How frustrating to be the mayor of a small town without good broadband access today. Imagine trying to entice businesses or entrepreneurs to a region where the best Internet option is the slow DSL most of us discarded nearly a decade ago for faster speeds.
The “broadband market” in much of the US happily provides snail-speed connections at inflated prices when compared to many of our peer nations. Cable and telephone companies see little reason to upgrade these networks—the low population density does not lend itself to quickly recovering investments.
Recognizing the disconnect between the best interests of distant shareholders and the best interest of their community, cities across the US have built their own networks, taking a page from the thousands of small cities that built their own electricity networks a century ago when private utilities ignored them.
Lafayette, Louisiana is a good example. The city begged its incumbents to beef up local broadband networks and was rebuffed. This Cajun country community decided to build its own next-generation network. The incumbents argued that the households and businesses of Lafayette had all the broadband they needed and sued to stop the city. This year, after years of litigation, the victorious city began connecting customers to LUS Fiber.
LUS Fiber may offer the best broadband value in the country, offering a true 10Mbps symmetrical connection for $29/month. Those wanting the 50Mbps symmetrical connection have to pony up just$58/month—about what I pay to my cable provider in Saint Paul for “up to” 16/2 speeds.
Unsurprisingly, the cable incumbent has now decided Lafayette is a priority and will be upgraded to DOCSIS 3.0 to offer faster tiers.
This same story has played out in communities across the country—see previous Ars coverage of the Monticello v. TDS battle that resulted in true broadband competition in that Minnesota town.
Lafayette and Monticello were lucky because they had the power to build a digital network. Many communities do not. The Institute for Local Self-Reliance, where I am a researcher, compiled a basic map of the United States showing states that have enacted barriers to these community networks.
Eighteen states impose some barriers to community broadband. Texas, Arkansas, Missouri, and Nebraska have an outright ban. Other states erect administrative and procedural hurdles that make it difficult for communities to invest in a full-service network. Though Monticello and Lafayette have succeeded in spite of barriers, many other communities are unable to persevere, and watch their younger generation leave for modern opportunities elsewhere.
As I’ve already noted, communities have fought this fight before—when electricity was only available to the urban and affluent. Profit-maximizing companies not only refused to build the grid to low-profit areas but argued those areas should not be permitted to wire themselves. Fortunately, FDR saw things differently:
I therefore lay down the following principle: That where a community—a city or county or a district—is not satisfied with the service rendered or the rates charged by the private utility, it has the undeniable basic right, as one of its functions of Government, one of its functions of home rule, to set up, after a fair referendum to its voters has been had, its own governmentally owned and operated service.
We need FDR to remind us that we are discussing the basic right of a community to invest in its future. Communities must not be held hostage by an absentee company that knows it can overcharge and under-invest without consequence.
Wireless is nice for mobility, but does not threaten the wired monopoly or duopoly. These networks—particularly full fiber-optic networks—are natural monopolies. There is no natural “market” any more than one could imagine a competitive market in streets or metro airports. This is infrastructure—the foundation for many other markets.
Are public networks a failure?
Why then, do one in three states discourage community-owned networks? Telecommunications companies—particularly those awash in revenues from mobile phones—can throw an overwhelming number of contributions, lobbyists, and “think tank” reports at legislators to convince them to ban or restrict publicly owned networks. Few legislators have a background in telecom and those that do typically come from industry.
Industry-funded think tanks have produced many reports claiming publicly owned networks are failures. Their methodology is suspect—equating long-term investments in next-generation networks with lost money. Using this methodology, any homeowner who fails to completely pay off his mortgage within a few years has failed.
The truth is that publicly owned networks do quite well. Communities typically borrow from outside investors to build the network and pay off the loans over a 15-20 year period with revenues from phone, television, and broadband services (for wired networks). These networks have eased telecom budgets (e.g. by increasing speed to schools while dramatically cutting costs) and encouraged economic development. Nationally, they average high take rates—a measure of how many people take service on the network.
State barriers to publicly owned broadband networks may benefit monopolistic cable and telephone companies but can cripple communities within those states. Of course, such policies also give a competitive edge to cities in other states who have moved ahead.
“Actually,” says Lafayette’s Republican Mayor, Joey Durel, “I often say with tongue firmly planted in cheek that I hope that the other 49 states do outlaw what we are doing. Then I will ask them to send their technology companies to Lafayette where we will welcome them with open arms and a big pot of gumbo.”