Transcript: Community Broadband Bits Episode 428

This is the transcript for Episode 428 of the Community Broadband Bits Podcast. In this episode, Christopher speaks with Jeff O'Neill, City Administrator of Monticello, Minnesota. They discuss how the network came into being, and the savings being brought to the community today. Listen to the episode, or read the transcript.

Jeff O'Neill: It's almost like we have this service now. It's great, but it's just a fact of life that that's just part of our existence.

Ry Marcattilio-McCracken: Welcome to Episode 428 of the Community Broadband Bits Podcast. This is Ry Marcattilio McCracken here at the Institute for Local Self-Reliance. Today, Christopher talks with Jeff O'Neill, City Administrator of Monticello, Minnesota, located on the banks of the Mississippi river in the east central part of the state, with a population of 14,000. Christopher and Jeff talk about FiberNet, which is owned by the city, but operated in a public private partnership. FiberNet and the city have had to weather one of the most significant price wars we've seen with the community network. Spring new investment and price cutting from big incumbent cable and telephone providers. Christopher and Jeff discussed both the costs and benefits of their efforts over the last 14 years and how it's changed the town as well as the residents and businesses in the area. Now here's Christopher talking with Jeff O'Neill.

Christopher Mitchell: Welcome to another episode of the Community Broadband Bits Podcast. I'm Christopher Mitchell at the Institute for Local Self-Reliance in St. Paul. And just up the road from me is Jeff O'Neill from Monticello, Minnesota. Welcome to the show, Jeff.

Jeff O'Neill: Thank you, Christopher. Glad to be here.

Christopher Mitchell: So, you have this saying that I love, but people who see the name of your city will often assume it's Monticello. What is the story with Monticello?

Jeff O'Neill: Well, thanks for that question. Now you're going to get me talking about history, which I love. The city was settled by kind of second generation Americans who came across the Prairie and they're originally from the colonial states and they needed a name for their city and they had that colonial background. They weren't regions, they weren't Germans. And they hearkened to the formation of the country and Jefferson. And there was a little hill on the south side of the river that they looked at and little hill means Monticello in Italian and it hearkened back to Jefferson. So I don't know why it's Monticello versus cello, but that's kind of the wellspring of the name.

Christopher Mitchell: And you've told me before that there's only one Monticello, every other place is pronounced the way Jefferson did.

2:27

Jeff O'Neill: Well you know, I don't know if that's true. It seems like there's probably a geographic break somewhere, but there's 11 other Monticello or Monticello's. And I think it's a mixed bag as far as how you pronounce it, yeah.

Christopher Mitchell: So you've been the city administrator for 33 years and just announced retirement. Congratulations on that.

Jeff O'Neill: Thanks, Chris. For actually to clarify, I've been City Administrator for about 13 years, before that I was community development director. But yeah, total of 33 years working for the City of Monticello, it's been great. And looking forward to retirement, learned a lot and enjoyed almost every minute of it.

Christopher Mitchell: It means that one of your early projects then was the fiber network, which I believe you call FiberNet. And I always get confused now. Is the net capitalized?

Jeff O'Neill: Actually, it just depends who you are. It is supposed to be capitalized, yes.

Christopher Mitchell: And this was a project that I followed very closely. You've had a series of challenges. You've created a network that offers the best pricing in the upper Midwest for many of the years of its history. And I want to start off by asking you just to tell us what it's like right now. Like what is the situation in Monticello with the fiber network?

Jeff O'Neill: Well, right now it couldn't be going better. I mean, obviously over time the need for the Internet portion of the triple play has grown at relative to the other two other functions. And it's just, it's been highly valuable to the community of course during COVID. But even before COVID hit the utilization of the system and the benefits to the community were really accruing. But of course, with COVID, it's even more important. Our school district is just benefiting measurably. We get comments all the time from citizens that are able to do their job easily seamlessly at home. Our upload speeds are equal to our download speeds at one gig, 65 bucks basically covers everything, a great modem and gig service upload and download. So you can imagine that if you live in Monticello, you can pretty much do your job remotely quite seamlessly. So it's really helped our community and its members to work and to study at home. So we're really excited about the feedback we're getting on FiberNet.

4:55

Christopher Mitchell: And Monticello is a kind of place with people. They tend to like to be outdoors, I think. It's kind of been drawn into the orbit of Minneapolis as the boundaries of the excerpts sort of approached you. But you have I feel like a history out there, the folks in Wright County of really enjoying the outdoors, you know? Just to give people a picture of what the community is.

Jeff O'Neill: Well, thanks for bringing that up. Yeah, Monticello is, obviously there are commuters. It is in some sense a suburb, but we are kind of our own freestanding kind of growth area. We've had a great job creation center here for many years. And as such we've had some really good land use planning around here. We've protected a lot of our open spaces, our green space. We have some great parks, regional parks and there's nearby state parks. So there really isn't kind of a really strong orientation to the outdoor. So people that move here, many of them stay here just because of proximity to all the great natural resources, lakes, streams, hunting, and then of course the Northern Lakes too. So yeah, it's a great area for both commerce and development, economic development, but also great amenities with the natural resources we have.

Christopher Mitchell: The network is owned by the city, but it's a public private partnership today and that's how it started, but almost 13 years ago, 11 years ago. So you're working with Arvig right now. Just give us a sense of how that works out?

Jeff O'Neill: It's been absolutely fantastic. I mean, Arvig came in to assist us with their expertise and in all their knowledge of how to operate the system. We were doing fairly well operating as a city staff, city employees, but we really gained the benefit of the economy of scale by tying our relationship closely to Arvig, just from their expertise in how to operate the system, but also the equipment and the other facilities that they have. They drove down the cost greatly because we were able to take advantage of the economy of scale. So we're operating much more efficiently. Our system is getting lots of recognition from our community as far as being the go-to service. TDS is a competitor in town. They started here in Long Island and also Charter, they're great services as well. But we certainly get a lot, there's a lot of input saying, "If you want really good Internet service, FiberNet's the way to go." And a lot of that's to the credit of Arvig. So we'd like to make sure that everyone's really aware of how great a job they've been doing for our citizens.

7:41

Christopher Mitchell: TDS will forever be stuck in my head as a company that, it's nice of you to say that they're offering high quality services. I know they've upgraded a lot. When the city originally went to the voters to have a referendum, to gain the authority to build the network, I know TDS opposed it and said that their DSL was perfectly fine. And memorably in my mind, and then went on to talk about how if you built a network, then they would have less incentive to upgrade their network because of the competition. And they said that while they are rapidly upgrading their network and know forever, that was the beginning I think of my incredible frustration with news reporters, who would say things, who would reprint that and say, in one sentence they would say, "TDS is investing a lot of money to upgrade their network to a higher quality, to fiber optics in order to compete."

Christopher Mitchell: They also say they have less incentive to upgrade their network because of the competition. I'm just like, "How do you print these things? They're diametrically opposed." But anyway, let's just, if you could go back and just do the sort of the 90 second history. As you just noted, you have a network that is really great now, but I will forever remember the Minnesota Public Radio story interviewing local businesses in the 2006, 2007 era I think, maybe it was even 2009. And people were just recalling that time in the late odds when businesses had to send people home to work from home, not because of a pandemic, but just because they could not get good enough broadband at further locations.

Jeff O'Neill: Well, yeah. And try to keep the 90 seconds, but that was really kind of the start of everything. The city push to install a modern fiber telecommunications really sprung from our business community, and citizens were frustrated with having no voice and no opportunity, no leverage to get our local provider to step up and provide what everyone knew was going to be essential service in the future. So it should be clear to everyone that the city Monticello didn't want to get into it just on a whim. We were responding to our community's need. And to the credit of our city council and the leadership at that time, they persevered and they pressed forward. We did give the opportunity to Charter and TDS to step in, fill the void, "Please help us out here." And that fell upon deaf ears.

10:15

Jeff O'Neill: So with that the council said, "Okay, well, we're going to look at trying to build it ourself." And we pushed forward as part of that. There was a vote on whether or not to install the switch to kind of kick off the project or the incentive for the city council. That was a resounding, "Yes, go ahead. Council, you're on the right track." And then we spent six months defining what the system was going to look like. What's the operation management team going to look like? How's the fiber system going to be built? The technical sides of things.

Christopher Mitchell: Hand in hand with the private company you're going to be working with?

Jeff O'Neill: Right with Hiawatha Broadband, what's the governance model. So we basically, we looked at other systems in the country as well. With that then we went forward and submitted a proposal to the bond market, to the investors and the investment community. And lo and behold, there were funds that came forward that way. The city was then, we're ready to start the plows, get it installed. And then the lawsuit hit with then TDS saying, "Well, you know, the city, you're not authorized to use this sort of revenue bond for this type of project. Therefore we're going to protest this. So eventually we worked our way through that, and-

Christopher Mitchell: Let me jump in for a second. I mean, I think people should appreciate how frivolous this lawsuit was. The courts dealt with it as quickly as they could. It was dismissed with prejudice. It basically said that you couldn't do this thing that several other cities had already done. And actually it proposed the theory under which you would not be able to use some of the revenue proceeds in a way that almost all revenue bonds are used for. And so there was no merit to it.

Christopher Mitchell: It was an opportunity for TDS to try to come in and beat you to the market with better services and magnanimously you offered to do joint trenching when you recognize that you would both be installing in order that you could both save money and they turned you down. So, and it's not to say that we're ... I'm not sitting here saying, "TDS is an evil company." TDS was reacting in a way to defend their market in ways that we're certainly, I would say, I might think of as abusive, but they were within the law. But they certainly caused a lot of problems for you. And nonetheless, you persevered.

12:47

Jeff O'Neill: Well, yeah. Thank you. And that your recollection is spot on, on that. We persevered the city council, even though TDS started their system while they were holding us up in court, the system they said they weren't going to build. We persevered and we ended up building it, and the rest is history. There's the good news was the pricing and the service level for our community just improved immeasurably. In fact, the pricing went way lower than any one expected where the TDS and Charter pricing was unbelievable and the service was much better. And everyone was somewhat happy in the fact that now we have three systems in our community, all of which are providing really good service at a very, very low price. Of course, the flip was that on, that was because the pricing went so low, much lower than we expected from the competition. Then our revenue stream wasn't as good as what we had hoped for at the beginning. So, but again, we persevered.

Christopher Mitchell: It may not make you feel better, but to this day that is still the most extreme version of predatory pricing that I have seen in all of the systems that we've seen responses where there's a decrease in rates. [inaudible 00:14:07] Technica covered us back in, I want to say 2009, something like that. Charter was going around and cutting people from a product that costs $150 a month to I believe $60 a month for a two year guaranteed contract with every channel on the system. I mean, anywhere else in the state where Charter operated, that was $150 a month and they cut that down so low. I mean, we estimated that your community, which is not very large, was saving well in excess of a million dollars per year in aggregate because of the crazy low rates. And then that certainly made it very difficult for you and HBC to add customers.

Christopher Mitchell: And so again, if I just jump ahead a little bit, I know. Then there was some friction because of that stress that TDS and Charter were putting on you. I mean, at the time there was very few places in the United States where you had three advanced broadband networks competing. It was a place where you had two fiber to the home networks competing. There was incredibly rare. And the stress it put on your relationship with HBC was just tremendous. And so that ended up fracturing, and you had to move ahead with finding a different partner

15:19

Jeff O'Neill: That was difficult, the city council at that time elected to not pay on the revenue bond, because we didn't have the revenue coming in due to that pricing scenario that was undercutting our ability to really gain customers. And you know, with that revenue bond, it didn't have the full faith and credit behind it. And we were paying a high interest rate, there was a risk associated with that. And ultimately we were able to settle that out with the investors in an amicable way. But yeah, in that tumbled HBC in the city, you know, relationship changed. And then the city moved on to find another provider for the service and ultimately which led to eventually getting Arvig to help us out. So yeah, it was a difficult time of transition. But during that time period, we had liquor store funds that we had saved over time. And those funds were used to help support the system as we kind of came out of this period of really strong competition.

Christopher Mitchell: I think it's worth noting, when this happens there's often a real focus on the city's borrowing rating. And Monticello has demonstrated again to the market that it is well worth a good investment I believe. What's your rating today for your credit rating?

Jeff O'Neill: The exact rating, not off the top of my head. I know that we did receive a small decrease, however, that decrease we're still high, really good risk, even with the decrease that occurred with the revenue bond issue. And then a few years later, I think maybe about a year, year and a half ago, our bond rating went back up to where it was prior to FiberNet. So we're back to where we were. And it was a relatively small step down and a small step back up. So, the problem with the revenue bond and everything that went to it, I don't want to understate it or overstate it. It just was what it was, but it didn't really have a deleterious effect on our city's ability to finance and borrow, and really was kind of a relatively non-issue on the big picture of things.

Christopher Mitchell: Right. I mean, this is why when you issue an unbacked bond, it's expected that the investors know what they're getting into because they do not have that full faith and credit guarantee. So, is the network now fully paying for itself?

17:45

Jeff O'Neill: Well, right now we're actually, we're in the black, we're making money. Our operations expenses are less than the revenues coming in. At the current time I think we cleared working with Arvig in the neighborhood of $280,000 on the good side for the year. And of that Arvig gets a substantial portion. That's just the city's surplus or profit for the year. Arvig gets about the same amount as well as a service provider. So they're getting the benefit of their good service by adding the customers, and by also adding ... They're utilizing our network very effectively by helping local businesses communicate to satellite offices and so on. We're getting revenue coming in for that utilization of the dark fiber and other aspects of our network on a lease basis that helps supplement the subscriptions that come in.

Jeff O'Neill: So because of Arvig and their connections with the outside world and the network that they have that can feed our system, we've been able to gain revenue from companies that are leasing our facilities and providing communications to their employees and into their different satellite branch offices and so on. That's been one of the major sunny spots here for the system is Arvig's ability to use our system in ways that a city might independently have more difficulty taking advantage of.

Christopher Mitchell: Yes. Yeah, I think that's why you want to work with a local company that has experience in that sort of thing. I feel like talking about the finances is something we have to do. It's like eating your vegetables, you know? Like people want to know that. But that's not why you spent so much of your time figuring out how to make this network work. You know, this is so that you could focus on the spreadsheets. It's an essential part of it, but what are some of the things that make you really glad that you've gone through that? You know, how has it benefited the community?

19:53

Jeff O'Neill: You have the aspirations for creating employment, you have aspirations for keeping costs low, keeping service up. The satisfaction's really coming from just knowing that we've achieved the mission of providing choice in the community, that we are poised to provide the service that's just absolutely essential at an economical rate and that the potential of each family, the potential of our school, the potential of our businesses all are better served, that are actualized by being able to communicate so quickly and efficiently and seamlessly. We're already taking this for granted, okay. So when you asked me, it's almost like we have this service now, it's great, but it's just a fact of life that that's just part of our existence. And when I think about other and our neighbors that are just across the river and in the areas of Jason and Monticello, they're still struggling with getting these services, so.

Christopher Mitchell: Yeah, I wonder. I wonder about that, if you think about Annandale and Buffalo and some of these places that they may even have a larger population base.

Jeff O'Neill: Right.

Christopher Mitchell: They don't have the same kinds of services.

Jeff O'Neill: Well, in some of the areas in the township areas or some of these large lot subdivisions, they're part of our school district. Yet they don't get the same service for their students as city residents do. So there's a little local divide there as well. We're really glad that we're not in that situation anymore, but also frustrated that our ability to help even those in our school district is somewhat limited by the by the capital needs that are required to get, get services out there. But it's not something that's lost on Arvig? I think they are trying to do what they can to connect our local community members that don't live actually in the city of Monticello.

Christopher Mitchell: I'm curious about smart city type applications. Is the city doing anything with the network that it may not have been if you were still leasing circuits?

Jeff O'Neill: To be honest, we have not looked at as much as probably we should have by now. I think we've got our hands full with lots of other topics in our local government and things that we're trying to achieve.

Christopher Mitchell: Well, you have competing challenges. What is this?

22:20

Jeff O'Neill: [crosstalk 00:22:20] stuff I do. But I mean, I think we, I mean, I wish you were a Chattanooga. I mean, they've got such a wellspring of intellect and a larger community with more resources in terms of methods and ways to deploy these technologies in a way to really help their community. We're just scratching the surface on that right now. So I think that will come in time. But at this point I think just providing the basic strong bread and butter Internet service to our local departments and utilization of our data and GIS and all that. We're not doing anything that much more sophisticated than any other city, but I know that we're being able to do it more seamlessly because of our connectivity.

Christopher Mitchell: You know, let me just quiz you quick. Off the top of your head, do you have a sense of about how many FTEs Monticello has, full-time employment?

Jeff O'Neill: You mean as far as the community itself? Or-

Christopher Mitchell: Yeah, like the police officers, everything. Give a sense of.

Jeff O'Neill: I mean, it's around 85 to a 100, depending who you call, but that's-

Christopher Mitchell: Yeah, so I mean, what you were just saying, I think it's worth noting. Like the power board, the Electric Power Board in Chattanooga has more than 400 FTEs alone for doing the services that they provide. And so I think it's worth noting, do you have sense of advice for other communities that are Monticello's size? How do you prioritize, trying to figure out how to handle economic development, opportunities and smart city opportunities, and things like that? I mean, you can't just task five people to go off and do it, you have to operate more lean than that. So do you have any advice for others that are waiting into this?

Jeff O'Neill: That's really a good question. I think, well you know, one of the things we could have done is work a little bit harder and identifying the fiber tools that are available through TDS, through FiberNet to make sure that anyone that's looking at Monticello has not just one option, but they have two, which actually turns out to be a good thing. Because now when you set your company in Monticello, you got a fiber backup. Because no telecommunication company can say that they're going to stay up and operational 100% of the time. But many of these businesses need a 100% operation. So if you have a backup available, that's huge, that's a huge selling point for our community. And so I think in the future we're going to be touting the presence of two systems in our community as being very beneficial.

25:06

Jeff O'Neill: And you know, I think in addition to that we need to do a better job advertising the functionality and the speeds and the benefits. We do have a number of folks that are programmers that provide coding services to others from remotely. And they just love Monticello because they can upload huge files and it just works great for them. And they just scratch their heads wondering why we don't get the word out more because there's a lot more people in the world that can do that. And that we probably should have a bigger community of those sorts of talented people working from their homes. So it's like, it's almost like, "Well, we've got it now. We like it, our community likes it," that's enough. But really isn't enough. You know, we need to sing the praises a little bit more as to the functionality and benefits of being here.

Christopher Mitchell: Yeah. And I feel like you also described that as a city administrator you need to have thick skin. And so despite the fact that you've had differences with TDS, you need to make sure that you have a good relationship with them moving forward, because it is in the best interest of the community that TDS feels welcomed to invest in those industrial sites and things like that. And so I can imagine that can be challenging for some personality types.

Jeff O'Neill: Well, it is. I mean, and it's true. They are a member of our community and we have to treat them as a member of the community while at the same time there is a level of competition. So we're trying to walk that fine line, being respectful of their efforts and to treat them in proper way. I mean, you can imagine when they were building their network, while they were holding us up in court, we had to properly go through all their applications for right of way permits and allow them and to work with them, helping them with their fiber deployment while they're holding us up in court on our fiber deployment. So you know, hopefully we did that fairly and properly and were respectful and did everything in upstanding fashion in that regard.

27:25

Christopher Mitchell: So, as we're wrapping up, I think we want to make a clarification, just so people have a sense of the picture. One is that of the money that's coming in from Arvig that's above the operating costs. Some of that money is still being used to expand the network over time for future opportunities, new subdivisions and things like that, right?

Jeff O'Neill: That's correct, that's correct.

Christopher Mitchell: And then on top of that, the debt that had been used to build the network, that where you came to an agreement with the bond holders to reduce that because of the challenges the network faced, you are still paying for that. And the net income at the end of the day from the network is still less than the amount of that you're paying on the debt. And so your operating expense in expanding positive, but the network is not generating enough revenue to pay for all the debt yet.

Jeff O'Neill: That's correct. That'd be a good sum up on that. Thanks, Chris.

Christopher Mitchell: No, and I think, it's interesting, because I just recorded a session with Ernie Staten from Fair Lawn who, don't look down on him, he's an assistant city manager. Ernie is a great guy. He's built a fiber network in Fair Lawn, a community that's, it's on the outskirts of Akron is not super dissimilar from yours. And from the beginning they said, "This network is not expected to pay for itself solely out of its revenues. It's essential infrastructure for the community. And so, you know, I think we're going to see more and more places that, rather than playing this game of what can we build solely justified by the revenues will change and communities will do more of what you've done, which is to say, "You know what, we're going to eat this cost in whatever way we can, but this is really important for our tax base. It's important for our residents. We need to do."

Jeff O'Neill: Yeah. And I mean, the playing field's a lot different now than it was before. I mean, the triple play is no longer important at the time you really needed a telephony and you needed to have the content through a cable type service. And now just building an purely Internet-based system is much less expensive, much simpler, and probably achievable for many communities. And the trade-off of maybe having to make this capital expense and then getting this way better service and improved pricing is really there. I mean the net money that the city's expending as a community is equal or drops and the service level becomes way better. So, I mean, there really is probably some opportunity for many cities out there that feel that a monopoly might being exploitive. That they need to step in and take care of their own and take a responsibility for helping their citizens and their business community, as opposed to continuing on with only a single choice and a monopoly situation.

30:25

Christopher Mitchell: And these analyses are tough. But from what I could tell, and I looked very seriously at your network over several different periods. I think the hardest year that you had where you had the highest costs, it still looked to me like the residents made out so much better off cumulatively. The amount of money that you had to spend from the liquor store fund and things like that was dwarfed by the amount of money that was saved in aggregate by the low prices. That's money that often went back into the local economy and then came back to you and greater taxes. So, these are also difficult, and I think it's important that the people recognize we need these networks, particularly in 2020 now. And so we shouldn't dwell on who sets the expectations of how we pay for them necessarily. Like these things can change over time.

Jeff O'Neill: Right? Yeah. And thank you for that. I mean, that really is how things played out in how things are today. I mean, it did take perseverance. It did take investment in a risk, but as you noted in the long run the total expenditure from the citizens ends up being less. And yeah, you had to subsidize it with liquor funds to get there. But I mean, I tell people that, "Go ahead, if you want to use TDS, that's fine. They're good service, but make sure you shop at the liquor store to help offset the need for helping subsidize the system. But now the subsidy is not nearly as important because it's running leaner and we're getting lots of good revenues. So we're working well with our other providers in making Monticello a great place.

Christopher Mitchell: Let's end with an exhortation for a shared passion that you and I have, people should go out and support women's soccer.

Jeff O'Neill: Absolutely.

Christopher Mitchell: You know, the Minnesota Loons are great. We're both fans, Minnesota, you know? Minnesota United Football Club, but we also want to support the women golfers, women's soccer program, all of the other college soccer programs. It's great entertainment, and I think they're often overlooked. So let's support them.

32:36

Jeff O'Neill: Well, I concur it's just a beautiful game, it's elegantly played by the lady soccer players with the golfers and other big [inaudible 00:32:46], and even the small colleges as well, the MIC and the other colleges are out there, high school. It's a great sport for women. And as Christopher and I talked, I have a daughter that play, and I coach, and that's a great sport. So don't get me going on soccer.

Christopher Mitchell: Right, we may not have a lot of options this fall, but we might have an unexpected Downy in the spring-

Jeff O'Neill: Right, exactly.

Christopher Mitchell: ... of those sorts of sports. Well, thank you so much, Jeff.

Jeff O'Neill: You're very welcome, Christopher.

Ry Marcattilio-McCracken: That was Christopher talking with Jeff O'Neill, city administrator, Monticello, Minnesota. We have transcripts for this and other podcasts available at muninetworks.org/broadbandbits. Email us at podcast@muninetworks.org with your ideas for the show. Follow Chris on Twitter. His handle is @communitynets. Follow muninetworks.org stories on Twitter. The handle is @MuniNetworks. Subscribe to this and other podcasts from ILSR, including building local power, local energy rules, and a composting for community podcast. You can access them anywhere you get your podcasts. You can catch the latest important research from all of our initiatives if you subscribe to our monthly newsletter at ilsr.org. While you're there, please take a moment to donate. Your support in any amount keeps this going. Thank you to Arne Huseby for the song, Warm Duck Shuffle, licensed through Creative Commons. This was Episode 428 of the Community Broadband Bits podcast. Thanks for listening.

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