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NC House, big telecoms join forces in an effort to kill municipal broadband

North Carolina's Republican Congresswoman Julia Howard picked up more corporate sponsors than a NASCAR driver. Now she's repaying those that helped elect her and her fellow Republicans by passing a bill that threatens to kill municipal internet projects and North Carolina citizens' right to self-governance.  (Source: North Carolina Congress)

The bill contains language that would allow a state board to overall local citizens right to self-governance by giving them the discretion to prohibit services that passed a local vote.  (Source: Union County Public Schools)
Measure allows state officials to deny local citizens the right to self-governance

Telecom giants in North Carolina have been lobbying hard for several years now to try to stomp out municipal internet, phone, and cable television services that threatened their local monopolies or duopolies.  The effort looked at risk when they lost the support of Democrats this year, but thanks to some dedicated lobbying they managed to firmly convince the Republican majority to restrict local government's rights and enact a measure that presents a barrier to competitive municipal services.

North Carolina's State House has voted today to pass a critical bill, H.128 [PDF], by a margin of 81 to 37.  The bill, at face value, installs significant hurdles towards providing citizens municipal services.  

In that regard, many view it as a vote to preserve service providers’ monopolistic grip that allows them to charge NC residents exorbitant fees.

I. How Did We Get Here?

The bill was instigated by several towns/municipalities installing local government-backed services to offer citizens an alternative to local monopolies/duopolies.  Fed up with slow internet, limited cable channels, and high service costs, citizens banded together and pushed local officials to create municipal internet, cable TV, and phone services.

Places with such a service include Wilson, North Carolina (Greenlight, Inc.), Salisbury (Fibrant), Davidson (MI-Connection), and Morganton (CoMPAS Cable TV & Internet).

While the service was ratified by the municipal council/board, the projects were typically initiated on behalf of numerous complaints about local service providers' fees.  The municipal services' development spanned multiple years giving citizens time to vote politicians out of office if they didn't like the idea.  Further, many of the cities held town hall meetings gathering feedback.  Most citizens voiced enthusiastic support when the plan was clarified.

Under most of the current efforts, the city government first goes out and seeks loans in the private sector.  Typically these loans fall within the range of $25M-$45M USD.  

After obtaining loans, the local government then contracts private sector firms to install necessary infrastructure to create a competitive network to the local phone, cable television, or internet service.

Once installed the service is operated as an independent entity. 

The services so far have been a great asset to communities.  In Wilson, residents enjoy 10 Mbps internet from their municipality for $35/month, where they would have to pay $57/month to receive equivalent service from Time Warner, Inc. (TWX).  Further, businesses are offered a 1 Gbps line by the municipality -- something Time Warner claimed it's unable to offer at any price.

In short, the service seemed like a win for citizens.  The only clear loser seemed to be telecoms, which were forced to cut their prices and reduce their profits with the dissolution of their local monopolies.

II. Cracking Down on Municipal Internet

Politicians like Rep. Julia Howard (R-Davie, Iredell) contend that the municipal internet projects are unnecessary and worse yet can represent a malicious interest to business.  Rep. Marilyn Avila(R-Wake), who along with Rep. Howard co-sponsored the bill, says that legislation was needed to prevent "predatory" challenges to the private sector.

Indeed the bill's language is carefully worded to portray this side of the story.  It is entitled "Level Playing Field/Local Gov't Competition".  Its advocates claim that it will not ban municipal internet outright, but simply force them to "compete" with local telecoms.

As usual, there are always two sides of a story, however.

Critics point out that companies like Time Warner (cable internet), Embarq (DSL internet), AT&T (T) (cable TV), and CenturyLink, Inc. (CTL) (phone) have poured millions into lobbying the federal government to pass the initiative.

Many of the Republican congressmen sponsoring the bill reportedly received direct campaign donations from these companies.  For example bill co-sponsor Rep. Howard is accused of receiving $4,000 from CenturyLink, $750 from Time Warner, and $1,500 from AT&T.  

Critics say that even more money may be funneled through private donors.  They argue that the telecoms essentially paid for the Republican congressmen to be elected and now they're asking them to return the favor.

III. What's in the Bill?

Whether the telecom monopolists "bought" the NC Congress's vote or whether Congress really sought to create a "level playing field" with the most earnest of intentions, it's important to consider what's actually in the bill itself.

The bill begins by spelling out a set of provisions with which municipal service providers must comply.  Some of these provisions are redundant with existing federal laws but seem to serve as a vehicle to insert language inferring that municipal internet is somehow "discriminating" against telecoms.

For example, Provision 5 states that the municipal services:

Shall provide nondiscriminatory access to private communications service providers on a first-come, first-served basis to rights-of-way, poles, or conduits owned, leased, or operated by the city unless the facilities have insufficient capacity for the access and additional capacity cannot reasonably be added to the facilities. For purposes of this subdivision, the term "nondiscriminatory access" means that, at a minimum, access shall be granted on the same terms and conditions as that given to a city-owned communications service provider.

The Clinton administration's Telecommunications Act of 1996 forces all implementers of U.S. telecommunications networks to interconnect their networks and allow for common use.  Thus it is unclear exactly why this language is necessary.  Again, this appears designed to paint a misleading picture, suggesting that there's some sort of phantom conspiracy against business where there is none.

Other provisions offer confusing limitations to the powers of local government.  For example one bans the use of city funds to finance the projects.  It states:

Shall not subsidize the provision of communications service with funds from any other noncommunications service, operation, or other revenue source, including any funds or revenue generated from electric, gas, water, sewer, or garbage services.

In other words, Republicans are arguing, even if local citizens want to band together and spend local government funds on municipal projects they are prohibited from doing so.  Thus the state government is essentially robbing the citizens of the right to self-governance, because they argue, the locals might make an "immoral" decision to threaten the local telecom's monopoly/duopoly.

Provision 9 offers a further restriction:

The city shall annually remit to the general fund of the city an amount equivalent to all taxes or fees a private communications service provider would be required to pay the city or county in which the city is located, including any applicable tax refunds received by the city-owned communications service provider because of its government status and a sum equal to the amount of property tax that would have been due if the city-owned communications service provider were a private communications service provider.

In other words, the city has to pay local taxes to itself.  The point is not just to inconvenience the projects, though.  Combined with the previous provision it means that the city has to yearly apply taxes to itself which cannot be returned to reinvest in the internet service.  This puts the service at a bafflingly disadvantageous web of self-taxation and denial of funding.

Provision 8 puts municipal services at an even greater disadvantage, stating, "[They] shall not price any communications service below the cost of providing the service."

Thus local governments are outlawed from offering the kinds of promotional rates that telecoms regularly provide.  So while the bill claims to be "fair" it clearly creates a situation that gives the monopolistic telecoms at advantages by granting them additional rights and privileges that the local government is forbidden access to.

The bill offers exemptions to existing services, but the exemptions do not cover the most damaging provisions (outlined above).  Thus existing services will be affected virtually the same as new services.

The legislation does contain an additional measure that may further block new services, though.

The bill states that all municipalities looking to implement new services must first go through a number of steps (hold two town hall meetings on the issue, collect bids, hold a special election on the topic of incurring private sector debt to finance the project, etc.).  All of these steps seem relatively reasonable, and are in fact in line with what occurred with many of the current projects.

But the "catch" as they say, is that the city then has to submit a proposal to a state Commission.  That Commission will have complete authority whether to accept or reject the proposal.  States the bill:

The city or joint agency making the application to the Commission shall bear the burden of persuasion with respect to subdivisions (1) through (4) of this section.

Thus while the bill does not ban new municipal internet projects, it hands the state government the legal power to do so.

IV. Conclusion -- A Business Sponsored Tool to Kill Municipal Services

The decision by state Republicans to allow state government to ban local citizens from self-governance at their discretion is a particularly surprising one given that the national Republican party has emphasized shrinking federal government and putting more power in the hands of local governments.  

The big winners here are clearly the politicians who obtained the finances they needed to get into office and the telecoms, who move a step closer to safeguarding their monopolies from pesky municipal projects.  

The biggest losers are local governments and the state's citizens.  For all their hard work in creating cash-positive municipal services that beat the quality and price of previous monopoly/duopoly offerings, they now must fear that their service may be slowly choked and shut off by the state government.

Comments     Threshold

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Author is off the mark.........
By zendude on 3/31/2011 8:22:09 AM , Rating: 3
The goal of the bill as I read it is to ensure that Internet Services provided by the Local Government needs to be self-sufficient and not propped up by taxes.

I certainly do not want to be paying taxes to subsidize someone elses internet.

The bill helps ensure that the Municipal Systems can use the Big Telco's lines and visa versa. The REASON to add the language to the STATE Law when it is covered under FEDERAL Law/Policy is that the FEDERAL Law/Policy may change at any time and is therefore an attempt to try and keep the rules the same, even if the Whims of DC change.

The issue of taxes is obvious too.
Taxes are levied in Internet Service and sent to Federal, State, and sometimes Local Entities to fund the different programs or perhaps the general coffers. There is no logical reason the services provided by the local municipalities should be exempt from doing this.

I certainly do not want my City operating a Business at a loss that I need to fund via higher taxes.

This bill is right on the mark.

RE: Author is off the mark.........
By IGx89 on 3/31/11, Rating: 0
RE: Author is off the mark.........
By trooper11 on 3/31/2011 10:17:45 AM , Rating: 2
Yeah, reading through the bill, it seems that they are trying to prevent any missuse of offering such a service. People get all up in arms about how wicked business is, well if you think government is immune to the same forces, youd be mistaken. So Im not suprised to see those that want to lay down a set of ground rules before it gets out of hand elsewhere.

I understand why some would be agaisnt any regulation of a service the people themselves voted to support, but if your concerned about the mean old businesses, then you should be equally concerned when the government is in business.

It certainly doesnt help when we hear inflammatory reports about who contributes to which congressman. Its just too easy to avoid reading the actual bill and trying to understand its meaning. Instead, its easier, and i guess more entertaining, to go after those who support the bill.

RE: Author is off the mark.........
By mcnabney on 3/31/2011 11:25:07 AM , Rating: 3
When you read the bill you weren't thinking about finance.

The bill eliminates most of the methods that municipalities can raise money. Businesses can borrow based upon a variety of assets, future values, hell - businesses can borrow against their AR. Municipalities cannot use their assets to secure loans and have to fall back on guarantees. This bill blocks that ability and undermines the financial underpinnings of generating local internet 'utilities'.

RE: Author is off the mark.........
By rdawise on 3/31/2011 10:21:57 PM , Rating: 2
When you read the bill you weren't thinking about finance. The bill eliminates most of the methods that municipalities can raise money. Businesses can borrow based upon a variety of assets, future values, hell - businesses can borrow against their AR. Municipalities cannot use their assets to secure loans and have to fall back on guarantees. This bill blocks that ability and undermines the financial underpinnings of generating local internet 'utilities'.

Holy crap thank you! Someone who though logically! This bill, cheaply called level playing field, basically makes it impossible to create competition since these telecos have a monopoly on many areas in NC. The exemptions in the bill stated that you have to be "undeserved" to try to compete but that's bull.

By superunknown98 on 3/31/2011 12:59:34 PM , Rating: 2
The goal of the bill as I read it is to ensure that Internet Services provided by the Local Government needs to be self-sufficient and not propped up by taxes.

At first your statement makes sense, but if you really take a step back and look at what local government does, your statement loses creditability.

Think about it, what does government do for it's citizens? Creates governing rules and provides services. My town provides discounted daycare services to residents. I don't have any children but I still pay for this service. And last I heard the day care industry wasn't lobbying to abolish those municipal services.

These people had a need for a service and the municipality provided these services, just like any other service it would supply. Schools, libraries, senior centers....)

Maybe people should ask their city to not provide these services, or not vote for politicians who support it.

As it stands in my mind, the private businesses were stagnant because there was no reason to improve. Some competition came along, competition that they could bully or buy out, and they complained.

RE: Author is off the mark.........
By rdawise on 3/31/2011 10:13:41 PM , Rating: 2
I certainly do not want to be paying taxes to subsidize someone elses internet.

Only the ones who use the service pay the taxes to use it. Look at Wilson, NC.

"Google fired a shot heard 'round the world, and now a second American company has answered the call to defend the rights of the Chinese people." -- Rep. Christopher H. Smith (R-N.J.)

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