lafayette

LUS has asked the court in Kansas to dismiss a lawsuit against it by NCTC (I previously explained this situation here). Down in Louisiana, a local paper is continuing to cover it and John at Lafayette Pro Fiber has explained the situation as well, with more context about the NCTC.

Once this lawsuit is dismissed, we'll hope for a ruling from the FCC that the NCTC cannot simply discriminate against some municipalities based on the private company incumbents doing business there.

Lafayette Utilities System has filed a complaint with the FCC following what seems to be a rather arbitrary decision by the National Cable Television Cooperative (NCTC) to deny Lafayette as a member. This is a crucial issue for communities that want to build fiber-optic networks, so we will dig in and offer an in-depth explanation.

It all starts with the business model. Fiber-optic networks are fantastically expensive and are expected to be financed entirely with revenues from subscribers. Though communities typically want fiber-optic networks for the broadband capacity, they find themselves having to offer cable television services also to ensure they will attract enough subscribers to make the debt payments on the network.

Unfortunately, cable television services are the most difficult and expensive part of the triple-play (broadband, telephone, cable tv). A community network has to sign deals with different content providers in order to put together its channel lineup. Even a community network with 100,000 subscribers has little power over the companies with channels like ESPN, the Disney Channel, Discovery, MTV, Food Network, and others. Thus, it will have to pay more for those channels than massive networks like Comcast that have many millions of subscribers and therefore a stronger negotiating position. LUS has noted that video programming is the "largest single on-going cost" it incurs in the network.

Enter the NCTC. By forming a cooperative, many small providers (public and private) were able to gain negotiating power over content owners and even hardware manufacturers to cut costs to members by buying in bulk. In recent years, the size of NCTC rivaled that of major national providers like Charter and Cox cable. All three parties stood to gain by bringing Cox and Charter into NCTC in 2009. The addition grew NCTC significantly -- only Comcast has more subscribers currently.

The advantages of NCTC are quite significant and worth reiterating because it is a reminder of the ways in which massive private companies have the playing field tilted in their direction. Without access to NCTC, communities have to pay more for the same content and equipment (NCTC savings may start at 15%-20%. From the complaint:

NCTC market power also enables it to obtain much bigger, better, more flexible, and less costly packages, than any individual small cable operator or any smaller buying group can obtain. Video programming distributors typically dictate terms to small cable operators on a take-it-or-leave-it basis. Aside from the price per channel, these terms often dictate the tying of related channels to the ones the operator wants, requiring mixes of standard and high-definition channels, placing channels at specified positions in the line-up, and locating channels in the most popular basic and expanded basic programming tiers. In other words, in order to get the “must-have” video programming that they need to be competitive, small cable operators must typically pay for many channels they do not want, incur substantial costs for extra equipment to support these unwanted channels, and pay fees based on the number of subscribers in the largest programming tiers, rather than in smaller tiers based on subscriber interests and preferences. NCTC has the clout to negotiate much more flexibility for its members in all of these areas.

NCTC also provides its members another advantage over non-members: they do not have to negotiate individual arrangements with 300 or more video programming distributors. Since each such arrangement involves multiple issues, the time, burden, and cost involved in individual, one-on-one negotiations is enormous. Moreover, this assumes that the programming distributors are willing to deal with small cable operators one-on-one on a timely basis. Often they are not.

Communities that are denied entrance to the NCTC have a much harder road when it comes to competing with massive entrenched incumbents. Philip Dampier of Stop the Cap! wrote about this issue, noting that NCTC has strayed from its original purpose:

As someone who personally was involved in the passage of that legislation [1992 Cable Act], the ironic part is we were fighting -for- the NCTC back then. Of course, those days the cooperative was made up of wireless cable providers, utility co-ops, municipal co-ops, and other independent cable systems that were constantly facing outright refusals for access to cable programming or discriminatory pricing. Satellite dish-owners were also regularly targeted. NCTC was a friendly group in the early 1990s but has since become dominated with larger corporate cable operators, especially Cox Cable and Charter Communications.

Recently, NCTC began discriminating against publicly owned networks, refusing to let Wilson (North Carolina), Chattanooga (Tennessee), and Lafayette join NCTC. There was no explanation for the discrimination against muni networks, so LUS is asking the FCC to force the NCTC to admit them.

The specifics may be found in the Official Complaint:

LUS alleges that the Defendants are violating Section 628 of the Communications Act, 47 U.S.C. § 548, and the Commission’s implementing rules, 47 C.F.R § 76.1001 et seq., by engaging in unfair, deceptive, and anticompetitive conduct that has the purpose and effect of preventing LUS from becoming a member of NCTC and thereby obtaining the huge quantity discounts, and other benefits that NCTC negotiates for its members. These discounts and benefits total millions of dollars annually.

The TeleCompetitor coverage of this lawsuit notes NCTC has been selective in the past with membership:

This type of charge is no news to some IPTV operators, many of whom claim access to NCTC has also been denied to them. NCTC, a traditionally closed-lip organization, has never offered any official response to these claims. In my communication with them, they’ve always said they’ve never blocked any company from joining because of who they may compete with. But they do admit to a selective admission process, reviewing each applicant individually to ensure they meet NCTC ‘criteria’ before offering membership. That criteria is a ‘gray area’ to say the least. There is also a pretty significant membership fee to join – a fee that some operators claim is an additional barrier to entry.

However, NCTC has specifically noted it has concerns relating to municipalities. Despite opening itself to new members, it ignored the applications of Chattanooga, Wilson, and Lafayette for months at a time. When rejecting their applications eventually, it offered no explanation.

After NCTC was notified that Chattanooga and Wilson would be joining the LUS complaint for this anti-competitive behavior, NCTC decided to admit both Wilson and Chattanooga but not Lafayette. The only discernible difference between LUS and the others? Wilson and Chattanooga compete with Time Warner and Comcast (respectively) and neither is a member of NCTC. Lafayette competes with Cox, the single largest member of NCTC.

So long as massive scale is rewarded in broadband and cable networks, competition will be elusive. Only by ensuring small providers can join groups like NCTC can competition even have a chance. If the FCC wants to encourage competition, it will quickly require NCTC to admit LUS on fair terms.

A local editorial notes the LUS has already spurred competition locally:

This is a great inside look at how one community built a globally competitive broadband network (probably the best citywide network in the US) and the barriers they faced from incumbent providers Cox and BellSouth.

Terry Huval, the Director of Lafayette Utilities System in Louisiana, spoke to the U.S. Senate Committee on Small Businesses Entrepreneurship on April 27, 2010, on the topic of: "Connecting Main Street to the World: Federal Efforts to Expand Small Business Internet Access." Huval's full testimony is available here.

Huval's presentation told the back story of LUS Fiber, focusing on the barriers to publicly owned networks in Louisiana.

The FCC National Broadband Plan, on page 153, includes Louisiana as one of 18 states that “have passed laws to restrict or explicitly prohibit municipalities from offering broadband services.” While the Louisiana law did not prohibit Lafayette from providing broadband services, its mere presence provided, and continues to provide, a fertile playground for BellSouth (and its successor AT&T), Cox and their allies to create mischief, resulting in discouraging local governments from stepping in to provide these services even when the private telecom companies refuse to do so.

Louisiana, as with many other states including North Carolina, has powerful incumbents that claim there is an "unlevel playing field" and that local governments have too many advantages in building broadband networks (incomprehensibly, they simultaneously claim that local governments are incompetent and publicly owned networks always fail). But state legislators - who hear constantly from the lobbyists of these wealthy companies, have passed laws to discourage publicly owned networks.

Huval details just some of the disadvantages the public sector faces in comparison with the private sector (we detail many other disadvantages in our "Breaking the Broadband Monopoly report).

For example, while Cox Communications can make rate decisions in a private conference room several states away, Lafayette conducts its business in an open forum, as it should. While Cox can make repeated and periodic requests for documents under the Public Records Law, it is not subject to a corresponding obligation – a “show me your plans, but don’t dare ask to see mine” mentality. Louisiana law limits the ability of a governmental enterprise to advertise, but nothing prevents the incumbent providers from spending millions of dollars in advertising campaigns. An important focal point of the legal challenges involved the right or ability of Lafayette to pledge assets of the utilities system as security for the bonds, something that the private corporations do all of the time without the slightest scrutiny. To be sure, the “playing field is not level,” but it is the government which is disadvantaged, not the private companies.

Additionally, Cox and BellSouth engaged in many activities to break the will of the community to build a network. Common tactics are "push polls" and glossy mailings with inaccurate claims to scare people - particularly before a referendum. Usually, they are not this silly, but a Lafayette resident recorded one call:

One of the questions alluded to the city requirements for lawn watering during dry summer conditions. The question generally was phrased as “Since the city only allows you to water your lawn only three days per week, how do you feel about the city offering you cable TV service where you could only watch television three days per week?” The community member and, ultimately, the out-of-state questioner in this push-poll, are both heard chuckling at the ridiculous nature of the questions.

Make no mistake though, these polls are often effective at confusing and scaring people away from publicly supporting a community network.

Lafayette, along with other cities like Chattanooga, Tennessee; Bristol, Virginia; and Monticello, Minnesota, had to spend a lot of time in the courts before building the network.

By the time the Louisiana Supreme Court rendered its decision in 2007, almost three years had passed since the city’s first announcement of this project in 2004. The political and legal battles brought and promoted by the incumbent telecoms cost the city of Lafayette nearly $4 million. Interestingly enough, Cox Communications, which had been increasing its rates several times a year prior to Lafayette’s initial announcement to explore its offering of telecommunications services, decided to freeze its rates in Lafayette between 2004 and 2007. At the same time, Cox continued to increase its rates in other parts of the state. Estimates indicate that Lafayette citizens and businesses saved nearly $4 million due to these deferred cable rate increases, so in a roundabout way Lafayette’s citizens saved in reduced cable TV rates the amount the city spent defending itself in this extensive litigation process.

This quote reveals that quantifying the costs and benefits of publicly owned networks is difficult. Communities often see lower rates from all providers when they build a competitive, publicly owned network. The lower rates to everyone in the community are a tremendous benefit of public ownership.

However, the incumbent companies do not always advertise the lower rates directly. These companies can cross subsidize - using their massive profits from communities with no competition - financing large efforts to go door to door, offering special discounts to subscribers to starve the publicly owned network.

Cox has increased its rates in the multi-parish area, which includes Lafayette, and is going door-to-door to offer lower customized pricing to regain customers already being served by LUS Fiber. Apparently the notion of “fairness” espoused by the private companies does not include the increasing of rates to customers in non-Lafayette areas who have very few competitive options which allows Cox to use the resultant higher revenues to offer much lower pricing in Lafayette areas where there is now meaningful competition from LUS Fiber.

Then there is the simple matter of payback. These are powerful companies with massive resources.

In addition, Cox representatives were recently active in attempting to undermine the future of the city’s century-old electric, water and sewer utility system. During a recent rate increase effort for these traditional utilities, Cox representatives were lobbying Lafayette council members to oppose the rate increase in order to adversely affect the utility system’s future viability. All of these examples indicate an underlying strategy to hurt the city simply because the city voters dared to choose to authorize the building of their own telecommunications system.

Building a publicly owned network is a difficult task, but certainly beats the alternative of relying on these companies and their dirty tactics to prevent any competition.

Update: Thanks to Lafayette Pro Fiber for providing time stamps on the video of the committee hearing when Huval speaks.

FiberFête, a conference in Lafayette celebrating "our connected future," continues today. The press release is below for more information, but be sure to check out the agenda and tune into the FiberFête free Live Stream.

This is a terrific collection of folks dedicated to building next generation networks - and many people who have built impressive publicly owned networks are here. Additionally, we will be learning a lot about how Lafayette plans to use their network.

Press Release:

FiberFête Conference Launches Tuesday

Technology and Community Leaders to Dream up Possibilities for Our Most Wired Cities

LAFAYETTE, La. (Apr. 19) – FiberFête, a conference featuring Internet innovators from around the world, will be held April 20-22 at Louisiana Immersive Technologies Enterprise (LITE) in Lafayette. FiberFête celebrates Lafayette's deployment of a community-owned fiber network and explores the potential of fiber-powered communities.

FiberFête brings global technology entrepreneurs and activists together with local community leaders to explore how fiber networks can help other cities like Lafayette enhance economic development, community participation and quality of life.

“The people of Lafayette have led the country in equipping their community with fiber,” says FiberFête co-producer Geoff Daily. “Now they're committed to driving the conversation around what innovative things fiber can enable them to do.”

Welcoming FiberFête guests Tuesday will be Louisiana Economic Development Secretary Stephen Moret and Lafayette City-Parish President Joey Durel. “We have a story to tell, to share with America and the world,” says Durel. “The future of fiber optic networking isn’t a dream. For us, it’s a reality, it’s here, it’s working, and it’s an example of what is not only possible, but of what will be the future in America.”

FiberFête speakers include representatives from Google, Cisco, Harvard University and Case Western Reserve University, as well as municipal officials from Seattle and San Francisco. A full agenda is available online at www.FiberFete.com.

While an invitation-only event, FiberFête is also open to the world live via the Internet. Viewers may access the webcast online at www.LiveStream.com/FiberFete. Coverage will run from 4 p.m. until 6 p.m. CST Tuesday, April 20 and from 8:30 a.m. until 6 p.m. Wednesday, April 21.

FiberFête is distinct from other international broadband conferences in that it is sponsored by the community in support of its own network infrastructure. FiberFête is funded wholly by a diverse coalition of local public and private partners. FiberFête is sponsored by:

Louisiana Economic Development

LUS Fiber
IberiaBank
Lafayette Consolidated Government
Lafayette Economic Development Authority (LEDA)
C.H. Fenstermaker & Associates
Stuller, Inc.
Allen & Gooch
Stone Energy
Abacus Data Exchange
Prejean’s Restaurant
Pixus Digital Printing
Fugro Chance
The Schumacher Group
McDonald’s of Acadiana
Lafayette General Medical Center
iConvergence
R.W. Beck
Greater Lafayette Chamber of Commerce
The Acadian Companies
Louisiana Immersive Technologies Enterprise (LITE)
Lafayette Convention and Visitors Commission (LCVC)
Whitney Bank
Bizzuka, Inc.
Travis Technology Center

About FiberFête

FiberFête 2010 is an inaugural event bringing technology industry luminaries to discuss the development potential of fiber-powered communities such as Lafayette, La., regarding all facets of our communities.

FiberFête will serve as a catalyst for establishing the models needed to define how network-optimized communities behave, and crafting plans for how to get there. FiberFête will also be an inspiration to community leaders and application developers about the benefits of our fiber-powered future.

About David Isenberg, FiberFête co-producer

David S. Isenberg writes about technology at www.Isen.com/blog. He served as Senior Advisor to the Federal Communications Commission for its National Broadband Project in 2009 and 2010.

Isenberg wrote an essay in 1997 titled, “The Rise of the Stupid Network: Why the Intelligent Network was a Good Idea Once but isn’t Anymore.” In it, Isenberg discussed technological bases of the existing telecom business model and how the communications business would be changed by new technologies. A year later, he founded Isen.com, Inc., to help telecommunications companies understand the business implications of the newly emerging communications infrastructure.

In his career at AT&T (1985-1998), Isenberg was Distinguished Member of Technical Staff with Bell Laboratories and AT&T Labs Research. He earned a Ph. D. in Biology (1977) from the California Institute of Technology.

About Geoff Daily, FiberFête co-producer

Geoff Daily writes the blog App-Rising.com, which covers the intersection of broadband networks, applications and policy. As one of the leading advocates of fiber, Daily supports deployers, community, and app developers in their push forward to create the next generation of the fiber-powered Internet.

In particular, Daily works with Lafayette, La., a vibrant community in the heart of Cajun Country, helping them achieve their goal of becoming a test bed for next-generation applications.