Minnesota Muni Wi-Fi Can Proceed, Judge Rules

Published December 1, 2008

A Minnesota judge tossed out a lawsuit filed by a telecommunications company against the city of Monticello claiming the government could not use public funds to build a high-speed Internet network.

The suit, filed by Bridgewater Telephone Co., also known as TDS Telecom, sought to protect the company’s franchise right to provide telecommunications services to residents of the city of about 12,000 people located 41 miles northwest of Minneapolis.

City Leaders Grew Impatient

Monticello city leaders had grown impatient with the pace of TDS’s rollout of a broadband network and started a plan of their own.

Voters overwhelmingly approved a $25 million bond for the city to build a high-speed, municipal service.

The judge in October dismissed the claim by Madison, Wisconsin-based TDS that using government bonds to compete with its service was a misuse of public funds that can be used only for roads, schools, and other traditional public services. TDS has since begun to upgrade its network in Monticello.

Disadvantage for Private Firms

Vince Vasquez, senior policy analyst for the San Diego Institute for Policy Research, said though TDS in theory should easily out-compete a government entity, the judge has established an uneven playing field that works against private firms.

“A private company is beholden to shareholders,” Vasquez said. “But a government is in the business of managing bureaucracies and providing public services regardless of profits,” he said. “So Monticello, operating without a profit incentive, will make decisions based on being the sole provider of municipal broadband, not on being the best provider. That undercuts private competition.”

With most government-run services, Vasquez said, you tend to see rising rates, more publicly incurred debt, and predatory practices “which are not looked kindly upon in the private market.” Not only is that unfair to private firms trying to compete with government, it tends to come back to haunt taxpayers, he said.

Taxpayers on the Hook

“The record of local government proves that taxpayers are likely to have regrets about the way that vote on the bond came down,” Vasquez said. “You’ve got public employees dedicating hundreds or thousands of hours to develop that network, so taxpayer dollars are already being spent.”

In addition, Vasquez said, the city—and taxpayers—will be on the hook if the muni broadband business fails. Similar projects have been scrapped in cities across the country in the past two years, including in Chicago, Philadelphia, San Francisco, and smaller towns such as Aurora, Illinois.

“Time after time, when you look at muni tech projects you see that these networks always fail to meet revenue projections,” Vasquez said. “And the existence of the government network discourages and undercuts private competition.”

James G. Lakely ([email protected]) is managing editor of Infotech & Telecom News.