MN Telecom Alliance response to RS Fiber financial news

Brent Christensen of MTA recently posted a response on the MTA Facebook Page to the recent article on RS Fiber’s financial issues

MTA President/CEO Brent Christensen’s op ed in response to the article in the Gaylord Hub newspaper regarding RS Fiber.

AS PREDICTED, RS FIBER HOUSE OF CARDS PRONE TO COLLAPSE,

From the very beginning, the RS Fiber project was an ill-conceived idea that left taxpayers in 10 cities and 17 townships at considerable financial risk if the network failed to meet its business plan. Today, there is plenty of evidence that project proponents ignored warnings that cost estimates and revenue projections were overly optimistic. Heck, one proponent even stated that the network would be profitable by 2018!

What started as a grand plan to bring fiber optic service to every home, farm and business in the area has evolved into something far less and a financial burden on all taxpayers, whether you use RS Fiber services or not.

Proponents such as Winthrop’s former economic development administrator Mark Erickson continue to tell residents that he didn’t want to build the network; he wanted existing providers to “step-up” and build the new network and that providers said no. What that narrative does not reveal is that those with industry experience could see a project before them that didn’t make economic sense. Proponents did not account for many of the ancillary costs of providing Voice, Internet, and TV, and they were not willing to listen to those who were in the business and expressed a different perspective.

Proponents promised to connect every building with fiber, something that providers knew wasn’t possible given the economics of the project. Industry representatives encouraged proponents to look at other technologies such as fixed wireless broadband to develop and maintain a stable network and customer base. That advice was rejected, yet today RS Fiber is as much RS Wireless as it is RS Fiber and failing to meet its original objective of fiber everywhere in the county.

A few other things to consider…..

The Gaylord Hub reported last week that whether they subscribe to RS Fiber or not
1. its residents will be responsible for hundreds of thousands of dollars over the next few years to help cover the cost of the bonds used to fund the construction of RS Fiber.. This means local services such as public safety, parks or street repair could suffer and local property taxes may need to be raised to cover the red ink for the foreseeable future. The risk to taxpayers was always minimized by proponents.

2. If RS Fiber was truly a cooperative, then those who purchase services from the cooperative would be on “the hook” for any shortfalls, not the taxpayers of the townships and cities who had no say in this process. It appears the “cooperative”, was a thinly veiled Joint Powers Agreement since the local units of government are paying for the shortfall.

2. RS Fiber entered a telecommunications market that is highly competitive. One proponent stated in a local newspaper that a 50% subscriber rate would be attained. Today RS Fiber has far fewer than 50% of the telecom market and finds itself competing with local, regional and national companies with marketing budgets much larger than it has. These companies use different technologies to deliver their services but compete against one and another for your business. Did RS Fiber proponents think existing providers would close up their shop and leave town?

3. RS Fiber is heading down a path that communities like Monticello and Lake County went before it even though it knew of the risk. Both of those local governments funded broadband networks, and both were financial disasters. In Monticello, bond holders lost millions when the city defaulted on the bonds even though it raided the city’s municipal liquor fund at one time to cover network operation expenses to keep it afloat. And Lake County is currently in the process of being sold for pennies on the dollar potentially costing taxpayers more than $50 million. In both instances local proponents ignored warnings about the financial viability of the project and charged ahead, like RS Fiber.

Today, taxpayers are caught in the middle. The choice 10 cities and 17 townships have to make is whether or not to throw good money after bad. – Broadband can be successfully deployed in rural Minnesota. All you have to do is look at Big Stone, Swift and Rock counties and Sunrise Township as good examples. They all started years after the Winthrop project and are now completely built out.

There is a right way and a wrong way to build rural broadband networks. RS Fiber is the latest costly example of the wrong way.

From the Gaylord Hub: The City of Gaylord and other cities involved in the RS Fiber project are being asked to replenish its debt service reserve for 2019 and 2020. A $1.054 million short­ fall is projected. Gaylord’s share is $308,413.18. Gaylord’s City Council will discuss this matter at its meeting Wednesday.

According to a letter from David Drown Associates, Inc., public finance advisors, a shortfall is projected with the RS Fiber Cooperative over the next two years which will impact loan payments for the 2015A General Obligation Tax Abatement Bonds issued to fund an economic development loan to the RS Fiber Cooperative.

At this time, $140,000 in loan payments has been collected in the debt service account for the Feb. 1, 2019 payment of $438,964.25. On Feb. 1, 2019, a shortfall of $298,964.25 will cause the Trustee to draw that amount from the Debt Service Reserve. When that draw is made, the member cities will be asked to replenish the shortfall amount from their 2019 tax levy. Of this amount, Gaylord’s share is $76,205.99.

On Aug. 1, 2019, a shortfall of $156,066.25 is projected. Member cities will be asked to replenish the amount. Gaylord’s share is $39,781.29. A shortfall of $446,066.25 is projected on Feb. 1, 2020. Gaylord’s share of this amount is $113,702.29. On Aug. 1, 2020, a shortfall of $153,542.75 is projected. Gaylord’s share is $38,883.15. Gaylord has 25.49% of the possible connections with 996. The total possible connections are 3,907.

This entry was posted in MN, 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.

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