Mr. Wheeler, tear down these walls: The economic case for removing barriers to muni broadband

municipal

FCC Chairman Tom Wheeler clearly wants to protect communities from state intrusion by having the legislative barriers to public-owned networks in 19 states removed or heavily curtailed. Those who see high-speed internet services strengthening local economies, transforming medical and healthcare delivery, improving education and increasing local government efficiency agree with him.

berlin_wall fallingHow would removing these walls to progress not only impact states with public network restrictions as well as other states? Community broadband history indicates this would unleash competitive forces so that, according to Massachusetts Senator Ed Markey, “prices go down dramatically. All of a sudden, the two private sector incumbents find a way to lower prices.” Constituents in urban as well as rural communities also would get much faster speeds.

Community broadband success breeds success

Over 400 public-owned networks operate in the United States, according to the Institute of Local Self-Reliance, including 89 fiber and 74 cable community-wide networks, and over 180 partial-reach fiber networks covering business districts, industrial parks and medical and university campuses. Evaluating these networks’ impact on job creation, education and stirring innovation, as well as their financial sustainability, uncover hundreds of success stories that can be replicated once the barriers in those 19 states drop.

Some networks such as those in Cedar Falls, Iowa; Thomasville, Georgia; Santa Monica, California and Bristol, Virginia have operated successfully for over 10 years. Thomasville Mayor Max Beverly credited, its 14-year-old network for profits of $2 million a year and has contributed to the city eliminating taxes. Danville, Virginia’s public utility’s network that launched in 2004 helped cut the locale’s unemployment in half, down from 19 percent, by directly enticing several large companies to the area, and creating a local technology industry that otherwise likely wouldn’t exist. Santa Monica’s fiber network, launched the same year, reduced government voice and data communication charges by over $750,000 a year. Those savings, plus selling fiber services to local businesses helped build a $2.5 million surplus.

However, community networks’ return on investment often is not about revenue, but benefiting the public good. Prestonburg, Kentucky, for example, built a municipal wireless network in 2008 for its 3,255 citizens. Brent Graden, the city’s former Director of Economic Development, stated, “We have folks in who live in pretty remote areas we call hallows who hadn’t seen a doctor in years, particularly specialists, because it’s so much trouble and expense to get to an office or hospital. Those folks use videoconferencing over the network to enable doctor consultations.”

Dismantling legislative barriers would accelerate the number of interstate projects such a Chattanooga incubator that is using the public utility’s (EPB) gig network to link with the University of Texas at Dallas’ gig network to collaborate on a 3-D printing project. Tennessee’s anti-muni network law currently prevents EPB from expanding its service to nearby communities desperate to open similar mutually beneficial opportunities with states not shackled by these laws.

Private-sector failings drive the need to remove barriers

While anti-muni network laws, incumbents’ lawsuits and predatory marketing have caused many public networks such as those in Jackson, Tennessee and Reedsburg, Wisconsin to struggle early on, and a small handful failed, it is the private-sector failures are stunning.

“Between 1993 and 2013, large telephone and cable companies collected over $380 billion dollars in rate increases, tax breaks, changes in depreciation schedules for upgrades and other perks,” states Bruce Kushnick, Executive Director of New Networks Institute, a market research and consulting firm. To win these concessions, teams of incumbents’ lobbyists promised practically every state they’d deliver 45 Mbps of symmetrical bandwidth to tens of thousands of homes in each state.

In a report titled “The History, Financial Commitments and Outcomes of Fiber Optic Broadband Deployment in America: 1990 – 2004,” Kushnick cataloged from public records promises made and not kept. Bell Atlantic promised by 2010, 100 percent of New Jersey should be able to receive services capable of 45 Mbps symmetrical. It promised in Pennsylvania 100 percent of its access lines in each of its rural, suburban, and urban rate centers would be broadband capable by the end of 2015. Pacific Bell’s “California First” plan called for 5.5 million homes in this states to be wired with 45 Mbps symmetrical by 2000.

telco promises

Seeing this pattern of broken promises that were costing states billions, frustrated communities began launching public networks. In response, states began passing laws restricting public networks. Exposing this as an anti-competition tactic is easy. Just follow the money.

The four legislators sponsoring the anti-muni network bill that passed in North Carolina in 2011, for example, received an average of $9,438 from 2010-2011 from incumbents. This is more than double the $3,658 received on average by those who did not sponsor the bill. A detailed analysis connects the many dots and dollars connecting incumbents and those who voted for this bill.

U.S. Congressional Rep. Marsha Blackburn of Tennessee led a bill that passed this week to thwart efforts by Wheeler to rescind laws such as North Carolina’s. Research reveals two of Blackburn’s largest career donors are AT&T ($66,750) and Comcast ($36,600), two of EPB’s (Chattanooga) big competitors.

With incumbents failing to deliver even a few megs of speed in many areas while each day public entities are announcing gigabit networks, broadband champions are demanding the FCC defend the true free market against state intrusion. In their view, if 10,000 people and businesses in a community spend $1 million a month for broadband services, those constituents are the broadband market. If that market isn’t satisfied, they have a right to vote with their personal dollars for a better solution. They also have a right to vote to spend their publicly generated dollars for a better solution, including allowing their local governments to run the networks.

Community broadband advocates strongly believe these anti-competition walls that incumbents have built through restrictive laws will fall. As more cities build their own networks and repeatedly prove them successful, these walls will have trouble withstanding pressures such as  the need to reverse bad economic conditions, to better compete in innovation or to dramatically improve education.

Craig Settles is a consultant who helps organizations develop broadband strategies, host of radio talk show Gigabit Nation and a broadband industry analyst. Follow him on Twitter (@cjsettles) or via his blog.

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