the nation). And again, that puts no value on the additional services or the much larger "local" calling area used by FiberNet Monticello.

Now we come to broadband. TDS offers faster broadband services in Monticello than any other Minnesota community, nearly all of whom are stuck with slow and unreliable DSL. In Monticello, TDS invested in a much better network capable of FTTH in direct response to FiberNet Monticello. Not only did this create new jobs for technicians and salespeople in Monticello, the multiplier effect benefited area businesses as well.

Let's look at what broadband packages TDS offers other communities (packages displayed are those without a phone line to keep it simple). These are packages in Spicer, Minnesota.


Here are the packages in Buffalo, Minnesota.


And here is what Monticello residents get from TDS:


Notice a little difference? Monticello residents pay less and get faster connections. Compared to Spicer, Monticello residents are paying $35/month less for 25Mbps. The packages from TDS in Monticello are even superior to what I can get in Minnesota's capital city, St. Paul. A Comcast connection with 50Mbps download speeds is $99 and comes with far slower upstream speeds (and the download speeds from Comcast are rarely achieved in practice due to the shared neture of a cable network). If we assume that only 20% of Monticello households have benefited from this competition, at an average of $15/month, the cumulative cash savings are at least $180,000 each year. The many benefits from having much faster connections undoubtedly add to that value.

But if I lived in Monticello, I would be definitely taking one of the packages from FiberNet. These are globally competitive speeds and prices:


In the business world, where price comparisons are even harder to make due to the many options and individually negotiated deals for many circuits, FiberNet Monticello may be making the biggest difference.

We could not find evidence that TDS or Charter have come anywhere close to the incredible business pricing from FiberNet Monticello. As soon as FiberNet Monticello bonded, TDS began offering long term, lower cost deals to businesses.

There are more benefits that could be noted, but this post is already pushing length limits. FiberNet Monticello is at a crossroads. Bondholders should work with the City to refinance the network and allow it to make up for the time lost from the frivolous lawsuit filed by TDS -- an action TDS undertook specifically to cause the outcome currently concerning Monticello's elected officials and residents.

It is still early in the lifetime of an investment that will last multiple decades. One promising option is to expand the network. The head end can serve tens of thousands of more customers, spreading the fixed cost across a wider area. We hope FiberNet Monticello finds a new partner to manage the network and expand it, providing greater choices and new competition to communities surrounding Monticello.