Company steps up attacks on fiber plan

• Complaint

Mediacom said it provides cable television service to about 5,400 customers in the cities of Two Harbors, Silver Bay, and Beaver Bay in Lake County and Aurora and Hoyt Lakes in St. Louis County. Mediacom gives support to Midcontinent Communications in its complaint. It serves 3,000 customers in Babbitt and Ely in St. Louis County. There are about 15,000 homes and businesses in the project area.

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• State maps out broadband coverage

Mediacom has ramped up its objections to a Lake County plan to string fiber optic lines throughout the county and parts of St. Louis County.

The national cable television provider sent a 26-page complaint this month to the Office of Inspector General within the U.S. Department of Agriculture in Washington. The USDA is funding fiber projects across the country through federal stimulus programs run by its Rural Utilities Service branch.

Mediacom highlights three areas of concern:

- It states that because it deems that the Lake County project isn’t financially viable, it runs the risk of defaulting on its stimulus loan of $56 million. Mediacom reported that it had conversations with county officials who said they believed “RUS will forgive the loan” if the project fails, which Mediacom says makes the loan “impermissible” under federal laws.

- Mediacom says the county does not have the authority to run a cable television or telephone network without approval from voters.

- Mediacom also had several complaints about former county consultant National Public Broadband and its efforts to secure the stimulus loan and grant. Roughly half of the complaint deals with NPB. Mediacom officials say those portions have been dropped since the county cut ties with NPB last month.

Russ Conrow, the former Lake County Attorney, is working with the county board on the setup of the fiber project that would bring high-speed internet, telephone, and video services to all residents on the electrical grid in the project area. He knew the filing was coming and crafted a response on behalf of the county Monday.

“It is unfortunate that Mediacom, a national corporation with four billion dollars in assets, is willing to fight a network that will serve citizens … who are underserved or even unserved,” Conrow wrote, “simply because Mediacom does not want competition for approximately 2,000 of its 1.2 million customers.”

County coordinator Matt Huddleston told the county board Tuesday the complaint didn’t have “much substance” and they would “keep moving along” with the project.

Conrow said the complaint about the RUS loan is specious. He said conversations with RUS and then to Mediacom were about what happens if the project fails and the loan can’t be paid back.

“Infrastructure is the capital,” he said. The government would seize all the assets of the project to reclaim the loan losses.

Tom Larsen, a Mediacom vice president for legal and public affairs, said his company will fight a government-backed buildout that puts taxpayer money at risk. He said there would be no complaint if Mediacom was simply dealing with another private company coming into its territory.

“This is the most obnoxious project in the 22 states we serve,” Larsen said. “It’s the only one that rises to a level we object to.”

Definition of service

Larsen said most of Mediacom’s competition comes from wireless operators, not a system on the ground. “This is a 100 percent overbuild of my system.”

Lake County would object, saying it meets the intent of the stimulus funds to bring better service to a rural county. It has also stressed the need to provide a better communications grid for safety reasons and to stimulate business growth.

County board member Paul Bergman said the RUS will do its “due diligence” to make sure the project is on firm footing. He said the RUS has never had a default on a project loan because they “make sure they never have one that fails.”

Larsen and Mediacom attorney Eric Breisach cite an 2009 report from the USDA’s Office of Inspector General as proof that broadband loans have defaulted. The RUS questioned the report that identified a default as any repayments more than 90 days late. RUS said less than a half-percent of loans made since 2001 have gone “delinquent.”

Lake County has already invested about $273,000 in the project, mostly in consultant fees to secure the federal funding. About $45,000 of that amount is from a grant and St. Louis County.

Referendum question

The jury is out on the requirement that the county ask voters for approval to run a phone and cable network. In the original plan, NPB would have been the agency responsible for the network and licensing. Conrow said that with NPB out of the picture and the project continuing as a “work on progress,” things could change. A referendum “has been discussed,” he said.

The complaint about who has authority is a strategy used against municipal telecoms in recent Minnesota history. When the city of Monticello was building its broadband system, often hailed as a model to follow, a competing telecom argued that fiber optic systems, particularly internet service, weren’t a utility, and thus the city wasn’t eligible to raise bonds to build it under its normal telephone and cable authority. That claim was dismissed.

Larsen said there is no precedent for authority granted to government bodies in non-municipal areas.

Much of the complaint deals with the struggles of Burlington Telecom in Vermont, a telecom once managed by NPB CEO Tim Nulty. Part of the county’s separation with NPB was based on the continuing fallout from the financial problems in Vermont.

Larsen said Mediacom has put all issues regarding NPB “off the table” when it comes to its complaint.

Conrow and board members had contentious negotiations with National Public Broadband on a long-term contract and eventually went their separate ways last month. Two weeks later, the board approved a new two-person management team to replace NPB.

Jeff Roiland and Gene South are currently scouring the county plan and its elements could change, Conrow said. Both were picked for their experience with a similar project in Willmar and South’s extensive experience working with RUS.

Washington reaction

Paul Feeney, deputy counsel for the Office of Inspector General in Washington, acknowledged the Mediacom complaint. “Some complaints we handle and some we refer to the relevant USDA agency,” which would be the RUS. He did not know the status of the complaint but said his office receives “hundreds of complaints a month.” He said it would likely be “a few months” before any action on the complaint is known.

Lake County will continue to mold its project to provide fast broadband, Conrow said.

Mediacom’s complaint is par for the course in the battle between publicly financed projects and private companies, broadband advocate Chris Mitchell said. He is the director of the Telecommunications as Commons Initiative for the Institute for Local Self-Reliance, a group based in St. Paul that is focused on cutting through what it calls “disinformation” from private telecoms when it comes to setting up networks using public money.

Mitchell said the county project is about getting high-speed service to rural areas that are underserved by companies unwilling to invest in expanding their reach.

“The county needs to run with this,” he said. “They need to say this out-of-state company is trying to deny broadband” to its residents.

Mediacom said it provides cable television service to about 5,400 customers in the cities of Two Harbors, Silver Bay, and Beaver Bay in Lake County and Aurora and Hoyt Lakes in St. Louis County. Mediacom gives support to Midcontinent Communications in its complaint. It serves 3,000 customers in Babbitt and Ely in St. Louis County. There are about 15,000 homes and businesses in the project area.

County as a target

County commissioner Berg-man said “I think we’re ground zero” when it comes to private telecoms fighting government-backed fiber projects. He likened the Mediacom fight as “David versus Goliath” and that companies are likely going after small rural operations to gain precedent for turf battles across the nation.

Breisach said “it may seem like small potatoes” in Mediacom’s national network but the potential lost customers adds up to “real money after a while.”

Bergman said RUS was aware of a complaint coming from Mediacom but didn’t know how it planned to react to it. RUS officials had no comment on the complaint.

Feeney, from the OIG office, said most of his office personnel have been tied up in Congressional hearings.

Funding battle

The $7.2 billion spent through the broadband stimulus program ushered in under President Obama is being scrutinized by the new Republican majority on Capitol Hill. The Federal government has been offering funding for broadband projects most of the last decade.

The spending bill approved by the U.S. House of Representatives last

month has an amendment that would defund the broadband program. The bill isn’t expected to survive in the Senate and it isn’t clear if funds already promised to entities like Lake County would be pulled.

Lake County’s representative in the House, Rep. Chip Cravaack, did not return several requests for comment on broadband funding, the Mediacom complaint, or whether he backs the Lake County project. Calls were referred to staffers who were unaware of the Lake County fiber project.

The Republican argument for halting the stimulus program echoes Mediacom’s complaint about money going to project areas already getting service.

The other side argues that private companies aren’t doing enough to provide up-to-date, high-speed options for rural customers.

Overlap?

Mitchell said the debate about duplicative services is comparing “apples to oranges.” He said Mediacom “can’t offer anything faster” than the fiber project the county is planning.

In its 2009 annual report, Mediacom estimated that 13 percent of its market was affected by competing municipal systems. Most were in place when Mediacom arrived. The New York-based company has about 1.25 million customers in 23 states, mostly smaller communities in the Midwest and South.

In the 2009 report, Mediacom said it expected little competition in its markets and didn’t know the impact of federal stimulus money for broadband, which was available to private companies as well.

Mediacom admitted it had “substantial debt” that could limit its ability for financing to make improvements on its cable operations, especially since technology is changing so rapidly.

Mediacom attorney Brei-sach said the Lake County project may be offering “faster internet” but questioned how that affects customers. “People don’t need that capacity,” he said.

Larsen said it wasn’t a “matter of if, but when” Mediacom would expand speeds in its markets. He didn’t speak directly to the market in the Lake County project area.

Breisach said Mediacom’s goal is to suspend the federal award of money to Lake County until the investigation through its complaint is complete. He said Mediacom will concentrate on the complaint and has not considered litigation.

Long fight ahead

Lake County has endured three broadsides from Mediacom. In December, it questioned the legality of a joint powers agreement signed by officials in county cities and townships. It turned out the company had an early version of the JPA and its complaints were irrelevant to the final draft.

Mediacom representatives met with Lake County officials in January. Attorney Conrow said Mediacom was trying to “discourage Lake County from continuing to build a fiber-optic network.”

“If there was no government subsidy,” Larsen said, “I could not complain.”

County board chairman Rick Goutermont said he understands that Mediacom is practicing “capitalism” in complaining about potential competition. “It’s not surprising. It’s understood.”

Bergman said it’s easy to move forward on the project given the backing of the federal agencies wanting better service in rural areas. He said the private company squabbles demonstrate “anti-economic development for the U.S.”

Public meetings

Lake County board members are planning a series of public meetings to explain the basics of the fiber-to-home project that will bring internet, phone, and television service to most homes in the county and parts of St. Louis County. The county will also talk about where the project is today and its recent decisions.

March 3

6:30 p.m. Two Harbors, Law Enforcement Center

March 15

6:30 p.m. Silver Bay, part of committee of the whole meeting at city hall

Still planning

An Ely-Fall Lake area meeting has yet to be scheduled.

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