north carolina

Success! After a few nerve-wracking months, North Carolina's state government has decided not to preempt local communities from building the broadband infrastructure they need. The full legislative explanation of how this standoff ended is available from Stop the Cap! as narrated by Catharine Rice.

We all benefit from the efforts of Catherine Rice, Jay Ovittore, and many others to ensure communities can maintain their self-determination in the information age. These grassroots efforts, coupled with several key Representatives and Senators, have once again prevented incumbents from consolidating their market power by outlawing competition from publicly owned networks.

Make no mistake, well-funded lobbyists will continue pushing for these changes both in North Carolina and in many other states. We should encourage the US Congress to "clarify" (in the words of the FCC) that states have no right to prevent communities from building this important infrastructure.

Wilson has won two awards for communications due to its efforts on the Save North Carolina Broadband Blog. The city of Wilson's public power utility built a citywide FTTH network called Greenlight.

Their blog has featured a lot of content both about Greenlight's successes and efforts by cable and telco lobbyists to ban community broadband in the state. Cities should strongly consider creating similar blogs as helpful communications tools with citizens... but if such a blog is created, the community must make an effort to keep it updated.

Lafayette Utilities System has filed a complaint with the FCC following what seems to be a rather arbitrary decision by the National Cable Television Cooperative (NCTC) to deny Lafayette as a member. This is a crucial issue for communities that want to build fiber-optic networks, so we will dig in and offer an in-depth explanation.

It all starts with the business model. Fiber-optic networks are fantastically expensive and are expected to be financed entirely with revenues from subscribers. Though communities typically want fiber-optic networks for the broadband capacity, they find themselves having to offer cable television services also to ensure they will attract enough subscribers to make the debt payments on the network.

Unfortunately, cable television services are the most difficult and expensive part of the triple-play (broadband, telephone, cable tv). A community network has to sign deals with different content providers in order to put together its channel lineup. Even a community network with 100,000 subscribers has little power over the companies with channels like ESPN, the Disney Channel, Discovery, MTV, Food Network, and others. Thus, it will have to pay more for those channels than massive networks like Comcast that have many millions of subscribers and therefore a stronger negotiating position. LUS has noted that video programming is the "largest single on-going cost" it incurs in the network.

Enter the NCTC. By forming a cooperative, many small providers (public and private) were able to gain negotiating power over content owners and even hardware manufacturers to cut costs to members by buying in bulk. In recent years, the size of NCTC rivaled that of major national providers like Charter and Cox cable. All three parties stood to gain by bringing Cox and Charter into NCTC in 2009. The addition grew NCTC significantly -- only Comcast has more subscribers currently.

The advantages of NCTC are quite significant and worth reiterating because it is a reminder of the ways in which massive private companies have the playing field tilted in their direction. Without access to NCTC, communities have to pay more for the same content and equipment (NCTC savings may start at 15%-20%. From the complaint:

NCTC market power also enables it to obtain much bigger, better, more flexible, and less costly packages, than any individual small cable operator or any smaller buying group can obtain. Video programming distributors typically dictate terms to small cable operators on a take-it-or-leave-it basis. Aside from the price per channel, these terms often dictate the tying of related channels to the ones the operator wants, requiring mixes of standard and high-definition channels, placing channels at specified positions in the line-up, and locating channels in the most popular basic and expanded basic programming tiers. In other words, in order to get the “must-have” video programming that they need to be competitive, small cable operators must typically pay for many channels they do not want, incur substantial costs for extra equipment to support these unwanted channels, and pay fees based on the number of subscribers in the largest programming tiers, rather than in smaller tiers based on subscriber interests and preferences. NCTC has the clout to negotiate much more flexibility for its members in all of these areas.

NCTC also provides its members another advantage over non-members: they do not have to negotiate individual arrangements with 300 or more video programming distributors. Since each such arrangement involves multiple issues, the time, burden, and cost involved in individual, one-on-one negotiations is enormous. Moreover, this assumes that the programming distributors are willing to deal with small cable operators one-on-one on a timely basis. Often they are not.

Communities that are denied entrance to the NCTC have a much harder road when it comes to competing with massive entrenched incumbents. Philip Dampier of Stop the Cap! wrote about this issue, noting that NCTC has strayed from its original purpose:

As someone who personally was involved in the passage of that legislation [1992 Cable Act], the ironic part is we were fighting -for- the NCTC back then. Of course, those days the cooperative was made up of wireless cable providers, utility co-ops, municipal co-ops, and other independent cable systems that were constantly facing outright refusals for access to cable programming or discriminatory pricing. Satellite dish-owners were also regularly targeted. NCTC was a friendly group in the early 1990s but has since become dominated with larger corporate cable operators, especially Cox Cable and Charter Communications.

Recently, NCTC began discriminating against publicly owned networks, refusing to let Wilson (North Carolina), Chattanooga (Tennessee), and Lafayette join NCTC. There was no explanation for the discrimination against muni networks, so LUS is asking the FCC to force the NCTC to admit them.

The specifics may be found in the Official Complaint:

LUS alleges that the Defendants are violating Section 628 of the Communications Act, 47 U.S.C. § 548, and the Commission’s implementing rules, 47 C.F.R § 76.1001 et seq., by engaging in unfair, deceptive, and anticompetitive conduct that has the purpose and effect of preventing LUS from becoming a member of NCTC and thereby obtaining the huge quantity discounts, and other benefits that NCTC negotiates for its members. These discounts and benefits total millions of dollars annually.

The TeleCompetitor coverage of this lawsuit notes NCTC has been selective in the past with membership:

This type of charge is no news to some IPTV operators, many of whom claim access to NCTC has also been denied to them. NCTC, a traditionally closed-lip organization, has never offered any official response to these claims. In my communication with them, they’ve always said they’ve never blocked any company from joining because of who they may compete with. But they do admit to a selective admission process, reviewing each applicant individually to ensure they meet NCTC ‘criteria’ before offering membership. That criteria is a ‘gray area’ to say the least. There is also a pretty significant membership fee to join – a fee that some operators claim is an additional barrier to entry.

However, NCTC has specifically noted it has concerns relating to municipalities. Despite opening itself to new members, it ignored the applications of Chattanooga, Wilson, and Lafayette for months at a time. When rejecting their applications eventually, it offered no explanation.

After NCTC was notified that Chattanooga and Wilson would be joining the LUS complaint for this anti-competitive behavior, NCTC decided to admit both Wilson and Chattanooga but not Lafayette. The only discernible difference between LUS and the others? Wilson and Chattanooga compete with Time Warner and Comcast (respectively) and neither is a member of NCTC. Lafayette competes with Cox, the single largest member of NCTC.

So long as massive scale is rewarded in broadband and cable networks, competition will be elusive. Only by ensuring small providers can join groups like NCTC can competition even have a chance. If the FCC wants to encourage competition, it will quickly require NCTC to admit LUS on fair terms.

A local editorial notes the LUS has already spurred competition locally:

As I have considered writing yet another post about this debacle in North Carolina, I worried that readers outside of North Carolina might ignore it, thinking they cannot help and it doesn't impact them. Well, we can all learn a lesson from the fight in North Carolina to preserve local self-determination.

The same forces that are pushing North Carolina to crush the rights of communities to build the infrastructure they need are talking to elected officials and policymakers across the country. They are saying that the U.S. really does not have a broadband problem, that people are happy with their DSL and cable options.

Elected officials and policymakers very seldom hear from the other side - as Philip Dampier notes here and reinforces in the comment section here.

Sure, most states have organizations like a League of Cities or Munis or Towns and these organization are often fairly powerful. However, very few state legislatures have anyone speaking consistently for the rights of consumers. In DC, Free Press, Public Knowledge, and Media Access Project all do good work on the federal level but have little capacity to work on the state level. I try to help in state efforts wherever possible, but we have neither the funding nor staffing to really offer substantial help on any of these issues.

Someone needs to represent the interests of broadband subscribers -- and right now the only option is YOU. The folks at Stop the Cap! often make that easier by keeping you informed and providing the information you need to contact reps and policymakers.

But you need to make the call.

When you contact your reps to tell them you are not happy with your services and your choices in broadband, they are less likely to buy the industry claims that everything is hunky-dory and there is no reason for new policies that would encourage competition or allow communities to build for themselves the networks that no one else will.

When you do not make calls or write to your Reps, they de-prioritize broadband and are easily convinced by lobbyists that broadband is not an important issue. When people like Senator Hoyle in North Carolina claim that everyone has enough broadband is happy with it, they should be met with terrific skepticism - with other Senators immediately saying, "No, they aren't. I get x calls a day about the need for better broadband."

In North Carolina, it is essential that people immediately call and write their Representatives to demand they oppose the House version of S.1209. This is no time to prevent communities from building the networks they need.

Communities without the power to build the infrastructure they need have no self-determination. If you don't remind your elected officials that you also need better broadband or more choices, your state might be next.

And don't stop at writing directly to your state officials. Write to your local officials and tell them to tell the folks at the state level.