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« Anaheim Wi-Fi Starts Tests in April | Main | Another Blast from the Past: First Fon, Now Wibiki »

January 5, 2006

Municipalities Forced into Broadband Business

Robert McChesney and John Podesta explain the historical underpinnings of why towns and cities are being forced to build their own networks: The authors explode the myth of existing competitive services for broadband in the places where municipal wireless is taking hold. Their "Let There Be Wi-Fi" essay points out how advanced other developed nations are in terms of broadband--a familiar point--and they note that we will be disadvantaged just as urban centers with early electrification beat out their rural neighbors who lagged. They note that Japan, with its robust competition, high broadband speeds, and low prices also encourage community networks.

They find an excellent example of competition in Scottsburg, Indiana, where three employers in the town of 6,000 threatened to leave because of the poor communications infrastructure. The mayor asked the incumbents for help and was rebuffed. The city built a wireless network. Here's the key sentiment: “Scottsburg didn't wake up one morning and say, we want to be in the broadband business,” Graham told PBS. “Scottsburg had business and industry that was going to leave our community because what we had was not fast enough.” Scottsburg's investment worked—the employers stayed.

I've heard this story across the country. Tacoma, back in the mid-1990s, was only slightly ahead of the former East Germany in the speed of getting a new phone line (18 months wait in 1995). The city tried to get US West and TCI to agree to invest, and couldn't. The power utility built a fiber optic/coax hybrid network that sells wholesale, neutral Internet access with several competing ISPs offering service. Their cable offering spurred enormous competition, extending service and offerings. Comcast even thanked the city in a newspaper article two years ago for forcing them to upgrade facilities and compete for customers.

On the public subsidy front, McChesney and Podesta hammer home the point that incumbents, while often saddled with additional regulatory requirements than independent startup wireless operations, also eat at the public trough: ...the cable and telephone giants don't mention that their own monopolies—which control 98 percent of the broadband market—have been cemented with extensive public subsidies, tax breaks and incentives (as well as free rein to tear up city streets). Verizon, for instance, didn't complain last fall when Pennsylvania handed them subsidies for broadband deployment worth nearly 10 times what Wireless Philadelphia will cost. Neither did Comcast object when Philadelphia approved a $30 million grant to build a skyscraper that will house its headquarters.

This is a key point to remember: Competition means public dollars underwriting incumbent providers in the incumbents' books.

Because of these kinds of arguments, the plans for municipal networks have changed considerably since Philadelphia's announcement. New RFPs typically offset risk to eager private enterprises whose get no public subsidy, although they may receive quasi-exclusive access rights for mounting equipment, and may also get the city's telecom and data budget--moved from an incumbent provider in most cases.

Their conclusion is a doozy and a winner:

Simply empowering local governments and community groups, in coordination with private entrepreneurs, to provide universal affordable, broadband may be the single best thing we can do to make America the pre-eminent economy—and democracy—of the 21st century.

If incumbents want to step up to the plate, create universal accessibility at affordable rates, and push overall speeds up, they are more than welcome to. The fact is that if private companies are eager to bear all the risk of building municipal networks, there's money in them there cities and the incumbents' shareholders should complain that the companies are spending too much time on failing rearguard actions instead of embracing the inevitable.