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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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RE: America's Own System
By mdogs444 on 3/31/2011 8:49:14 AM , Rating: 3
we have various non-profits who are getting into and giving some real competition to some for-profit people

While in general I would agree with this statement, lets not confused the basic term non-profit. They do not operate as a "break-even" entity. They still operate to make just as much profits as private companies do. The difference being that they do not pay out to shareholders. Their CEO's still have huge salaries and bonuses, lavish benefits, very generous retirement packages, etc. I work for a non-profit, and the misguided notion that we charge lower prices because we don't need to make profits is simply untrue.

The real problem that I have with any sort of government provided service/entity is not the basic service itself. Its the fact that they can operate at a loss for a while to get rid of private sector companies, and then they can operate as a monopoly charging whatever they want. The simple fact is that they will use it as a revenue builder for other entitlement programs by artificially jacking up prices in order to pay for government programs that have nothing to do with their internet or phone services.

The ability to operate at a loss and pass laws intentionally to prop up your own business while punishing others is why a free-market capitalist system frowns upon the government (be it Federal, State, or Local) from owning businesses that compete in the private sector.

RE: America's Own System
By mcnabney on 3/31/2011 11:16:55 AM , Rating: 2
For-profit companies can operate at a loss.

Hell, Sprint hasn't been profitable for six years.

RE: America's Own System
By TechIsGr8 on 3/31/2011 11:57:35 AM , Rating: 2
Who gives a rat's arse about their profits? This is about what's best for American citizens, not American corporations. I love all the dimwits who demonize government. When was the last time your granny didn't receive her social security check? And by the way, social security wouldn't be considered an "entitlement", because we all pay into it.

RE: America's Own System
By mdogs444 on 3/31/11, Rating: 0
RE: America's Own System
By Mahazy on 3/31/2011 2:30:01 PM , Rating: 3
quote: security wouldn't be considered an "entitlement", because we all pay into it.

You're right.. the government taxing the citizens then taking that money and giving it to people on welfare isn't an entitlement either!

Use your brain. It's not about what's best for some corporations. It's the difference between a nanny state with lots of waste and corruption versus private companies (made up of good American's too) providing a product or service. Look at the social security program. If we could actually put all the money going into that into our own private accounts for 30 years you can bet it would be a better pay out than what the government is giving us. Not to mention the fact that the government has raided social security to pay for other programs that needed the cash. Now SSI is in the red and what's left... IOU's from other government agencies that can't pay it back.

Is any of this sinking in??

RE: America's Own System
By zixin on 3/31/2011 5:31:06 PM , Rating: 3
Are you sure about that? Did the collapse of Lehman Brothes and the near collapse of AIG along with the rest of finance market taught you nothing? How about the whole Madoff scam? At least when the government borrow money from SS it is used on government projects. When the private industries take their management fees for SS it goes straight into the coporate bank account.

RE: America's Own System
By jay401 on 3/31/2011 5:50:38 PM , Rating: 2
Uhm hello, American corporations ARE American citizens. Sorry you've fallen for the propaganda that makes private-sector businesses out to be some sort of mechanical robotic inhuman entity. Newsflash: "Corporations" actual consist of PEOPLE. Business owners who in turn employ lots of other American citizens in their companies. So "what's best for American citizens" when juxtaposed with "American corporations" is a red herring, because American citizens are part and parcel of American corporations.

RE: America's Own System
By Lazarus Dark on 3/31/2011 8:32:32 PM , Rating: 2
The intents and deeds of corporations can be led by a few corrupt individuals though, who will guide that company to do great harm to the general population. The general population does not have any representation within that company even though what it does may affect their lives; as with many monopolies, a few greedy CEO's can make life difficult for many US citizens.

Thus, the general population does need their elected government to protect them from the misdeeds and mal-intent of corporations.

It's sad(disturbing) when that elected government takes the side of these corporations led by a few greedy individuals over the wishes of it's own citizens.

RE: America's Own System
By Conficio on 3/31/2011 8:52:06 PM , Rating: 2
You got a few things wrong here:
* Corporations are not citizens. Citizens are human beeings, not animals, not buildings, not cars, cell phones, or corporations.
** And citizens are fully liable to the state and their fellow citizens for their actions. If I burn down your house, even by accident I have to make you whole (pay you the demage) even if it exceeds my life time income (beyond a base survival rate to feed and close myself).
** Corporations exist in order to limit the liability. That means if a corporation by its actions burns down your house, it pays until it can't any more, desolves and that is the end of it. The intend of allowing corporations has always been to limit other rights that an individual might enjoy in exchange for that limited liability.
*** I'm aware that there are limitations to what I say (i.e. personal bankruptcy, etc.), but at least that is the principle. Adn there is also chapter 11 bankruptzy for corporatiosn on the flip side.
* Now the owner's or managers (officers) of a corporation are not the corporation. They can enjoy the benefits of the corporation (collect the profits) as long as everything goes well, and wash their hands in the limited liability if things demage somone elses property or rights. That means the owners and officers of the corporation keep their dividends, salery and bonuses they have gotten while the compoany ran a profit (and at the same time did the demage, like spoiling a river or endangerign people with unsafe drugs). When it is time to pay the liability they are sacked and start over with a new corporation. At least owners do loose their interest in the corporation, while managers move on to the next gig.
* Coporoations consisting of people is very true, but "consist of" is not the same than being people. In a corporation the people are very different. Typically management makes 30 times and more in saleries and bonuses then the folks that are employed at will. I leave the disparity of power as an excercise for you.
* Cities and Towns consist of people too and they can actually be considered the people, as they democratically rule themselves.

Corporations and their managers want you to believe they are citizens so they can enjoy the rights of free speech, buying polititions in their favor, etc. But that is not the truth. Read your constituion for a change.

RE: America's Own System
By AEvangel on 3/31/2011 12:23:27 PM , Rating: 5
The ability to operate at a loss and pass laws intentionally to prop up your own business while punishing others is why a free-market capitalist system frowns upon the government (be it Federal, State, or Local) from owning businesses that compete in the private sector.

A TRUE free market system doesn't frown upon Govt, it has no need for it...since a true free market system would have real competition. That would provide the services better and cheaper with each passing competitor, thus people would never turn to their Govt to provide the answer simply because the free market would have already provided it. But in case here the Govt has allowed a monopoly/duopoly strangle hold on the services and not allowed true competition to exist.

RE: America's Own System
By mdogs444 on 3/31/2011 1:48:04 PM , Rating: 3
Very true. But adding more government intervention to solve a problem of too much government intervention doesn't make much sense, does it?

RE: America's Own System
By Firebat5 on 4/3/2011 12:05:09 AM , Rating: 2

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