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Whose Internet? NC Communities Should Defend Freedom to Build Networks

Durham's Herald Sun published our op-ed about community broadband networks in North Carolina. Reposted here:

Who should decide the future of broadband access in towns across North Carolina? Citizens and businesses in towns across the state, or a handful of large cable and phone companies? The new General Assembly will almost certainly be asked to address that question.

Fed up with poor customer service, overpriced plans and unreliable broadband access, Wilson and Salisbury decided to build their own next-generation networks. Faced with the prospect of real competition in the telecom sector, phone and cable companies have aggressively lobbied the General Assembly to abolish the right of other cities to follow in Wilson and Salisbury's pioneering footsteps.

The decision by Wilson and Salisbury to build their own networks is reminiscent of the decision by many communities 100 years ago to build their own electrical grids when private electric companies refused to provide them inexpensive, reliable service.

An analysis by the Institute for Local Self-Reliance (http://tiny.cc/MuniNetworks) compares the speed and price of broadband from incumbent providers in North Carolina to that offered by municipally owned Greenlight in Wilson and Fibrant in Salisbury.

Wilson and Salisbury offer much faster connections at similar price points, delivering more value for the dollar while keeping those dollars in the community. For instance, the introductory broadband tiers from Wilson (10 downstream/10 upstream Mbps) and Salisbury (15/15 Mbps) beat the fastest advertised tiers in Raleigh of AT&T (6/.5 Mbps) and TWC (10/.768 Mbps). And by building state-of-the-art fiber-optic networks, subscribers actually receive the speeds promised in advertisements. DSL and cable connections, for a variety of reasons, rarely achieve the speeds promised.

Curbing innovation

The Research Triangle is a hub of innovation but is stuck with last-century broadband delivered by telephone lines and cable connections. In the Triangle, as in most of the United States, broadband subscribers choose between slow DSL from the incumbent telephone company and faster but by no means adequate cable broadband from the incumbent cable company.

A few DSL subscribers may have access to U-Verse, but most are waiting for someone in Texas (AT&T's headquarters) to authorize the upgrade to U-Verse (faster than typical DSL but much slower than full fiber-optics). On the cable side, someone in New York (Time Warner Cable's headquarters) decided to force subscribers in the Triangle to wait for cable upgrades long after many cities had received them.

Perhaps by the end of 2011, all businesses and residents in the Triangle will have access to the best broadband TWC and AT&T have to offer -- which is still inferior to that offered by Wilson, Salisbury, any community with Verizon's FiOS, and just about every major city in Europe or Asia.

The opposition

Under state law, communities can organize and build their own broadband networks to ensure their citizens have world-class access to the Internet. The argument for preempting this local authority features two diametrically opposed claims:

  • Communities should not build these networks because they always fail.
  • Communities should not compete with the private sector because they will drive the existing provider(s) out of business.

Interestingly, the preponderance of evidence actually weighs against both claims. The vast majority of community fiber networks have performed extremely well against great odds. After winning the costly, frivolous lawsuits filed against communities by incumbents, community networks have successfully competed against temporary, artificially low prices by competitors who use profits from non-competitive areas to subsidize their efforts to deny any subscribers to a new network.

The few community fiber networks that have struggled against these odds are presented as the norm by industry-funded think tanks that try to scare any community considering a broadband investment.

A public monopoly?

There are few, if any, instances where community networks have driven incumbents out of business. It is true that once a community network begins operating, incumbent profits decline, often because they lower prices and increase investments -- each of which greatly benefits the community. But even if that were not true, why should a local government in North Carolina care more for the profits of two massive out-of-state companies than for what is best for their citizens and the future of the community?

The incumbent lobbyists will say that local governments can just raise taxes to unfairly cross-subsidize the networks. The reality is that citizens enjoy having their taxes raised about as much as having their cable rates raised. Citizens have little recourse when cable companies raise their rates, but they can directly express their dissatisfaction with elected officials who arbitrarily raise their taxes, by voting them out of office.

Local control

Remember though, the argument here is not about whether any given community should build a network. Right now, communities make that choice themselves. For years, lobbyists have pushed the General Assembly to take that decision away, either directly or by creating a web of contrived obstacles.

On matters of essential infrastructure, communities should be free to decide whether they will build it or depend on others. For years, Mooresville and Davidson relied on Adelphia for cable access while the network fell into disrepair. In the wake of Adelphia's bankruptcy, they chose to take it over to avoid continued similar problems from TWC. In taking it over, they found it in even worse shape than expected, resulting in higher costs to fix it. This situation, fixing the failure of the private sector, is actually used by telecom companies to argue against public ownership.

There is a very good reason so many communities are considering a variety of broadband investments: private providers are not meeting their needs. The question is whether the General Assembly wants to let communities move forward as they choose, or let out-of-state companies decide the competitiveness of the state.

Mediacom Falsely Accuses Lake County Communities of False Statements

In a situation similar to the Frontier letters to Sibley we published last week, the cable company Mediacom has sent letters to Silver Bay and Two Harbors in Lake County to scare them into abandoning the rural county-wide FTTH network that they are building with federal broadband stimulus aid.

Interestingly, rather than sticking to the normal fear, uncertainty, and doubt (FUD) campaign, Mediacom apparently based its threats on a draft previous version of the joint powers ordinance rather than the language actually passed by the resolutionsincluded in the current JPA. Whoops.  [See Update below]

Mediacom, perhaps you should focus on improving your networks rather than stifling potential competition.  Please send us copies of letters your community network has received from incumbent providers.

Without further ado, here is the letter [download pdf] sent to Silver Bay and Two Harbors on December 21, 2010 by Tom Larsen, VP of Legal and Public Affairs for Mediacom:


Re: Joint Powers Agreement with Lake

County Dear Mayor Johnson:

Mediacom prides itself in being one of America's leading providers of telecommunications services to small and medium sized communities. As you may be aware, Mediacom offers a highly competitive suite of high-speed Internet, cable television and phone services to homes and businesses throughout Silver Bay (the "City").

It has come to our attention that the City passed a resolution on November 15, 2010 approving a Joint Powers Agreement with Lake County (the "JPA"). Given the significant private capital that Mediacom has invested in order to make advanced telecommunications services available throughout the City, we were extremely surprised to learn that your resolution approving the the JPA includes the following finding in Section 4(e):

The Municipality hereby finds that the facilities composing the Project are necessary to make Internet and other communication services that are not and will not be available through other providers or the private market accessible and available on an equal basis to the residents of the municipality.

As Mediacom makes Internet and other communication services available on an equal basis to residents of the City, the finding contained in Section 4(e) is patently false. It appears that the JPA is an essential element in Lake County's ability to close on a $56 million loan and $10 million grant from the Rural Utility Service of the United States Department of Agriculture. Given that this outright false statement is being made by the City with the knowledge that it is both false and may be relied upon by the federal government when issuing $66 million to Lake County, the City may want to investigate whether it has incurred financial liability or criminal exposure by entering into the JPA. Mediacom plans to call this matter to the attention of the Office of Inspector General of the United States Department of Agriculture.

The JPA also appears to be an essential element in Lake County's ability to issue revenue bonds pursuant to Minnesota Statutes, Chapter 475. The JPA makes clear that it is your City's "need" for facilities that it supposedly does not "have" that is the justification for the revenue bonds. In fact, Section 6(a) of the JPA requires the City to make false representations that it will only be able to receive Internet and communications services if the revenue bonds are sold:

[A]dopt a resolution (i) evidencing its [the City's] intent to authorize the Issuer to undertake and operate the portion of the Project located within its jurisdictional boundaries, including a recital of the benefits to such Party [the City] from issuance of the Obligations to finance and operate the portion of the project located within its jurisdictional boundaries, (ii) making specific findings regarding the benefits of the Project, including the findings in Section 2 of this Agreement . . .

These false representations by the City may have also exposed it to significant legal liability from the purchasers of the County's revenue bonds on a theory of fraudulent inducement.

It is imperative that these material misstatements of fact be corrected. Accordingly, Mediacom requests that the City immediately take action to correct these false findings by rescinding or amending the JPA. We also request that the City immediately notify any and all affected municipalities (including Lake County), bond issuers, government agencies (including the Rural Utilities Service) or other persons or parties that the JPA contained material misstatements of fact and should not be relied upon.

Further, we request copies of all correspondence and/or information relating to the JPA possessed by the City, including a list of all municipalities, bond issuers, government agencies, or other persons or parties who may have been provided a copy of the JPA. Additionally, we request all materials, statements and/or other information which was provided to or considered by the City in connection with the JPA including the identity of any individuals making oral or written statements or representations to the City regarding the availability of Mediacom's Internet or other services offered in the City.

I appreciate your prompt attention to this matter. Please do not hesitate to contact me should you have any questions.

Sincerely,
Tom Larsen


Lake County responded thusly [download pdf]:

Dear Mr. Larsen:

We have been provided with copies of the letters dated December 21, 2010, which you sent to the Cities of Silver Bay and Two Harbors in Lake County, Minnesota. We are sending this letter as a response.

First, let me point out that the Joint Powers Agreement (JPA) was not a condition precedent to the loan and grant of funds by the United States of America acting through the Rural Utilities Service. The Rural Utilities Service made the decision to award the loan and grant to Lake County well before the Cities of Silver Bay and Two Harbors decided to participate in the network through the JPA.

Second, it is regrettable that you did not have a current copy of the JPA to review. The current version of the JPA provides as follows:

The findings in section 2 are:

  1. It is in the best interests of the Municipalities to consent to the issuance of the Obligations by the Lake County HRA and the operation of the Project by Lake County.
  2. Each of the Municipalities will receive substantial benefit from the Project which will provide advanced voice, video and data services, accessible and available on an equal basis to residents of each of the Municipalities.

Section (6)(a) of the current version of the JPA states:

Each of the Municipalities will consider, if necessary and requested by Lake County, adopting an ordinance, or modify an existing ordinance to allow such Municipalities to issue an extension permit to Lake County pursuant to Chapter 238 of the Minnesota Statutes and all other applicable laws, rules, regulations and ordinances now or hereafter in effect. Each of the Municipalities further agrees to consider issuing an extension permit to Lake County if necessary and requested by Lake County in accordance with all applicable laws, rules, regulations and ordinances now or hereafter in effect.

As you know, Mediacom is a valued service provider in the Cities of Silver Bay and Two Harbors. Lake County’s network will be an open-access system, allowing Mediacom to reach additional consumers outside of the Cities of Silver Bay and Two Harbors without the risk and expense of expanding its cable system. It is a pity that you feel you have to resort to such heavy handed tactics, rather than choosing to continue to work in partnership with the Cities and join with Lake County to provide services on this new infrastructure.

If you have any further questions, please feel free to contact me.

Sincerely,
[no-glossary]Russ Conrow[/no-glossary]
Special Assistant Lake County Attorney

Update: After I published this story, VP Tom Larsen contacted me to correct my claim that Mediacom based its objection on a draft:

Given that these are real documents (not “draft” as you described) that were signed by Silver Bay’s City Administrator and Mayor and approved by the City Council, I hardly think my letter can be characterized as false accusations.

Mr. Larsen is correct, the language was not a draft.  However, it was updated in a later version of the Joint Powers Agreement.  I have attached both version of the Joint Powers Agreement here for readers to view (Nov 15 and Nov 25).  Apologies for mischaracterizing Mediacom's actions.  However, we will continue to maintain that a cable network is no more a substitute for a FTTH network than an ultra-light airplane is a substitute for a Boeing 777.  

Cable Franchising Video: Keep Authority Local

In 2006, this short documentary helped to stop a push from incumbent providers to gut local authority over telecommunications and cable.  Unfortunately, several states then gutted that same local authority, leading to higher prices for consumers and, surprise surprise, no real increase in competition.  

Video: 

Frontier Forces FUD on Cities in Sibley: Sibley Responds

The fiber-to-the-farm initiative in Sibley County, Minnesota, has completed the feasibility study and the towns involved are discussing a Joint Powers Agreement. One of the impacted incumbent providers -- Frontier Communications, a rural telco famous for slow DSL) -- has started to spread the usual FUD (fear, uncertainty, and doubt) that is common whenever a massive company is about to face competition.

Though I am tempted to comment directly on Frontier's letter, I'll let the community's response stand on its own. The way they misrepresent the record of Windom should be instructive - this same misinformation strategy is used around the country.  We believe publishing these scare tactics and responses to them is helpful to everyone -- so if your project has received one, please let us know.

Frontier's Letter:

Dear Commissioners:

As a provider of telephone, internet, and video services to our customers in the Green Isle, Arlington, and Henderson areas, Frontier Communications is obviously interested in the "fiber to the home" proposal that has been presented. As a nationwide provider, Frontier is aware of other efforts by municipalities of various types to build and operate their own telecommunications network. While these proposals are always painted in rosy tones, it is important for officials to carefully review the underlying assumptions and projections that consultants make when presenting these projects. Unfortunately, history tells us that the actual performance of most of these projects is significantly less positive than the promises. Often times, these projects end up costing municipalities huge amounts of money, and negatively impact their financial status and credit ratings.

A nearby example would be WindomNet, the city-owned network in Windom, Minnesota. That network, which provides telephone, internet, and video service, began in 2005. The financial results to date have been poor; operating losses of $662,000 in 2006, $1,257,000 in 2007, $326,000 in 2008, and $93,000 in 2009. Additional borrowing by the city was required to make up those losses.

Another example is the city-owned network in Burlington, Vermont. Burlington Telecom was begun with high hopes in 2003, to offer telephone, internet, and video services. By the fall of 2010, the network was in trouble. A Vermont Public Service Board investigation found that it had violated its license to serve. The network cannot pay its debt, which has resulted in a downgrading of the city of Burlington's credit rating. This essentially makes borrowing more expensive for the city for all its operations. Indeed, a blue ribbon panel charged with investigating the situation concluded that the network is not viable at this time.

Reviewing the presentations on the "fiber to the home" proposal available on the County's website raises several questions regarding the reliability of the cost study and projections. The Sibley Renville Fiber Project Executive Summary says that to make the project work, it "requires a 70% penetration rate of customers buying two services (or more)". The November 15, 2010 Consultant Report assumes monthly prices of $19 for telephone service, $42 per month for Expanded Basic video, and $42 per month for 20 Mbps internet service, A customer taking all three services (phone, video, and internet) would pay about $100 per month; a customer taking only two services would pay something less.

However, the November 15, 2010 Consultant Report seems to tell a different story as far as the assumed penetration rates.

In the Consultant Report, the cost study results for City-Rural plan show $9.6M in revenue in Year 5. A customer taking all three services would generate revenue of about $100 per month, or $1200 per year. Thus, the $9.6M of projected revenues equates to 8,000 customers taking all three services (phone, video, internet) or more than 8,000 customers taking two services. According to the County's webpage, the 2010 population of Sibley County is 16,000, Apparently, the cost study assumes that every other citizen of the County will subscribe to all three services, at $100 per month. Not every other household; every other citizen, Since the average household size is approximately 2, the cost study implies that every Sibley County household will subscribe to this network (at $100 per month) for the projections to be accurate.

The Consultant Report assumes a "Total Investment per Passing" of $5600. The projected investment for the City-Rural plan is $44.6M by Year 3. This equates to roughly 8000 units passed. According to the US Census, with a 2000 population of 15,356, there were there were fewer than 6000 households in the county. Since the 2010 population of Sibley County is 16,000, there may be a few more households now. Evidently, the cost study is assuming that every household in the county (and then some) will be passed by Year 3, and that every household will subscribe to the network.

Frontier offers these thoughts not as a full review of the proposal, but simply as an initial caution to the county, to carefully examine the particulars of this project before proceeding. Frontier looks forward to participating in future discussions on this proposal.

Mark Erickson, the Winthrop City Administrator who has spear-headed this project, responded with the following letter (which is not in a blockquote style due to its length).

A response to Frontier Communications letter to Sibley County Commissioners on Dec. 14, 2010 regarding the proposed county-wide fiber network

Sibley logoAs residents, businessmen and elected officials study and learn more about the possibilities of constructing a county-wide fiber to the home/farm/business network in Sibley County, Fairfax and the rural exchange around Fairfax, it is important that everyone is presented with facts.

On December 14th of last year Frontier Communications presented a letter to the Sibley County Board of Commissioners expressing their concerns and opposition to the proposed network.

The letter is an example of how the telecommunications industry has typically responded to the threat of competition; confuse everyone with half truths and lies, point to a bleak future and remind everyone their taxes are going to increase if the project goes forward.

Nothing could be further from the truth.

In their letter, Frontier says that “these proposals (for community fiber networks) are always painted in rosy tones.” That is not true in our case. Our consultant, Doug Dawson, and the city staff involved in the project have gone out of their way to remind elected officials and the several hundred people who attended the two rounds of presentations regarding the project there are inherent risks in the project and a significant amount of hard work required to make the project successful.

Frontier goes on to say that “history tells us that the actual performance of most of these projects is significantly less positive than promises.” That also is not true. There are approximately 75 municipally based fiber projects currently operating in the country. A case can be made that perhaps three or four of those projects have under performed. Four out of 75 projects is a far cry from “most of these projects.”

The letter further goes on to point to WindomNet in Windom, Minnesota as an example of a municipally based program that is not doing well. Again, the accusation is absolutely false. WindomNet was built by the city of Windom about five years ago and stumbled out of the block because of overwhelming support for the project. Their original business plan estimated that 20% of the residents would subscribe to digital television service which requires a set top box that back then cost about $400 each. Instead, 80% of residents signed up for digital service and Windom was required to borrow more money to meet the demand. Since then Windom has been a model of success. They have met their financial projections and continue to add customers. In a conversation with their general manager a few weeks ago he admitted they could do better financially if they charged more money. Instead they choose to provide outstanding service to their customers as a price that allows them to pay their bills and put a little in the bank.

This past year the WindomNet Board voted to work with eight area communities (Jackson, Lakefield, Round Lake, Brewster, Heron Lake, Okabena, Wilder and Bingham Lake) to build fiber to the home networks in each of those communities. Does that sound like an operation that is not doing well?

Minnesota phone companies, under the direction of the Minnesota Telecommunications Alliance, have been telling “The Windom Lie” for the past five years. In a way it is good that Frontier’s letter mentioned Windom as an example of a municipal venture that is failing, because it gives us the opportunity to tell the truth. WindomNet is doing just fine. A municipal venture measures success by generating more cash than is needed to pay for expenses, pay for assets and pay for debt. Windomnet is cash positive and the City considers the project a total success.

The letter also mentioned the community of Burlington, Vermont as an example of a municipal network that is not doing well. Frontier is accurate in that description. Burlington made several big mistakes. Burlington stands as an example of what not to do for municipal networks and the lessons learned from Burlington have been heard in many city halls and county courthouses across the country.

The Frontier letter then goes on to raise “several questions regarding the reliability of the cost study and projections” of the feasibility study authored by CCG Consulting. I must admit that reading their concerns certainly seems to point to problems. Fortunately, they have taken simple financial assumptions and twisted them in a way that points to failure instead of success. The numbers presented in the feasibility study are sound. CCG Consulting has authored hundreds of similar studies for cities, counties and phone companies and has never had a failure. In fact, CCG is recognized as one of the top fiber-to-the-home consulting firms in the nation. We are ready to defend the projections in the study with anyone at any time.

The Frontier letter went on to talk about the “Total investment per passing of $5,660” in Sibley County, using the 2000 census figure. We worked directly with all of the cities and the two counties to estimate the total number of passings (homes, farms and businesses). Frontier’s assumptions are incorrect because they don’t include the passings in Fairfax and Renville County. They admit there “may be a few more households now” in Sibley County but conveniently left out the folks in Renville County. Again, we feel very confident of our numbers in the study.

According to a December 16th, 2010 article in the Arlington Enterprise about Frontier’s presentation of their letter to the Sibley County Commissioners, Frontier Regional Manager Todd Van Epps made the following statement” “What we can do is provide the same speed of service as fiber can provide.” We are fairly confident that people recognize the absurdity of that statement. If the Sibley/Renville fiber optic network is eventually constructed it will provide at least 20 megabits of symmetrical Internet service (same download and upload speed) to every home, farm and business for less than $50 a month. It will be capable of providing up to a 100 megabit of symmetrical Internet connection to everyone using standard hardware and can be upgraded relatively easily to provide one gigabit of bandwidth if a customer needs that much.

Frontier’s copper network simply cannot match those speeds. If they could, large companies would still be building copper networks, which none of them are doing. The superior bandwidth of fiber optics not only allows for ultra high speed Internet connections, it also means that video over fiber is absolutely crystal clear and high definition television (HDTV) is far superior in quality that some cable networks and all satellite networks.

The bottom line is that Frontier Communications does not want this network to be built because they don’t want the competition. We understand that. That’s why we have said from the beginning of this project that if the phone or cable companies want to build this network we will stand back and welcome them with open arms.

Sibley County MapWe have even gone as far to say that if the phone or cable companies are interested in building a fiber to the home network in Sibley and Renville Counties we will help them find a way to finance the project, allowing them to operate the network and eventually own the network for little or nothing when the bonds are paid off. Unfortunately the phone and cable companies we have talked to are not interested in such a partnership.

Almost everyone in Sibley and Renville counties we have talked about this project in the last eight months recognize the benefits that a fiber optics network would bring to their lives, businesses, schools and communities. A lot of people have offered their support to try to figure out a way to make this happen. The construction of a fiber to the home/farm/business network in Sibley and Renville Counties would bring us into the 21st Century and put us far ahead of our big city cousins with respect to access to technology.

Again, we understand why the phone and cable companies take such a dim view of this project. But instead of spreading lies and half truths wouldn’t it be more constructive if they sat down with us and tried to figure out a way to make this happen that benefits them as well of the residents of Sibley and Renville counties.

On January 13th, representatives from the eight communities and two counties involved in the planning stages for this fiber network got together to learn more about the project and possibly agree on a way forward. Cities and counties will have until the end of February to decide whether to form the joint powers board and move ahead or end the project now.

If enough communities decide to form a joint powers board to manage the project to a point where we have all of the questions asked and answered to everyone’s satisfaction, the process could easily include discussions with not only Frontier Communications but any phone or cable company willing to sit down and talk logically and constructively about how we can bring benefit to everyone in Sibley and Renville County for generations to come instead of settling for copper and coaxial technology that has already become outdated.

As we have said many times in presentations and meetings regarding this project, this is not an anti-phone or cable company project. This is a pro Sibley and Renville County project.

In the “Telegraph and Telephone” section of the Gaylord History book, the following information appears: “Before the telephone was introduced in Gaylord in 1897, there were some who thought it was just a fad and would prove impractical. They thought the telegraph, which originated at the same time as the railroad, had served the community adequately for many years.”

It is an ironic twist of fate today that phone companies like Frontier who oppose these kinds of project represent the naysayers of 100 years ago who didn’t think it was necessary to upgrade telegraphs to the new telephone.

This fiber project represents those folks 100 years ago would knew that Sibley County would be better served by investing in technology.

If the folks in Sibley and Renville counties can find a way to build a fiber to the home/farm/business network it will become an invaluable and necessary tool future generations can use to meet the challenges that will most certainly confront them.

Respectfully submitted,
Mark Erickson
Winthrop City Administrator
EDA Director

Qwest Renews Push to Gut Local Authority over Cable Television

It's 2011 and time for Qwest to renew a push to gut local authority in a number of states - Idaho and Colorado to start. An article for the Denver Post explains the argument:

Phone companies say state-level oversight of video franchising fosters competition because it is less cumbersome for new entrants to secure the right to offer services.

Many states have also eliminated the condition that new video competitors must eventually offer service to every home in a given municipality, a requirement placed on incumbent cable-TV providers.

Gutting local authority is the best way to increase the disparities between those who have broadband and those who do not. Qwest and others are only interested in building out in the most profitable areas -- which then leaves those unserved even more difficult to serve because the costs of serving them cannot be balanced with those who can be served at a lower cost.

The only reason that just about every American living in a city has access to broadband is because franchise requirements forced companies to build out everyone. Without these requirements, cable buildouts would almost certainly have mirrored the early private company efforts to wire towns for electricity -- wealthier areas of town had a number of choices and low-income areas of town had none.

In Idaho, those fighting back against this attempt to limit local authority are worried that statewide franchising will kill their local public access channels - a reality that others face across the nation where these laws have passed.

The channels, which are also used to publicize community events, provide complete coverage of Pocatello City Council, Planning and Zoning and School District 25 board meetings, as well as candidate forums before elections.

Without these local channels, how could people stay informed about what is happening in the community? Local newspapers are increasingly hard to find. In many communities, these channels are the last bastion of local news. 

This fight over statewide franchising goes back a number of years, but the general theme is that massive incumbent phone companies promise that communities would have much more competition among triple-play networks if only the public ceases to derive benefits from its Right-of-Way.  Statewide franchising laws limit local authority to negotiate for access to this valuable asset that is managed by the local government. The laws strip communities of the power to negotiate with video providers, creating a single franchise process in the state government (which typically has very little or no oversight). Communities lose public access channels, fees for creating local content, and often oversight to require certain levels of customer service.

The states that have gutted local authority in this way have seen very few benefits -- the increase in competition is negligible - because the real barrier to competition has nothing to do with local or statewide franchising. The only barrier worth addressing is the massive advantages incumbents have -- a result of the high cost of building these networks. When a competitor builds a network, it is often competing with an incumbent that has amortized the costs of its network and will be able to cut its prices while cross-subsidizing its operations from non-competitive markets. A number of incumbent providers have engaged in predatory pricing, taking a loss on their customers in an effort to prevent the network from generating the necessary revenues to operate and make its debt payments.

The price of gutting local authority to benefit Qwest, a company with no capacity for the upgrades necessary to match the speeds and prices of DOCSIS3 cable networks, is far too great.

Telcos as Retail Providers on Muni FTTH Networks

Publication Date: 
January 1, 2008
Author(s): 
Mitch Shapiro
Publication Title: 
FTTH Prism

In late 2007 I wrote an essay [pdf] for FTTH Prism arguing that it makes increasing sense for municipalities and incumbent local exchange carriers (ILECs) to cooperate in bringing open-access fiber-to-the-home (FTTH) service to America’s small towns and rural areas.

As readers of this web site well know, such a cooperative model stands in sharp contrast to the typical reality faced by poorly-served communities wanting to connect their businesses and households to a community-owned fiber network. In virtually all such cases, the ILEC, though refusing to deploy its own FTTH network--or even provide high-speed DSL service to the entire community—will fight tooth and nail to stop construction of a community-owned fiber network.

In my essay I acknowledged that ILECs had yet to show any signs of shifting from their “kill all muni-nets” attitude to one that views open-access municipal FTTH networks as a means to better compete with cable without taking on the substantial capital investment associated with a FTTH upgrade. But I added that:

“it remains to be seen whether these [anti-muni-net] attitudes will withstand the mounting competitive pressures facing ILECs in the large number of markets in which they are not planning to deploy fiber-rich, video-capable networks. In these markets, the combination of cable VoIP and triple-play bundles, wireless replacement, and low-cost web-based services will increasingly turn what were once “high-margin” copper customers into either low-margin copper customers, or negative-margin non-customers.”

Among the trends I cited as pushing ILECs to reconsider their staunch resistance to muni-nets was the fact that, in markets where they don’t deploy their own FTTH networks, they will fall farther and farther behind in terms of broadband speeds, especially as cable operators ramp up their deployment of next-generation DOCSIS 3.0 technology.

In the face of this increasingly threatening competitive trend, I suggested that ILECs seriously consider leveraging their existing customer base and expertise to become retail providers on state-of-the-art muni FTTH networks, which can deliver much faster (and more symmetrical) speeds and better service quality than cable—even after the latter deploys DOCSIS 3.0.

Three years later, as expected, cable’s DOCSIS 3.0 upgrade is well underway, expanding the already significant cable-DSL speed gap into a chasm that, over time, will turn DSL into the equivalent of dial-up Internet service--an option no longer considered by anyone serious about using the Internet’s full capabilities (assuming they have another option).

In a recent paper entitled “The Looming Cable Monopoly,” law professor and open-Internet advocate Susan Crawford summed up the competitive implications of this trend:

Where Verizon FiOS service exists, there will be competition with cable Internet access service providers for high-speed Internet access at speeds that are necessary to carry out real-time video conferencing or watch high-definition video. Where FiOS is not installed, there will not be any competition, and consumers will have just one provider to choose from: their local cable monopoly. Most Americans—perhaps as many as 85% of us—will fall into this latter category.

So, in this majority of U.S. markets, ILECs face a choice. They can milk their heavily-depreciated copper plant by nickel-and-diming telephone customers with never ending rate increases and fees, while ceding the broadband market to “the looming cable monopoly.”

Or, ILECs can join community leaders and stakeholders at the negotiating table as responsible and forward-looking corporate citizens. As I argued in my essay, I believe this path can lead to win-win arrangements that bring the benefits of advanced FTTH networks to communities and to ILECs, and provide cable’s “closed” DOCSIS 3.0 networks with healthy competition in the form of “open-access” networks that deliver a choice of “fiber-grade” retail services offered by ILECs and other service providers.

With all the money being spent on broadband mapping and developing a National Broadband Plan, and all the money at stake in potential USF revisions, I’d suggest that the Federal government invest a little of that money to study how this open-access muni-fiber option might work most effectively for all involved. And I’d suggest my 2007 essay as one starting point for discussion.

As part of a broader revisiting of telecom regulation, such study should consider potential regulatory changes and/or incentives that could help motivate ILECs to “see the light” about the value of muni-fiber…to understand that municipal FTTH networks are not only in the public interest, but can also be in the long-term interests of ILEC shareholders.

Unless ILEC managements change their attitudes toward municipal FTTH (perhaps with some help from regulators), it seems increasingly likely that both underserved communities and ILEC shareholders will suffer at the hands of cable’s broadband monopoly--which, in the wake of the recently-announced Comcast-NBCU deal, looms ever larger.

But if ILEC managements, local leaders, and state and federal officials step up to the plate with creative long-term vision (including removing state-level anti-muni restrictions), the U.S. can promote healthy broadband competition in the areas that need it most, while regaining its global technology leadership and revitalizing its communities and economy.

A win-win opportunity is a terrible thing to waste, especially when so much is at stake.

Defending Public Access on the Television Channels

The trend of more people subscribing to broadband as well as cable incumbents (also AT&T with U-Verse) wage war on local public access television stations, some have been questioning whether we even need PEG channels on the television anymore. We do. If anything, the increase in capacity of networks should translate into greater opportunities for local shows to find a local audience.

Rob McCausland, a champion for community media, recently wrote about the the vast majority of communities that cablecast one or more public meetings - a trend that must be expanded.

Of the 254 largest cities cablecasting their government meetings, 197 of them (78%) do so on channels that they themselves manage. Nonprofit organizations manage those channels in 20 of those cities, while the cable companies manage them in 28.

These channels provide a crucial public service -- allowing the public to oversee their local government. If anything, we should not be considering decreasing access to this content, we should be finding ways to deliver it on-demand on the television. Ultimately, this programming should be available on all devices -- mobile, computer, television, and should be available as streaming and downloadable podcasts.

Customer Service From National Carriers is Terrible

Though it is rarely, if ever, the top motivation for a community to build its own broadband network, the idea of local customer service that is actually responsive to the community ranks usually among the top 5 motivations. We love the idea of a "strangle effect" -- coined by folks at Wilson's Greenlight in North Carolina. If something goes wrong, you can find someone nearby to strangle.

Compare that to these three stories.

First - a coworker of mine had to return a Comcast set-top box after cutting back on services. When he drove to the Comcast storefront, the outside drop box was full of gear, so he stepped inside to a room packed with Comcastic homicidal folks who had waited too long for attention from the overworked counter folk. He asked to just drop his box but they said he would have to take a number and wait... so he could set his Comcast box on the counter because no one had emptied the box outside where it should have been placed.

Another Comcast story comes to us from the Consumerist: where Comcast tries to repossess a cable modem is does not own.

Finally, David Pogue recently recounted the story of Qwest demanding that a customer call a specific phone number to report that his phone was not working. Rachel, the person who experienced the terrible service, writes:

Do you suppose all communications giants are like this? “We are abjectly sorry and have instructed our employees to grovel at your feet, but we are simply unable help you, value you though we do. Yes, we’re helpless. You know, we’re only a giant corporation. You can’t really expect us to help you, can you? We’re sure you understand. Please visit our Web site again to order more products!” Is it truly impossible to debug a VoIP modem problem via e-mail for some technical or philosophical reason?

Yes, Rachel, those massive communications giant are all like that. They have no obligation to any community they serve and while they employ good people who may genuinely want to help, they are structured to benefit shareholders, not subscribers.

A lesson for community broadband networks: focus on providing great customer service and making sure the community knows it.

Photo used under Creative Commons license, courtesy of Titanas on flickr.

Susan Crawford: Why Comcast/NBCU Matters

The Comcast/NBCU merger poses a real threat to the future of innovation, competition, and the open Internet. Put simply: size matters. The larger Comcast gets, the more market power it has and the more all other markets that depend on broadband and media will be distorted.

Susan Crawford knows this better than most and explains why everyone should be concerned about it.

As we've harped on time and time again:

The crucial thing to understand is that high-speed Internet access to the home really is a crushingly-expensive natural monopoly service to install. The telephone companies haven’t found a way to make this work, because it’s so much more expensive to dig up the streets to install fiber than it is to upgrade cable electronics to DOCSIS 3.0. So they have backed off. The cable industry has made its investment, and is ready to reap its rewards of scale and high fixed costs - secure in the knowledge that no competition is coming after it, and having divided up the country neatly among its members. Meanwhile, the telcos are steadly losing fistfuls of money.

As Morgan once said of railroads, “The American public seems to be unwilling to admit . . . that it has a choice between regulated legal agreements and unregulated extralegal agreements. We should have cast away more than 50 years ago the impossible doctrine of protection of the public by railway competition.” In the cable world, we are deep into unregulated extralegal agreements, and competition is not going to rescue us.

The longer communities wait to build this important infrastructure, the harder it will be. It is hard to imagine national candidate speaking more stridently about the important of the open Internet than did Obama and even he bowed to the pressure of the private Internet access providers. While we should pressure the federal government to regulate in the public interest, we must take responsibility for our future at the local level with smart investments.

To communities that seize broadband initiative, benefits flow fast

On November 29, 2010, MPR published our commentary about community broadband.

The Twin Cities has slower and more expensive broadband Internet than the nearby town of Monticello.

The Twin Cities metro area has a population of 2.8 million and the highest density of people and businesses in the state. So why is our broadband Internet slower and more expensive than that enjoyed by Monticello, population 12,000?

Several years ago, the city of Monticello (45 miles northwest of Minneapolis) recognized the increasing importance of reliable, high speed, low cost broadband. After the incumbent telephone and cable companies declined to build the network city leaders had in mind, the community decided to build one itself. Now, FiberNet Monticello offers some of the best broadband packages available in the country, while the Twin Cities is lagging.

A new analysis by the Institute for Local Self-Reliance compares the available broadband speeds in Monticello to those available in the Twin Cities metro.

In the metro, as in most of the United States, broadband subscribers choose between DSL from the incumbent telephone company (Qwest) and cable broadband from the incumbent cable company (Comcast).

Monticello's offerings are faster at every price point, but Comcast appears to offer comparable downstream speeds in the highest tier of service. This apparent equivalence, however, is like comparing dirt roads with interstates. Both are roads that allow you to travel from point A to B, but they have fundamentally different characteristics in carrying capacity and reliability. For a variety of reasons, DSL and cable almost always fall short (and often, well short) of the advertised "up to" speeds, whereas full fiber networks regularly achieve the speeds they promise.

In the metro, cable offers most residents the fastest option for broadband, but only one choice of provider. The Monticello network not only created a new choice for its residents, it induced the incumbent telephone company to greatly upgrade its network to remain competitive. Now, Monticello residents can choose between two extremely fast broadband providers, as well as a cable internet connection. The community-owned network may have only been the third broadband option, but it fundamentally changed the market.

Prior to Monticello's investment, residents and small businesses had access only to asymmetrical broadband, as we do in the Twin Cities. This means the upstream capacity (when one sends a file to another) is much slower than the downstream capacity (when one receives a file). Monticello's network offers symmetrical speeds -- identical up and down speeds. For residents, this means high quality video chats, greater opportunities to share family videos, and better gaming.

For businesses, it means a whole new world. They are better able to interact with clients and customers. Businesses can take advantage of new cloud-based services to become much more efficient, garnering a tremendous competitive advantage during this economic downturn. And when downtime means lost dollars, local businesses can count on much higher reliability from a modern, locally operated network. Despite the many advantages Monticello's businesses gain from their network, they pay significantly less for their Internet access than businesses in the metro.

Buoyed by the success of Monticello and similar projects across the country, more communities are recognizing the need to build their own broadband infrastructure.

Tonka Connect, a project that may include 17 communities situated around Lake Minnetonka, is exploring approaches to build the network those communities need to thrive in the digital future. Rural Sibley County just completed a feasibility study for its fiber-to-the-farm project. Lake and Cook Counties are moving forward with projects boosted by the federal stimulus program.

They all recognize that big companies have little incentive to improve a system. Full fiber networks are expensive to build, and the return on investment takes years.

This is the major reason that the United States has dropped from being the No. 1 broadband country to between No. 14 and 32, depending on the study. The nation's fastest citywide network? Not New York. Not San Francisco, Silicon Valley, nor Seattle.

Chattanooga, Tenn.

That city built the nation's fastest network as part of a decades-long program to revitalize the community. As in Monticello, leaders recognized that the interests of their incumbent providers (AT&T and Comcast) were markedly different from the community's needs.

Monticello seized the broadband initiative in Minnesota. Communities in the metro have the same choice: Either bet their economic future on an out-of-state company or build economic self-reliance with a community network.