• by Wendy Davis  @wendyndavis, June 7, 2009

Giving a boost to municipal broadband, an appeals court in Minnesota has ruled that Web service is a utility that towns may finance with bonds.

"The definition of municipal public utilities appears broad enough to contemplate Internet service," the court wrote.

The ruling grew out of a dispute between the small town of Monticello, which has around 11,000 residents, and the telecom Bridgewater Telephone, owed by TDS Telecommunication. In 2007, the town voted to build a fiber network that would provide TV, telephone and high-speed broadband access.

The city sold $26 million in revenue bonds to finance the project, but Bridgewater filed suit last May to prevent the initiative from going forward. The telecom argued that the city couldn't finance the project with revenue bonds because broadband service isn't a utility.

Last week, the Minnesota Court of Appeals ruled against Bridgewater. "The Fiber Project qualifies as a public convenience, and therefore revenue bonds can be issued to finance its creation," the court wrote. Bridgewater has until July 2 to file an appeal.

Drew Petersen, TDS director of legislative affairs and corporate communications, said in a statement that the decision "sends a chilling message to the private business community operating in the state of Minnesota."

"The decision endangers the appropriate relationship between municipalities and private enterprise; it also allows municipalities tax-free financing to enter into competition with tax-paying businesses," Petersen said.

But analyst and municipal broadband strategy consultant Craig Settles praised the decision. "It's one more win for the good guys," he said. "It legally identifies what people have been saying rhetorically for a year or longer, which is that broadband is as important as water or electricity and that to deprive people of that is unconscionable."

The ruling only affects Minnesota towns, but the reasoning might influence how courts in other states view similar cases. Other municipalities throughout the country have considered building their own networks -- and some have already done so. At the same time, some incumbent telecom and cable providers have made clear they oppose the municipal broadband initiatives.

In North Carolina, for instance, Time Warner and Embarq are backing a measure that would effectively bar cities and towns from building their own high-speed Internet networks. The legislature there was scheduled to take up the matter last month, but instead put the measure on hold for at least one year.