Thanks to Jeff Hoel for providing the transcript for the Episode 63 of the Community Broadband Bits podcast with Jim Baller on second part of the History of Municipal Networks. Listen to this episode here.
Jim Baller: It is the code of omerta within the cable industry that you don't compete with an existing system.
Lisa Gonzalez: Hi there. This is Lisa Gonzalez, from the Institute for Local Self-Reliance. Welcome again to the Community Broadband Bits Podcast. Large corporate providers enjoy lack of competition within the status quo. Unfortunately, those same providers often refuse to build in communities without the potential for large enough profits, or where they would encounter competition. What is a local community to do when existing providers see no reason to serve their community? Several weeks ago, we brought you Jim Baller, President and Senior Principal of the Baller Herbst Law Group. Baller Herbst has worked with local communities for years, as they have found ways to provide connectivity to residents, businesses, and government. During episode 57, Jim and Chris discussed some of Jim's experiences with early legal battles, as publicly-owned networks began to pop up across the country. This time, Jim and Chris continue to explore the history of publicly-owned networks. As momentum builds, and more communities consider the pros and cons, past experiences can mold future decisions. Here are Jim and Chris with more on the early days of the municipal network movement.
Chris MItchell: Welcome back to another episode of the Community Broadband Bits Podcast. This is Chris Mitchell. And once again I'm speaking with Jim Baller. Jim, welcome back to the show.
Jim Baller: Thank you, Chris. I'm happy to be here.
Chris: Last time, when you and I were speaking, we spent a lot of time talking about the early history of the municipal networks. Some of the cable history, your work with Glasgow. And we ended up by talking about the 2004 Nixon v. Missouri decision. And I think today we're actually going to go back a little bit in time, to explain a little bit of what was happening in those years, while that case was working its way through the system. So, why don't we pick one of the networks that you worked with early on -- perhaps the first fiber network you worked with -- and pick up the story there?
Jim: First, Chris, let me try to put into context the fiber networks that I began to work with, beginning in around 2000, 2001. Up to that time, the great majority of the municipal networks were HFC -- hybrid fiber coaxial -- networks that were similar to the networks that cable systems -- private-sector cable systems -- were operating. And also, a number of municipal networks did not provide residential service at that time. And so, that's the kind of network that existed at the time.
Beginning around 2000, a number of very creative, pioneering communities saw the vision of developing fiber-to-the-home networks that would have substantially more capacity, and would reduce operating costs, and were, as the phrase -- saying was at the time, "future-proof." Among these communities were Bristol, Virginia; and Kutztown, Pennsylvania; Grant County, Washington; Chelan County, Washington; Dalton, Georgia; was another early one. And we worked with most of them -- in particular, Bristol, Chelan, Kutztown, and Dalton. And these networks were very new in concept and they were pretty much all there was in this field of advanced fiber-to-the-home networks. The major phone companies were not doing anything like that at the time. They began to get into it about three, four years later. The municipal projects encountered the usual opposition from the private-sector entities. But they all went forward. And they ended up being the spearheads for what is now a very widespread community of public and private entities that believe that fiber networks are the future of the nation, and, indeed, the future of many countries around the world.
Chris: Let's just jump right into Chelan, in part because when I was speaking with people from Bristol, they noted that they had gone out there to Chelan ...
Jim: Um hum.
Chris: ... when they were thinking about their system. And also, Chelan's in a very interesting place. Because, you know, most of these other places, they're -- they may be in rural areas, but it's a town center, and it's a -- you know, there's an area of density that they serve, or that they started to serve first. Whereas Chelan is really quite spread out, and -- as is Grant, as I understand it. And the public utility districts of Washington state, they're -- they cover these much larger areas, as I understand it.
Jim: That's quite correct.
Chris: So, how did Chelan become one of the first to experiment with this new technology?
Jim: Counties like Chelan, and Grant County, had revenues from selling electricity from their hydro projects on the great rivers of Washington, that they could use to support the development of broadband networks. Their populations were not getting broadband of any kind. And there was a logical connection of using communications services to improve the provision of electric power and also, at the same time, to give their residents access to a broadband service that they would not otherwise have had. At the time that entities like Chelan and Grant County and other PUDs actually began to make plans to provide services over their networks, the state of Washington passed legislation that effectively limited the public PUD providers to providing service, if at all, only through wholesale means. And that had a negative effect on their ability to serve the public well, and also their ability to provide a sustainable service. They went ahead in any event, and their communities are much better for those efforts.
Chris: We saw this later, to the same effect, although not the same wording, in Utah, that -- There's justification by legislators, often, who are working at the behest of the cable and telephone companies, that they should limit the ability of these local government units, or local governments, depending on what we're talking about, as though it would somehow lower their risk, when, in fact, what we've seen time and time again is that when you decrease the freedom of the local government or public entity to pick its own business model -- the one that works best for its own unique situation and assets, that's when you're creating more risk for them.
Jim: The problem with this model of restricting public providers to providing wholesale service, as distinguished from retail service -- there are several problems, but the main one is that, if you are dealing directly with your own customers, you are responsible for the quality of service, the pricing of service, the way in which the customers are able to respond when they have problems, and so on and so forth. What the wholesale model essentially does is inject between that relationship -- between the consumers and the utility -- a whole layer of middlemen, or middlepersons, or -- And that layer of retailers has the incentive to gain the same kinds of profits that incumbents have. They push prices. Their interests are not necessarily the same as the network owners. Because the network owner, if it's a utility in particular, has decades of building a reputation for high-quality customer service, and high quality of service. If the retailers don't meet those standards, the utility still gets blamed for it, but there's not much they can do about it. Retailers, in our experience, have tended to be very conservative about spending money for marketing, and for customer service and support, which has a negative effect, from the perspective of the network owner. And it's a difficult model, especially since there aren't that many high-quality retailers who are available in many of the rural areas where we're talking about PUDs serving. So, bottom line, where municipalities have been able to provide retail service, they tend to have done very well. Where they've been forced to operate a wholesale operation without being able to serve customers directly, they've, in many cases, struggled. That's a difficult model.
Chris: Bristol, Virginia, was thinking about what it could do to try and revitalize the economy in southwestern Virginia.
Jim: When Bristol got going, they wanted to do a wholesale model. Their problem, as far as the model was concerned, was something different. They couldn't get a cable operator to work on their network as a partner, because there were already, actually, two private-sector cable systems serving portions of the city: Comcast and Charter. And it is the code of omerta within the cable industry that you don't compete with an existing system. And so they couldn't get a cable operator to operate over the network. And they had a -- what they thought was a deal with a private phone company to operate over the system, so that they could focus on broadband and providing infrastructure to the cable and phone providers. And that didn't work out either. So Bristol was faced with a choice of either abandoning their desire to be a wholesale provider or abandoning the concept of providing a fiber service in their community. And they decided that the only real alternative left to them was to step up and become a retail provider themselves.
Chris: Right. And we -- you and I -- told that story. You provided a lot of advice in the writing of a case study that I did, on Bristol, Lafayette, and Chattanooga. I wanted to just sort of say that BVU holds claim, and likes to brand itself as the very first municipal triple-play network available in the United States. And, although that is true -- although they weren't the first sort of municipal fiber network. And we skipped over Kutztown a little bit. Which has a little personal history for me. My mom was born there. I visited there a few times. Let's talk about Kutztown, and how they came into building a fiber network.
Jim: They're a small college town in central Pennsylvania. They have, I believe, a population of only around 5,000, not including the college campus and the students there. But, you're right, they did put together a fiber-to-the-home network. And, you know, you often hear that it's public versus private. And that's not true at all. And it certainly isn't true in Kutztown's case. We once provided testimony for a committee of Congress on how the Kutztown network operated. And it had, as it turns out, a half a dozen private providers filling out the service list on that network. And there were providers, for example, providing local phone service. And some were providing long-distance phone service. Kutztown was providing broadband and cable. Others were providing a security service. And so you had this isolated little community in the heart of Pennsylvania out there showing up what everyone else in Pennsylvania was doing. And, as it turns out, Kutztown was a sore point with Verizon, and it led to two or three years of efforts by Verizon to obtain legislation in Pennsylvania to prevent future Kutztowns. And that ultimately resulted in Verizon pushing through the legislation at the end of 2004. That spawned its own history of national opposition to barriers to entry, which I think we'll probably get to at some point down the road.
Chris: You know, when I was looking at some of the history of Kutztown, I found this fascinating fact -- and I don't remember the exact amount of time -- but the governor of Pennsylvania at the time presented Kutztown with an award ...
Jim: Um hum.
Chris: ... recognizing their local government excellence in this telecommunication investment, you know, building this futuristic network. And the same governor turned around, a few months later -- I think it may have been as many as six or nine months later -- and he signed the bill to make sure that no one else could ever do that in Pennsylvania. It was a fairly fascinating turnaround. It really shows the power of a company like Verizon.
Jim: Yes, it does. And that is a very unfortunate experience. I remember the morning after we lost that fight in Pennsylvania, turning to my partners in Washington and saying, mark my words, this loss is going to be the equivalent of the sinking of the Lusitania, which ultimately led to America's entry into World War I. And, as it turns out, that is in fact what happened.
Chris: It's a great point to end this show on. And what we'll do is, we're going to come back, and we'll keep this history moving forward.
Jim: OK. Let's do it.
Lisa: You can access a wealth of information about the Baller Herbst Law Firm at baller.com . We have one more future interview with Jim lined up. So be sure to return to hear Jim share some of his rich experiences. Thanks again for listening to the Broadband Bits Podcast. If there are issues related to telecommunications that interest you, we welcome your suggestions for future shows. E-mail us at email@example.com . You can also follow us on Twitter. Our handle is @communitynets . We released this show on September 10th, 2013. Thank you again to the group Break the Bans for their song, titled "Escape," and licensed using Creative Commons. Thank you for listening.