The small town of Monticello, Minnesota seems an unlikely spot for a battle over city-owned fiber-to-the-home. The town, which is a distant commute to Minneapolis, thought it could better attract residents and business by building its own fiber-optic network. After a couple years of due diligence, the town held a referendum; 74 percent of voters agreed to fund the $25 million scheme. The city sought the needed municipal bonds, but the day before it closed on them, the local telco filed suit to stop the plan. Its claim: taking out bonds to build a fiber network is illegal.

Bridgewater Telephone argues that the city cannot use tax-exempt bonds to "enter into direct competition with incumbent commercial providers of telephone, Internet, and cable television services." The odd thing about the complaint, a copy of which was seen by Ars Technica, is that it makes almost no argument; instead, the company simply quotes a short bit of Minnesota law and essentially says, "See, it's illegal!" without offering an explanation.

The statute in question says that cities can use bonds to fund nursing homes, garbage collection, parks, playgrounds, "homes for the aged," and more, including "any utility or other public convenience from which a revenue is or may be derived." If the judge finds that fiber-to-the-home is a "public convenience," the case seems to be over.

"Current expenses" go back to the future

The only further comment that Bridgewater makes is that bond money cannot be used to pay for "current expenses," a clear sign from the state that towns cannot spend themselves into debt and just keep issuing bonds to pay for the mess. Bridgewater treats these two words as a law against setting aside a bit of the bond money to cover startup expenses for the new project.

Normally, when a city builds a new swimming pool, for instance, it would set aside a portion of the fees to pay for the initial hiring of lifeguards and the snacks that stock the cafe. Christopher Mitchell, a director at the Institute for Local Self-Reliance (which advocates for local control of broadband networks), tells Ars that if the judge accepts such arguments, "then cities cannot bond for anything."

The City of Monticello, which has just replied to the lawsuit, thinks the whole case is ridiculous. In its response, the city's attorney says that the telco offers only a "plain misreading of a Minnesota statute" and "pleads no facts that tend in any way to call into question whether the project constitutes a 'utility or other public convenience from which revenue is or may be derived'."

As for the "current expenses" issue, the city sounds exasperated with Bridgewater. "There is nothing 'current' about the items that Bridgewater/TDS attempts to describe as 'current expenses'," says the response. "Those expenses will be incurred in the future, as part of an effort to secure a benefit that will arise even further in the future when the system is functioning, and that will endure even further into the future."

Mitchell, who has been involved with the city on this entire issue, tells Ars that he's sympathetic to arguments from private companies about having to compete unfairly with cities. But he points out that cities have to publish their business plans, deployment, targets, and funding, which levels the playing field. And Monticello did first approach Bridgewater, asking it to deploy fiber in the town; the answer was no. (Congress has also started to debate the issue.)

The alternative, Mitchell says as he looks at the rest of the world, is that the US will have to be content with second-rate Internet; nearly all major fiber deployments around the globe have had government backing or serious support. The payback on such schemes tends to be too far in the future for companies that have to answer to shareholders on a quarterly basis. Even Verizon, which might be seen as an exception to the rule, proves the point; investors were initially quite skeptical of the proposed $18 billion-20 billion payout, and only recently has the company's move started to look prescient rather than foolishly risky.

As for the Bridgewater claim, Mitchell says that his response upon reading it was, "This can't be serious, they're not even trying to win." The timing of the complaint makes it look as thought Bridgewater wants to delay the process. If so, the company has already succeeded. In the meantime, Monticello has approved a much smaller fiber loop to connect government and major industrial sites.

Local control, choice of ISP



Assuming the lawsuit can be dealt with, Monticello hopes to build fiber lines to each home and business in town with the goals of:

choice of service provider

competitive rates

local service

local ownership

economic development

economic returns to the community

When 74 percent of town's voters want to build themselves a fiber network, but the telco demands that they 1) not do it, and then 2) accept that the telco won't do it for years, either, the market (such as it is) doesn't appear to be functioning well. Monticello's solution is to build an interconnect facility of its own where ISPs can come in and link up to any fiber user who wants their service. The city maintains the lines and the connection facility, but doesn't need to become an ISP.

We're seeing more cities interested in this sort of arrangement as they recognize that fiber is the future but that, unless they are a FiOS town, that fiber won't be coming to the homes in their communities any time soon. Cases like this will help set the parameters for how cities or local co-ops can design, build, and operate such networks.

Further reading: