Rural Renville-Sibley fiber project gets down to brass tacks

ARLINGTON -- More than 100 people from nearby cities and counties gathered here last night to hear details about one of the most interesting broadband projects going right now in Minnesota.

Those championing the Renville-Sibley Fiber project are looking to build a fiber-optic system that would serve two counties, 11 cities and even individual farms in the area. Without the use of any federal stimulus money, they want to build a publicly owned, but privately run network serving every home, farm and business in the area.

The goal is to bring faster Internet to a region that advocates say has been underserved by existing providers. In the best of all scenarios, locals hope broadband might spark the sort of economic and cultural developments that could keep young people from moving to the city or even draw people back.

"Broadband is as essential as oxygen in every aspect of life today," said Gary Evans, who heads Winona-based Hiawatha Broadband Communications, which would manage the project. "It's absolutely the current must-have utility. The areas that have it are going to win. For me and I hope for you, this is all about a better quality of life."

Evans said that in every market where Hiawatha has established a broadband network, the population has grown. "In three cases," he said, "that reversed up to six decades of population declines."

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On the whole, the meeting at the Arlington Community Center was more about practical matters than philosophical goals. The crowd seemed to already have been convinced of the fiber network's merit. They wanted to know whether it was possible to pull it off.

Participating communities--which include Renville County, Sibley County, Fairfax, Gibbon, Winthrop, Gaylord, Arlington, New Auburn, Green Isle, Buffalo Lake, Steward, Brownton and Lafayette--have been asked to decide by early March whether to continue with the project and release additional funds for marketing and administration.

Similar projects in the past have drawn legal challenges from private Internet and telephone companies vying to protect their turfs. And this one could be challenged as well, especially since the RS Fiber folks are arguing the system wouldn't constitute a telephone exchange, a designation that comes with significant restrictions under Minnesota law.

"A telephone exchange must include local switching, must include a switch," said Robert Vose of Kennedy & Graven, attorney for the RS Fiber project. "A switch is not the kind of thing we're thinking of creating here." He said a switch is more like what Lily Tomlin ran as the character Ernestine in the show Laugh-In. "This network will not have a mechanized switching capability."

He argued that the project more closely fits under a less restrictive state statute governing cable services, in part because it clearly applies to counties while the telephone exchange statute may only refer to cities and townships. He raised the prospect of special legislation to further clarify the matter and said the group would need to seek a legal opinion before proceeding.

"Are we asking for trouble?" a woman asked.

"The short answer is yes," said Vose. "There will be some incumbent providers who will be displeased. To what extent and to what degree they will take their displeasure, I can't speculate. You've heard of opposition to this sort of a project. It's the norm when a government has looked at this sort of service delivery."

The most adamant questions of the evening were for Ralph McGinley of Oppenheimer & Co., which would conduct the bond sale for the project. It would be funded with around $69 million in revenue bonds, which are paid off with revenue from the network itself, as opposed to general obligation bonds, which are backed by taxpayers. Participants would be asked to approve a bond sale by late March.

There would be some public obligation to the project, in the form of what McGinley called a "debt service reserve fund." In order to make the project appealing to investors, he said, the participating communities would be required to establish and replenish if necessary a $4.5 million rainy day fund that would cover any shortfalls. They also would have to cover the contributions of any communities that ducked out of the project down the road or couldn't pay into the fund.

Discussion of the fund caused some in the audience to nervously click the retractable pens provided for the event. One attendee asked, "In other words, if everybody goes into this and the city of Arlington says we won't pay, their share will be shifted to everybody else? I wasn't aware of that last part."

"Yes, sir," said McGinley.

Another person chimed in. "What if all the entities refuse to replenish the fund?"

"At that point, you have the reserve fund that can be drawn upon for one full year for principal and interest," said McGinley. "Once that's exhausted, the bond holders have the ability to take over the project."

The event closed with a summary of marketing efforts and progress. The RS Fiber group is trying to gauge how many people might take the service if established and they've been sending out pledge cards to local residents. So far they've gotten almost 3,000 back. The goal is to hear from 55 percent of the houses included in the project, or 4,220.

Recently, four new cities were added to the project, which is good news because it spreads the cost and obligation around. Also, said Doug Dawson of CCG consulting, which has been working on the financial model for the project, the necessary subscriber percentage to break even declined from 70 percent of households to 64.5 percent.

An audience member asked Dawson, "Do you have an opinion about the rate of return on the cards?"

"Considering there are only two mailings, the response has been outstanding," he said. "I think you have to get to 3,200 to feel good. If you could get to 5,500, that would be amazing."

During two and a half hours of engaged discussion, hardly a person had left the room. Now, it's up to the individual city councils and county commissions to decide whether and how to proceed.

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