$70 Million Countywide Government Telecom Network on Hold

Construction of the proposed taxpayer-backed telecom network known as RS Fiber has been quietly pushed back until at least next spring. Yet you’d never know this if you visited their website.

According to the RS Fiber website, groundbreaking was to occur last month. The reason for the unexpected and unusual delay cited by supporters of the municipal broadband proposal involves municipal bond financing for the proposed government-owned telecom network in Renville and Sibley counties in southern Minnesota.

“I know that the intention is not to break ground this year. I hate to be vague on that, but we haven’t heard anything relative to a date for ground breaking but I know it isn’t going to take place in 2012,” said Gary Evans, CEO of Hiawatha Broadband Communications (HBC), project manager.

The two counties and ten cities participating in the fiber to the home, farm and businesses network expected to begin installing the system this fall. Financial advisors working on selling nearly $70 million in municipal revenue bonds for the proposed telecom network, however, now say it will take longer than originally expected to finalize the bond offering. As a result, construction on the first phase of the system will not get underway as planned this year.

“Of course that all depends on a successful revenue bond sale,” Winthrop City Administrator and EDA Director Mark Erickson said in a recent news release. “We feel the project is (on) a good path but we have a lot of work to do yet regarding financing.”

Though construction apparently will be delayed by about half a year, Erickson indicated that Oppenheimer, the company working on the revenue bonds for RS Fiber, still anticipates an offering sometime this fall. First, local officials must provide detailed information for prospective investors.

“Oppenheimer gave us a due diligence list seven pages long,” Erickson said. “We have different people working on different parts of the list. We’ll get it done.”

It’s not clear if the recent decision by the city of Monticello to suspend bond payments for its $26 million FiberNet telecom system has had an impact on the municipal bond market for local government-owned telecom networks. To guard against that possibility, cities and counties participating in RS Fiber must contribute on a proportionate basis to a $4.5 million Debt Service Reserve Fund.

Proponents expect RS Fiber to start paying for itself after three or four years. If not, the reserve fund will be used to meet the system’s financial obligations. For example, taxpayers in the city of Stewart could be on the hook for anywhere from $6,700 to $213,000 under one scenario presented by a financial consultant who met with the city in June.

One of the key reasons FiberNet Monticello projects a $2 million loss this year is the unexpectedly fierce competition with private providers for customers. A similar battle has already begun for RS Fiber, judging from an aggressive message to consumers on the RS Fiber’s government website.

“Competitive providers will try to entice you with that ‘deal that’s too good to pass up’. Often prices go up a staggering amount after the promotional period. With RS Fiber, you will get upfront affordable pricing for the long- term. RS Fiber will be able to offer things like local programming that other providers cannot,” the website warns.

If RS Fiber moves forward, it will likely face competition against numerous private telecom providers already up and running in the area who are eager to keep existing customers.

Tips or comments? Contact Tom Steward at 612-354-2192.

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