Municipalities Dream Big on Broadband

Municipalities Dream Big on Broadband

Major internet service providers are on the defensive as smaller communities strategize to take their internet future into their own hands.

August 19, 2016

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For most Americans, it’s hard to imagine going even one day without using the internet to find information, play games, or work. But for residents of rural areas with marginal or no internet access, the simplest task becomes a major chore. Farmers in rural Minnesota may drive miles to upload crop data. Students in the Tennessee countryside may go to a church to download notes for a biology class.

For years, nearly 40 percent of people in rural America have been saddled with slow internet speeds and no opportunity to get broadband internet services which provide fast connections. Yet internet service providers (ISPs), such as AT&T and Verizon, that can’t turn enough profit from rural investments have also made it almost impossible for competitors to provide alternatives. With the assistance of groups like the conservative American Legislative Exchange Council (ALEC), a network of state lawmakers and corporate officials, they’re spending millions of dollars lobbying for laws that bar municipalities from implementing alternative services.

Local governments have been fighting back by building their own municipal broadband networks, and in some cases, using a new technology that facilitates more private competition and innovation. In 2015, the Federal Communications Commission issued an order preempting state laws that prevented two municipalities, Chattanooga, Tennessee, and Wilson, North Carolina, from setting up their own broadband networks. Tennessee and North Carolina officials responded a few months later by suing the FCC.

But the Sixth Circuit Court of Appeals recently sided with the two states and the telecommunications industry. The decision could be a setback for communities across the country that have invested millions of dollars in laying fiber optic cables, providing internet service on these networks, or working with smaller private service providers.

The fight pits local officials, small entrepreneurs, and state legislators against the giants of the telecom industry and their multimillion-dollar lobbying machine. As these conflicts continue in communities and courtrooms, the battle to determine who owns and operates the internet in rural America may be a long one.

 

The ongoing struggle over rural internet access prompted five U.S. senators to launch a Senate Broadband Caucus in early July. Pointing to the millions of rural constituents without access to high-speed internet, the caucus hopes to expand quality broadband across the United States. Maine Independent Senator Angus King noted at the launch of the new caucus that arguments against rural broadband access are reminiscent of opposition to the 1936 Rural Electrification Act, which lit up rural America. “Failure to provide broadband to rural areas of America is a death sentence for those communities,” he said.

The conflict over rural access has its roots in the Telecommunications Act of 1996, when Congress required the old telecom industry giants to unbundle their infrastructure from their communications services and allow other companies to offer services on the established networks.

Entrepreneurs like Robert Peterson saw opportunity in the FCC order. The Idaho Falls engineer had been a member of an Idaho National Engineering Lab team that the U.S. Department of Energy enlisted to transmit information using the internet from the Idaho-based labs to the Energy Department in Washington. Then in 1996, Peterson and two other engineers started an internet service company in Idaho. Called SRVNet, after Idaho’s Snake River Valley, the company relied on US West, the former regional Bell operating company now known as CenturyLink. But according to Peterson, SRVNet couldn’t secure the resources they needed from US West, such as the T1 lines that larger businesses used and the start-up went under.

AP Photo/Toby Talbot

A.J. Bowen of Schupp's Line Construction, Inc. works on fiber-optic installation in rural Vermont. 

Smaller companies like SRVNet couldn't compete with telecom giants. US West “could prevent us from being innovative simply by not providing facilities to us,” Peterson says. “We were captive to the organization that was providing the infrastructure for us, but also happened to be in competition with us on the service.”

Today, there are also concerns about access to broadband networks for content providers. As the internet grew, the major telephone and cable companies started acquiring media networks and web content providers. Some of these early mergers included Comcast’s acquisition of NBC Universal and Verizon’s acquisition of AOL. Now that they owned the infrastructure and the content these new vertically integrated companies now turned to blocking or slowing down popular web streaming services or other websites owned by their competitors. Comcast came under FCC scrutiny for exempting the company’s own television streaming service, Stream TV, from the data limits it imposed on its subscribers who might also want to use other independent streaming services like Sling TV.

Established internet service companies also wanted to charge content providers higher rates for faster service known as “paid prioritization.” The content providers, crying foul, demanded net neutrality, which would ensure a level playing field: The media giants with bigger budgets would not be able to buy faster speeds for their content than smaller companies. Net neutrality is also important to consumers who want access to diverse content. Democracy advocates led massive street and online protests across the country demanding the FCC prevent ISPs from determining what internet users can or cannot view or upload.

In 2015, the FCC’s new Open Internet Order reclassified internet service providers as “common carriers” (entities subject to regulation) instead of “information services” (not subject to regulation). At the same time, the FCC also preempted the North Carolina and Tennessee laws that restrained municipalities that were offering broadband access as part of their utility services.

“Broadband in my view is no longer a luxury, but has become a necessity,” says Tennessee State Representative Dan Howell, Republican whose district surrounds Chattanooga’s Hamilton County, in an email. “Rural residents are losing ground on education, business and economic development, medical research, and much more.”

 

Much of rural America has been stuck with inferior infrastructure or weak wireless connections, delivering speeds about 30 times slower than the national average, mainly because of efforts to suppress competition. Ninety-seven percent of Americans have access to just two internet service providers.

In 2006, the government of Wilson, North Carolina, asked the two companies serving the area—Embarq (which merged with CenturyTel in 2008 to become CenturyLink) and Time Warner Cable—to provide a high-speed network that would connect their electric utility and homes with fiber optic cables. According to a report from the Institute for Local Self-Reliance that cited city officials, TWC representatives “literally laughed” at an idea they deemed unprofitable.

That prompted Wilson to look for other options. Later that year, the city approved a $28 million bond to build their own network enabling automatic meter reading and other “smart grid” capabilities. “It was a very exciting time,” says Will Aycock, the general manager of Greenlight Community Broadband, which provides internet access in Wilson.

Local Wilson companies like Computer Central, which offers cloud services for data storage and other communications applications, championed the expansion of the city’s fiber network because they could market their services to potential customers just outside the reach of Wilson’s fiber network.

Telecom industry representatives say that while municipal efforts to build infrastructure in “unserved” areas is fine, local governments shouldn’t use taxpayer dollars to create municipal networks that compete with private ones. But cities and towns have been paying off the debt incurred from building those networks with revenues generated from local broadband subscribers.

At the same time, the FCC channels $4.5 billion to providers like AT&T—a cost passed on to customers in the form of fees on their monthly bills—through what’s called the Universal Service Fund (USF), which is supposed to help those companies expand access for rural and low-income Americans. But the companies are not expanding to these areas quickly enough, since it’s more expensive to service those areas. In 2011, a Technology Policy Institute study showed more than half of USF funds given to companies to provide telephone service went toward paying overhead expenses.

Tennessee State Representative Mike Carter, a Republican, rejects the distinctions company officials make between the fees that provide money to the USF and using tax dollars to invest in municipal networks. He points to $428 million ($26 million in Tennessee) AT&T alone will receive through the USF over the next five years. “That’s not capitalism,” says Carter, who voted in March for a pilot program to extend the reach of Chattanooga’s broadband utility beyond its county borders. “That’s crony capitalism.”

He also doesn’t swallow the industry argument that building infrastructure in places already covered by the private sector is an inefficient use of funds. “That’s competition,” Carter told an AT&T official at a hearing of the Tennessee Advisory Committee on Intergovernmental Relations last October. “If they [municipalities] want to ‘overbuild,’ that’s their business, isn’t it?”

Building new networks isn’t just about simply providing access to unserved areas; it’s also about providing better internet speeds in what AT&T calls “underserved” areas, where download speeds can be as slow as four megabytes per second (with a connection that slow, forget about streaming movies on Netflix). “Expanded broadband is not just getting service to an unserved area. There are a lot of underserved areas,” said West Virginia Republican Senator Shelley Moore Capito during the Senate Broadband Caucus launch in July.

The high-speed networks being built by local governments generally start at 100 megabytes per second, which gives users reliable video conferencing and a host of other services only available to residents and businesses with faster connections. “The speed becomes extremely important in order for us to realize that for every $5 billion you have invested in broadband, 250,000 jobs could be created,” she said.  

Free Press/Free Press Action

In 2011, a Technology Policy Institute study showed more than half of Universal Service Fund—a monthly fee levied by providers to help them expand into rural areas—went toward paying overhead expenses.

While the Communication Workers of America has cautioned the FCC against supporting municipal broadband, citing a preference for cities working with union employers like AT&T, the union also pointed to deregulation and a lack of competition as disincentives for the industry to invest in high-quality networks or to provide lower prices and better service.

For more than 150 communities across the country, a core benefit of building their own networks is the ability to separate the infrastructure from the private ISPs. The city of Westminster, Maryland, has hired Ting, a private company, to operate its network of fiber optic cables and provide servers for internet access. If city officials decide that they no longer want to use Ting, they can look for another company to operate its network. But the city still owns the valuable infrastructure that it financed and built.

 

After being spurned by US West in Idaho, Robert Peterson realized that his main goal should be to try to separate internet services from the infrastructure. In 2008, he co-founded a software company Entry Point Networks (EPN) based in Utah which cities and towns can use to allow multiple internet or other service providers equal access to the municipal infrastructure.

“We do not distinguish between a provider and a subscriber,” says Bruce Patterson, the technology director for Ammon, Idaho, which partnered with EPN in 2010 and uses its technology on the fiber optic network the city has built. “To us, any user of the system is the same, and they pay the same rates.”

Some see this open-access-friendly technology like the EPN software as paving the way for a future in which all devices are connected—everything from a blender to heavy machinery to operating-room robots—in what experts call the “internet of things.” “It means 15 years from now, we could have doctors in sophisticated urban medical centers using robotics to do surgeries in remote rural areas,” says Jeff Christensen, EPN’s president. EPN’s software would also allow a subscriber to switch between service providers with the click of a mouse.

 

Across the country, more people are turning to streaming services like Netflix and “cutting the cord” to cable and telephone giants that “bundle” their old services with internet access. Subscription television services are tied with ISPs as the lowest-ranked of 43 industries in the most recent American Customer Satisfaction Index. In June, Missouri Democratic Senator Claire McCaskill’s staff looked into Time Warner Cable training manuals, which instructed the company’s “retention agents” (a special brand of customer service representatives) to “do the opposite of what the customer is calling for. If the customer is calling in to cancel, your goal is to not cancel the services! And if the customer wants to lower the bill, you’re going to try to avoid that, and perhaps even raise the bill!”

For Ammon residents, the best thing about the city network is that they will have more choice. Steve Taylor, who is retired, looks forward to the city’s network coming to his neighborhood. “They wanted me to pay for a box for each TV we had in the home, and that was ridiculous,” he says about his current cable provider. “If I wanted movies, I paid extra, if I wanted sports, I’d pay even more. I’m just tired of playing their game.” Another Ammon resident, Jeff Klinger, says the ultimate user experience would be having “a menu of services and be[ing] able to pick things that I do or don’t want.”

Ammon created a local improvement district where more than 200 residents have opted into financing their access to the city’s fiber network by paying it down through a small fee on their individual mortgages, an estimated $17.50 extra per month.

In 2015, the city of Ammon and EPN met with CenturyLink, the established ISP in the area, to discuss having the company join the municipal network. According to Christensen, CenturyLink representatives expressed concerns about modifying their billing and customer-tracking systems, because Ammon would require the company to forego annual subscriber contracts and allow users to switch between communication-based services, including those providing internet access, more like they would between smartphone apps.

In its most recent annual report filed with the Securities and Exchange Commission, CenturyLink acknowledged the threat municipal broadband networks pose to their revenues. In an email, a company spokesperson said that CenturyLink had “no plans at this time to use the municipal [fiber] network” in Ammon. Meanwhile, Christensen says the area’s cable provider has expressed interest in joining the network.

Across the country, smaller companies are gaining traction alongside the emerging municipal fiber ecosystem: In the past four years, the number of smaller, private ISPs offering high-speed service has grown from fewer than ten to more than 60, according to the Institute for Local Self-Reliance. This does not include the 33 telephone and electric cooperatives that are also offering high-speed internet service.

“They [established ISPs] have created the demand for a public interest–oriented, local infrastructure,” says Mark Cooper, research director for the Consumer Federation of America. “The investor-owned companies have behaved in a terribly irresponsible manner, and so have brought all these movements down around their heads.”

 

The industry has ramped up its lobbying efforts to try and stem the proliferation of municipal networks. Nineteen states, including Tennessee and North Carolina, have imposed limits on municipalities that provide high-speed internet infrastructure. Those laws are largely based on industry-authoredmodel legislation” from the American Legislative Exchange Council.

In 2014, AT&T and Comcast alone spent more than $9 million in state-level races, according to Followthemoney.org. Large established ISPs also spend millions lobbying Congress, donating to campaigns, and giving to groups like the Republican Attorneys General Association (RAGA), which holds remote special events where lobbyists can mingle with office-holders and candidates over cocktails. Comcast, Time Warner Cable, Verizon, and AT&T together gave $145,000 to RAGA in 2014. In 2016, Time Warner Cable almost doubled its contribution, giving $49,000. Already this year, the National Cable & Telecommunications Association, the industry’s main trade group, spent $3.3 million lobbying Congress. During the 2014 cycle, it spent $17.5 million on lobbying activities and $2.5 million in campaign contributions.

In June, U.S. Court of Appeals’ D.C. Circuit had upheld the FCC’s 2015 net neutrality decision, but the issue of municipalities building their own networks remained unsettled and, for the moment, the Sixth Circuit ruling has put a damper on municipal efforts to bring the internet to unserved and underserved communities.

“What stands behind this whole debate is whether broadband access is like a utility,” says Tim Karr, senior director of strategy for Free Press, a democracy advocacy group that was at the forefront of the fight for net neutrality. “We’re beyond that debate. Local government, state government, and the federal government all have an obligation to ensure everyone has access to open networks.”

In the Sixth Circuit case, Tennessee and North Carolina argued that states have the right to manage their political subdivisions (in this case, municipalities). But the FCC pointed to the Constitution’s interstate commerce clause. “There’s always a tug of war between interstate and intrastate jurisdiction and interest,” says Cooper of the Consumer Federation of America, who is also a fellow at Stanford Law’s Center for Internet and Society. “The more you become part of a national and global network, the more the interest might be in having some sort of unified national policy.”

But the stakes are high for rural Americans looking to fully participate in the 21st-century economy. As long as the existing providers limit access to their infrastructure to potential service providers, innovation could suffocate. 

“Ammon is relatively unique in its commitment to empowering end users,” says Christopher Mitchell, who runs the community broadband program at the Institute for Local Self-Reliance. “They really don’t want to tell people how to use their network. They see this as the way to really spur innovation.” While companies like AT&T welcome more federal subsidies through the USF to build rural networks, they oppose the competition that would give more choice to customers dissatisfied with their current options for communication services.

Hillary Clinton has expressed support for increasing competition and innovation as a way to reinvigorate the economy. Clinton specifically highlighted Westminster, Maryland’s community broadband initiative in her technology plan. In a 2014 tweet Donald Trump declared that “Obama’s attack on the internet is another top down power grab. Net neutrality is the Fairness Doctrine.” He has had no more to say on the issue.

“This is Time Warner and the other big telecom companies not wanting to compete,” says Zephyr Teachout, a Democrat running for New York’s 19th congressional district seat. The Fordham University assistant law professor specializes in competition and the telecommunications industry. “The world I want to see is one where cable companies are investing in building out [their infrastructure] instead of investing in buying members of Congress and becoming better at lobbying,” she says.

Teachout believes that reversing mergers like the Comcast-NBC pact is the best way to restore healthy competition and foster innovation. “It’s a basic common-sense thing that a lot of political elites have forgotten,” she says. “If you allow large companies to dominate, they’re going to abuse that dominant position.”

Communities are finding different ways to assert their independence. Many of the state laws placing limits on municipalities that want to establish local networks, such as a 2005 Colorado law, allow residents to opt out of the laws through costly referendums. As of April, 67 communities in Colorado have voted to give telecommunications authority to their local governments, allowing them to build broadband and deliver access to it as they see fit—in some cases with as much as 90 percent of the vote.

The established ISPs have largely operated under the radar until now. But as more people recognize that the industry giants’ power is not based on free-market competition, those companies have good reason to be uneasy.

“It’s an exciting moment for an incredible new coalition of people—workers, people who need access to the internet, tech champions—all coming together to push out a really different vision,” says Teachout. “The big companies are running scared, and they should be.”

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