Alex Milan Tracy/Sipa USA via AP Images
People demonstrate for municipal internet outside City Hall in Portland, Oregon, January 14, 2018.
Doug Seacat, founder of the Ridgway, Colorado–based IT consulting company Deeply Digital, got a call several years ago from one of his biggest clients. CenturyLink, the only internet service provider in the region, initially said it could provide him a high-speed fiber connection, but then decided it couldn’t.
Though Deeply Digital wasn’t in the fiber business at the time, Seacat decided to run a fiber line for his client. That was the spark for a new company, Clearnetworx, which would offer fiber and wireless internet service in an area where poor internet connectivity was the norm. He wanted Clearnetworx to connect the entire 1,000-person town of Ridgway. What he didn’t consider was that state broadband programs are focused more on protecting incumbent providers.
Small towns on Colorado’s Western Slope face high costs to build the local network and interconnect it to the larger internet. They also don’t contain enough population to make a startup broadband provider’s business model work without some kind of subsidy. Colorado had created just such a program.
Biden has centered nonprofit municipal and cooperative business models in his plan to both connect rural areas and bring competition to areas stuck with monopolies.
Seacat’s team worked deep into the night filling out the necessary paperwork to be considered for a $1 million grant. They were thrilled to be informed they were awarded it, until they ran into a buzz saw embedded in government bureaucracy known as the “right of first refusal.” That gives existing providers an opportunity to veto potential competition, and to our knowledge, every state with a broadband grant program has one.
CenturyLink, which now operates under the name Lumen, didn’t just kill the Clearnetworx grant, it actually took most of it over. Despite already receiving $3 billion from the federal Connect America Fund to upgrade rural connections, CenturyLink added $800,000 from Ridgway to its impressive tally of government subsidies.
But while the state gave the award to CenturyLink, it did not require the same high level of service. Clearnetworx had planned to use the most reliable technology available, fiber to the home; CenturyLink chose to modestly upgrade its older, slower, and less reliable DSL technology.
So Clearnetworx did the work to get the grant, CenturyLink took the money, and the people of Ridgway were still stuck with slow internet access, and no real choice in providers.
When President Biden announced his plans for broadband in the American Jobs Plan currently being crafted, he declared his intention to end all that malarkey. The plan is already creating jobs inside the Beltway, as cable and telecom monopolies staff up to convince Democrats that they should focus more on rural investment and less on the announced “price transparency and competition” goals. Taking a page from FDR’s stunningly successful electrification effort that centered on cooperatives, Biden has centered nonprofit municipal and cooperative business models in his plan to both connect rural areas and bring competition to areas stuck with monopolies. This would spur investment and competition in a public-policy area that monopolists have long controlled.
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Money for Nothing
Most broadband subsidy programs, whether at the federal level or in the states, are designed to ensure they do not upset the big cable and telephone companies. It starts by restricting who can benefit from the subsidies.
In California, like many other states, only the most remote rural areas—with connection speeds slower than 6 Mbps down and 1 Mbps up, in that case—are eligible for grants. This excludes many rural towns and regions that desperately need modern service. And most broadband subsidy money goes to giants like AT&T, CenturyLink, and Frontier, which reap billions in subsidies despite doing the worst job of connecting their customers. These providers can afford to take their time upgrading services and keep prices high, because their potential rivals cannot get a subsidy to build there.
This is how the federal government can spend tens of billions of dollars on broadband without materially improving access for 95 percent of the population.
Meanwhile, the unreliability of federal data on broadband availability or speeds gets in the way. Federal maps show no problem in places like Ridgway, for example, even if the networks have regular outages. Millions of households may have a connection that appears to be sufficiently fast, but still cannot always support a Zoom meeting. That might change once Biden gets his majority seated on the FCC. But for now, towns with unreliable, slow cable are denied the support their residents and businesses need for better access.
Most broadband subsidy programs, whether at the federal level or in the states, are designed to ensure they do not upset the big cable and telephone companies.
The broader problem is that U.S. government policy does nothing to promote competition. According to the FCC’s flawed broadband maps, 28 million households have only one internet service provider offering at least the minimum broadband speed. Many of the supposed competitors are phantoms. And the number of households in areas with more than one ISP offering gigabit speed service is paltry. Only two million households have that choice, or maybe many fewer—the FCC doesn’t really know at any granular level.
It wasn’t always this way. Back in the 1990s, there were thousands of providers offering access, with many metro areas having vibrant competition between more than ten providers. Competition in the dial-up era flourished because all ISPs had to get a connection to the internet and buy a bank of modems for their customers to dial into over the telephone network. As technology advanced, the big telephone companies no longer had to share advanced parts of their networks, ensuring that small ISPs could not offer faster speeds without massive capital investments that were largely beyond their capacity.
Within ten years of the passage of the Telecommunications Act of 1996, most Americans were left having to choose between DSL from the telephone company or cable modem service from the one cable company in their area. Cable monopolies were eventually able to get the most broadband subscribers, because the cost of upgrading copper telephone lines was too great for phone companies to remain competitive. Cable was more expensive but offered much better connections, driving demand.
Today, internet access has been largely monopolized by a few big cable companies, even as voice and television services have become more competitive. Government officials have generally responded by seeking to remove barriers to competition, rather than embracing more deliberate pro-competition policies to better shape the markets. But that may be coming to an end.
Deregulation Isn’t Pro-Competition
Most Republicans and many Democrats have framed broadband much like Ronald Reagan would: Get government out of the way, remove regulations, and let too-big-to-fail incumbent providers bridge the digital divide.
A favorite target is public rights-of-way—every street plus about ten feet of land on each side where utility poles or underground utility lines are located, and where internet service providers attach or bury lines and equipment that transmit internet data. Most rights-of-way are managed by local governments, and the companies in that area pay fees to compensate for using public facilities and to fund inspections. The big companies are constantly trying to shift those costs onto others, and they’ve found sympathetic ears within government to reduce these fees.
But even after decades of trampling local authority over rights-of-way, there is no evidence that these “savings” have led the big incumbents to invest in better broadband infrastructure, or created competitive options most Americans want to get affordable and reliable high-speed internet access. R Street, a right-leaning think tank, compiles a broadband scorecard of states that have adopted industry-friendly policies, often interfering with local right-of-way decisions. There is no correlation between those policies and better internet access.
By contrast, North Dakota has some of the best rural internet access in the country because its co-ops and local ISPs have built fiber networks across 75 percent of the state. It failed the R Street scorecard, but Arkansas got an A, despite being one of the worst states for broadband. Arkansas is now poised to turn that around because of rural electric cooperatives and municipal networks, not because of anything relating to right-of-way or other regulations.
In short, the barriers to competition and investment tend to be the big ISPs, and the games they play as powerful incumbent providers. Focusing on deregulation when Charter Spectrum or AT&T can use their market power to squash rivals six ways from Sunday is like arriving at the emergency room with a gunshot wound, only to have the doctor focus solely on the toe you stubbed last night.
Competition and Affordability
Shortly after the 1996 Telecommunications Act passed, which was meant to enable public power systems building local broadband networks as a source of competition, the big monopolies began trying to ban community networks in state legislatures. But despite rules blocking or restricting public options in 18 states, more than 550 communities have built their own fiber networks. Counting older cable networks that are now being upgraded to fiber, some 200 communities have a municipal broadband option citywide.
Municipal and cooperative approaches are a key part of the Biden administration’s proposed American Jobs Plan. It specifically calls for prioritizing “broadband networks owned, operated by, or affiliated with local governments, non-profits, and cooperatives—providers with less pressure to turn profits and with a commitment to serving entire communities.” It also requires getting rid of “barriers that prevent municipally-owned or affiliated providers and rural electric co-ops from competing on an even playing field with private providers, and requiring internet providers to clearly disclose the prices they charge.”
This will require money to allow faster build-out for co-ops and public broadband. Federal dollars from the CARES Act and the American Rescue Plan can encourage competition, because the monopolies didn’t have the opportunity to stuff them with limitations. More communities and the federal government must be willing to put skin in the game to solve these problems now.
Republicans have voted in near lockstep in D.C. to oppose municipal broadband, and have even proposed effectively banning municipal networks in a package of telecom bills. At the same time, all the Republicans in the Arkansas state legislature and the governor decided to remove their state barriers against those community networks, in a bid to increase investment in much-needed broadband.
Governments can do more than rely on public utilities and co-ops, however. One municipal broadband model is open access, which generally involves communities building the expensive parts of the broadband network and then leasing it to private or public ISPs. This approach re-creates the innovative dynamic of the dial-up era. However, it works best when the capital cost to build it is subsidized—exactly how our government finances roads. That approach roused limited enthusiasm until recently, as many more people have recognized the importance of universal access and adoption.
Broadband monopolies and their allies have a pat response to encouraging competition: They call it “overbuilding.” They argue that it wastes taxpayer dollars to bring additional investment to areas where an ISP already claims to offer some level of service. Everyone agrees that the FCC doesn’t have a firm grasp on broadband availability and speeds, making it impossible to verify ISP claims of basic service, but the “overbuilding” argument persists.
Testifying before the Senate Commerce Committee in March, former FCC Commissioner Mike O’Rielly argued that federal subsidies were “impeding private sector broadband efforts and potentially threatening the viability of smaller or mid-sized companies.” Welcome to the upside-down, where the threat of competition in a supposedly competitive market could ruin competition.
The Benton Institute for Broadband and Society has offered some innovative solutions, like ensuring broadband infrastructure like conduit and fiber are put into roads when they are rebuilt, ensuring more spectrum is available for newer ISPs, or preventing landlords from locking out competition with cable monopoly marketing agreements. And the federal government can help by stopping the approval of so many mergers, giving so much market power to the big ISPs. All the Biden administration’s desire for competition will disappear if new market participants are allowed to combine.
For Broadband, Rural Is One Problem. Competition Is Bigger.
Politicians tend to stress the lack of high-speed internet access as only a problem in rural America. The last big federal investment in broadband was the Rural Digital Opportunity Fund. But, as school districts, parents, and students in major cities have come to realize during the pandemic, there’s a huge digital divide in urban areas as well.
Urban residents with enough money almost always have high-speed internet options, but companies like AT&T have avoided investing in low-income areas. Struggling families in areas that haven’t been upgraded in more than 15 years still had to endure price hikes, and continue to pay the same prices as families in the suburbs that have much faster speeds.
Community broadband advocates and many small private ISPs say the solution is to build local networks that can compete with the big providers while also connecting low-income households. The track record isn’t perfect. Some communities have screwed it up, and more have struggled with dirty tricks from the monopolies and their lawmakers. But the dynamic has changed over the past year. State and local lawmakers are much more skeptical of the cable and telephone monopolies.
Last August, despite the odds against them and five years of delays, Clearnetworx built its fully fiber-connected internet network in Ridgway, Colorado. Ridgway residents can now get true gigabit connectivity for $110 a month with no data caps ($60 a month for a basic 200 Mbps package).
The folks in Ridgway are fortunate. Most communities don’t have a Clearnetworx stubbornly finding ways to build despite the odds. Colorado learned from that CenturyLink subsidy disaster and attached better conditions to its right of first refusal, but most other states haven’t.
The big fight now is in Congress and the White House. Democrats in D.C. appear ready for a showdown with the big telecom monopolies, while Republicans appear ready to push against efforts to actually create real broadband competition while defying the support of their base for local decision-making.
The Democrats will have to remain fully united against an extremely powerful monopoly telecom lobby to move this agenda forward. Prior to COVID-19, it would have been hard to imagine that happening. But state and local governments are much less afraid of one of the least popular industries in America. Perhaps Congress is next.
