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The Empire Lobbies Back: How National Cable and DSL Companies Banned The Competition in North Carolina

Publication Date: 
January 3, 2013
Author(s): 
Todd O'Boyle, Common Cause
Author(s): 
Christopher Mitchell, Institute for Local Self-Reliance

In late 2006, Wilson, North Carolina, voted to build a Fiber-­‐to-­‐the-­‐Home network. Wilson’s decision came after attempts to work with Time Warner Cable and EMBARQ (now CenturyLink) to improve local connectivity failed.

Wilson’s decision and resulting network was recently examined in a case study by Todd O’Boyle of Common Cause and ILSR's Christopher Mitchell titled Carolina’s Connected Community: Wilson Gives Greenlight to Fast Internet. This new report picks up with Wilson’s legacy: an intense multiyear lobbying campaign by Time Warner Cable, AT&T, CenturyLink, and others to bar communities from building their own networks. The report examines how millions of political dollars bought restrictions in the state that will propagate private monopolies rather than serve North Carolinians.

Download the new report here: The Empire Lobbies Back: How National Cable and DSL Companies Banned The Competition in North Carolina

These companies can and do try year after year to create barriers to community-­‐owned networks. They only have to succeed once; because of their lobbying power, they have near limitless power to stop future bills that would restore local authority. Unfortunately, success means more obstacles and less economic development for residents and businesses in North Carolina and other places where broadband accessibility is tragically low.

It certainly makes sense for these big companies to want to limit local authority to build next-­‐generation networks. What remains puzzling is why any state legislature would want to limit the ability of a community to build a network to improve educational outcomes, create new jobs, and give both residents and businesses more choices for an essential service. This decision should be made by those that have to feel the consequences—for better and for worse.

This story was originally posted on the ILSR website.

Fibrant Network Gains Subscribers Despite Technical Difficulties

As we emphasize time and time again, communities build their own networks because they have to, not because they want to. North Carolina's Fibrant network in Salisbury is no exception and a recent technical headache is a reminder that no network is built without problems developing.

Fortunately, Salisbury's strong reputation for providing great, local customer service is helping as it deals with service interruptions that are the fault of the gear that runs the network. 

According to an Emily Ford article in the Salisbury Post, there have been several outages this month. While some outages are attributed to unreliable access gear, the city is still investigating to determine what other factors continue to cause problems. The network currently serves 2,160 subscribers, with 220 of them being commercial customers.

A November 9th Post article on an earlier outage, noted the problem with faulty equipment. A statement from Fibrant General Manager Mike Jury also attributed the outage to a lack of redundancy, which has since been repaired.

While Zhone has been the access gear supplier, Fibrant is now testing Calix equipment. Calix has long been a favored choice among community networks and has a very solid reputation. This is a reminder to communities of the importance of due diligence in choosing vendors -- make sure to talk to other community networks about their experiences with vendors. All equipment is subject to failure, so a key question should be how quickly different vendors respond with solutions to problems.

This technical problem comes on the heels of political problems as Salisbury has been targeted by Time Warner Cable for attacks. Readers will recall how Time Warner Cable successfully pushed the Legislature to pass H129 in 2011, a bill to neutralize publicly owned networks

Even though there have been recent outages, more people continue to take the service than to drop it. From the Ford article:

The week before the outage, 23 new subscribers signed up.

"Despite the outage, our customer base has grown," [City Manager Doug] Paris said, crediting Fibrant staff's dedication to customer service.

Jury said Fibrant's trials are to be expected, especially with a network built from scratch.

A 24-year veteran of the cable industry who took over Fibrant in March, Jury said Salisbury's network is so advanced he refers to it as "bleeding edge."

With no blueprint to follow, Fibrant is breaking new ground, he said.

 

Salisbury's Fibrant Hits 1600 Subscribers

The muni FTTH network owned by the city of Salisbury, North Carolina, is finishing the calendar year with over 1600 subscribers. The network just began signing up customers 13 months ago.

“We already said in the first four years, we would not break even,” City Councilman Brian Miller said. “That’s not a surprise to anyone.”

According to documents, the city expects Fibrant to become cash-flow positive after four years. The city billed the first Fibrant customers one year ago in December 2010.

The city expects Fibrant to eliminate its deficit as more people sign up and revenues increase. The utility, which competes with private providers like Time Warner Cable, has a 13 percent market share, interim City Manager Doug Paris said, and is billing about $200,000 a month.

“We’re growing in what is an extremely tough market,” Paris said.

Paris said after the meeting Fibrant has about 1,600 customers. The utility needs about 4,500 to become cash-flow positive.

Salisbury has a new mayor coming into office, but he is a supporter of the network, as was the outgoing mayor, who spent a significant amount of time defending the community network from Time Warner Cable's attacks via the state legislature.

Fibrant Buys More Set-Top Boxes

Salisbury's Fibrant network, a muni FTTH network in North Carolina that is approaching its one year anniversary, has decided to celebrate by ordering 5,000 set-top boxes. Because the order was so large and only available from a single vendor due to software issues, City Council had to approve the deal.

The city will order 5,000 additional set-top boxes for Fibrant at the discounted price of $721,572…

Fibrant’s original inventory of 5,000 set-top boxes purchased in March 2010 is running low, Behmer said. The city’s new broadband utility, which sells Internet, cable TV and phone services to Salisbury residents, has about 1,200 customers and averages about three set-top boxes per home, he said.

This is a reminder of the economics of these networks. Each set-top box costs something like $150. Household that subscribes for television service average 3 set-stop boxes, meaning that the cost of those boxes alone is about $450 of loss to Fibrant before the subscriber pays a dime to Fibrant.

This is why muni networks take so long to break even. The additional install costs like the equipment on the side of the house and the labor to set everything up grow quickly -- often to between $1200-$1500 per subscriber. It takes years to pay down those costs, plus the interest of borrowing to build the network.

So when you hear that a community network is running in the red in year 3, you should say, "Duh." Infrastructure often takes a long time to pay off, which is one of the main reasons the private sector does such a poor job of providing it.

Community Networks Provide Cable/Broadband Competition That is Otherwise Unlikely

You can also read this story over at the Huffington Post.

How can it be that the big companies who deliver some of the most important services in our modern lives (access to the Internet, television) rank at the top of the most hated? Probably because when they screw up or increase prices year after year, we have no choice but sticking with them. Most of us have no better options.

But why do we have so few choices? Government-sanctioned monopolies have been outlawed since the 1996 Telecommunications Act. Unfortunately, the natural tendency of the telecommunications industry is toward consolidation and monopoly (or duopoly). In the face of this reality, the federal government has done little to protect citizens and small businesses from telecom market failings.

But local governments have stepped up and built incredible next-generation networks that are accountable to the community. These communities have faster speeds (at lower prices) than the vast majority of us.

Most of these communities would absolutely prefer for the private sector to build the necessary networks and offer real competition, but the economics of telecom makes that as likely as donuts becoming part of a healthy breakfast. In most cases, the incumbent cable and telephone companies are too entrenched for any other company to overbuild them. But communities do not have the same pressures to make a short-term profit. They can take many years to break even on an investment that creates many indirect benefits along the way.

One might expect successful companies like AT&T and Time Warner Cable to step up to the challenge posed by community networks, and they have. Not by simply investing more and competing for customers, but by using their comparative advantage – lobbying state legislatures to outlaw the competition. As we noted in our commentary and video last week, massive cable and telephone companies have tried to remove local authority to build networks.

These companies frequently claim they are at an unfair disadvantage when they have to compete against a broadband network owned by the local government. This claim resonates strongly with some politicians, particularly those who happen to receive a lot of campaign contributions from big telco and cable companies -- as recently demonstrated in Wisconsin. They say they just want a "level playing field."

We decided to take a deeper look. We compared Time Warner Cable to Salisbury, North Carolina -- which built one of the newest community fiber networks – to see who is at a disadvantage.

TWC v Salisbury Fibrant InfoGraphic

Big companies like Time Warner Cable have some big advantages over any community that decides to build a network. Of course, communities do not build their own networks on a lark, they do it because they need fast, affordable, and reliable networks for economic development and maintaining a high quality of life.
But a better comparison goes beyond simply the scale of the competitors in order to complete a more meaningful comparison. For that, we created our “Level Playing Field” video, attached below.

There should be no doubt that massive incumbent cable and phone companies have a monopoly on the “unfair” advantages in telecommunications. Fortunately, community networks have a host of local advantages and often superior technology with which to invest in the networks they need. The question is whether Congress and the states will protect the right of communities to choose for themselves if a local community network is necessary.

Video: 
See video

New Video: Community Fiber Networks Better than Phone, Cable Networks

Update: You can also watch the video over at the Huffington Post, in our first post as a HuffPo blogger.

While we were battling Time Warner Cable to preserve local authority in North Carolina, we developed a video comparing community fiber networks to incumbent DSL and cable networks to demonstration the incredible superiority of community networks.

We have updated the video for a national audience rather than a North Carolina-specific approach because community fiber networks around the country are similarly superior to incumbent offerings. And community networks around the country are threatened by massive corporations lobbying them out of existence in state legislatures.

Feel free to send feedback - especially suggestions for improvement - to broadband@muninetworks.org.

Without further ado, here is the new video comparing community fiber networks to big incumbent providers:

Video: 
See video

Salisbury's Neighbors to State Legislature: Don't Kill Our Fibrant Dreams

Time Warner Cable's bill to kill competition by limiting the right of communities to build their own broadband networks will have a committee hearing this week in North Carolina's Senate. Stop the Cap! has details in its action alert -- we encourage people to continue contacting their Senators as well as contacting local officials and telling them to contact Senators.

We have seen some interesting news coming out of North Carolina recently, including Salisbury connecting its 500th customer to its publicly owned Fibrant network [pdf]. Additionally, some nine nearby communities have told Raleigh they want to preserve their right to be served by Fibrant (the bill would greatly limit the territory in which Fibrant can expand, unlike private companies which have the freedom to expand across the state). The story starts with a church in one of the communities, Faith:

Mahoney said his church, Faith Baptist, would like faster Internet speeds but can’t afford the $20,000 Time Warner Cable would charge to build a business-class circuit for the church.

Church members are not satisfied with DSL service from Windstream, Mahoney said. But it’s their only option since they can’t afford Time Warner’s price tag, he said.

If Salisbury extends Fibrant to Faith, the church would have another choice for high-speed Internet, said Mahoney, who owns Rowan Onsite Computer Solutions in downtown Salisbury and has Fibrant.

This bill, inaptly named "Level Playing Field" creates new restrictions for publicly owned networks like Fibrant, which under current law can offer services to any community requesting them.

Stop the Cap

Stop the Cap supplemented this article with more information from a local resident:

“Isn’t it simply amazing that Fibrant is being bashed as a failure-waiting-to-happen by the sponsors of this bill while mayors across two counties are absolutely clamoring to get the service to their residents,” said Stop the Cap! reader Andy Brown who lives near Landis. “How can Marilyn Avila and Tom Apodaca have the slightest bit of credibility on this issue when you see town leaders literally falling all over each coveting a service that these legislative-Friends-of-Time-Warner-Cable have predicted is a certain failure?”

“I want Fibrant in Landis myself, if only for the competition,” Andy shares. “You know, the kind of competition legislators are supposed to support.”

A new bill has been introduced in the Senate to more heavily regulate community networks but in a less heavy handed manner than H129. This bill would totally exempt the existing networks, as opposed to H129 where the sponsors have consistently lied about how it impacts existing networks.

Salisbury, Wilson, Morganton, Mooresville and Davidson argue it’s not fair for the state to change the rules after they borrowed millions of dollars to legally build or buy broadband networks.

“The state approved our debt and Salisbury’s debt,” Shows said. “To retroactively go back and change that is simply unfair. Municipal broadband operations must be run like a business, and like a business, either they’re growing or dying.”

Chapel Hill LogoChapel Hill has joined the list of communities showing concern about how H129 will damage their long term plan to build the essential infrastructure for their digital future.

The town is trimming trees to make way for fiber optic cable, primarily so it can be used for traffic signals. The town plans for the cable to eventually connect town buildings and the wider community with high speed Internet.

But with the possibility of the broadband bill passing, Kleinschmidt said the cable might not be used to its full potential.

“The worst case scenario is that the fiber optic cable will only be used for our traffic signal and its full use will never be tapped,” he said. “The best case scenario is also using it for municipal services too, but even that could be at risk.”

Chapel Hill has been opportunistically adding fiber assets as opportunities arise and having a discussion about whether it wants to create a town-wide publicly owned network. This bill will take that decision out of their hands -- a bunch of politicians in Raleigh will decide for them, after taking a ton of campaign donations from Time Warner Cable and other incumbent telecom companies.

For those who are curious, Chapel Hill is currently doing what a number of other communities have done, adding fiber-optic connections to run traffic signals. As long as the fiber is going in, they might as well get more use out of it and are planning to leverage it over time… if the Legislature doesn't tell them to but out of TWC's exclusive club.

With New Hope, North Carolina Broadband Struggle Continues

On Wednesday morning, March 22, the House Finance Committee will again consider H 129, a bill from Time Warner Cable to make it all but impossible for communities to build their own broadband networks. But now, as noted by Craig Settles, the momentum is shifting.

Last week, advocates had a big victory when Representatives Faison and Warren successfully amended the bill (each with his own amendment) to make it less deleterious to communities. Unlike the sham voice vote in the Public Utility Committee, Chairman Setzer of the Finance Committee had a recorded vote, allowing citizens to hold their representatives accountable.

After these amendments passed, the TWC lobbyist signaled for an aide. Shortly thereafter, the committee decided to table the matter until this week -- when TWC will undoubtedly try to remove or nullify those amendments.

In the meantime, AT&T has announced bandwidth caps, yet another reason the state is foolish to pin its broadband future on cable and DSL companies.

Compare AT&T's movement to less-broadband with Wilson Greenlight's recent dramatic price decreases in its ridiculously fast broadband network, causing at least one couple to move there! Greenlight is owned and operated by the public power company owned by the city.

Greenlight has signed up its first residential customers with the highest Internet speed available in Wilson.

Vince and Linda Worthington, former Johnston County residents, moved to Wilson after finding out that they could have access to 40 Megabits per second Internet speeds at a lower cost than what they were previously paying.

"We always wanted the 100Mbps service," she said. "When the price came down, we jumped on it." Greenlight, the city of Wilson's fiber-optic broadband network, has close to 5,600 cable, Internet and telephone subscribers. Greenlight sells its 100 Mbps symmetrical service, with the same upload and download speeds, starting at $149.95 per month as part of a package. Greenlight's 60 Mbps start at $99.95, 40 Mbps at $74.95, 20 Mbps at $54.95 and 10 Mbps at $34.95. Greenlight's 40 Mbps is becoming increasingly popular with customers, said Brian Bowman, Wilson's public affairs manager.

To recap, the publicly owned networks are investing in faster and lower-priced networks while private companies are simply trying to maximize their income from the old networks. Good deal if you can convince the Legislature to outlaw your competition....

TWC and its proxy in the Legislature, Representative Avila, wanted this bill to fly through as quickly as possible -- which is why the Public Utilities Committee cut off discussion with a sham voice vote long before most members were ready. But as the public has learned more, they are opposing TWC's power grab quite loudly. This from a Winston-Salem Journal editorial:

Internet-service providers can't have it both ways. They can't delay bringing high-speed service to North Carolina communities but then turn around and lobby the legislature to deny local governments the authority to establish municipal service if their residents want it.

….

Had the private companies tried to make their argument 15 years ago, they might have deserved some sympathy. But not in 2011. The Internet and high-speed access to it have now been available in North Carolina homes for well more than a decade.
They ignored a market, and local governments stepped in to provide a critical service. The legislature should kill this bill.

In an op-ed, Mark Turner recalls the crucial role of non-commercial coops electrifying the state when private companies saw no profit in it. An excellent read

Mark Turner dot Net

Citing the economics, private Internet providers have been slow to invest in the high-speed infrastructure that would connect these rural communities. That has a lot to do with why North Carolina ranks a paltry 41st in the nation for broadband access, according to Census Bureau statistics.
Having been snubbed by the private providers, some communities like Wilson and Salisbury have taken the same approach as they did 66 years ago: opting to build their own state-of-the-art systems when the commercial providers refused. Now the General Assembly, through a bill sponsored by Rep. Marilyn Avila, R-Raleigh, aims to throw substantial roadblocks in the way of communities seeking to serve themselves.

Columnist Scott Mooneyham also recognized the similarities to electrification:

In many ways, the issues involved aren’t very different from when investor-owned electricity providers were unwilling to bring service to small town and rural North Carolina early in the 20th century.

By the 1930s, the federal and state government were taking steps to encourage rural electrification and the formation of electric co-ops, including providing loans needed for the construction of the systems.

One of the first electric co-ops in the country was formed by Edgecombe County farmers.

Perhaps North Carolina legislators ought to contemplate what the state might look like today if their predecessors had quashed the aspirations of those farmers, rather than giving them tax breaks.

For a more substantive review of what folks in North Carolina are saying about this bill, Stop the Cap! has a great run-down.

What can we expect in the hearings tomorrow? Well, more lies from the cable industry, as recently quoted in an article about the bill:

"I am confident, at some point, that the state law will address this," said Marcus Trathen, an attorney with the [cable] association. "We have never said that cities should be prohibited. If they compete, they should be subject to the same rules as private companies."

We have already detailed (at the bottom of this post) the many ways this bill will introduce bigger barriers and unique regulation for public networks that do not apply to companies like TWC, but let's quickly refresh with two examples.

  1. If Trathen wants the same rules, then TWC will abide by the open meetings laws and publish budgets, business plans, etc., for the public to review. And communities get to vote on kicking TWC out of town.
  2. This bill must be redrafted not to prohibit communities from offering service outside town. NC law makes it very easy for TWC to offer state-wide service and communities should not have a barrier to do similar.

There you go, anyone reporting the lie that this is "level playing field" legislation should be confronted with the facts.

Things are looking way up in terms of preserving local authority to build these networks. Thanks to the rapid and enormous public outcry (making phone calls to state Reps can make a big difference!), the bill was slowed down so the public could get a better sense of exactly what TWC and Avila were conspiring.

Salisbury's Fibrant, realized this bill posed an existential threat to its future (despite the public lies of Rep Avila who claimed it did not target existing networks) because the bondholders need to be repaid regardless of whether TWC convinces the Legislature to shut Fibrant down. They hired a lobbyist. This came after their Mayor worked long and hard to get the Legislature to understand what it was messing with.

At $5,000/month, the cost is a pittance compared to the damage of allowing TWC's bill to shut down Fibrant (to clarify, the bill currently does not threaten Fibrant due to Rep Warren's amendment -- but TWC will do everything it can to remove that amendment).

We have long maintained that these issues have little to do with partisan politics and Salisbury's new lobbyist proves that point.

Council committed to use Fetzer, the outgoing N.C. Republican Party chairman and a former mayor of Raleigh, for one month and could retain him throughout the legislative session, which ends in July.

Preserving local authority cuts across Republican/Democratic Party lines. What often matters far more is how much cable and telephone companies have contributed to election funds for candidates.

And finally, another opportunity to promote the video we produced showing why community networks are so important in North Carolina.

Video: 
See video

Salisbury's Fibrant Making A Difference in Area Schools

Salisbury's Fibrant network in North Carolina was recently praised in a letter to the editor of a local paper for improving the educational tools in schools. These networks can have a big impact on educational opportunities, from directly improving the connections to the schools (often at lower prices) to lowering the cost of broadband across the entire community, thereby increasing broadband adoption and giving a new educational tool to children in home.

Previously, when the computers in our lab were being used, the entire system was bogged down. We had to limit the use of video and Skype to class periods where the lab computers were not being used. With some programs, we were not able to have a full class on the computers at the same time.

...

Next up, we will be able to establish full connectivity between the main building and the kindergarten building. This will enable our phones, paging system, and file sharing to work together for the first time ever, and we are very excited about that!

Bill to Limit Broadband Competition in North Carolina Heads to House Finance Committee Next Week

On Wednesday, the bill to effectively ban community networks in North Carolina was passed out of the House Public Utilities Committee and will likely be heard by the Finance committee next week.

The audio is available here from the Wednesday meeting [mp3, 45 min].

It never fails to shock me how cavalierly some Committees refuse to discuss the bill, agreeing to let another Committee fundamentally change the bill. There is practically no discussion of what this bill does and very little discussion about the actual pros and cons of different approaches to providing broadband.

Listening to the discussion, one gets the distinct impression that a household either has "broadband" or doesn't. There is no discussion of the known failure of the private sector to invest in next-generation networks. If I were a Representative in North Carolina, I would be sure to ask why no private sector provider is building next-generation fiber-optic networks like those in Wilson, Salisbury, and hundreds of communities served by Verizon's FiOS outside the state. There is no discussion of the wisdom of relying on last-century cable and copper networks.

Horse and buggy

Those pushing this bill have no idea what they are doing. They may gut the potential for full fiber-optic networks in the state as the rest of the world charges forward building these networks. They are defending the horse-and-buggy industry in the age of automobiles.

Listen for the North Carolina Chamber of Commerce weighing in against community networks, the only entities investing in the next-generation networks needed for the digital economy. The Chamber cares more about its high profile members (cable and phone companies) than the 99% of businesses in North Carolina that need the kind of broadband available in Wilson and Salisbury. These organizations should not be allowed to get away with pretending to represent business interests in the state. They represent the largest businesses that are most often headquartered out of state.

And in the middle of discussion, a Representative basically says the bill should keep moving, no matter how flawed, because to do otherwise would leave less incentive to improve it. Fascinating that the only way to make this bill better is to avoid any discussion of it or allowing members to understand what it does.

With a simple voice vote that was fairly cleanly split between aye and nay, the Chair pushed it on.

It bears remembering that a similar bill last year was admittedly authored and advanced by Time Warner Cable. This year is no different, with supposed meetings to negotiate changes to the bill turned over to TWC to run.

Stop the Cap! discusses local resolutions passed against the bill - we will post those here as soon as we can OCR them rather than posting a non-searchable pdf.

You can find a list of Finance Committee members to contact here.

Horse and buggy photo used under creative commons, courtesy of Cindy Seigle.