How do we define success of a community network? Is Lake County a model or cautionary tale?

In 2010, the MN Broadband Task Force report ranked Minnesota Counties broadband access; Lake County was #16 on the least served list with an average download speed of 3.2 Mbps. Speed wasn’t their only issue, they also had problems with reliability. Prior to July 2012, there had been two incidents where flooding left parts of the county without service – no broadband, no 911. (And Lake County is a US border county! Imagine the Homeland Security concerns!)

Lake County had Internet service providers but the service they offered didn’t meet the county’s needs and providers were talking about 10-15 years to build out a fiber network (back in 2009). So, when Congress responded to the Great Recession of 2010 by passing the America Recovery and Reconstruction Act, which included funding for rural broadband networks, Lake County applied for funding and was awarded $66 million in ARRA stimulus funds; about $10 million of the award was an outright grant; the rest was a low-interest loan.

Lake County’s journey to better broadband has been a bumpy one. (I’ve listed all of the ups and downs I could remember below.)

The good news? Lake County is now well served. As of last reporting, 94.3 percent of Lake County had access to broadband at speeds of 100 Mbps down and 20 up (100/20), which is the MN 2026 state goal, making them the #11 top ranked county in Minnesota. Quite a leap from #72 in 2010.

The bad news? The network is now on the market. And as Annette Meeks (from Freedom Foundation of Minnesota) points out, there are bills to be paid.

So is it a success? Or is a better question, is it a success yet?

They have a network – and a recent Lake County News article points out, that was the goal…

“Seven years ago when we did get involved in this, it wasn’t for the goal of owning a broadband network,” Commissioner Rick Goutermont said during the meeting. “The reason we got involved was that none of the incumbents would go after these funds and none of the incumbents were looking to provide our constituents with the service that we felt they needed, that’s why we got involved.”

An article from the Minneapolis Star Tribune seems to second that sentiment…

But it seems clear that even if the county doesn’t get back all or much of the more than $17 million it has put into the project, county officials won’t see much to apologize to the voters for.  …. what the county decided more than seven years ago still seems to be true — that had the county not stepped in, they would still be waiting for reliable broadband service in Lake County.

There is debt as Meeks points out…

Currently, Lake County taxpayer funding for the project totals $17 million.

To put this in perspective, remember that many of the state funded broadband projects involve local match often through the County Boards (Itasca, Fillmore and others). Sunrise Township project’s state grant match includes CenturyLink’s CAF 2 money and public funding. (Total cost of the project is $2.39 million, the grant is for $1.07 million, the rest is split evenly between CAF 2 and public money.)

A quick reminder of their story: Sunrise held meetings because they wanted better broadband. One provider showed up; one didn’t. At public meetings, CenturyLink said they would use CAF 2 money to upgrade to “at least” 10/1, but the township wanted world class broadband instead.

So they talked. About getting a grant. About how much CenturyLink needed. About how much (and how) residents could chip in.

Turns out the project would be $2.39. In public meetings they talked about getting $500,000 from taxpayers – to be divvied up between 532 households in CenturyLink’s territory – roughly $1000/household. They are looking at paying that back over 10-15 years and the number bandied around was $100/year/household.

With this additional community investment, and state broadband grant, CenturyLink agreed to use their awarded CAF2 dollars to build a world-class fiber-to-the-home network capable of delivering speeds that exceed state broadband goals.

The Sunrise Township residents said yes because they felt the increase in taxes would be offset with a myriad of benefits, from the ability to operate a home-based business, to access to distance learning, to increased home values.

I don’t know that Lake County residents are any different. There was some back and forth on rumors that they wouldn’t have to pay back the loan but seemed like more smoke than fire. They signed onto a loan and folks know what that means. Sounds like the remaining cost is $17 million – there are 5000 households in Lake County. I know this is very sloppy math but that sounds like $3400/household. It’s 3.4 times the cost in Sunrise – but paid back over time I wonder if residents feel broadband was worth it. (Also in this scenario taxpayers investment should be offset by subscription proceeds.)

One very big difference is competition. Because Sunrise is working with the incumbent provider they are unlikely to run into legal issues and negative campaigns that challenged Lake County. (See examples on timeline below.) Perhaps that what Meeks means when she says…

Market-based forces will always come into play when municipalities decide to compete against private telecom providers.

Few communities want to become the broadband provider. Most rural communities are open to a partnership – such as Sunrise Township – where community investment is made with an incumbent or other provider. But for communities where the local provider is uninterested in providing service the community wants, there needs to be alternatives and part of that alternative is recognizing that money spent on broadband is an investment that pays different dividends for a community than it does a provider.

A provider doesn’t have to offer services where it’s not profitable to do so.  If profit is your definition of success it would be crazy to go into some areas. But a provider should not be able to hold a community hostage to slower, unreliable broadband. We need room for public investment or those communities will be choked out of existence. And we need room for alternate definition of success – one that includes community vitality.

Lake County abridged timeline*

*without making myself crazy I’ve tried to include pertinent posts and filter out stuff like Lake County’s fun (high school) seniors teaching seniors digital inclusion program. There was just too much more integral to the transaction of building the network. But it’s the network that made the fun stuff happen.

This entry was posted in FTTH, Funding, MN, Policy, Vendors by Ann Treacy. Bookmark the permalink.

About Ann Treacy

I have a Master’s Degree in Library and Information Science. I have been interested or involved in providing access to information through the Internet since 1994, when I worked for Minnesota’s first Internet service provider. I am pleased to be a part of the Blandin on Broadband Team. I also work with MN Coalition on Government Information, Minnesota Rural Partners, and the American Society for Information Science and Technology.

8 thoughts on “How do we define success of a community network? Is Lake County a model or cautionary tale?

  1. So who pays the $50 million of debt still out there? If a community wants to build broadband great. But they should not be able to borrow and then walk away from the debt because their business plan was flawed. This is very much like Monticello, MN which defaulted on their revenue bonds tied to their network build.

  2. Lake County taxpayers left with $65 million in debt. It cost approximately $100,000 per connected customer. Lake County is in default to RUS, getting a 3 month reprieve on debt payments. Now on the market, and no legitimate purchaser will take on this debt. Cautionary tale, indeed.

  3. I feel like I am beating a dead horse, but I still don’t understand why folks in Minnesota believe that the loan to RUS does not have to be paid back in its entirety. This specific point was covered by then RUS Administrator, Jonathan Adelstein, during a congressional hearing in 2012 (see attached article). When asked about whether the RUS will require Lake County to completely pay off the $56.4 million loan, Mr. Adelstein said “yes.” As Mr. Aldelstein explained, RUS has a requirement under the Credit Reform Act to aggressively seek collection of any defaults on debts.

    The point about how much the county has to pay back to the RUS has always been known, it is the entire loan amount. Assuming the County is able to get $10 million when it sells the network (this would be roughly $4,000 a subscriber, a number that is probably on the high end for a non-incumbent overbuilder like Lake County), that leaves the county with an additional $38.5 million to pay back to the RUS. You estimated the cost per Lake County household to be $3,400 or 3.4 times the cost of Sunrise. I think the cost will actually be closer to $11,100 per household, or 11.1 times the cost of Sunrise.

    Despite being saddled with these huge costs, the residents of Fall Lake Township and Ely still don’t have broadband service because their county leaders decided to spend the money first in areas where broadband already existed and in neighboring St. Louis County. Making matters worse, the indirect costs of this project are going to be felt in years to come in the form of a downgraded credit rating for the county and higher interest rates.

  4. Thank you Jim, Bill and Tom for the comments. It seems like we all have different numbers here. I got the $17 million from Meeks’ editorial. (Which Tim kindly pointed out in email may have originally come from Lee Schafer’s article http://www.startribune.com/lee-schafer-county-looks-for-exit-on-broadband-project/431591253/.)

    I’ll see if I can get more info on numbers.

    It is a debt that needs to be paid. Perhaps Lake County didn’t do the math (per household) in advance the way Sunrise Township did. BUT they held meetings and signed onto it. I think the important thing here is that the public had an opportunity to be part of the decision making. When they are involved, that changes the definition of success. Because Tom did the math, I’ll use his number. If each household owes $11,000 and can pay that off over 10-15 years is it still bad math to sign up? It increases the value of your home, the Internet Innovation Alliance claims a household with broadband can save $11,000 a year and I just heard about a new study that estimates how much a household can earn with broadband. (I will post as soon as it becomes available.)

    (Jim – you mention $100,000 per customer and I know Sunrise found a way to tax only folks in CenturyLink territory but that’s different than each customer. I think if we look at community investment, we look at everyone whether they take advantage of the service or not. Like me and any football stadium.)

    The definition of success isn’t only for the business – it’s for the whole community. It’s hard for a business to take household saving or earning to the bank BUT the households can and that means they may be open to investing.

    Mediacom has committed to Gig access everywhere. Yay! Such lucky customers. Bevcomm offers Gig access too. Yay! Again such lucky customers. (I’m not sure if that’s your entire footprint but clearly you’re walking in that direction. Hopefully you can let me know.)

    But there are areas where the provider isn’t able to offer the service the community wants. Getting community investment opens the door to a different business scenario. It will be interesting to see what happens in Lake County. But when we look at the wins and losses I think we need to broaden the chart to include benefits to the community.

    • Ann – I think the piece missing from all this math is that the majority of Lake County’s residents already had broadband service before Lake Connections ever built a network. This is why Lake County added unserved homes in St. Louis County to their project plan. So most of the Lake County taxpayers are paying for something they did not need. Others, like the taxpayers in Ely and Fall Lake Township, are paying for something they did not receive. The clear winners here are the residents of St. Louis County who received a $30-$40 million gift from their eastern neighbors.

  5. I will admit my $100,000 per connected customer may be off a bit. It was based on reports that Lake Connections has approximately 700 paying customers at this point, and the total cost of the project being approximately $65,000,000. That’s actually just a shade under $93,000 per paying customer. All of the money invested was either Lake County bond funding ($17 million), and the remainder was from an RUS loan ($45 million?) and an FCC grant of about $3.5 million. I have heard that Lake County owes RUS $48 million today. Maybe these figures are off a bit, but the fact of the matter is that Lake County can’t make its loan payments because there is not enough cash flow. And that is why the network is for sale.

  6. My silence is the sound of me getting ready to take a 13 year old to her first big concert tonight. 😊

    Jim’s numbers sound like what I’ve been hearing too. I guess the missing piece here is how much they can sell for. Sounds like Lake County and RUS are working on that. It’s the old quandary – I know how much it cost, just don’t know how much it’s worth to the buyer.

    And to Tom’s point – I’m looking into St Louis too but yup at this point they seem like there are pretty lucky.

    BUT to get to my original question and maybe everyone will have a different answer but – What’s the definition of success? Are the county folks happy? (I’m sure some are and some aren’t.) That would be my definition of success and it may be too early to gauge that yet. It feels like we’re in the 7th inning of a game that I suspect could go into extra innings.

    • The issue I have is the county moved forward telling everyone this would be financially feasible. Had they told the taxpayers the county was going to have to pay for all of this upfront and then let them vote I would have less issues. But to tell the taxpayers the project will pay for itself when clearly it couldn’t and then try to spin this as a success….

      I have issues with that.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s