A failure to communicate between Monticello and TDS Telecom, its chief phone and cable provider, is threatening to short-circuit plans to make the city one of the most wired communities in the nation.

Both Monticello and TDS Telecom are constructing multimillion-dollar fiber-optic networks that will directly connect to every home, office and business in the city.

When the networks come online in the next year or so, they would be among only about 45 in the country that provide such connectivity.

But Monticello -- a city of about 11,000 in northern Wright County -- also may be the only locale where the public and private sectors are competing so directly for paying customers.

The acrimony from such direct competition has led to the filing of what may become a precedent-setting lawsuit by TDS questioning whether municipalities can use revenue bonds to create fiber-optic networks.

Revenue bonds are traditionally used by communities to pay for public infrastructure or community improvements, such as a new swimming pool, if the projects are considered a convenience for the public. They are sold to investors after being approved by voters in a referendum.

Monticello -- which maintains that the fiber-optic network is a public convenience and thus eligible for revenue bond financing -- countersued to have the case dismissed.

Wright County District Judge Jonathan Jasper, who took the matter under advisement last month following a hearing, could rule in the case as early as next week.

Awaiting decision

The two sides have been arguing over building a high-speed network for more than a year, with each side saying the other is to blame for the impasse that led to TDS filing its lawsuit in late May.

John Baker, the attorney for Monticello, said the city went to the company early last year to ask it to upgrade its system to provide fiber-optic connections as a means of increasing the economic activity and the quality of life of Monticello. The company refused, he said.

So the city conducted a referendum last September in which about 75 percent of those voting approved spending $25 million in revenue bonds to create the city-owned system.

TDS maintains that it never said no. In fact, the company said it offered numerous times to sit down with the city to try to work out a deal but got nowhere in negotiations.

"We had full interest in working with the city and still do today," said Drew Petersen, a spokesman for TDS.

TDS filed its lawsuit the day before the city was to issue the revenue bonds in May. If successful, the suit could prove precedent-setting if the city's use of revenue bonds is limited, according to David Johnson, one of the TDS attorneys.

As a result of the uncertainty from the lawsuit, the city has had to pay a higher interest rate than originally expected, pushing the cost of the project to more than $26 million, Baker said.

Timing poses problems

Baker said the city questions the timing of the suit. "I think it was disruptive," he said. "That was clearly intended."

The suit has cast a cloud over the entire project, delaying it for months and increasing the costs, he said. The city is starting to dig the trenches for its fiber-optic ring, but the connections to homes and businesses are on hold.

Baker said that along with the delays, the city was ordered by the court to put in escrow the $25 million it generated from selling the revenue bonds. It has had to use other city funds to start the project.

"What we are doing now is but a shadow of what we could have been doing without the lawsuit," Baker said.

TDS said the lawsuit's timing had more to do with the company running out of options to get the city to stay out of the business of providing Internet, cable and phone services to Monticello residents.

In the meantime, TDS has started upgrading its own system. Petersen said the company questions why, now that the company is also starting to dig trenches and upgrade its system, the city feels it must proceed with its network.

"This is about the proper utilization of community resources," Petersen said. "When the consumers spoke [via the referendum], we set about upgrading our system."

The case is being watched nationally, said Christopher Mitchell, director of the group Telecommunications as Commons Initiative for the Institute for Local Self-Reliance.

The group, a Minneapolis nonprofit, said TDS is wrong in claiming that revenue bonds cannot be used for the fiber-optic network.

Heron Marquez Estrada • 612-673-4280