A Minnesota county that won a $66 million broadband stimulus award is encountering both funding and management challenges as it sets out to build a planned fiber-to-the-home network. And although some of the challenges it is facing are unique, the case could be a sobering example of the kinds of issues that other stimulus winners, particularly municipal projects,  should be prepared to address.

The Lake County Fiber Network won its stimulus award from the Rural Utilities Service in September in the form of a $56.4 million loan and a $10 million grant, with the stipulation that the network operator also would provide $3.5 million in funding of its own.   According to a report published by the Lake County News-Chronicle,  Lake County planned to satisfy the matching funds requirement by bonding for the money. But, the News-Chronicle reports, a murky bond market and sky-high interest rates added nearly $2 million in interest on the deal.

Accordingly, Lake County Board of Commissioners recently voted to use $3.5 million in public money for the project—a move that board members previously had said would not be necessary, according to the News-Chronicle.

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In the midst of all of this, the board also has made the decision not to work with National Public Broadband, the consulting firm that helped the county with its application for stimulus funding. “The two sides battled for nearly two months and couldn’t solve issues based on bonus payments and the ability for the county to fire NPB without cause and without penalty,” the News-Chronicle reported.

Controversy surrounding NPB chief executive Tim Nulty—justified or not–also may have figured into the board’s decision. After a career that, among other things, reportedly included stints as a professional soccer player, chief economist of the U.S. Senate Commerce Committee, and senior project manager for the World Bank,  Nulty went into semi-retirement in Vermont about 10 years ago. There he ended up spearheading the creation of Burlington Telecom, another municipal FTTH network.

Burlington Telecom may be familiar to the Telecompetitor community because the organization, which was started without public funding, recently found itself unable to make its loan payments. Nulty left the organization in 2007, allegedly over disputes about marketing.  He claims the network was making good progress on meeting its business plan at that time. In commentary provided to the Community Broadband Networks site in December,  Nulty argued that the network was mismanaged after he left.

“After I left, BT’s marketing program was suspended on orders from City Hall and never fully restarted,” wrote Nulty. “The Blue Ribbon Commission last year identified inadequate marketing as the single biggest failing by BT management after I left.” Whatever the facts are in the Burlington Telecom story, an important lesson to take away from it, as Community Broadband Networks notes,  is the importance of proper oversight and communication.

Considering that many stimulus winners, like Lake County Fiber Network, pledged to provide matching funds, it also should be interesting to watch for further funding challenges in that area. It’s unclear at this point whether it was a widespread practice for stimulus winners to plan on using the bond option to raise matching funds but if it was, other awardees also could be facing similar challenges. It’s also unclear whether the financial market is singling out municipal networks as a bigger credit risk than incumbent telcos or other experienced network operators seeking funding. But that’s another development worth watching closely.

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7 thoughts on “Minnesota FTTH Stimulus Project Off to a Rocky Start

  1. Maybe municipals shouldn't be in the broadband business? I'm sure there are other ways to attract a qualified service provider to come serve their market – tax breaks, rights-of-way exemptions, franchise fee exemptions. They could get real creative – in the end, would probably be much less risk and much less cash commitment on their part.

    1. Maybe municipalities should get out of the business of providing water, sewer, and drivable streets too. With the right tax breaks, right of ways, and franchise fee exemptions some creative companies could provide us with all the drinking water we need, take away our waste, and allow us to easely drive over to grandma's.

      1. Tony – I see you're point, but just don't think its valid. The services you point out are exactly what municipalities are for. There are no other service providers to do them. But broadband is different. There are service providers who make that their business – which happens to be a risky business. So much so, maybe municipalities should think twice about doing it, and find a way to partner with those that do, where the risk is not born by citizens.

        1. And that's exactly why those other "utilities" have been historically provided by "municipalities" – because it was too expensive or too risky for commercial providers to do them, but nonetheless critically needed, hence the "citizens" took it upon themselves to provide them.

          I am the Network Operations Manager of Mahaska Communication Group (www.mahaska.org) and I know well the costs and risks associated with providing these services. But I also live in a small rural community that has been long ignored by these "service providers" who have said to our face "You are too small for us to consider investing here. You are not in our 10 or 20 year roadmap."

          Broadband is the new utility. If commercial entities ignore a service area, the citizens in that area ought to have the right to solve the problem on their own. Waiting for someone else to do it might be like waiting for Godot.

  2. "The two sides battled for nearly two months and couldn’t solve issues … and the ability for the county to fire NPB without cause and without penalty"

    Good for the county to keep accountability high.

  3. There is a reason why these areas do not have broadband, it is darn expensive. And just because someone lends the money; that doesn't change the business case. May even make it worse as debt adds cost to the transaction.

  4. That's why socialism doesn't work. Government always thinks they can do it better, with "free' money that tax paying businesses supply, then always find out they don't know how to run a business. Look at the NTIA ARRA money give away. They gave away billions to governments, and are now going back to congress for more money because they now have to train the governments on how to run a business! Everyone can't have everything for free, especially on the backs of the few that still pay the taxes. incentivize private business, don't expand government and take more dollars away from tax paying businesses.

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