For three years, people in Sibley and Renville counties, southwest of the Twin Cities, have been trying to figure out how to build a community-owned fiber broadband network to bring high-speed Internet service to underserved small towns and even farms.
The effort has met just about every obstacle imaginable: trouble getting communities on board; difficulty landing funding; opposition from the private telecom industry.
In fact, the fiber network seemed all but dead last fall, after one of its big players, Sibley County, opted out. At the same time, bond lawyers were advising caution and cities were balking at the fact that they would have to keep and replenish a rainy day fund to protect whatever investors they could draw.
In these small communities with their equally tiny budgets, the investment and risk simply seemed too great.
But now, the players behind the original proposal have come up with a new plan to move the fiber project forward. Rather than building a publicly owned network, they would build one owned by a private cooperative, but with approximately $15 million in public investment. That might seem like a fine hair to split, but structuring the project this way would both limit taxpayer exposure and diffuse some of the criticism from the private sector.
“It’s the same project, just different,” said cooperative board chair Mark Brandt, a corn farmer in Sibley Township, who is also a lead operator at a local ethanol plant. The network would cover hundreds of square miles and deliver internet speeds of up to a gigabit per second, along with phone and cable television. The monthly bill, yet to be determined, would be the same for rural customers as it would be for those in the city. The cooperative, called RS Fiber Cooperative, has been created, and those who sign up for service would become its shareholders.
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The pricing scheme suggests a commitment to farmers that will no doubt help draw townships into the effort. “It costs more to build the project in the rural area than the cities so this concept is a very good selling point,” said Brandt. He hopes to recruit up to 21 townships to join an entity known as the RS Fiber joint powers board, which would sell general obligation bonds to raise the $15 million in startup money. Currently, the board includes Renville County and the cities of Brownton, Buffalo Lake, Fairfax, Gaylord, Gibbon, Green Isle, Lafayette, New Auburn, Stewart and Winthrop.
“The idea of townships and cities working together is exciting,” said Brandt. Since the beginning, “the cities involved have said that they know how important agriculture and the rural area businesses are to the cities.” He added that he sees faster Internet service as a tool “rural residents can use to compete with others throughout the world and not only in agriculture but in many businesses.”
If the project flies, the $15 million startup loan would be used to draw additional funding of up to $40 million from banks and government agencies to complete the project. Because the cooperative wouldn’t need all the money at once, it would save on interest. It also wouldn’t have to set aside millions for a debt service reserve fund, necessary under the original bonding scenario.
“What this new financing scheme does to the business plan is remarkable,” said Mark Erickson, the city administrator for Winthrop who has been the leading advocate of the fiber project. He thinks the network would cost around $55 million all told, significantly less than the original $70 million price tag, meaning it would need fewer subscribers to break even. “Under the revenue bond scenario, we had to borrow $70 million dollars,” he said. “We had to borrow $15 million beyond construction, $5 million for the reserve fund and $10 million for interest payments and we had to borrow it all at once.”
“Under this scenario, the risk drops,” he said.
Chris Mitchell of the Institute for Local Self-Reliance thinks this public/private partnership could prove a good model for other communities looking to build broadband networks. “It’s a terrific idea,” he said. “I don’t know of anything quite like it, certainly not in a rural area.” He said he’d be less enthusiastic about cities, townships and counties pouring money into a private company rather than a member-owned cooperative. “A cooperative is a different type of entity,” he said. “It’s accountable and not going anywhere. For that it seems like a very good approach.”
And yet, the startup loan from municipalities gives the whole project credibility in the eyes of lenders. “This is the kind of thing the state could encourage,” Mitchell said. “I hope it does encourage it if it works well.”
“It’s really impressive to watch the persistence of (the people) in Sibley County,” he added. “A lot of groups got to the point they got to and said, it’s too hard, we can’t make it work. It’s inspiring to watch them persevere.”
Next month, the cooperative and the joint powers board will start a new campaign to “remarket the project as a private cooperative to everyone in the footprint,” according to Erickson. “We will ask them to sign a pledge card,” which will also serve as a one-year agreement to take broadband services. He hopes the townships will sign on or give their answers by March. “I don’t know if we can do it,” he said. “But that is the plan.”