Monticello’s revenge

Monticello, Minnesota is the poster child for what happens when monopolies are in danger of losing their monoplies.

The Web site Ars Technica has the story of TDS Telecommunications’ announcement that it will soon provide 50Mbps Internet service over fiber optic cable, becoming one of these cities to have screaming-fast access. The company will also provide a free upgrade for those now on 25 Mbps service and the entire shooting match will go for $49.95.

Writer Nate Anderson has the story behind the story:

But the entire congratulatory press release glosses over a key fact: the reason that Monticello received a fiber network was the town’s decision to install a municipal-owned fiber network to every home in town… spawning a set of TDS lawsuits that went all the way to the Minnesota Supreme Court, which ruled in favor of the town.

The saga began in 2007, when the town passed a referendum approving the city-owned fiber network. The city says that it had approached TDS and was told that no such system would be installed in town in the near future, so it went ahead with its own plans.

After the referendum, the city was sued by the telco just before groundbreaking began. The suit didn’t seem to have much of a chance under Minnesota law, and indeed judges at multiple levels ruled for Monticello. But in the meantime, TDS rolled into town with nine crews of its own and began installing–you guessed it–fiber to the home.

Supply your own comparison with the concept of government competing with insurance companies here.

(h/t: Jon Gordon)

  • Tyler

    Considering the fact that health insurance companies are exempt from anti-trust laws (in other words – INSURANCE COMPANIES CAN BE A MONOPOLY), I think this sounds like GREAT reason to include a public option in the upcoming health care legislation.

  • matt

    1. Most current telecoms/cable companies are not monopolies by their own design. The telecoms are a legacy of Ma Bell which was a monopoly but the cost of sending a second set of wires through a community keeps out most other competitors but it has begun to happen. Waseca has two cable providers – the potential for market share led a competitor to come in and wire the entire community a second time (population 9611). Now enter cellular, satellite and voip and clearly there is an active marketplace, with some localized holdouts.

    2. Comparing the city of Monticello to the US govt is way off. The city of Monticello is greatly restricted in the amount of regulation it can place on a telecom, not so with the US and health insurers/health care policy.

    3. The level of tolerance we can allocate to internet service is not comparable to health care. The worst that can happen is slow loading youtube videos as opposed to hmmm…death.

    To this date for every foible pointed out in the health care system I can point you to a point where govt intervention in the marketplace brought it about. Most importantly in the end the reason health care costs us so much as a nation is simply because we consume so much of it. How did our consumption rise so much? 1. Free markets have created so much efficiency in other areas of our life we have the resources to spend on health care. 2. The existing freedom of the health care market (I would say it is still 70% free) has innovated and created quality that has driven demand. I suspect that as the government continues its push into healthcare and the rest of our markets we shall see the trend reverse.

  • Bismuth

    Some of the commenters there brought up a good point… it’s often the small towns that grant monopolistic contracts to these companies in order to lure them into a market they wouldn’t otherwise find profitable. Once set up, the company just has to sit back and collect money, with no reason to upgrade service on their own.

  • Bob Collins

    The trick of challenging the monopoly, though, is you can pretty much only threaten to do it. If you actually do it, you’ll likely go bankrupt.

  • Greg

    Another interesting question: why is Internet access so damn expensive in the US? I’ve lived in two foreign countries now with Internet speeds at least as fast (China) and faster (S. Korea) than the US and paying a fraction of the price ($20/year and $34/month respectively, I could get as low as $7 a month for a somewhat slower connection). It seems like there are two things that Americans are paying more than many other places for, Internet access and our cell phones. Could this be related to the monopoly system?

  • Christopher Mitchell

    Bismuth is incorrect by suggesting any town can offer an exclusive franchise monopoly to a private company. The 1996 Telecom Act prohibited exclusive franchises.

    The economic reality is that wired networks are incredibly expensive, and as Bob Collins rightly notes, very difficult to overbuild.

    Monticello should be congratulated for ensuring the community has fast broadband at affordable prices – they have really had to work for it. However, TDS should not be allowed to price-gouge, I hope the FTC looks into it to make sure they are not offering services below cost.