Willmar Moves Forward on $25 Million Government Internet Project

Willmar, Minn., moved one step closer to creating its own government-owned network (GON) at its August city council meeting by approving a fiber use agreement with Hometown Fiber, which would manage the broadband project. The cost of the taxpayer-funded project is expected to exceed $25 million.

Councilman Rick Fagerlie was the only member to vote against the agreement. He previously expressed concerns that taxpayers in the city of about 21,000 residents could take a hit if the Willmar Connect Initiative fails.

“Twenty-six businesses have shown a willingness to sign up for this?” he asked at a previous council meeting. “That won’t pay off the full $25 million this project requires over four-plus years.”

Willmar City Operations Manager Kyle Box said the city would build the network in phases, with construction on a future phase only occurring if it’s financially feasible to do so “to mitigate risk.” The initial phase is expected to cost more than $9 million.

The agreement with Maple Grove-based Hometown Fiber includes a termination clause if the City Council decides the project is not feasible after the first phase is completed and operational.

“This is the worst-case scenario,” Box said. “We would obviously like to see this project move forward, but we need to make that determination, to make sure it’s feasible.”

The city intends to fund the project with a bond issue and pay off that debt with revenue from the network. But Box told council members that taxpayers could take a hit if Willmar Connect Initiative falls flat.

“In the event revenue falls short, the City Council would be obligated to make those general obligation payments by other means, i.e. raising the levy,” Box said.

The project would consist of open-access fiber, with multiple providers able to lease the infrastructure to provide service. But the lease fee would be hefty, with providers paying 35 percent of revenue to Willmar.

As the Taxpayers Protection Alliance (TPA) previously pointed out, major providers already have their own infrastructure in place and would be unlikely to lease fiber from Willmar.

Hometown Fiber founder and CEO Kyle Moorhead admitted during a previous discussion about the GON that large broadband providers are unlikely to lease the network from the city. Moorhead said he hopes that smaller providers enter into agreements with the city.

“I think that your local incumbents, unless it was absolutely free to them, I don’t think that they would come on board,” Moorhead said. “That’s our take on it, but what we are trying to do here is bring new businesses in.”

In its business plans, Hometown Fiber is touting a generous take rate of 40 percent of households and businesses in Willmar. TPA noted in its report “GON with the Wind: The Failed Promise of Government-Owned Networks” that consultants’ projections often miss the mark, with revenue being less than anticipated when competitors lower prices and prevent GONs from capturing the anticipated market share.

Willmar currently has several providers offering internet through various means, including cable, satellite, 5G and fixed wireless, according to Broadband Now. In fact, Spectrum offers speeds of up to 1 gigabit per second to about 85 percent of residents.

The Freedom Foundation of Minnesota has warned Willmar officials against the project, pointing to other GON failures in the Gopher State. Director Annette Meeks said on KWLM radio previously that “if a large existing provider of internet doesn’t want to use the open access network, they have large, well-financed marketing departments to convince their existing customers not to switch.”

Joe Ridler was the only local resident to speak about the project at the meeting, expressing concern that this will be yet another government-owned business that will fail and leave taxpayers footing the bill. “It sounds like snake oil,” he said.

For the sake of Willmar residents and taxpayers, hopefully that will not be the case. But the track record of such GONs does not provide optimism.

Johnny Kampis is director of telecom policy for the Taxpayers Protection Alliance