Strapped by lower revenue than expected for a project that delivers high-speed Internet access to residents, the city of Monticello has stopped making payments toward $26 million in bonds that were used to build the network.
Monticello officials notified bondholders of the decision Monday, a week after the company that manages the broadband project, known as FiberNet, announced it was pulling out of its arrangement with the city.
As it tries for a new arrangement with bondholders, the city is seeking a new management arrangement and is contemplating trying to expand the project geographically in an effort to generate more revenue. In the meantime, it will stop making payments into a fund set up to pay the interest on the city's debt.
The notice comes as other cities and counties around the state are weighing whether to get into the broadband business.
Monticello has been embroiled in a heated battle with private Internet and cable providers competing for the same customers. At the heart of the project's fiscal problems is the philosophical question of whether publicly owned broadband networks should even exist or whether these endeavors are best left to private industry.
"We're operating currently at a loss," said Jeff O'Neill, Monticello city administrator. The city's goal is to restructure the business and expand the project, he said.
"We wanted to provide choice in the marketplace," he said. "How that shakes out in the long-run and who owns what is less important than that we've actually achieved that framework for the long-term health of the community. The bottom line is that the success is there, that we've got competition in the marketplace now and our prices are where they should be."
The project was born out of conflict. The network was an idea from the business community after residents complained about poor service from incumbent providers. At the time those providers weren't willing to improve the slow Internet situation.
Since the city started delivering Internet, cable and phone service to residents in 2010, it has been hurt by competitive pricing and service expansion from two private competitors, the cable company Charter Communications and phone service provider TDS Telecom.
The city has had a hard time competing on price in part because of the roughly $1.7 million debt payment it makes to bondholders every year.
The fall-out from Monticello could make communities interested in their own broadband networks reconsider.
"This is certainly bad news, I think," said Christopher Mitchell, telecommunications expert with the Minneapolis-based Institute for Local Self-Reliance.
What's happening in Monticello will slow other communities efforts to improve their Internet connectivity and speeds by building their own broadband networks, Mitchell said.
"Cities and counties, in trying to connect people who have very poor access to the Internet have to pay attention to what's happening in Monticello, where big companies are trying to using their big power to prevent competition," he said.
"Every time a municipal telecom company gets into trouble there is some fall out in the area of communities waiting and taking another long look before deciding whether they ought to get in," said Gary Evans, president and chief executive officer of Hiawatha Broadband Communications. The Winona-based company operates Monticello's network but last week announced it was dissolving their partnership.
Evans said for a public project to work, the city councils or county boards need to be firmly committed to the idea that it's in the best interest of taxpayers.
"If you have any sort of lukewarm support, my advice is to take another good hard look because you know there are going to be struggles with every telecom venture," Evans said.
The Monticello city council is scheduled to meet Monday evening to discuss the city's options.