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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: Behold the true face of the Republican party
By maven81 on 3/31/2011 12:16:45 PM , Rating: 3
"The bill was passed in the Senate by reconciliation (50 votes + Biden), and therefore filibuster had no effect."

The bill that ultimately passed was not the same bill that was originally put fourth now was it? It had to get quite a few things stripped out of it because the republicans would have forced the requirement for 60 votes to include a public option. Which incidentally is the same issue the article is talking about when it comes to telecoms... municipal internet was essentially a public option.

"You're right, the democrats are actively engaged in class warfare. Their solution for EVERYTHING is to tax the rich and redistribution of wealth. Every excuse in the book you can find - racism, sexism, sexual orientation, immigration status, etc - are all actively being used as excuses to increase taxes and create more entitlements for the 40% who do NOT pay taxes."

I don't know why people on this site keep spouting stuff when it can be verified in minutes. Show me one example of the current administration raising taxes on the rich. ONE. On the other hand, redistribution of wealth is exactly what we have with the republicans. What do you think corporate tax breaks are? That's money that's not going into the budget. Who do you think will have to pay for that budget shortfall? And funny, I could have sworn just the other day there was an article about GE not paying taxes... cry me a friggin river.

"Well, it hasn't worked out so well since 2008 has it? That was the argument against McCain is that he was just as liberal as Obama...a closet Rhino. In turn, we've been stuck with do nothing, hypocritical dolt who's only concern is taxing the rich, giving handouts to the black population, and telling everyone we should like Muslims."

Or it could have had something to do with the possibility of oh, I don't know, president Palin? And oh yeah, that McCain was real liberal, you know instigating a war with Russia over Georgia and all. As for the other stuff you said, seems to me this do nothing president just started a war in Lybia... something I don't support. He loves Muslims so much he decided to bomb them. Funny that. He also signed an extension of tax cuts for the rich... yeah, that taxing the rich thing is going really swell.

RE: Behold the true face of the Republican party
By mdogs444 on 3/31/11, Rating: 0
By maven81 on 3/31/2011 4:41:10 PM , Rating: 2
"How about the tanning bed tax for one - not many poor people use a tanning bed. In fact, I'm pretty sure not many black people use that either, no?"

You have figures to back that up? According to the tanning industry itself this effects an estimated 28 million people. You're seriously going to tell me that most of them are rich?

"How about we look just at his proposed 2012 budget in terms of taxation?"

Congratulations on simply pasting NRCC talking points. There's only one problem... This is a proposed budget, which as of right now means absolutely nothing. We haven't even passed the budget for this year yet!
Second, if you actually read the budget, instead of cherry picked propaganda you'd realize that this is simply dishonest. It's the result of letting Bush's old tax cuts expire. Tax cuts that were supposed to expire anyway but got extended... by the democrats.
Frankly I WISH they'd increase the rates to the levels they were under clinton. They haven't done that, that's the whole point. Also why anyone making less then 250,000 would see this as a bad thing if it actually was true is beyond me.

"I'm not sure if you're being naive, or if you're really that obtuse. Corporations DO NOT pay taxes. How many times do people have to say it? If you increases taxes on a corporation, all they do is increase the price of the products to offset it, forcing the tax increase to be paid by the normal middle class consumer."

Now that is just precious. Of course they pay taxes. (Unless they find loopholes or receive tax breaks). You're seriously arguing that we should make them not pay any taxes because they might raise their prices and take it out on the consumer? And you call me a moron?! You want us to live like hostages?

"A tax on business is nothing more than a tax on the middle class employee - no matter how you spin it."

Don't be stupid. By that logic a tax decrease to business would mean instant savings to the middle class. That obviously doesn't happen no matter how many times trickle down fanatics like you repeat it. Businesses can raise their prices at any time for any reason.

"You really are a moron. The people who pay for the products are the same ones who will pay for the budget shortfall."

They will pay alright! But not for the reason you state. Let me explain this simple concept since you obviously don't get it... The government takes in less tax money from big business because they gave them a tax cut. They now have a budget shortfall. But the government still needs that money to function. They have only two choices, spend money they don't have (creating a bigger deficit), or raise taxes on everyone else (who is not big business) to cover that income disparity. Of course if the government is really retarded (like say you're the governor of florida) you can increase your deficit by giving tax breaks, while at the same time redistribute the wealth, redirecting say your education budget to those tax cuts for business. Now you have shittier schools, and you STILL have a deficit. Brilliant stuff.

“Then they pop up and say ‘Hello, surprise! Give us your money or we will shut you down!' Screw them. Seriously, screw them. You can quote me on that.” -- Newegg Chief Legal Officer Lee Cheng referencing patent trolls

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