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.