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December 2, 2004

Municipal Network Story Has Legs

The Pennsylvania law requiring municipalities to get approval from telcos to build their own for-fee networks just keeps spawning more reporting and writing: Coverage of the bill's progress to law has certainly reawakened a broader interest in the impact and extent of these laws, along with the telcos and cable companies involvement in suppressing local exchange competition.

A letter to The Inquirer from an attorney involved on the municipal side of the equation for utilities disputes whether Philadelphia should build its own network. He makes interesting points about Philly's own abilities and its own anti-competitive behavior. If Philly bid out to have a private contractor--a CLEC, even--build and operate a vendor-neutral network, this would probably answer three of his four concerns.

Jim Hu reports at about the marketing and lobbying carried out by telcoms to crush efforts to build local data, cable, and telecom networks. The article cites incumbents talking about how investments in infrastructure and operations are gambles for local municipalities, while they're proven business initiatives for the operators--even as the operators claim unfair advantages in costs to municipalities. That's a contradiction I'd like to see resolved. They seem to point to inexperience as the issue, but municipalities are typically contracting services to established players, some of whom build out on contract for operators.

Operators may be pulling the teeth out of municipal services to avoid the pressure of having a faster timetable to provide cost-competitive service as the story's concluding graf tells a lesson: "We only got cable modems last spring after the cities began making noise about building our own utility," said Peter Collins, Annie Collins' husband and the director of information technology for the city of Geneva. "The big part of what that proved to us is we scared the hell out of them and all of a sudden proved we don't have to rely on them for our telecom future."

Finally, the Washington Post rounds up municipal networks nationwide, focusing on the consumer rights that various legislation appears to have forestalled, according to consumer advocates. They note that these bills put control in the hands of corporations rather than, say, a public utility district or citizens or elected officials. The Supreme Court has upheld that municipalities can't control their telecom destinies if higher entities, like the state, tell them not to.

The existence of successful projects nationwide for cable, voice, and data seem to belie the contention that the incumbent operators are making. The more successful projects that roll out and offer services that incumbents weren't planning on introducing or that go far beyond those services, the harder it will be to make a compelling argument that cities can't run their own services for the benefits of their own citizens.


I'd like to point out this topic has been covered extensively by and for years now. Both have been trying to wake people up to the fact telcos are refusing to serve them, then banning them from serving themselves.

While I'm glad the media has stopped giving Google back-rubs and is waking up from its nap on these bans, maybe they could have helped shed light on the practice before dozens of these bills were passed???

I've been involved in municipal telecom projects for the past five years in Minnesota.

As a former City Administrator and now telecom consultant I have seen both sides of the muni vs. private provider telecom debate.

Minnesota expressly allows municipal telecommunication ventures. It is a legal resource that cities (and providers) in this state don't take lightly.

One of the first arguments made by private telecom providers opposed to muni telecom projects is the muni networks are "subsidized" by the government and that constitutes an unfair advantage.

In Minnesota, subsidization of municipal telecommunication ventures is forbidden by state law. Separate books, charge backs and fair lending practices must be part of any muni telecom initiative.

Secondly, and more to the point, the phone companies have the story completely backwards.

It is the ILECs, CLECs and wireless providers who have been and continue to be subsidized by the government.

This country's phone system was originally built with taxpayer’s money (grants and low interest loans).

Today, phone companies receive hundreds of millions, if not billions, of dollars each year in Universal Service Funding that comes from the people and through the government.

(One could even argue that many of the advances in telecommunications technology over the past 100 years has been the direct or indirect result of government spending, either by the industrial military complex or land grant educational institutions.)

One wireless provider in our state complained (tongue in cheek) to me last year that they had just received their first USF check and had to find a way to spend $40 million in the coming fiscal year. $40 million is quite an advantage.

The USDA's Rural Utilities Service offers low interest loans to providers which, up until a few years ago, municipals were barred from accessing.

Phone companies have enjoyed the benefit government subsidization for so long that I think they really believe it is their money.

So for phone companies to argue that Munis have an unfair advantage because they are subsidized is inaccurate. It is the phone companies who enjoy the subsidization advantage.

The only real advantage that municipals have is that the folks who manage muni networks (elected councils and utility boards) must live in the same town as their customers and are especially sensitive to and therefore spend a great deal of effort providing better-than-the-rest customer service.

Customer service is something the many of the large phone companies don't do very well. Good customer service is an advantage for any enterprise, be it public or private.

Phone companies also subsidize across their exchanges, using personnel and equipment as well as revenue to soften the impact of competition. One phone company representative told the Minnesota Public Utilities Commission a few years back that if one of their exchanges faces competition from CLECs and cable providers, they can afford to lower their prices and lose money in that exchange because profits from other exchanges that don't face competition can be used to make up the difference.

Municipals networks cannot do that.

The big phone companies need to take a page from their smaller cousins in rural Minnesota. The smaller rural ILECs are incredibly innovative and cutting edge in their approach to providing advanced services. In the boonies of Northern Minnesota, people can get voice, video and data from their rural phone company for less than a $100 a month total.

I'm in favor of municipals being able to get into the telecom game. But I'm also in favor of municipals and private providers working together to meet the technology needs of the future for everyone.

The other issue mentioned in your post is the increased risk to taxpayers with municipal networks. That's also an interesting argument and one I could spend several paragraphs clarifying. Without going into detail, suffice it to say that phone companies have built and will continue to build projects that ultimately do not meet corporate expectations and fail. Those financial losses are not just "absorbed" (shareholders won't stand for it). Instead those losses are mitigated through increased rates and fees for services.

The real issues for incumbent telecom providers isn't that munis are unfair competition; it's that munis are competition in general.

If I ran a phone company today was faced with competition from a municipal network I would probably scream bloody murder about unfair competition through subsidization and risk to taxpayers. It's not a new tactic.

Remember what happened just a few short years ago when phone companies were faced with the prospect of having to sell CLECs with unbundled network elements at wholesale prices. They cried unfair competition and fought the CLECs by a process of disinformation, delay and obfuscation . . . generally they unleashed a hoard of lawyers to effectively get parts of the 1996 Telecom Act changed in their favor. Much the same approach is under way today.

State and Federal regulators need to understand and remember that competition is ultimately good for the marketplace and therefore good for consumers.

We all need to remember that in the end the goal is to give everyone access to affordable (and profitable) advanced telecommunication services. If we can accomplish that, then the entire country wins. The United States doesn't lead the world in high speed access penetration among the masses. We do, however, seem to the lead the world in arguing and fighting about how to accomplish that goal.