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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.

Video: 
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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.

Video: 
See video

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..

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