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predatory pricing
Content tagged with "predatory pricing"
Local Governments and Internet Access Debate - Community Broadband Bits Episode 185
For this week's Community Broadband Bits podcast, we are trying a discussion/debate format between myself, Christopher Mitchell, and Ryan Radia, Associate Director of Technology Studies at the Competitive Enterprise Institute. We have debated previously and prefer a style of seeking to flesh out the argument rather than merely trying to win it. We start by discussing the role of incumbents in limiting competition and what might be done about it.
Next we move to bandwidth caps. On both of those points, we have pretty significant disagreement. We finish by discussing the role of conduit and poles, where we have some agreement. If you like this show, please do let us know and we'll try to have more in this style.
This show is 22 minutes long and can be played on this page or via Apple Podcasts or the tool of your choice using this feed.
Transcript below.
We want your feedback and suggestions for the show-please e-mail us or leave a comment below.
Listen to other episodes here or view all episodes in our index. See other podcasts from the Institute for Local Self-Reliance here.
Thanks to Arne Huseby for the music, licensed using Creative Commons. The song is "Warm Duck Shuffle."
Fibrant Rolls out 10 Gbps, A Look At Salisbury's Challenges in FTTH
Salisbury, North Carolina's Fibrant, now holds the distinction of offering the fastest Internet access in the country. The municipal network is making 10 Gbps symmetrical connectivity available for residents and businesses.
Fibrant's first 10 Gbps customer is Catawba College, a local school that will use the ultra-fast connections for its new Digital Media Creation and Collaboration labs. In a press release Joanna Jasper, Catawba CIO stated:
"By moving to Fibrant's 10 Gbps speeds, the College is in a better position to differentiate itself. We can bring world-class broadband services to our campus community to support the next generation of educational applications."
…
"The future is all about rich immersive digital media and being able to communicate and collaborate with others in real-time regardless of where people are in time and space."
The city of Salisbury hopes this new standard will set it apart from other North Carolina communities and entice more economic development. From a BizJournals article:
“It helps us differentiate ourselves” among cities and states seeking technology companies, [says Kent Winrich, Director of Broadband and Infrastructure Services]. “It will attract international companies. It’s not sniping businesses from Charlotte.”
Winrich sees Salisbury attracting technology companies that need the bandwidth for real-time connections to clients and suppliers — software developers and data centers, for example.
The network, which already offers gigabit connectivity to businesses and residents for around $100 per month, has attracted several businesses to a community that once struggled with job loss. Mayor Paul Woodson told WFAE that the investment in Fibrant grew out of necessity:
The Birth of Community Broadband - Video
ILSR is excited to announce a new short video examining an impressive municipal broadband network, Glasgow Kentucky. Glasgow was the first municipal broadband network and indeed, seems to have been the first citywide broadband system in the United States.
We partnered with the Media Working Group to produce this short documentary and we have the material to do much more, thanks to the hard work of Fred Johnson at MWG and the cooperation of many in Glasgow, particularly Billy Ray.
People who only recently became aware of the idea of community owned networks may not be familiar with Billy Ray, but it was he and Jim Baller throughout the 90's and early 2000's that paved the way for all the investment and excitement we see today.
I'm excited to be helping to tell part of this story and look forward to being able to tell more of it.
Monticello Fiber Price War Offers Key Lessons for Broadband Competition
Monticello Minnesota may be located 40 miles outside Minneapolis, but it is the center of the planet when it comes to FTTH competition. We have tried and cannot identify another community localed on planet earth with two separate FTTH networks going head to head across the entire community.
We have long written about Monticello, most recently to look at hypocritical criticism of the project (which gives me an opportunity to note a similar dynamic in Lafayette, Louisiana). And we have covered the disappointing news that the network has not produced enough revenue to make full bond payments.
Short explanation for how Monticello came to be unique in having two FTTH networks: Monticello had poor Internet access from Charter and telephone company TDS. Each refused to invest after local businesses and elected officials implored for better networks. Monticello started building its own FTTH network (Monticello FiberNet) and TDS sued to stop the project while suddenly decided to upgrade its slow DSL to fiber. Lawsuit was tossed out and Monticello finished its network.
In most community fiber networks, the DSL provider seems to fade away because it cannot offer the fast speeds of fiber or cable, so the market basically remains a duopoly with the community network replacing the telephone company (which continues to offer cheap, slow DSL to a small number of customers). But in Monticello, Charter and TDS engaged in a price war, which has really hurt the City's ability to generate enough revenue to pay its debt.
Price wars are very hard on new market entrants because they have to amoritze the cost of their investment whereas the incumbents often have already done so. This means incumbents can almost always offer lower prices if they are determined to do so.
In many communities, we have lacked clear evidence of predatory pricing - that is pricing below the actual cost of service to run competitors out of business. This would violate federal law (if any agency bothered to enforce it).
Monticello Moves Closer to Settlement with Bondholders
It has been about a year since we checked in on FiberNet Monticello, a city-owned FTTH network about 40 miles northwest of Minneapolis. At that time, the network was generating insufficient revenue to meet debt payments, the private company operating the network (HBC) was stepping down, and Gigabit Squared was kicking the tires.
Since then, Gigabit Squared and Monticello decided against a partnership and the City ceased making payments to bondholders. Previously, the City had covered the difference between revenues and debt payments by borrowing from the City's liquor store fund, a municipal enterprise fund.
Monticello had financed the network with unbacked revenue bonds, meaning investors understood from the start that the full faith and credit of taxpayers would not "make them whole" in the event that the network did not create the revenues necessary to pay back the bond. Because Monticello chose that financing method, it had to pay a higher interest rate - those who buy bonds understand the differences in risk with different types of bonds and rates.
However, the City has been negotiating with bondholders for a settlement to avoid potential lawsuits over the telecom utility and because this is a typically what how these situations are worked out. Bondholders will "take a haircut" in the parlance of finance rather than risk a total loss.
Last week, Monticello City Council approved a $5.75 million proposed settlement in addition to the remaining funds left in the reserve fund, totaling approximately $8 million from an outstanding bond of $26 million. Final resolution may take many more months, but the major arguments seem to be worked out.
This means that Monticello will own and continue to operate FiberNet Monticello. It also means that rather than having a network financed by revenue bonds, the network will have benefited from City funds from the liquor store and will almost certainly be re-financed with other City funds.
Billy Ray, Community Broadband Pioneer, Joins us For Community Broadband Bits #33
Glasgow was a true pioneer in community owned broadband networks, starting with its own cable plant in the 1980s. Billy Ray, CEO of Glasgow Electric Plant Board, has been an inspiration for municipal broadband networks -- one can't dig into the early history of LUS Fiber in Louisiana without running into something from Billy Ray, for instance. Glasgow's network has been a tremendous success, resulting in tens of millions of dollars of benefits to the community.
In our interview, we discuss the bitter legal fights of the early years as Glasgow built its own cable network and eventually began offering Internet access. Additionally, we discuss the important role of these information networks in creating more efficient (and less costly) electrical systems -- an incredibly important implication that does not get enough coverage.
Given the extraordinary history of Billy Ray and Glasgow EPB, we hope this will be the first of several conversations exploring that community. You can read more from Billy Ray on his blog.
Read the transcript from our call here. Also, we created a video on Glasgow called The Birth of Community Broadband.
We want your feedback and suggestions for the show - please e-mail us or leave a comment below. Also, feel free to suggest other guests, topics, or questions you want us to address.
This show is 27 minutes long and can be played below on this page or subscribe via iTunes or via the tool of your choice using this feed. Search for us in iTunes and leave a positive comment!
Listen to previous episodes here. You can can download this Mp3 file directly from here.
Find more episodes in our podcast index.
Thanks to mojo monkeys for the music, licensed using Creative Commons.
A Closer Look at FiberNet Monticello
Monticello has been all over the muni broadband news lately, in the wake of a letter it sent to bondholders [pdf] alerting them that the City would no longer make up the difference between the revenues produced by the system and the debt payments. This came shortly after the company managing the network decided to step down.
Over the next year, the reserve fund will make up the difference while the City and bondholders come to some sort of an agreement.
The Star Tribune today published a good synopsis of the situation:
We also noted that Charter was almost certainly engaging in predatory pricing. After talking with other networks, we would guess that Charter is losing between $30 and $50 (conservatively) per subscriber per month.
City administrator Jeff O'Neill said that the city has no intention of abandoning FiberNet's 1,700 customers, including about 130 businesses. "This system isn't going anywhere," he said. "We're not going out of business." Despite the problems, he said the city has one of the fastest Internet systems in the country that has driven down prices and improved services by providing competition.The article also notes that prior to the City-owned network, the telephone company (TDS) provided very poor DSL service that was harming area businesses with slow and very unreliabile phone and broadband services. Without FiberNet Monticello, we don't know how many businesses would have been forced to relocate to be competitive in the digital economy. We decided to dig a little deeper to get a sense of what Monticello has received for its investment and difficulty. We previously examined the prices charged by Charter cable in town and found that households taking that deal were saving $1000/year.
We also noted that Charter was almost certainly engaging in predatory pricing. After talking with other networks, we would guess that Charter is losing between $30 and $50 (conservatively) per subscriber per month.Charter Fights Dirty to Kill Competition in Monticello
When Monticello, Minnesota, decided to build its community fiber network -- Fibernet Monticello -- it expected the incumbents to lower their prices and fight to keep subscribers. But Monticello had no idea the lengths to which they would go.
The telephone incumbent, TDS, delayed the project for a year with a frivolous lawsuit and then built its own fiber-optic network while dramatically lowering its prices. We have yet to find another community in North America with two citywide FTTH networks going head to head.
Because of the city's network, Monticello's residents and businesses have access to better connections than the biggest cities in Minnesota can get.
Now, Charter has weighed in by cutting its rates to what must be below cost to gain subscribers. It reminded us of a shoot-out, so we created this infographic to explore what is at stake.
Download a higher resolution PDF here.
Charter has taken a package for which it charges $145/month in Rochester, Duluth, Lakeville, and nearby Buffalo (MN) and is offering it for $60/month - price guaranteed for 2 years. A Monticello resident supplied us with this flyer, which this person had received multiple times at their home over the course of a month. (See below for the full flyer).
This is either predatory pricing or the cable industry is out of control with its rate increases. If that package costs Charter more than $60/month to supply, then it is engaging in predatory pricing to drive competitors out of the market. Consider that Charter may be taking a loss of $20/month ($240/year) from each household that takes this offer.
Download a higher resolution PDF here.
Charter has taken a package for which it charges $145/month in Rochester, Duluth, Lakeville, and nearby Buffalo (MN) and is offering it for $60/month - price guaranteed for 2 years. A Monticello resident supplied us with this flyer, which this person had received multiple times at their home over the course of a month. (See below for the full flyer).
This is either predatory pricing or the cable industry is out of control with its rate increases. If that package costs Charter more than $60/month to supply, then it is engaging in predatory pricing to drive competitors out of the market. Consider that Charter may be taking a loss of $20/month ($240/year) from each household that takes this offer.Venturing Into the Rights-of-Way: I Own What???
This is the first in a series of posts by Rita Stull -- her bio is available here. The short version is that Rita has a unique perspective shaped by decades of experience in this space. Her first post introduces readers to the often misunderstood concept of the Right-of-way, an asset owned by the citizens and managed mostly by local governments.
In the process of knitting a baby blanket, a whole ball of yarn became tangled into this mess. . . .
. . . reminding me of the time, in the early eighties, when I was the second cable administrator appointed in the U.S., and found myself peering into a hole in the street filled with a similar looking mess—only made of copper wires, instead of yarn.