Miss in Congress may not doom muni nets

Jan. 1, 2007

Mutual support for federal telecom reform legislation found proponents of municipal broadband networks on the same team last year as the incumbent telcos they had frequently battled in court. Unfortunately for both parties, the legislature at the heart of their alliance-which would have granted municipalities protection from state-mandated barriers to entry and given the incumbents video franchise reform-foundered in the Senate under a tidal wave of net neutrality concerns. Thus soaked, telco sources have said they’ll focus their reform efforts at the state level in 2007. The lack of a basis for cooperation within Congress would seem to return incumbents and municipal network supporters to an adversarial relationship. However, sources within the pro-municipality camp believe their cause will remain safe from widespread attack in 2007.

The question of whether municipalities and/or their associated utilities should compete with private-sector telecommunications and cable TV companies has incited debate for years. Proponents suggest that smaller, rural towns and counties frequently must take broadband matters into their own hands because they don’t represent a lucrative enough opportunity to entice incumbent providers to roll out advanced services. The incumbents, cable multiple system operators (MSOs) as forcefully as telcos, generally object that government-supported broadband networks represent unfair competition and a waste of taxpayers’ money.

The incumbents and their allies traditionally have fought municipal networks at both the local level-denigrating them at public hearings, campaigning against the approval of bonds to pay for the networks, etc.-as well as within state legislatures. The American Public Power Association (APPA) cites 14 states that have erected what the association considers significant barriers to municipal broadband networks. The barriers range from outright bans to the imposition of procedures and regulations beyond those private-sector carriers face. The APPA list includes Arkansas, Florida, Missouri, Minnesota, Nebraska, Nevada, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, and Wisconsin.

State-level restrictions and successful skirmishing by the incumbents has succeeded in keeping down the number of municipal networks. Of the 936 FTTH communities that the TIA and the Fiber to the Home Council listed in May of last year (using data gathered by Render Vanderslice & Associates), only 33 were served by municipal networks.

Nevertheless, the number of communities pondering their own FTTH networks continues to grow-and, as ongoing conflicts in places such as Lafayette, LA, and Clarkesville, TN, demonstrate, incumbent carrier opposition in many parts of the country remains determined. Thus, for organizations such as the Fiber to the Home Council that support the municipal broadband concept, the possibility last year that Congress might potentially both wipe away existing impediments and prevent the creation of new ones represented what council president Joe Savage calls “a golden opportunity.”

Now that the opportunity has passed, Savage doubts it will appear again this year. “From everything we’ve heard…there’s going to be a different philosophy and a different direction that’s probably going to be taken,” he says. The Federal Communications Commission has promised to issue a ruling on video franchise reform and major carriers such as Verizon and AT&T are likely to focus their lobbying efforts at the state level. (Michael McKeehan, director of Internet and technology policy at Verizon Communications, made this prediction at the FTTH Conference this past October.) Speaking at the OIDA Annual Forum last month in Washington, DC, Senator John Ensign (R-NV) predicted as well that the specter of renewed net neutrality debates would likely stifle federal telecom reform legislation in 2007, leaving video franchise relief-and the municipal safeguards that might have ridden along with it-to state legislatures.

For these reasons, the prospect of sweeping protection for municipalities in the near future doesn’t look promising. “The issue right now with the municipalities is that there is not an effective movement at the state levels,” Savage says. “And unlike video franchise reform, there’s really not any national backup plan that’s been instituted.”

That said, Savage goes into 2007 feeling pretty comfortable. First, no states added new impediments to municipal broadband in 2006. “We don’t anticipate any new laws at the state level raising additional municipal barriers in ’07,” he adds. “It seems like there are no large forces pushing barriers to municipals. In fact, it seems like most of the larger incumbents-incumbents that are big enough to have political clout at the statehouse-probably realize that ‘you know, these guys aren’t even in my area, and they may or may not be effective, and why I am I fighting so hard to put in a barrier that’s just going to give me bad press?’ So there’s not a big political will to go ahead and restrict municipalities.”

Jim Baller, senior principal at The Baller Herbst Law Group, a law firm that has been involved on the municipal side in several battles against incumbent carriers, generally shares Savage’s assessment. While there are one or two states he declines to name that he has his eye on this year, in general he says the telecom and regulatory environment is now more favorable to municipalities.

“The very widespread interest in wireless and the continuing interest in fiber have created a very broad base of supporters for municipal initiatives. And we’re still in an environment in which the United States is not doing well compared to the leading nations, and that’s a concern for everyone,” Baller explains. “And so I think that a number of factors, including the spread of interest in wireless-not just in remote rural areas, but in every conceivable kind of locality, from the most rural areas to very large cities-makes it at least a different kind of environment than existed some years ago when the only folks who were really much concerned about municipal broadband were the relatively small number of communities that were interested in wireline systems.”

In fact, the issue of municipal Wi-Fi certainly is more prominent on Verizon’s radar screen, for example, than grassroots FTTH. When contacted for this article, neither McKeehan nor Verizon Communications’ media relations manager could think of a community in Verizon’s footprint that has installed its own FTTH network. (The Render Vanderslice count puts the number at fewer than five, including Kutztown, PA, and Burlington, VT.) That said, McKeehan offered that were one to spring up, Verizon’s response would probably be similar to its feelings about municipal Wi-Fi.

“Our view over the last few years has been, well, is there a market failure? Is cable not offering broadband in your community? Are the telcos not offering it in your community? And if there’s a market failure, and the community feels like it wants to act, well, great, that’s fine,” says McKeehan in explaining Verizon’s viewpoint. “But they should go into it with their eyes open and make sure they understand what they’re getting into-not just in terms of the capital expense involved in designing and building these networks, but also the operational expense of keeping the things up and going.”

Verizon, of course, probably has less to worry about from municipal fiber networks than any U.S. incumbent telco or MSO. The company’s aggressive fiber-to-the-premises rollout should decrease the number of communities in its footprint that see a city-owned network as the community’s only broadband hope.

Conversely, carriers with less of an investment in fiber remain fair game. For example, nearly half of the communities cited on the Render Vanderslice list reside in BellSouth’s territory, including the current initiatives in Lafayette and Clarkesville. Cable MSOs have fought municipal networks across the country; Cox Communications has been particularly aggressive in battling the city fathers in Lafayette.

Contacted for this story, a BellSouth spokesman offered a written statement regarding the carrier’s policy on municipal broadband networks: “BellSouth faces competition from a multitude of other service providers and believes that competition should be fair and the playing field should be level. BellSouth also believes competitors should adhere to the same rules and regulations that BellSouth must adhere to and be accountable to the same regulatory entities. If municipalities choose to enter the communications provider market, BellSouth believes these entities should compete fairly. BellSouth opposes municipalities using subsidies to ensure the success of its business plan when competing with private enterprise.”

Many of the barriers cited by the APPA are designed to address such concerns. However, Savage questions the validity of a legislatively leveled playing field. “It sounds fair on the face of it-but you have a playing field with a number of different games that are being played,” Savage asserts. “Municipalities are beginning to discover that if you want to attract a new business or if you want to revitalize your economy… that makes for a completely different business case than what a telephone company or a cable TV company might implement. So when someone says, ‘Well, they have to play by the same rules that we have to play by,’ that argument does not completely hold water in the council’s opinion.”

While the regulatory environment may prove stable in 2007, the pressure for broadband services in areas that believe they are underserved should only increase this year. “It’s our position that any municipality or any other entity that wants to get the money, do the business plan, and promote and deploy a broadband infrastructure should be free to do so-whether that is a mistake or not,” Savage concludes. “Most municipalities are finding that when they put the bond referendums up for a vote, that the majority of voters are very much in favor of them.”

Thus the test in 2007 may not be whether communities will continue to assault the barricades that incumbent carriers may erect, but whether the incumbents will retain the will to repel such attacks.

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