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Policy In-Depth: Debate over Muni Broadband Competing With Private Sector

On June 1, the Information Technology and Innovation Foundation held an oxford-style debate over the proposition: "Governments should neither subsidize nor operate broadband networks to compete with commercial ones."  

Jim Baller and I spoke against the proposition while Rob Atkinson and Jeff Eisenach defended it during the 2 hour, 15 minute session.  I was unable to be in DC and thus participated by the magic of modern telecommunications.  

This is a long but valuable and unique discussion.  We left talking points behind, actually responded to the points raised by the other side, and presented both sides of this debate in a reasonable manner.  In short, this is exactly the kind of discussion we would elected officials to consider before legislating on the matter.  But it very rarely happens -- nothing even remotely close to it occured in North Carolina when Time Warner Cable pushed its bill through the Legislature to enact a de facto ban on muni networks in the state.

You can watch it here.

 

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Seattle Mayor Uses City Conduit to Connect Pioneer Square

In the campaign for Mayor, Seattle Mayor McGinn frequently proposed the city getting more involved in improving broadband access. Since becoming mayor, he has accomplished little in this area, perhaps due to a City Council that is not convinced it should get involved in broadband.

But the mayor held an event in Pioneer Square to announce a new initiative to start using City assets to expand broadband access:

Seattle Mayor Mike McGinn today laid out a proposal to encourage broadband Internet in a four-block area in Pioneer Square, allowing telecom and cable companies to lease some of the conduit that the city is now placing under First Avenue South. McGinn said it is a small, incremental step in a larger plan to bring high-speed Internet to the parts of the city that need it, tapping into some 500 miles of “dark fiber” that’s not being utilized.

Pioneer Square, with a mix of commercial and residential, currently has very poor access to the Internet:

Jeff Strain, the founder of Undead Labs, a 20-person game developer in Pioneer Square, said that fiber-optic cable would dramatically improve his company’s ability to create cutting-edge games.

“What we are able to get in Pioneer Square is about half the speed of what you’d be able to get in your home,” said Strain. “So, it is not really suitable for the sort of media rich businesses that we are trying to build down here.”

The Mayor's site explains that Jeff Strain was considering moving his company to a location with better access.

We’ve heard from Pioneer Square businesses that internet speeds there are just not what a 21st century economy needs. Jeff Strain, who founded a game development company called Undead Labs, worries that he might have to move his company from Pioneer Square if the “barely adequate” internet service isn’t improved. He needs high-speed, high capacity internet access to upload his content.

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Yet another reminder that simple DSL and even cable networks do not offer businesses the connections they need to take advantage of modern technology.

More background from the Request for Proposals:

The City of Seattle, through the Department of Information Technology (DoIT), is installing conduit between South Jackson Street and Cherry Street along 1st Ave South in Seattle’s Pioneer Square District. The installation is part of an ongoing street project led by the Seattle Department of Transportation (SDOT) and the Seattle City Light Department (SCL). The City is installing the conduit to provide conduit capacity requested by King County Metro for future fiber installation to serve signal cabinets. Only part of the standard four inch installed conduit will be needed for King County Metro purposes. The City has determined that after reserving space for current and future governmental uses there will remain excess capacity in the conduit which can be leased to private parties. As further detailed in RFP Section 5, the City will install three or four inner ducts in the conduit, leaving two inner ducts available for lease to an ISP(s).

The city appears ready to select one or two ISPs (which must have more than 3 years of experience) to move forward with this project. Mayor McGinn said the City would look into offering services itself if the private sector does not step up.

This 22 minute video below explains Seattle's approach, with Bill Schrier demonstrating the conduit and inner ducts being installed.

The City has 500 miles of fiber-optic cable, much of which could be leased as dark fiber -- a topic McGinn suggested will be addressed in the future.

Mayor McGinn has called on the City Council to pass an ordinance that will allow the City to lease space in city-owned conduits. We have some reservations about this timid approach -- it is far from clear that leasing conduit space to a few additional providers will ensure universal, affordable, reliable, and fast access to the Internet over the long term. That said, it will almost certainly be an improvement over the status quo. But what happens when Comcast buys whatever company builds these connections?

Seattle may want to consider a stronger role -- perhaps starting to build an open services network on which independent providers would compete for customers. It would require greater investment and risk than this approach, but it offers more long term rewards. If we had to guess, the City Council is the bottleneck and will only agree to this "small policy step," in the words of Mayor McGinn.

McGinn also noted that policy conversations in Beacon Hill, a neighborhood with very poor access to the Internet, almost always start with that topic. Comcast and Qwest are not meeting Seattle's needs. The question is whether the City Council will continue to prevent the community from solving its own problems with smarter investments.

Photo of Seattle used under creative commons license from flickr

Leading Critic of Community Network in NC Revealed to Be TWC Employee

It will come as no surprise to those familiar with this space that the leading critic of MI-Connection, a cable network in North Carolina owned by local governments, has been revealed to be an employee of Time Warner Cable. Hat tip to Stop the Cap! for bringing it to our attention last night.

We have long watched massive cable/phone companies flood public meetings (both honestly and surreptitiously) with their employees to give the perception of widespread opposition to a publicly owned network. So while this is nothing new, the practice must be highlighted as something community networks should be aware of -- much like the rampant abuse of the commenting system in the Salisbury Post, where any story that mentions the community fiber network Fibrant is slammed by a few people who post under many different identities to give the impression of widespread disapproval.

MI-Connection has been plagued by problems since buying a system that was in considerably worse shape than expected, thus requiring more capital to rehab and upgrade it. An additional problem has been the image damage done by relentless critics (noted last week):

Venzon [Chairman of Board for MI-Connection] said he’s frustrated because the publicly owned company still fights an image problem.

“With the improvements we made to the system, I thought that people would be lined up out the door,” Venzon said. “I thought they’d see this as ours, this is us, and it just bugs me that we get such poor PR out there. We have not won that battle.

And now we know that a major critic of the network works for Time Warner Cable, a company vociferously opposes muni networks as a threat to their de facto monopoly. It would not be as much of a story though if he hadn't denied his employment with TWC for so long in order for his attacks on the publicly owned network to be more effective.

MI-Connection board chair John Venzon posted the information in a comment on this website Friday. He said Mr. Stevens “has been active in using our publicly available information to turn our potential customers against us and to stir up fear, uncertainty and doubt about MI-Connection while hiding his motives. He does not live in our town or service area, so he does not ‘have a dog in the fight’ unless you consider who signs his paycheck. Could I attend competitors’ regular board meetings to see what they are doing?” Mr. Venzon asked in the comment.

Mr. Venzon also noted that Mr. Stevens has used the state’s open records law, or Freedom of Information Act, to obtain copies of “every communication between the towns, the board and management. So Time Warner does in fact sit in our meetings.”

Under North Carolina Law, those records are open, and the towns have known since they bought the system in 2007 that they had to operate under public scrutiny in a way their private competitors did not. Mr. Venzon acknowledged that, but said he’s unhappy about having a Time Warner employee following the company so closely. “In corporate America, this would constitute espionage. In our situation, it is free and legal. I find it deplorable,” he wrote.

Does it matter that Mr. Stevens is a Time Warner Cable employee? As editor of DavidsonNews.net, it concerns me that Mr. Stevens hasn’t acknowledged his employment when we’ve asked, or when he has commented regularly on this site about MI-Connection.

Stop the Cap! sums it up well:

Indeed, Stevens’ efforts to hide his employer’s identity and his subsequent decision to bring his blog down after the cat was let out of the bag suggests there is nothing for Stevens or Time Warner Cable to be proud of in their relentless, often sneaky efforts to bring community-owned competition to its knees.  When it comes to protecting duopoly profits of local cable and phone companies in North Carolina, it’s total war on all fronts.

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Time Warner Cable may claim that they have no say in what employees do in their spare time, but they keep very close tabs on these networks and absolutely knew that he was leading a fight against another community's network while lying about his motives and employment. TWC regularly labelled MI-Connection a "failure" in its efforts to pass a bill that would preempt local authority to invest in networks that could compete with TWC services.

This entire fiasco serves as a reminder of the massive disadvantages communities have in building their own networks. Companies like Time Warner Cable, which measure their revenue in the tens of billions, have effectively unlimited resources to attack communities who build their own networks. Big companies attack communities in the courts, legislatures, and the media -- while communities have little power to respond in any of those venues (communities don't have the funds to fight in the Legislature or the media and struggle to justify expensive, prolonged court fights). This is the reality in every state.

And in places like North Carolina, it could get a lot worse if the Governor allows h 129 to become law. It is on her desk now and whether she signs it or lets it pass by doing nothing, big companies like Time Warner Cable will have even more advantages while communities will effectively be barred from building their own networks.

Venturing Into the Rights-of-Way: I Own What???

This is the first in a series of posts by Rita Stull -- her bio is available here. The short version is that Rita has a unique perspective shaped by decades of experience in this space. Her first post introduces readers to the often misunderstood concept of the Right-of-way, an asset owned by the citizens and managed mostly by local governments.

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In the process of knitting a baby blanket, a whole ball of yarn became tangled into this mess. . . .

. . . reminding me of the time, in the early eighties, when I was the second cable administrator appointed in the U.S., and found myself peering into a hole in the street filled with a similar looking mess—only made of copper wires, instead of yarn.

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Why talk about yarn and copper wire in the same breath on a site dedicated to community broadband networks? Because it was the intersection of ‘art and cable’ that got me started in the ‘telecommunications policy’ arena, the same kind of thinking that continues today in our tangled telecom discussions: Is it content or conduit, competitive, entertainment, essential, wireless, landline, gigahertz, gigabits?

I transferred from the Recreation Department to launch the city’s cable office as an experienced government supervisor with a Masters in Theater. My employer and I thought cable TV was the ‘entertainment’ business and I had the requisite mix of experience and skills to manage one of the first franchises awarded in 1981.

Yikes. Imagine my surprise on discovering that cable was a WIRE LINE UTILITY using PUBLIC LAND, which each citizen pays TAXES to buy, upgrade and maintain! And, our three-binders-thick, cable franchise was a ‘legal contract’ containing the payment terms for use of our public rights-of-way, as well as protection of local free speech rights. I was thirty years old, a property owner who had never thought about who owned roads, sidewalks and utility corridors.

Rights-of-way are every street plus about 10 feet of land on each side. That land belongs to everyone in the community. Rights-of-way are a shared public asset—sometimes called part of our common wealth.

The reason we all own rights-of-way, over four million miles of it, is so essential services such as roads, water, gas, electric, and telephone are available, universally—another legal concept—new to me — meaning ‘used by and available to everyone’. We co-own roads and utility corridors to transport ourselves, our goods and services and now our information—essentials required for survival in a developed nation.

Local, state and federal governments manage land assets on our behalf, as follows:

  • 75.2%: 3 million miles of rights-of-way are managed by local governments—towns, cities, counties, villages, parishes, townships.
  • 20.5%: 820,000 miles of rights-of-way are managed by state governments.
  • 4.3%: 172,000 miles of rights-of-way are managed by the federal government.

Important Business Notes Regarding Rights-of-Way

  1. To be in business, phone and cable companies must locate their lines in public rights-of-way. Wireless companies must connect towers for ‘signal backhaul’ via landlines. So wireless carriers also use rights-of-way. Customers can’t buy cable, phone, mobile or any Internet services—can’t stream videos—without an Internet Service Provider (ISP) owning or buying ‘landline’ capacity.
  2. Telecom is a natural monopoly. The first telecom occupant in the rights-of-way gains tremendous advantage, making it difficult for competitors to finance duplicate infrastructure. In the past, when the threat of competition reared its ugly head, operators used their market dominance, as the incumbent in the rights-of-way, to drastically slash prices, retain customers and force nascent competitors out of business. Once the competitor is eliminated, rates can be doubled or tripled, leaving consumers without the option of changing providers.

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Arguably, rights-of-way are the most valuable land asset in the nation. Now that you know you’re the proud owner of four million miles of rights-of-way, what do you think telecom occupants pay to use it?

Do you know that:

  • Phone companies generally hold hundred year leases, some in perpetuity, and pay nothing to use rights-of-way. Only the old basic phone rate is regulated. Offered in a duopolist market, most revenues are generated from unregulated phone-line services. Your phone company charges whatever it wants for business and residential service packages, late fees, security deposits, etc., while paying nothing to use your rights-of-way. This reality means that we, as taxpayers, subsidize phone companies by giving them free land.
  • Originally, cable operators, because they were offering entertainment services, set the precedent for paying a fair price to occupy rights-of-way. In the late 70’s/early 80’s, as a result of the mostly non-exclusive, franchise competitive-bidding wars, operators agreed to pay the following to use rights-of-way:
    • Up to 5% of gross revenues,
    • Dedicated institutional networks (I-Nets),
    • Public, education and government (PEG) access channels and funding for facilities, equipment, video production training.

From 1980-1985, thousands of local governments monitored the private sector’s deployment of millions of miles of coaxial cable plant in public rights-of-way. In this phenomenal five-year, local, public/private, collaborative undertaking to ‘cable the country for TV’, the U.S. became a ‘wired nation’, as envisioned in Ralph Lee Smith’s seminal book of the same name.

You Did It! … Or did you?

Don’t get all excited about local governments’ successful rights-of-way management – even though it resulted in cable operators wiring the country in five short years. And don’t kid yourself that local governments can effectively leverage their valuable land-use powers in negotiations with telecom incumbents.

Time for a REALITY CHECK:

  • Among the wealthiest and most powerful in the country, the telecommunications industry spends tens of millions of dollars, annually, lobbying to retain free use of rights-of-way land.
  • Once the country was wired in the early eighties, the cable industry spent the next thirty years lobbying federal and state legislatures to void franchises and eliminate as many payments for using community-owned rights-of-way as possible.

Legal Jargon

Creatively designed telecom regulations confound legislators, confuse consumers, and distort the national discourse. Current regulatory language contorts our understanding of what telecom is and its importance in our lives. Simply stated, telecommunications means the transporting of information on connected networks of boxes (engineering shorthand for computers and switches) and wires, located on poles or under streets.

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Today we hear a cacophony of marketers, profiteers, duopolists and plain old crooks – purposely confusing us with: it’s voice - video – data - information – fiber – coaxial cable – wireless - WiFi – broadcast TV – satellite – streaming video - 4G - WiMax - radio – cell phone –- gigahertz – gigabits – megabits – digital - Internet – etc. The list goes on.

As fraught with engineering/marketing jargon as telecom laws are, none address the convergence of digital, Internet and fiber technologies — a convergence that means all information formats—voice, video and data are transported by the same myriad, interconnected wired and wireless networks.

The telecom industry’s lobbying goal is free use of rights-of-way to protect duopolist markets. Twenty states adopted franchising laws depriving local jurisdictions of regulatory authority, thus confiscating communities’ assets and reducing accountability to consumers.

The industry aggressively lobbies for state laws that prohibit or severely constrain jurisdictions use of rights-of-way, specifically to block deployment of next-generation telecom infrastructure: fiber-to-the-premise networks.

Wildly Escalating Telecom Costs for Public Services

When the industry lobbies for state laws that void in-kind services such as I-Nets, the cost can be enormous for the communities they serve. For example: Years ago, a California city, with a population of ninety-thousand, connected thirty municipal facilities, schools, colleges, universities, hospitals and libraries with its institutional network, provided as partial payment for rights-of-way use. When state franchising voided local requirements, the cable operator began billing the city $45,000 a month to use the institutional network. Over the fifteen-year life of the franchise, the operator expects to collect a whopping $8.1 million dollars from the city (thus the taxpayers), instead of paying to use the community’s rights-of-way.

Extorting Future Public Resources

Currently, the industry is lobbying states to PROHIBIT governments from building fiber-to-the-premise (FTTP) networks. Not only do telecom companies refuse to universally upgrade existing wire lines and provide I-Nets, they now want to prevent communities from becoming self-reliant by building their own networks (as in North Carolina and South Carolina, for instance).

Don’t be fooled into thinking that telecom regulations benefit some larger public goal. The U.S. lags behind developed nations in broadband deployment because we are not using rights-of-way to build FTTP infrastructure. We need to ‘catch up’ to competitor nations, where residents, as well as business, buy affordable, bidirectional broadband at gigabit speeds.

We must clean up our tangled regulatory mess, reclaim use of rights-of-way and build the FTTP networks needed to create jobs and compete in a global economy -- starting with JULIET (Joint Underground Location of Infrastructure for Electric and Telecom) [pdf]).

WOW! No Wonder Time Warner Cable is Pushing Bill to Limit Competition in NC!

Stacey Higginbotham at GigaOm has explained the entire reason Time Warner Cable and CenturyLink are trying to prohibit communities from building their own networks: North Carolina has some of the worst broadband in America! TWC and CenturyLink know how uncompetitive their services are! The story covers a new broadband map launched by bandwidth.com.

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Look at these numbers!!

North Carolina has SEVEN of the worst 10 places to get broadband in the US. And these are the places in North Carolina that actually have broadband! Imagine how bad it is in the rural areas. Stunning to see the North Carolina Legislators conspiring to limit the ability of communities to invest in themselves when the private sector has no interest in next-generation networks, choosing instead to reap profits off of systems that barely meet the FCC's definition of broadband.

With such terribly uncompetitive services, of course Time Warner Cable and CenturyLink have run to the Legislature to ban the community networks that have stepped in to prevent lazy incumbents from killing the future of entire communities in the digital age. As we have been detailing (most recently here), the public is overwhelmingly opposed to Raleigh telling communities they cannot build the networks TWC and CenturyLink will not.

What more proof is necessary that the Legislators pushing H129 in North Carolina have sold out the citizens for a few massive companies that just happen to make large donations to their campaigns.

We previously charted the superiority of the community fiber networks in North Carolina, but this chart shows just how much the existing cable and DSL companies have left North Carolina communities behind.

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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.

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Minnesota Cable Companies Fight to Stop Rural Lake County From Getting Broadband

Lake County's County-wide FTTH network has encountered more than its fair share of troubles but residents are excited at the prospect of having broadband access to the Internet. While some of its troubles came from their own confusion and misunderstanding that led to the falling out with their consultants, National Public Broadband, they are now in the cross hairs of a powerful cable industry group - the Minnesota Cable Communications Association.

The Minnesota Cable Communications Association joined the fray at the end of February, sending a massive data request to Lake County and all the governments within the project area. County Attorney Laura Auron said she “objected to the characterization” the cable industry advocate group made about the project. The MCCA wrote that is was “deeply concerned about the shroud of secrecy” about the project, calling efforts to get the project in line with state and federal rules “opaque.”

The association demanded to see the county’s business plan and contracts for the project. It also asked all the cities and townships in the joint powers association, a requirement under the Rural Utilities Service rules for grants and loans, to provide all information regarding the fiber project discussed at council and board meetings.

MCCA exists to protect the interests of its members -- fair enough. Too bad for the folks in Lake County that have no access to the Internet. Because a portion of the project will give the resident of Silver Bay and Two Harbors an actual choice (disrupting the monopoly of Mediacom), MCCA is using a common tactic to delay and disrupt the project: massive public records requests. All the while, MCCA pretends its core mission is advocating on behalf of the beleaguered citizens of Lake County.

We commonly hear from publicly owned networks that they have to deal with constant data requests from competitors. This goes far beyond any reasonable amount as incumbent companies use the requests themselves as a time suck attack against publicly owned networks as well as mischaracterizing any detail they can in an attempt to smear the network.

Communities should be ready for this onslaught. From what we can tell, it never really stops. This is another reason community projects should live in public to the greatest extent possible. Secrecy is not really an option and can consume more energy than community networks can spare.

MCCA is correct that Lake County should act transparently, but its interest lies only in casting doubt and disrupting this potential network because it threatens the monopoly of an MCCA member.

FairPoint Undermining Broadband Access in Vermont

In an op-ed, Tom Evslin discusses FairPoint and their opposition to a middle mile stimulus grant that would improve broadband access around the state. FairPoint had taken over Verizon's New England lines a few years ago. Verizon had a reputation for poor service but FairPoint took that to new levels before reorganizing under bankruptcy (yet another high-profile private sector failure).

FairPoint fought a middle-mile project in Maine and was eventually bribed into silence by the Legislature. Having learned the only lesson one can learn from such an experience, they are now fighting a middle mile project in Vermont.

Unfortunately FairPoint, the successor to Verizon for landlines in Northern New England, wants Vermont to choose between protecting a badly flawed FairPoint business plan or improving the economic future of Vermont’s rural areas. The choice is stark: use the federal “middle mile” stimulus grant already awarded to the Vermont Telecommunication Authority (VTA) to bring fiber closer to rural Vermonters and make wholesale backhaul and institutional broadband affordable in rural areas of the state or forfeit the grant and leave these areas without adequate business, residential and cellular service.

Vermont should move forward with its stimulus project to expand open access middle mile connections across the state. Appeasing FairPoint yet again is not only bad for Vermont's many underserved, it would further embolden FairPoint in its fight against any competition, public or private.

The VTA was formed to improve broadband access while not providing services directly. There is no reason it should not invest in these middle-mile networks. Quoting again from Evslin op-ed:

Now President of FairPoint in Vermont, Mike Smith said yesterday in an interview broadcast on WCAX that he never meant that the VTA should build fiber networks and provide middle-mile (backhaul) service. He thought it would be directing its efforts to cellular and to retail service. However, Act 79 which Mike was instrumental in getting through the legislature authorizes the VTA “to own, acquire, sell, trade, and lease equipment, facilities, and other infrastructure that could be accessed and used by multiple service providers, the state and local governments, including fiber optic cables, towers, shelters, easements, rights of way, and wireless spectrum of frequencies; provided that any agreement by the authority to sell infrastructure that is capable of use by more than one service provider shall contain conditions that will ensure continued shared use or colocation at reasonable rates“.

Moreover, the Act also says “Nothing in this chapter shall be construed to grant power to the authority to offer the sale of telecommunications services to the public.” In other words, the legislature specifically authorized VTA to be a wholesale provider and specifically forbad it to be a retail provider. The Legislature and the Governor meant the VTA to enable retail service by providing wholesale infrastructure.

FairPoint has been a disaster for Vermont - capitulating to its demands now will only reward it and ensure Vermont's citizens have no other option for the communications services they need.

A Few Loose Ends...

Too few posts on the blog this week - apologies.

But I want to make sure readers saw that the bill to strip North Carolina communities of the right to build broadband networks is no longer being fast tracked, an important victory that resulted from people making old-fashioned phone calls to voice their disapproval to elected reps. Thanks to all who called.

Keep calling. They need to know that this bill is totally unacceptable.

Craig Settles also discussed the victory.

I can't comment on it just now, but Stimulating Broadband broke a story about Mediacom continuing to harass Lake County. In order to protect their turf, they are willing to disrupt a project that will bring connections to thousands of people who have no other option.

Digging into H129: Another Bill in NC to Limit Local Authority and Broadband Competition

As we predicted, Time Warner Cable is pushing a new bill in North Carolina to limit competition and local authority to build broadband networks (Save NC Broadband is alive again). H129 purports to be An Act to Protect Jobs and Investment By Regulating Local Government Competition with Private Business - [download a PDF of the bill as introduced].

This bill is another example of state legislators refusing to allow communities to make their own decisions -- imposing a one-size-fits-all policy on communities ranging from the metro area of Charlotte to small communities on the coast and in the mountains. Many of the provisions in this bill apply tough constraints on the public sector that are not applied to incumbent providers, but this analysis focuses only on a few.

Let's start with the title:

An Act to Protect Jobs and Investment by Regulating Local Government Competition with Private Business

There is no support anywhere in this bill to explain what the impact of community networks is on jobs. Nothing whatsoever. There is a claim that "the communications industry is an industry of economic growth and job creation," but ignores the modern reality that that the communications industry goes far beyond the private sector. In fact, the recent history of massive telecommunications providers is one of consolidation and layoffs. It is the small community owned networks that create jobs; larger firms are more likely to offshore or simply cut jobs.

Certainly all businesses depend on communications to succeed. Unfortunately, they are often limited to very few choices because the of the problem of natural monopoly. This is why many communities have stepped up, including three in North Carolina (two of whom offer the offer the most advanced services in the state).

So what is the result of the community networks on jobs? Community Networks obviously create jobs merely by existing - they hire managers, sales staff, customer support reps, technicians, and etc. They create competition, which market theory tells us will result in lower prices for everyone in the market. And to date, no one has suggested that TWC or any other competitor in these communities has laid employees off. To the contrary, they are likely to hire more sales staff to go door-to-door to retain subscribers.

The effects of this bill will be to lower the number of jobs in North Carolina. Existing businesses will be less efficient because they have fewer choices. Companies like CenturyLink and TWC will have fewer incentives to invest in faster technologies or improve customer service.

A city-owned communications service provider shall meet all of the following requirements:

Provide communications service only within the jurisdictional boundaries of the city providing the communications service

If the purpose of this bill is to protect jobs and investment, it is hard to see how restricting competition will promote those goals. As much of the bill is concerned about cities abusing their inherent power as the local government, it is not clear why it is unfair for them to operate where they do not have of the supposed advantages of a local government.

Shall not price any communications service below the cost of providing the service… The city shall, in calculating the costs of providing the communications service, impute (i) the cost of the capital component that is equivalent to the cost of capital available to private communications service providers in the same locality and (ii) an amount equal to all taxes including property taxes, licenses, fees, and other assessments that would apply to a private communications service provider…

Requirements to impute costs are a goldmine for lawyers -- the costs included here vary and require judgment calls that will undoubtedly be challenged by lawyers employed by those opposed to the project. The entire process is an impractical accounting nightmare that is not meant to restore balance to the market but rather to discourage any community from even trying to comply. The Georgia Public Service Commission explained why this notion is poor policy:

Preventing anticompetitive practices, unfair competition, and abuse of market position does not mean that the Commission must impose conditions on every applicant which has some advantage not shared by every other applicant. The Commission is required to treat all LEC's [Local Exchange Providers – i.e. phone companies] equally, not make all LEC's equal. BellSouth and the large cable companies certainly enjoy better capital costs than a typical small business owner. Does this put the small company at a competitive disadvantage? Of course. Should the Commission determine which LEC has the highest capital costs and require that all other companies impute that amount into their rates to level the playing field"? Certainly not. If Marietta has to comply with expensive open records requirements or expensive municipal bidding requirements, should those costs be imputed into the rates of all private companies? Again, no. Similarly, if BellSouth has a large tax write-off one year, it would be ridiculous to require that they impute into their tax rates the taxes they did not have to pay merely because some other company may not have had a tax write-off that year.

The requirement not to price below the cost of providing the service is similarly hard to calculate - how does one calculate the individual charges in a bundle? Do subscribers have to pay $1500 for the first month to cover the cost of connecting the house to the network pass or can that fixed cost be spread across one year, two years, three years?

Monopoly board game

Requirements like these make the bill's true intent obvious: cripple any competition to TWC. Time Warner Cable is free to charge as it pleases -- it can use predatory pricing against competitors because it cross-subsidizes from its vast customer base (largely in uncompetitive areas) and has the many advantages inherent in incumbency.

A city-owned communications service provider shall not be required to obtain voter approval under G.S. 160A-321 prior to the sale or discontinuance of the city's communications network

This is a stunning overreach. Not only are communities effectively barred from building competitive networks, the community has little power to ensure an irreversible decision actually has public support. It is hard to understand how shutting down a popular network will save jobs.

The provisions of G.S. 160A-340.1, 160A-340.4, and 160A-340.5 do not apply to the provision of communications service in an unserved area.

This is undoubtedly a smart preemptive move against the argument that this bill will prevent communities from building their own networks where the private sector is not interested. The result is perverse -- a community with no private sector provider may choose to build its own network but a community with a deadbeat provider offering expensive, unreliable connections with technology from the last century cannot make that choice.

A city or joint agency subject to the provisions of G.S. 160A-340.1 shall not enter into a contract under G.S. 160A-19 or G.S. 160A-20 to purchase or to finance or refinance the purchase of property for use in a communications network or to finance or refinance the construction of fixtures or improvements for use in a communications network. The provisions of this section shall not apply to the repair or improvement of an existing communications network.

Recalling that I am not a lawyer, this section appears to be an attempt to prevent communities from using public-private partnerships (perhaps with a nonprofit organization) to build a network. Anyone with a better understanding of this section should comment below to clear this up.

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We received a one-sheet [pdf] explaining the provisions of the bill, which states the bill "permits cities to provide phone, cable and broadband services in competition with private providers, subject to certain requirements…" Unfortunately, those "certain requirements are sufficiently onerous to ensure any community attempting to build a competitive network has the steepest possible hill to climb. Under present law, communities are already disadvantaged due to the inherent advantages of an incumbent. This bill greatly increases the power differential, protecting lazy incumbent providers while handcuffing communities.

Another talking points one-sheet [pdf] has a heading saying "Level Playing Field / Local Government Competition" and starts by saying cities can provide services on "roughly equivalent" terms as private providers. It then lists 4 things communities have to do, conveniently ignoring that the private sector fails to meet each of these. We have tackled the Level Playing Field Canard previously but here we go again:

  • Comply with laws and regulations applicable to private providers -- including the payment of taxes. - Of course, it is hard to calculate exactly how much these private providers actually pay in taxes due to the variety of tax breaks and their use of tax havens to avoid paying the taxes that normal non-massive companies have to pay.

  • Not cross-subsidize their competitive activity using taxpayer or other public monies - If we would ban cross-subsidies, that would be something! But no, this bans a specific form of cross-subsidization that the public sector may use while allowing the private sector to cross-subsidize at will. TWC can lower prices in Wilson while raising prices in Raleigh. AT&T can use profits from its wireless network to invest in U-Verse. But the community networks are limited to resources from their boundaries. Regardless of its merit as a rule, to suggest it levels the playing field is to ignore reality.

  • Not price below cost, after imputing costs that would be incurred by a private providers - Again, the private providers are not limited in their ability to price below cost (predatory pricing) and have little reason not to as they can cross-subsidize from nearby non-competitive areas.

  • Not discriminate against private providers in access to rights-of-way - Once again, we have a rule that should be applied to both sides. No entity should be allowed to delay the other in access to poles. But it is the private providers who have obstructed community networks from the poles.

This legislation will hurts jobs, investment, and the general competitiveness of the state in a digital economy. The General Assembly is doing Time Warner Cable a massive favor by shutting down the only threat of competition and the source of the best broadband networks in the state -- community networks.

I encourage readers to look in on Philip Dampier's long discussion about this bill and Karl Bode's shorter take on it.

Anti-H129 Graphic designed by Eric James. Monopoly photo used under creative commons license, courtesy of Jenn Vargas (foreverdigital) on flickr. Handcuffs also under creative commons, courtesy of nigel view on flickr..