Politics is seldom black and white as issues overlap producing shades of gray.  In the 2008 and 2010 election "Tea Party" Republicans like Sarah Palin vocally advocated reducing the size of the federal government and putting more power in the hands of state and municipal governments.  Now Republicans in North Carolina are pushing a contrary position -- robbing municipal governments of power.

I.  Bill H129 -- "Bill-y the Municipal Internet Slayer"

At stake is the issue of whether elected officials can use their city's budget money to offer public cable internet and Wi-Fi offerings to make up for lack of competition on the market.

House Bill 129, a pending piece of legislation, looks to block municipalities from being able to do that, though it partially excludes a few municipalities with established systems.

This is a complex issue, so we feel it's worth looking at the pros in cons in depth.  So what is this crazy idea of municipal internet?

II. The Good -- Competition at Last

To start, it's important to make clear how these municipal internet projects are born.  Every year, local residents vote in city council members.  It is typically these city council members that vote to create municipal internet projects (though in rare cases citizens may directly vote on the issue).  

While some would argue that this takes power out of the hands of citizens, that point is more of a criticism of elected officials on all levels in general.  After all, if the citizens didn't want the service, they could vote for council candidates who would repeal funding.

The idea of municipal utilities isn't exactly a foreign concept in America.  Much of America is served by municipal water utilities. 

In North Carolina, the problem is lack of competition.  Customers across much of North Carolina have one choice if they wanted fast (cable) internet -- Time Warner.  If they're willing to settle for slower speeds they have slower alternatives like AT&T (DSL) or Embarq (DSL).  Time Warner and Embarq have taken advantage of this situation raising prices to exorbitant levels and offer lower-than-promised speeds.

Those high prices caused cities to begin to step in and propose a new system of "pipes" to go with their municipal water -- fiber optic internet.  The results have largely been a success, with communities like Wilson, North Carolina (Greenlight, Inc.), Salisbury (Fibrant), Davidson (MI-Connection), and Morganton (CoMPAS Cable TV & Internet).

Borrowing $25M USD to $40M USD in private sector loans up front, cities are able to install super-fast fiber optic lines, connect citizens, and connect these lines to the external outgoing lines.  Federal laws mandate that telephone and internet cables must enjoy equal access, so there's little that Time Warner and Embarq can do to prevent cities from plugging into the system.

Once operational, these networks have generally been embraced by many citizens due to high speed and low costs.  For example, Wilson citizens last year paid $35/month to get a 10 Mbps internet connection, while they would have to pay as much as $57/month to get an equivalent connection from Time Warner.  Faced with the prospect of paying up to $264 USD less a year, most customers are opting out of Time Warner as fast as possible.

Other advantages include that the service offers its lowest price as a set rate, not a promotion (so customers don't have to worry about an unpleasant bump) and they clearly post all their pricing information on their website, without the need to enter personal information (Time Warner requires personal information to get pricing on its website).

Given that appeal, the services are quickly able to make the transition to positive tax flow.  For example after about two years Wilson's Greenlight project is now tax-flow positive, allowing it to pay back the loans it took to lay down the infrastructure.  In other words, at the end of the day citizens voted for this system, get lower prices, keep their money local, and don't pay more in taxes.

The services also are a boon for businesses, offering connection speeds that Time Warner has refused to offer like a 1 Gbps line.  Without the municipal line, no business would be able to buy a connection this fast.

Why is this deal so sweet?  Well the biggest factor is simply that the lack of competition was allowing the prices to be kept artificially high.

And since the introduction, Time Warner has actually been forced to respond by lowering prices.  The result, according to research funded by the City of Wilson, is that Wilson residents have saved $1M USD over the past couple years on internet versus citizens in Raleigh, thanks to the lower priced city service and local-only price cuts from Time Warner to try to stay competitive.

II.  So What's the Downside?

Republican lawmakers in the state government have been trying unsuccessfully to kill these services almost since they started.  States State Representative Ruth Samuelson, R-Mecklenburg in a recent interview, "I don't believe that providing service isn't a core part of government.  They don’t deliver my newspaper. They don’t buy my groceries. I don’t see what they should be in there providing my Internet service."

Initially the lawmakers contended that the municipalities were too inept to implement successful services.  That argument was essentially killed when the efforts quickly showed strong signs of success, saving citizens money, gaining large subscriber numbers, and entering positive cash flow.

Subsequently Republicans switched their tactic to complaining that the services were unfair and created a government competitor to private business (though they have failed to attack similar "government competitors" in the water industry).

GOP Rep. Marilyn Avila of Raleigh, a chief sponsor of Bill H129 states, "We have our local governments in direct competition with private industry."

Time Warner enthusiastically voiced its support, with a company statement that remarked, "The bill is intended to create a level playing field so, If local governments want to provide commercial retail services in direct competition with private business, they can't use their considerable advantages unfairly."

III.  Allegations of Lobbyist Influence

In our discussions with state and local officials we've heard lots of rumors of lobbyist pressure from Time Warner and Embarq on Republicans to push this bill in its current form.  

The local site "Stop the Cap!" claims that one of the bill's key sponsors -- Rep. Julia Howard -- received direct campaign contributions from Time Warner and other groups opposing the municipal services.  As the city of Wilson also offers cheap municipal phone service, Ms. Howard received $4,000 from CenturyLink, who supplies a large share of the local phone service.  She received $750 from TimeWarner and $1,500 from AT&T (who took issue with the municipal cable offerings).

It is possible other reps, including Rep. Avila received similar cash donations.  It's also possible they received even more money from these companies funneled through private donors.

There's plenty of opposition against the bill on principal alone. States Rep. Bill Faison, D-Caswell, "What this is Time Warner Cable's efforts to cut out municipalities as a potential competitor, and it is a monopolistic bill from the word go. We still have people who are largely under-served throughout many areas in our state."

The bill would prevent new municipal internet projects unless they partnered with a "private firm" and there were restrictions on what kind of private firm would be eligible.  Further, it prevents current and new projects from seeking private loans to finance their projects (presumably the business partner would have to seek such loans).

The bill narrow passed the House Finance Committee.

But sufficient public debate was not held, so the measure must be revoted on, on March 23 after there's sufficient time for public comment.  

A passing vote would clear the measure to go to vote before the broader House.  If it passes again, from there it would go on to the State Senate and to the governor to sign into law.

UPDATED: Friday March 18, 2011 2:25 p.m. --

Our sources have given us one local news story on the lobbying accusations.  It is now embedded at the start of section III.  To summarize, one of the key reps supporting this bill was paid campaign contributions by Time Warner and other corporate interests.