The vast majority of Minnesotans, like the rest of the country, are served by only two broadband suppliers: the cable or telephone company. These companies generally want to maintain their monopolies because they can postpone upgrades while keeping prices and profits high. Just about everyone else just wants a better choice among providers.
The result of this structure is that we pay much higher prices for slower internet connections than our peers in Europe and Asia.
Here in Minnesota, Monticello has broken the mold. It has transitioned from relying on an overpriced and slow DSL network to now offering the best broadband in the entire state. Monticello residents can choose between a symmetrical 20 Mbps connection (extremely fast) from the City for $35/month or the incumbent telephone company’s new 50 Mbps downstream and 20 Mbps upstream option for $50/month. They have better packages than Comcast’s best residential offers in the Twin Cities – and available at half the price!
Entering the local telecommunications market is quite difficult. Building a network costs hundreds of millions for large cities and tens of millions for communities from 10,000 to 50,000. Once the network is built, the costs of adding new customers actually decreases as the number of subscribers increases. This cost structure gives incumbents tremendous advantages because they can drop their prices precipitously if a new entity – public or private – tries to build a competing network. To date, incumbents have largely succeeded in fending off competition.
Given the sorry state of broadband in many communities, especially rural ones, it should be no surprise that many cities and counties have started to build their own networks. And happily, they’ve done so with great success. Creating competition forces incumbents to invest and cut prices, generating significant community savings as well as other advantages from a network that operates in the public interest.
Unfortunately, there are additional barriers for communities attempting to build their own state-of-the-art broadband networks. As a result of lobbying by incumbents, some eighteen states have created obstacles to publicly owned networks.
The need for any state barrier to community networks is dubious. Most states see no need for them because incumbents already have tremendous advantages. The incumbent cable and telephone companies long ago amortized the network construction costs and have benefited from decades of government subsidies and protection as a regulated monopoly.
Their size advantage translates into lower costs for programming and equipment. If we value competition, policy should actually protect new market entrants from incumbents, not the other way around.
Minnesota has one of the oldest obstacles to community networks. As a result of a law passed in 1915, a community must achieve a 65% supermajority on a referendum to operate a “telephone exchange”. But in the modern age, virtually all fiber-optic networks offer “triple-play” services (telephone, broadband, and television) to generate the revenues needed to pay the debt of building the network.
Though some other states have referendum requirements, Minnesota is unique in making it so high. The process invites deep-pocketed companies to put hundreds of thousands of dollars into “Vote No” campaigns. They swamp communities with misleading information, preying on the complicated nature of these networks to convince at least 36% to vote against a public network.
Last year, Minnesota’s most rural county, Cook, generated a 56% yes vote on the question to build a modern network but could not move forward because the majority did not surpass the high 65% bar. They wanted a network because Qwest had no plans to improve its woefully unreliable network that offered few homes broadband. In January, a single fiber cable failure isolated the County from the world for twelve hours. For half a day, businesses could not process credit cards, people could not dial 9-11, and US Border Protection had to rely on Canadians for communications. Shortly thereafter, Senator Bakk and Representative Dill introduced a bill to allow a simple majority referendum to authorize a public network, lowering the bar from 65%.
Unfortunately, incumbent lobbyists have tried to weaken the bill, attaching additional hurdles for communities to overcome before building their own network. Minnesota should make it easier for communities to build this essential infrastructure, not harder.
Last year, the Governor’s Broadband Task Force recommended a goal of universal access to much faster broadband than commonly available today. As legislators enact those goals into law this session, they should empower communities to meet them; incumbents have neither the motivation nor resources to build these networks in much of Minnesota.