Minnesotans cherish their Arrowhead region for its timeless beauty, but timelessness doesn’t help businessmen like Bruce Kerfoot when he needs to order a fishing license for a guest at his family’s Gunflint Lodge.
“All of the fishing licenses these days are sold over the Internet, so you have to have the capacity to access the DNR’s web site,” Kerfoot said. “We don’t have that.”
Further, guests increasingly expect to make their reservations online.
“We cannot do that,” Kerfoot said. “We cannot come close to that.”
Kerfoot’s complaints echo across Minnesota’s rural and remote areas at a time when the state is seeking every lever it can find to hoist itself out of the recession and beyond. The state faces a budget deficit estimated as high as $7 billion in 2011. Officials hope a rebounding economy will send revenues soaring and ease the impending crunch.
In the face of that hope, MinnPost is examining a range of economic prospects for the state. You can find the kickoff for the series here.
Essential to commerce, productivity
This installment looks into broadband connectivity — widely seen as the new must-have component of the business infrastructure, as essential to commerce and productivity as highways and telephones.
“There are businesses that really cannot thrive anymore without broadband, and I’m not talking about high-tech businesses at all,” said Jack Geller, a professor at the University of Minnesota Crookston who sits on the Minnesota Ultra High-Speed Broadband Task Force.
Take your local real-estate firm, Geller said. Not that long ago, people drove through neighborhoods scouting for-sale signs. No more. We expect to take virtual tours of rooms before we literally cross any thresholds.
“A simple industry, as place-based as real estate, really can’t be competitive anymore without a broadband connection,” Geller said. “People identify it as an essential service.”
No broadband? No guests
For those reasons and more, Cook County — which takes in towns along Lake Superior’s North Shore, the Gunflint Trail and part of the Boundary Waters Canoe Area Wilderness — is poised for a definitive decision about its connectivity and its economic future.
Voters are set to decide a referendum proposing a 1 percent sales tax that could be used to help fund several projects, including construction of a fiber optic network. The plan is to make high-speed Internet access, cable TV, and telephone service available to every home and business.
The county has applied for a $33 million federal grant to help fund the project. In all, Minnesota has a stake in 77 different grant applications for a share of $7.2 billion in federal stimulus money dedicated to national broadband coverage. The first round of awards is expected to be announced in November.
Cook County’s federal grant application [PDF] spells out the urgency of its need:
• Tourism is the economic driver for the scenic county, but tourists increasingly refuse to stay in hotels and resorts that do not offer broadband.
• Many businesses rely on dial-up connections over aged copper wires with service so slow that it took one company 12 hours to download a simple update to its accounting software.
• After the conversion to digital television, regional broadcasters do not plan to rebuild with digital signals in the county. Many residents relied on television for everything from forest-fire alerts to school closing announcements. A local radio station helps broadcast emergency announcements, but it doesn’t reach everywhere in the county.
• One of many specific costs to businesses came when a local realtor lost a sale to doctors from the Mayo Clinic. They learned that the only internet connection to the home was by satellite. They needed to work remotely. And they did not consider a satellite connection to be sufficiently reliable.
• Lutsen Mountain Inn has tried to get a T1 high-speed line, but learned it is not available at any price.
“The business community in Cook County desperately needs broadband,” the application said.
County residents apparently back the project. In a poll, 90 percent said they would subscribe to a local broadband supplier.
The North St. Paul experience
Still, the county’s broadband boosters have reason to be nervous. Fierce opposition to such government-built projects has erupted in some parts of Minnesota.
In North St. Paul this year, opponents shot down “PolarNet,” a planned fiber optic system for telephone and Internet service. The city had proposed to build the network in a bid to stimulate economic growth and improve educational opportunities.
The project was to be funded with $18.5 million in general obligation bonds which would be repaid with subscriber fees. As a backstop, the city proposed to increase property taxes if the fees fell short of the sum needed to meet the payments.
A muscular opposition emerged before the February referendum. It married the anti-tax, anti-big government movements with Qwest, Comcast and other communications companies that would have competed with the city system.
North St. Paul voters rejected the proposal by 67 percent to 33 percent.
Some towns online, some in court
The battle in North St. Paul has been repeated across Minnesota with mixed results.
Windom (population 4,490 in 2000), in Western Minnesota, was one of the nation’s first cities to provide fiber-to-the-home service [PDF]. Voters rejected the project in 1999, but approved it a year later. Now Windom proudly bills itself as the “lively, growing” seat of Cottonwood County. And nearby communities are pleading for expansion of its state-of-the-art connectivity.
In Monticello, on the other hand, a similar broadband project has been delayed for years. Voters overwhelmingly approved it in 2007, but the incumbent telecommunication provider, Bridgewater Telephone Co./TDS, sued to block the project, arguing that the city could not finance it with revenue bonds because broadband service isn’t a utility. National and state telecommunication industry associations rallied behind Bridgewater/TDS.
The case [PDF] went all the way to the Minnesota Court of Appeals which ruled this year in the city’s favor.
Arguing that the Appeals Court decision “threatens to rewrite the relationship between local government and private enterprise altogether,” Bridgewater/TDS appealed to the Minnesota Supreme Court.
“We are appealing, in particular, the virtually unfettered discretion the decision, as it stands, gives to municipalities in Minnesota,” Bridgewater/TDS said. “It would allow municipalities tax-free financing to enter into competition with tax-paying businesses in areas traditionally served by private enterprise.”
But in June this year, the high court declined to review the decision.
A railroad, not a highway
Take a minute to list the changes the Internet has brought to your daily transactions in just a few years. If you’re like me, you routinely go online to work from home, nail down plane and hotel reservations, call around the world via Skype, research virtually everything you plan to buy and often purchase the stuff, too.
It is nothing short of an economic revolution — so profound it has crippled newspapers, threatened the U.S. Postal Service and challenged conventional stores to fight for their very existence.
This explosion of change has propelled productivity and opened the potential for better delivery of medicine and other services. But it also has challenged our government systems for promoting and regulating commerce.
“Information Superhighway” is the metaphor we typically ascribe to the medium enabling this revolution.
Your typical highway, though, is built with tax dollars. Everyone can drive on it. And we expect the government to maintain it — again, with tax dollars.
In contrast, connectivity has emerged more like a railroad than a highway, said Geller at the University of Minnesota Crookston.
“I build tracks, and I run my cars on my tracks,” he said. “If you want to run your cars on these tracks, you have to pay me for it. And if you try to compete with me, I will fight that.”
Connectivity is a private service for the most part, he said: “If you can afford it, you get it. If you can’t, you don’t.”
Creating their own
Hence the controversy as communities — frustrated with systems they deem to be too slow, expensive and limited in their reach — have decided to race for competitive economic advantage by creating their own systems.
“Whether you agree or disagree with how good a job your incumbent providers are doing, you have to admit that they have invested millions of dollars in your community,” Geller said. “Now we are saying we need more, and the government should provide it … should use taxpayer dollars to compete with the private sector.”
On the other hand, community broadband boosters argue that there is nothing new about governments providing their citizens with basic needs that could be filled privately. We do it with highways, bridges, schools, recreation centers and utilities in many cases. Cities get into the liquor sales business. Some pick up trash. Most plow streets.
“A commercial broadband provider is there to make money and there is nothing wrong with that,” said Ann Treacy of St. Paul who writes a broadband blog for a Blandin Foundation website.
“But it doesn’t always match the priorities of the community,” she said. “And the providers can only invest the money if they think there is going to be the payback.”
Connected, but at what speed?
The state is poised to step into this fray. Its Minnesota Ultra High-Speed Broadband Task Force is to make recommendations for the Legislature to begin considering as early as next year.
The state also has arranged for Connected Nation Inc. to map its connectivity showing where there is coverage and where gaps exist. The maps, showing that Minnesota is 94 percent connected, can be seen here.
But even that step is controversial.
The maps are based on a Federal Communications Commission definition of broadband, setting speeds at 768 kbps for downloads and 200 kbps for uploads. That standard is widely criticized as too slow, and even the FCC is reconsidering it for a national plan.
A 2008 state law requiring the maps didn’t define broadband, said Diane Wells of the Minnesota Department of Commerce. Now that is one of the jobs facing the Task Force.
“There is a lot of dispute that the FCC definition is too slow, and the Broadband Task Force is looking toward the state aspiring to higher speeds,” she said. “Still, we are one of only about seven or eight states that have any data at all.”
Another vexing problem facing the Task Force is how to connect remote places like Cook County, where it never may make economic sense for a company to string costly fiber to a handful of subscribers who live miles apart from one another.
Quintessentially hard to serve
The challenges roiling so many Minnesota cities and counties right now “differ case by case,” Wells said.
Cook County’s great challenge springs from its naturally stunning setting. It sits on a heavily wooded rock ledge in one of the state’s most sparsely populated regions. That’s been a disadvantage until now in terms of getting broadband. And it’s one reason the proposed fiber network is estimated to cost $53 million, of which about $20 million would come through bonding and the 1 percent sales tax.
But the county’s broadband boosters hope to turn the forbidding setting to their advantage. The $7.2 billion in the federal Recovery Act broadband funding is targeted toward “unserved and underserved communities.” The terrain, the topography and the numbers of customers per mile make Cook County the quintessential underserved and hard-to-serve area.
Kerfoot at Gunflint Lodge said he doubts it ever could be profitable for a company to deliver broadband to his remote location.
Merely maintaining telephone service is a struggle. Gunflint Lodge has gone five days at one stretch this year and several shorter periods with no phone service. That means no reservations taken and no credit-card transactions, to name just two of the business costs.
Kerfoot buys satellite Internet service. But it can be spotty, depending on the wind and snow that Cook County experiences to excess. Slight delays also make the service inadequate for business-grade transactions such as online reservation booking, he said.
Wireless service is iffy, too, because of the tree canopy, the iron content in the rocks and the terrain. To be effective, it would require many more towers than most visitors would like to see on the edge of the wilderness.
Bringing broadband service to the county through fibers would be “like bringing power to rural America,” Kerfoot said. “It will change and upgrade the quality of our lives to a substantial extent.”
The county’s referendum is to be conducted through ballots mailed in mid-October to all registered voters with a return deadline of Nov. 3. A simple majority of the voters could pass the sales tax.
But a second question will need a “supermajority” of 65 percent of the vote to succeed. It asks whether the county should build a telephone service as part of its broadband package. State law allows communities to install their own phone systems, but only if they are approved by a supermajority of voters. Since most communities propose package deals — telephone and television along with broadband — that has been a hurdle statewide.
To date, Cook County has seen little opposition to the proposal, said Danna MacKenzie the county’s information systems director.
The county proposes a partnership on the project with Boreal Access, a cooperative Internet service provider that already does business in the region. But the new system would compete with two private companies: Quest and CenturyTel. So the potential is there for the same friction that brought down North St. Paul’s plan and delayed construction in Monticello.
MacKenzie insists, though, that Cook County is different. In those other cities, residents could buy at least some level of high-speed connectivity if they were willing to pay the price. Many parts of Cook County have none, she said, and the companies have declined to install T1 lines even to the Forest Service’s Seagull Guard Station.
“The private companies have voted by not doing it,” she said.
Sharon Schmickle writes about science, Greater Minnesota, international affairs and other issues for MinnPost.