Public Ownership of Networks Can Solve Broadband Policy Fights

We are running a guest commentary today. Eric Null is a third-year law student at Cardozo Law School in New York City. He is passionate about corporate and intellectual property law, as well as technology and telecommunications policy. Follow him @ericnull or check out his papers.

While researching a paper about municipal broadband networks, I was struck by the tremendous benefits that municipal networks can provide. It can be the first high-speed Internet link for an area without broadband, or it can provide some much-needed competition in areas that currently have access to broadband, but for some reason that existing access is unsatisfactory (e.g. price, service). Municipalities, in theory, can run the network for the benefit of the public rather than with a vicious profit maximization motive. Indeed, municipal networks bring many benefits. But first, a little history.

In the United States, cable providers have set up regional monopolies for themselves, and “competitors” such as DSL and satellite are characterized by slower connection speeds and it is arguable that they are actual substitutes to cable access. Certainly within the cable industry, any “competitive” cable company attempting to compete with incumbents is met with high costs of building new infrastructure and lack of customer base. Municipalities can pick up where smaller, private entities cannot succeed. Municipalities have had a long history of investing in critical infrastructure, and they have the mentality for long-term planning that private companies simply cannot enjoy. A large company like Verizon likely has to justify any expansion of its network to its investors and ensure them that the venture will return a profit relatively quickly. Not so with municipalities; a city network allows its citizens to benefit indirectly (and directly) over the long-term. Thus, city governments can be a formidable competitor in the telecom and cable industries.

Some states, regrettably, have banned or restricted the practice. In Nixon v. Missouri Municipal League, the Supreme Court interpreted so-called vague language in the Telecom Act of 1996 to allow states to ban or restrict municipal networks through state law. (47 U.S.C. § 253(a) states that “No State or local statute or regulation, or other State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service.” The Court interpreted “entity” not to include municipalities.) Nothing could have pleased incumbents more. In a number of states (including Wisconsin, North Carolina, and Virginia) incumbents fought tooth-and-nail to convince state legislatures to preclude municipal networks pursuant to this decision—or, short of that, to restrict municipalities in some way that raises entry costs. Incumbent mobilization has been daunting and impressive.

Where are we today? Almost twenty states either severely limit or restrict municipalities from erecting networks. Municipalities within those states must work that much harder to avoid legal sanction when starting a network, and the extra barriers may act as a complete disincentive to starting one at all.

Network Neutrality

At the end of 2010, the FCC announced its Open Internet regulation, forcing broadband Internet service providers (ISPs) not to block traffic, not to unreasonably discriminate between traffic, and to be transparent about their network management practices. The response was cacophonous, many viewed it as not going far enough, including this author; others thought the regulation did too much, including the House of Representatives.

FCC Logo

What was the problem the FCC was trying to address? Increasingly, ISPs want to create a “smarter” network (as opposed to the traditional “dumb,” non-discriminating network that treats all traffic equally regardless of content) that will filter, on its own, “harmful” traffic (spam, viruses) and anything else the network owner wishes to filter. But, as the FCC Order states, ISPs have an incentive to discriminate against certain traffic opportunistically: ISPs can threaten any content provider with slowed speeds or blocked access over its network unless that provider pays an extra fee, so-called pay-for-priority contracts. (For example, assume Comcast tells Amazon it will not carry the website unless Amazon pays Comcast X% of its profits, or $X per year.) Larger content providers could arguably afford this. Smaller content providers and up-starts certainly cannot. Either way, this is not a result that will benefit Internet commerce or the free and open exchange of ideas and content. It is axiomatic that most (read: all) large content providers were at one point a small up-start, often created by college students in a dorm or in a garage. If ISPs were able to strangle content providers with pay-for-priority contracts or similarly stifling plans, they could be artificially cutting-off future YouTubes, Facebooks, Apples, and Microsofts. Working in the counter-factual is difficult, but it is at least feasible that opportunistic use filtering technology favors the status quo at the expense of future innovation.

One potential solution to this content filtering threat is municipal broadband. While private ISPs may have a motive to filter content to gain a competitive advantage and increase profits, municipalities may not have to run the network for such a narrow benefit. Instead, a city government could run the network in a way that favors the public interest and the prosperity of its citizens—such as making it widely available for a low (or no) price, or using it to promulgate emergency warnings akin to the (failed) FCC/FEMA National Emergency Alert System test late last year, but on a much smaller scale (think about cities in Hurricane Alley). If municipalities running their own networks were to pledge to leave Internet traffic alone and to deliver packets under the current best-efforts system, the network neutrality issue could be solved for citizens of cities electing to enact this type of plan. Users would have increased choice. Even if the private ISP provided faster speeds to certain content, the user could still choose the municipality’s network instead if the user decided that he or she preferred the non-discriminating best-efforts system. This could provide a reprieve from the contentious network neutrality debate by allowing municipalities to own the network and to make the rules it wants.

Some may argue that the public interest lies in the “free market.” But unregulated markets thus far led to the Summer of Love (where the large telecom companies split the U.S. into different regions to establish regional cable monopolies (see p. 250 in link), skyrocketing prices (at much higher rates than inflation), and little rural buildout. If municipalities agreed to keep their pipes open to all content providers and users, it could avoid opportunistic filtering by private ISPs and monopoly rents that result from one high-speed (cable) provider. In other words, the Internet and access to it would be cheaper and more open, consumers would be happier, innovation would flourish, and local businesses could compete on a level playing field (to name just a few benefits). Another benefit is bridging the digital divide.

Bridging the Digital Divide

The digital divide has in some sense worsened as wealth and income inequality in the United States has been exacerbated. While it seems that many, including the poor and many minority groups, own smartphones, the affluent own them in much higher numbers. The poor that do have access to these technologies have access to only a limited supply and are often lower-quality, and low-income users do not use as much bandwidth as the affluent.

What is the problem here? The problem is that in the information age, the most valuable commodity is information itself. The Internet is used by hundreds of millions around the world to learn about breaking news, to take online classes (MIT now offers certificate programs through online courses), to view funny or interesting videos on YouTube, to debate politics, and to read super-interesting blog entries about municipal broadband (for more, see Brett Frischmann’s Network Neutrality chapter in his upcoming book, Infrastructure). Increasingly, low-income individuals are being left behind because they are less likely to learn about breaking news, take online classes, or access most things others with high-speed cable connections can access with ease. If low-income individuals do not have access to the information that can inform and inspire, how are we supposed to live the American dream?

Municipal broadband can provide a solution: affordable or free broadband Internet access for everyone. St. Cloud, Florida, despite ending its service, reported that those who used its Wi-Fi network were often the same people who were unable to afford private ISP service in St. Cloud. This was clear when the city determined it would shut down the service, and those citizens loudly voiced their opposition. “St. Cloud is not a hick town anymore . . . . We’re country folks, but we’re not backwards. One of the reasons for that is our Internet.” Corpus Christi, Texas, also provides free Wi-Fi successfully, which allows anyone in the 147-square mile town to access the Internet for free at a high speed. The Digital Divide Committee in Lafayette, Louisiana, determined in 2005 that municipal broadband can help bridge the digital divide. That is still very much true today: with more affordable (or free) services, lower income citizens are better able to access the high-speed Internet.

Municipal networks only go so far. A lingering problem is the inability of the poor to afford the technology to access the network. That is why some municipalities (Philadelphia, Lafayette) made it part of their mission to provide the tools to the people that need them, including computers, software, and training. Though, even without these programs, municipal networks still provide cheap Internet access, increasing the chances of bridging the digital divide.

Much, Much More

Social and economic benefits abound when a municipality implements a network. Bristol, Virginia, and Chattanooga, Tennessee, are seeing businesses move to their cities in part because of the excellent municipal network. Corpus Christi, Texas, has seen the spring break tourism sector boom while still being able to ensure the safety of visitors through constantly streaming video cameras. Santa Monica, California, lowered telecom costs for local businesses by 67% by leasing capacity directly to local businesses. That competition lowered private ISP prices by 20%. Many municipal networks include smart systems that increase government efficiency (Corpus Christi’s network, for example, began as a system for Automated Meter Readers after a meter reader was bit by a dog). Hospitals use the networks for tele-medicine in Santa Monica and Bristol. Best of all, municipal broadband networks can be run by people who actually prioritize the well-being of customers, rather than distant shareholders. Bristol employs local citizens for customer support, meaning customers are treated with respect. As a gauge, six of the top nineteen most hated companies are telecommunications or cable companies. Having exemplary customer service can go a long way toward making citizens happy.

Many benefits accrue as a result of municipal broadband. Just ask Bristol or Santa Monica: both municipalities have setup consulting organizations to help other municipalities in their attempts to create city networks. The benefits contribute to a healthy, vibrant community and an efficient government. Municipal broadband can be the gateway to social and economic prosperity. A municipality would be silly not to at least consider providing broadband access itself.

Community Broadband Preemption Map

Barriers to This Potential Solution

First, Nixon v. Missouri Municipal League is a significant barrier to this solution. Incumbents have secured their effective monopoly in many regions of the U.S. in the shadow of this decision. A simple solution would suffice: Congress should amend the Telecom Act of 1996 to expressly include municipalities within the definition of “entity” such that states would not be able to enact legislation preventing them from offering broadband services. However, this would be very difficult—read Lawrence Lessig’s book Republic, Lost to figure out why. (Hint: money distracts Congress, and who has all that money?) Therefore, the best we can hope for at this point is to convince state legislators not to ban or inhibit municipal networks. But again, ask Lawrence Lessig about this—he fought valiantly, but unsuccessfully, against the North Carolina municipal network law erecting significant barriers to municipal networks.

Second, there is only a limited, concerted effort to actually bring municipal broadband to unserved or underserved areas (Local Institute of Self-Reliance and New America Foundation’s Open Technology Initiative are both working to spread municipal networks, but we need more). Municipal networks are significant undertakings, and without outside help to plan these complicated networks, the amount of work and planning required can be intimidating for a small municipality (that is, if a city network on is the municipality’s radar in the first instance). Many municipalities either do not know this is possible, do not know where to begin, and/or do not know what such a network would look like. A significant coordinated effort to inform and execute such networks would be a tremendous boon for the growth of municipal networks, and could go a long way in solving network neutrality, the digital divide, and many other issues.

Third, there is simply not enough attention being paid to this issue, and the attention that is being paid is largely from the incumbent side (someone has to fight/smother the little guy, after all). There is only a small number of public interest organizations dedicated to this issue. Perhaps more organizations (or people within these organizations) would help give the idea some publicity and help launch it, or perhaps it would not. Either way, ask the typical citizen whether he or she knows what municipal broadband is, and chances are you will get a blank stare. But, ask him or her to comment on Internet, phone, and cable prices, and you will get a diatribe about the horrific provider. There is a disconnect here—people see and live the problem, but cannot see, and definitely do not live, the solution.

Conclusion

If municipalities were the primary provider of Internet access in America, the Internet would look and feel generally the same as it does today. The difference is in the future. There are two divergent paths ahead: one where the private ISP is able to seize a chokehold over traffic that moves across the Internet’s pipes, capturing every opportunity to monetize on that chokehold; the other is where communities themselves slowly become an increasingly powerful player in the next-generation Internet access industry, and can say to incumbents that their monopolistic behavior will no longer be tolerated. The path we take largely depends on whether citizens are able and willing to make important decisions about how they are governed by their municipality, and whether they can give municipalities a chance to compete with private ISPs. In today’s political culture, deregulation at the federal level is all the rage, which may indicate an increased tolerance for local governments to play a heightened role in the lives of its citizens. It would be one form of pulling us up by our bootstraps.

Tech News Today: Georgia Hates the Internet

On Wednesday, Tech News Today on the This Week in Tech (TWiT) network had Christopher Mitchell on to discuss pending legislation in Georgia that would essentially outlaw publicly owned networks in the state.

I come on about 25 minutes, 45 seconds in to the show. Skip ahead below or watch on YouTube.

Honesty From Heartland: Munis Outgunned in Competition with Private Sector

The Heartland Institute is one of those organizations that will say anything its massive corporate funders want it to. It is embroiled in a scandal from the release of internal documents due to its work challenging the science behind climate change.

In the telecom space, Heartland's employees have encouraged laws to take decision-making authority away from communities in order to benefit the massive cable and DSL companies (like Heartland-funder AT&T).

They advocate for efforts like Georgia's SB 313 and South Carolina's H3508, saying:

  1. Muni networks are doomed to failure because of the general incompetence of government
  2. Muni networks will drive private sector providers out of the market because governments are too all powerful and have too many advantages in competition

This is why we see bills that are supposed to "level the playing field" pushed by big companies like Time Warner Cable in North Carolina last year.

If you take a gander at Heartland's telecom work, you have to wonder why the playing field needs to be leveled if they believe what they have written:

A municipal government cannot possibly hope to compete with well-capitalized broadband providers in a highly competitive market.

For those unfamiliar with Heartland, they don't use the same definitions for common words like "competitive" as the rest of us do. In Heartland's world, "competitive" means a market in which one of our funders operates regardless of how much competition exists in it.

So why do we need new legislation to make it even harder for communities to build the networks that the cable and DSL companies won't build?

Bloomberg: The Case for Publicly Owned Internet Service

Susan Crawford's op-ed in Bloomberg makes a tremendous case for publicly owned broadband networks.

She notes the importance of broadband and the failure of big cable and DSL companies to meet the growing needs of communities, just as the electrical trusts were insufficient to electrify much of America.

I'm a bit biased because she cites our work:

Today, the Institute for Local Self-Reliance, which advocates for community broadband initiatives, is tracking more than 60 municipal governments that have built or are building successful fiber networks, just as they created electric systems during the 20th century. In Chattanooga, Tennessee, for example, the city’s publicly owned electric company provides fast, affordable and reliable fiber Internet access. Some businesses based in Knoxville -- 100 miles to the northeast -- are adding jobs in Chattanooga, where connectivity can cost an eighth as much.

Though I encourage readers to read the full column, I love the conclusion:

Franklin D Roosevelt

Right now, state legislatures -- where the incumbents wield great power -- are keeping towns and cities in the U.S. from making their own choices about their communications networks. Meanwhile, municipalities, cooperatives and small independent companies are practically the only entities building globally competitive networks these days. Both AT&T and Verizon have ceased the expansion of next-generation fiber installations across the U.S., and the cable companies’ services greatly favor downloads over uploads.

Congress needs to intervene. One way it could help is by preempting state laws that erect barriers to the ability of local jurisdictions to provide communications services to their citizens.

Running for president in 1932, Franklin D. Roosevelt emphasized the right of communities to provide their own electricity. “I might call the right of the people to own and operate their own utility a birch rod in the cupboard,” he said, “to be taken out and used only when the child gets beyond the point where more scolding does any good.” It’s time to take out that birch rod.

AT&T Trying to Redefine Broadband in Georgia, South Carolina

The absurdity of AT&T's push to define broadband as 200kbps is so great, it boggles the imagination. We developed the graphic below to highlight just how slow 200kbps connections are.

200kbps is not good enough for communities

Feel free to spread it around. Higher quality pdf below.

South Carolina Cable Association Also Wants to Limit Competition

Many complain about gridlock in Washington, DC, but I sometimes subscribe to the cynical counter-reaction that gridlock is great. It is when the Democrats and Republicans agree that Americans should beware.

Though this may or may not be true about politics, it is certainly true when applied to two of the most hated industries in America: cable television companies and DSL companies like AT&T. When they come to agreement, you can bet that prices are going up for the rest of us.

In our coverage of AT&T's bid to limit broadband competition in South Carolina by revoking local authority to build networks for economic development, we have thus far ignored the position of the cable companies.

We took a tour through the newsletters of the South Carolina Cable Television Association over the course of 2011, which is when AT&T introduced its H.3508 bill.

Unsurprisingly, the cable companies are thrilled at the prospect of limiting competition in communities by cutting off the ability of a community to build a network when the private sector is failing to meet their needs. From the 1st Quarter newsletter [pdf]:

The SCCTA has been actively following the AT&T-backed legislation that would amend the Government-Owned Telecommunications Service Providers Act. House Bill 3508 would impose the same requirements on government-owned broadband operations that are currently imposed on telecommunications operations.

Of course, H.3508 goes far beyond applying the "same requirements." It enacts a host of requirements that only apply to public providers, which are already disadvantaged by being much smaller than companies like Time Warner Cable and AT&T. We have long ago debunked the myth of public sector advantages over the private sector.

The second quarter newsletter [pdf] identifies this bill as the highest priority of the cable association:

H3508, the AT&T backed legislation, has been our dominate piece of legislation in 2011.

Even after the bill was shelved for the year, it remained a high priority for the cable lobbyists (who, of course, need something to do while shmoozing at the capitol day in and day out) according to the 3rd quarter newsletter [pdf]:

The SC Cable Television Association will continue to work to move H3508...

And finally, in the 4th quarter [pdf], we get a sense that all that lobbying has been successful:

When session ended last year, the bill was in Senate Judiciary subcommittee (Sen. Luke Rankin – Chair, Sen. Brad Hutto & Sen. Paul Campbell). Our team of lobbyists have been working very hard meeting with members of the full Senate Judiciary Committee to move this important industry bill forward. As of writing this column, we expect new amendments dealing with Clemson’s Light Rail initiative and Orangeburg County. Our team has been assured the two counties who received the broadband stimulus funds, administered through the U.S. Department of Agriculture’s Rural Utilities Service, will NOT provide service in areas that is capable of receiving other broadband services. This bill is to be heard before full Senate Judiciary and will then head to the Senate floor.

Democracy in action! We know that the private sector will not create competition by itself. In fact, the future will be less competitive as cable systems generally provide faster connections than DSL and wireless, which will compete for those who don't mind slowly surfing.

South Carolina's businesses that want to thrive in the digital economy might consider looking at the nearby job-creator-friendly broadband networks in Brisol, Virginia; Danville, Virginia; Chattanooga, Tennessee; Salisbury, North Carolina; and Wilson, North Carolina. Those communities have the fastest connections in the US at the most affordable prices.

Washington Legislation to Spur Rural Broadband Killed in Committee

Lobbyists for major cable and DSL companies (Comcast, Frontier, and others) already earned their pay in Washington state this year by killing a bill that would have allowed some public utility districts to offer retail services on broadband networks in rural areas that were unserved.

Unfortunately, the powerful incumbent cable and DSL companies have been able to kill bills like this in committee year after year even as they refuse to build the necessary networks throughout the state. Comcast is not about to start offering broadband in these low-density areas, but it also does not want to allow public utilities to embarrass them by offering faster connections at lower prices than Comcast offers in Seattle (where it faces no real competition).

Public Utility Districts can currently only offer wholesale services -- meaning that they can only offer services by using private service providers in an open access arrangements. We are strong supporters of this approach where it works. However, in high-cost rural areas, the "middle man" kills the economics. There is not enough revenue to pay for the network.

Some of the public utility districts want the authority to offer retail services in order to bring high-speed connections to these rural areas and encourage economic development. Big companies like Frontier and CenturyLink serve some of the people in some of these areas -- often with significant state and federal subsidies. We could phase out such subsidies by encouraging approaches that are not as massively inefficient as Frontier and CenturyLink -- two of the worst DSL providers in the nation. Unfortunately, what they lack in capacity to invest in modern broadband, they make up for in lobbying prowess.

An article in the Omak-Okanogan County Chronicle offers some more background:

Erik Poulsen, government relations director at Washington Public Utility District Association, said PUDs have used the wholesale authority they were granted in 2000, building 4,500 miles of fiber-optic cable, investing $300 million in infrastructure and joining with 150 retail providers. He said such wholesaling isn’t possible in certain parts of the state.

“The idea was that PUDs would build critical infrastructure and private companies would come in and provide direct service,” Poulsen said. “This wholesale arrangement serves many of our PUDs well. Others believe they need expanded authority to overcome some of the barriers that still exist.”

Because the bill was not voted out of Committee by Jan 31, it is effectively dead. Way to go Comcast and other big companies, you have yet again delayed the expansion of broadband in rural areas to benefit your shareholders.

In fairness to those lobbying against expanding broadband to rural communities, it was not solely the big incumbents. Some of the smaller ISPs that operate on the existing PUD networks were also opposed to allowing greater local authority in determining the best business model for building networks because they feared for their own livelihood.

Until rural communities actually begin paying attention to these state-by-state broadband battles, the narrow interests of a few will win every battle because they show up and they make campaign contributions. We could at least start showing up...

Broadband Communities Conference

The 2012 Broadband Communities Summit will be at the InterContinental Hotel in Dallas April 24-26. I will be there and am excited for the Open Access Program as well as the Economic Development discussions. I'll be presenting on both topics. Early Bird rates appear to still be in play - hope to see some of you there!

Beyond Access: Owning Community Broadband Audio Discussion

Two weeks ago, I joined a conference call hosted by the Media Action Grassroots Network discussing community ownership of broadband networks.

In the last few years local communities, governments, non-profit organizations and neighborhood residents from across the U.S. have successfully launched community broadband initiatives. 54 U.S. cities own citywide fiber networks and another 79 own citywide cable networks. These local initiatives, in rural and urban areas alike, have served as community scale infrastructures that are sustainable and allow participation and decisionmaking on the most local level.

Pay Attention to the Man Behind the Curtain: Listen to AT&T's CEO, not Lobbyists

AT&T lobbyists in Georgia and South Carolina are arguing that local governments should not be allowed to build the networks that communities need, suggesting that the private sector is primed to make the necessary connections. But AT&T's CEO had a different message for investors a few weeks ago, in an earnings call on January 26:

The other is rural access lines; we have been apprehensive on moving, doing anything on rural access lines because the issue here is, do you have a broadband product for rural America?

We’ve all been trying to find a broadband solution that was economically viable to get out to rural America, and we’re not finding one to be quite candid. The best opportunity we have is LTE.

Whoa! LTE is what you more commonly hear called 4G in mobile phone commercials. The best they can do is eventually build a wireless network that allows a user to transfer just 2GB/month. That is fine for hand-held devices but it does nothing to encourage economic development or allow residents to take advantage of remote education opportunities.

But even the CEO admits they are not bullish on LTE as the solution:

[W]e’re looking at rural America and asking, what’s the broadband solution? We don’t have one right now.

Some may be wondering about "U-Verse" -- AT&T's super DSL that competes with cable in the wealthy neighborhoods of bigger cities. U-Verse cannot match the capacity or quality of modern cable networks but is better than older DSL technologies. But U-Verse is not coming to a rural community near you.

For those who missed the fanfare last year, AT&T's U-Verse build is done. AT&T's lobbyists have probably forgotten to tell Georgia and South Carolina Legislators that the over 20 million AT&T customers without access to U-Verse are not going to get it. But CEO Stephenson made sure investors weren't worried about AT&T continuing to invest in its wireline infrastructure:

In wireline, our U-verse build is now largely complete, so we have in place an IP video and broadband platform that reaches 30 million customer locations, which gives us significant headroom now to drive penetration.

Translation: AT&T will now focus on upselling customers in markets with U-Verse. If it doesn't run through your neighborhood already, you aren't getting it.

The rest are stuck on dial-up or DSL that AT&T's CEO has previously called obsolete (correctly). While AT&T's CEO has been honest about its inability to solve real broadband deployment gaps, AT&T's lobbyists have tried to advance a bill with the ludicrously low broadband definition of 200kbps and even more absurdly, the even slower definition of 190kbps.

The business model of AT&T and other big cable and DSL companies simply does not work in much of rural America. The question is why any state would foreclose the possibility of communities being self-reliant when major companies like AT&T candidly admit they have no solution and the best they can do is deliver an obsolete product.

State legislators need to pay more attention to what AT&T's CEO says and less what AT&T's lobbyists say.

Fast, affordable, and reliable access to the Internet is essential for communities to thrive in the digital age. Not every community wants to build a community networks and most undoubtdly won't. But that is decision they should make locally. Pending legislation in Georgia and South Carolina would take this decision out of the hands of these communities by enacting a host of new regulations on public networks that do not apply to the private sector. As in North Carolina, these bills effectively revoke local decision-making authority by creating impossible hurdles for communities that are already disadvantaged in the modern economy.