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The Other FCC Decision

| Written by David Morris | No Comments | Updated on Mar 5, 2015 The content that follows was originally published on the Institute for Local Self-Reliance website at https://ilsr.org/fcc-decision/
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On February 26th the Federal Communications Commission issued two decisions. One concerned net neutrality, the other municipal broadband. The first garnered by far the most attention, as it should. Net neutrality affects everyone and locks down a fundamental principle for Internet access.

But as another presidential campaign looms the FCC decision on municipally owned broadband may offer more fertile ground for a vigorous political debate on the role of government and the scale of governance.

The decision arose from a petition to the FCC by Chattanooga, Tennessee and Wilson, North Carolina asking it to overturn state laws that prevent them from extending their highly successful publicly owned networks to surrounding communities eager to connect. The FCC’s decision affects just those two states’ laws but will undoubtedly become a precedent to evaluate most of the other 17 states’ restrictions on municipal broadband.

Republicans grumbled at the net neutrality decision but they positively shrieked their dismay when the FCC ruled in favor of local authority. Within hours of the vote Republicans introduced a bill stripping the FCC of its authority to do so. A year ago Republicans tacked on an amendment to another bill that would have prevented the FCC from even taking up the issue. That amendment passed the House. Republicans voted 221-4 in favor. It died in the Senate.

The Economic Argument: Protecting Shareholders and Taxpayers

Republicans marshal both economic and political arguments in their case against public networks. The economic argument is simply put: By pre-empting local authority Republicans are protecting shareholders from unfair competition and taxpayers from unwise investments by local governments.

That municipal telecommunications networks have unfair advantages is a well-worn trope of telecom giants and Republicans. On the face of it, the proposition is preposterous. Does anyone truly believe that Salisbury, North Carolina whose public network at the time North Carolina passed its law had only 1,000 customers and whose municipal budget was only $34 million could have a competitive advantage over Time Warner, with 14 million customers and annual revenues of $18 billion?  The compensation Time Warner paid its CEO Jeffrey Bewkes for 2013 exceeded the cost of Salisbury building its entire network.

Preposterous or not, Republicans and telecoms are sticking with the argument. Indeed North Carolina legislators unblushingly titled their bill the Level Playing Field/Local Gov’t Competition Act.

In this debate about unfair competition private telecoms would like us to forget about the enormous subsidies gifted to them in the past. In 1991 Vice President Al Gore called for building an Information Superhighway by replacing old copper wires with fibers. Telephone companies enthusiastically applauded the Vice President’s vision and rushed to request permission of state regulatory commissions to boost prices and increase profits in order to generate the capital needed to rewire the country. Most promised to achieve the rewiring within 20 years. Bruce Kushnick in his Book of Broken Promises notes that in its 1993 Annual Report to the New York Public Service Commission NYNEX vowed, “We’re prepared to install between 1.2 million and 2 million fiber optics lines by 1996…” New Jersey Bell promised to rewire about 56 million miles by 2015.

State legislatures and regulatory commissions almost uniformly acquiesced, agreeing, in effect, to tax phone (and later cable) customers to finance a new privately built and owned state of the art telecommunications network. Kushnick persuasively argues that by 2014 Americans were collectively charged about $400 billion by Verizon, AT&T and CenturyLink. In the mid 1990s cable companies pushed their snouts into the public trough with an agreement called the Social Contract. Kushnick estimates that from 1996 to 2014 cable customers paid about $61 billion extra.

By now, if the telecom companies had kept their promises we might well have a national broadband network that would be the envy of the world. Instead many consider the United States a laggard in high speed, affordable broadband.

Yet without a hint of shame, in comments to the FCC before its decision AT&T proposed that private companies should continue to receive preferential treatment “to induce them to expand broadband deployment to unserved areas.” “You almost have to admire AT&T’s chutzpah in saying that, given the concessions they wrung out of communities over the years for promised AT&T broadband deployments that never even materialized,” Lauren Weinstein, a veteran technology policy expert told MotherBoard.

Ironically and inconsistently, at the same time telecom companies and Republicans insist that munis have an unfair competitive advantage they just as vigorously insist that munis can’t compete, that they fail in large numbers and local taxpayers pay the price.

According to Senator Thom Tillis (R-NC), “After witnessing how some local governments wasted taxpayer dollars and accumulated millions in debt through poor decision making, the legislatures of states like North Carolina and Tennessee passed commonsense, bipartisan laws that protect hardworking taxpayers and maintain the fairness of free-market competition.”

Free market competition? As my colleague at the Institute for Local Self-Reliance (ILSR) Chris Mitchell observed a year after North Carolina stalled municipal network expansion, “The Federal Communications Commission ranks North Carolina last in the nation in percentage of households subscribing to at least a ‘basic broadband’ service, largely because Time Warner Cable, CenturyLink, and AT&T have declined to upgrade their networks to modern standards.” Nationwide the Washington Post reports, “More than half of Americans have only one choice of Internet provider at speeds of 25 megabits per second, the basic threshold for high-speed internet under a new definition approved by the FCC last month.”

The fact of the matter is that the vast majority of municipal broadband networks have been successful. The economic benefits of munis have been amply catalogued by ILSR’s Community Broadband Initiative. They’ve saved host communities hundreds of millions of dollars, created tens of thousands of jobs, and become a firm foundation for future economic development efforts.

Senator Tillis surely knows that North Carolina passed its bill only after several city networks had proven so successful that a growing number of other cities were seriously exploring the option. According to data gathered by the Center for Public Integrity the price of broadband delivered by the nine municipal networks in Tennessee have proven highly competitive.

Some municipal networks have failed, although overall the mismanagement of public enterprises may pale into insignificance compared to the massive mismanagement of dozens of now bankrupt private telecom companies that lost investors tens of billions of dollars. And if munis cannot pay their debts bond investors, not taxpayers, shoulder the loss.

In any event, Republican state legislators rarely act to protect taxpayers from unwise investments by local government, unless those investments might generate effective competition with the private sector. No state restricting municipally owned broadband also restricts a city from going deeply into debt to build a sports stadium (many of which are actually financed directly by taxpayer dollars). To my knowledge no state that requires a city to hold a referendum before it can build a broadband network also requires it to hold a referendum before selling it.

The Political Argument: States Rights

Last April, speaking before the National Cable & Telecommunications Association, FCC Chairman Tom Wheeler responded to the Republicans’ economic arguments, “I understand that the experience with community broadband is mixed, that there have been both successes and failures. But if municipal governments want to pursue it, they shouldn’t be inhibited by state laws that have been adopted at the behest of incumbent providers looking to limit competition.”

Which leads to the Republicans key political argument: states rights. Before the FCC decision the principal sponsor of North Carolina law, State Rep. Marilyn Avila (R-Wake) asserted, “We’ve gone beyond the question of municipal broadband right or wrong. It’s now a question of state sovereignty.”

In other words, state legislatures may be wrong to deny communities the right to build their own broadband networks but the federal government has no right to interfere. Republicans may well win the legal argument since the U.S. Constitution doesn’t give municipalities any rights but they will find it challenging to win the political argument with the proposition that democracy should extend only to state capitols and no further. Few can deny that the debates that have taken place in hundreds of communities about whether to build a municipal network have been some of the most vigorous, transparent and democratic of all policy debates.   In many cases citizens have voted on the question directly in referenda, rather than indirectly through their elected representatives.

Republicans argue the federal government shouldn’t intervene because Washington is too remote from the realities and needs of states and too unaccountable to that states’ voters. But state capitols are similarly remote from the realities and needs of communities within their states and equally less accountable to them.

In an ideal world, if the affected states were unwilling to abide by the FCC decision they would not go to court. They would go directly to their citizens via statewide referenda and ask them what they think. Is that too much to ask those who proclaim their love of democracy?