Cybertelecom Federal Internet Law & Policy An Educational Project

Municipal Broadband

History

[T]he Internet originated as a collaboration of government agencies and universities under the auspices of the Defense Advanced Research Projects Agency, a branch of the United States Defense Department. The Internet later evolved under loose management and financial support from the National Science Foundation with the Department of Commerce administering domain name registration. While the United States government later eliminated direct financial underwriting when it privatized the Internet backbone, few would argue that early underwriting and anchor tenancy exemplified an unnecessary or intrusive government involvement. - Rob Frieden, Best Practices in Broadband: Lessons from Canada, Japan, Korea and the United States 5-6 (July 24, 2004)

Rationales

Muni concern is legitimate

Municipal governments, as well as other policy-makers, have legitimate interests in ensuring constituents have access to broadband networks. Without broadband, a community’s ability to attract and maintain business, to offer critical public services and to provide opportunities to its residents is severely hampered... I am incredibly sympathetic to communities that lack broadband and have met with people from such communities within my own state and listened to their concerns. Their ability to educate their children, keep their communities safe and compete in the global economy is severely hampered. Every opportunity, including municipal ownership or sponsorship, must be evaluated. My fellow commissioner, Dustin Johnson, and I have pledged our assistance to look for ways to bring broadband to these communities. And, in some of these instances, public ownership or public-private partnerships may be the only option. -- Mr. Robert Sahr : SD PUC, State and Local Issues and Municipal Networks Senate Commerce Committee February 14 2006

Economics

Economic Growth

"Lake County has experienced a 100% increase – a doubling – in economic growth relative to its Florida peer counties since offering its municipally owned broadband network broadly to public and private entities. This growth rate is not a function of population growth – indeed, on a per capita basis, Lake County has experienced 128% growth over its peers since the municipal broadband network was built" - GEORGE S. FORD & THOMAS M. KOUTSKY, APPLIED ECONOMICS STUDIES, BROADBAND AND ECONOMIC DEVELOPMENT: A MUNICIPAL CASE STUDY FROM FLORIDA 15 (Apr. 2005) PDF

We find support for the conclusion that broadband positively affects economic activity in ways that are consistent with the qualitative stories told by broadband advocates. Even after controlling for community-level factors known to influence broadband availability and economic activity, we find that between 1998 and 2002, communities in which mass-market broadband was available by December 1999 experienced more rapid growth in (1) employment, (2) the number of businesses overall, and (3) businesses in IT-intensive sectors. In addition, the effect of broadband availability by 1999 can be observed in higher market rates for rental housing in 2000. - Lehr, Osorio, Gillet, Sirbu, Measuring Broadband's Economic Impact, Presented at TPRC 2005 (abstract)

Wireless Philadelphia Business Plan, p. 50 (February 2005) (Economic Development)

economic development, job retention, new-business attraction, and tourism; - Digital Community Best Practices, p. 3 Intel

In this paper, we explore whether broadband investment by municipalities has an effect on economic growth. To do so, we employ an econometric model to compare economic growth in Lake County, Florida, with other similar Florida counties. In 2001, Lake County – a small county in central Florida – began generally offering private businesses and municipal institutions access to one of Florida’s most extensive, municipally-owned broadband networks, with fiber optic connections to hospitals, doctor offices, private businesses, and 44 schools.1 Our econometric model shows that Lake County has experienced approximately 100% greater growth in economic activity – a doubling – relative to comparable Florida counties since making its municipal broadband network generally available to businesses and municipal institutions in the county. Our findings are consistent with other analyses that postulate that broadband infrastructure can be a significant contributor to economic growth. Our results suggest that efforts to restrict municipal broadband investment could deny communities an important tool in promoting economic development... It has been argued that municipalities invest in broadband
infrastructure to serve a diffuse “public purpose” (better educated public, more business opportunities, etc.) that private communications providers acting alone may ignore since these external benefits cannot be captured as profits. The Bureau of Economic Advisors estimates that for each $1 invested in broadband, the economy benefits nearly $3 – but unless a private communications provider can gain the lion’s share of that economic benefit, its incentive will be to under-invest in broadband infrastructure.12 Economic theory indicates that in the presence of large externalities, which broadband Internet
probably produces, public ownership of resources may be desirable.- George Ford, Thomas Koutsky, Broadband and Economic Development: A Municipal Case Study from Florida, Applied Economic Studies p. 1 & 3 April 2005

The city of Charleston is drawing up a contract with Mount Pleasant-based Widespread Access to blanket the peninsula with a wireless Internet network in an effort to boost economic development and increase computer literacy in poor households. - Charleston is going wirelessFrom Charleston Post and Courier, September 30, 2005

Broadband access has become essential to economic growth, education and health care. Affordable broadband keeps jobs and attracts new businesses. It gives children computer skills to succeed in college and the work force. It expands opportunities to benefit from telecommuting and breakthroughs in telemedicine. - Benefits of Community Internet, Free Press

Lack of Broadband

If communities are forced to wait for broadband services:
• Important economic development opportunities will pass them by for neighboring states and regions,
• Children will lose educational opportunities, and
• Health care will be more expensive and less accessible.
The Case for Municipal Broadband in Florida, Florida Municipal Electric Association p. 3.

Lack of Broadband as Impediment to Economic Growth

Faced with a bandwidth shortage that could decelerate economic growth, community leaders in Western Maryland are working toward a common goal: expanding a successful wireless network for county government into a “local loop” infrastructure that will deliver broadband services to virtually all of the area’s businesses and residences. - Western Maryland's Revolutionary WAN, Allconet2 Case Study p. 1

Waiting for private industry to act may be more costly than the price associated with building a public network. Communities that are not served by private providers forego economic development opportunities. These opportunities may be relocated to states with more thoughtful broadband policies or they may end up overseas in countries with more robust broadband policies.177 The loss of opportunity is not limited to commercial businesses. Communities without broadband will have less effective Internet access to offer students and the medical community. - The Need to Permit Broadband from Public Entities, Brennan Center for Justice at NYU Law School, p. 51 (May 2006) PDF

Tourism

See Alexandria (Old Town Tourist Area) Provided by City of Alexandria

economic development, job retention, new-business attraction, and tourism; - Digital Community Best Practices, p. 3 Intel

Wireless Philadelphia Business Plan, p. 50 (February 2005) (Convention Center)

Savings over Incumbent Provider Service

Proven successful as a business case, Allconet saves subscribers approximately $67,000 each month in carrier leased line services. “We don’t have any leased lines in our network,” Blank explained. “Our monthly telephone bill is basically zero, as far as the county is concerned. Without the wireless solution, it would be very difficult to afford Internet access in all of our schools.” - Western Maryland's Revolutionary WAN, Allconet2 Case Study p. 1

Transition from Old Econ to New Econ

“The world economy is moving rapidly toward an information-based economy. Many of the jobs we grew to depend on in the last century are gone – replaced by information-based jobs. These jobs are dependent upon the quality and capacity of our communications infrastructure, and are critical for our continued economic vitality.” - Opportunity Iowa: The Vote is In BroadbandProperties (Dec 2005) (quoting the Opportunity Iowa website).

Faced with the closing of its smokestack industries, Allegany County, like many other communities, wanted to try its hand at luring high-tech and biotech businesses that were fleeing the bigger metro areas on the Eastern seaboard. But without any kind of data infrastructure in place, attempts were futile. -Kevin Fitchard, Bridging the Cumberland Gap, Telephony March 18, 2002

Comparison to Fed Highway System or railroads

One city official says she fears that if the “broadband highway” passes her city by, just as the interstate highway system passed many by in the 1950s, her city might become a backwater. - Municipal Broadband Networks, Light Reading Oct. 2005

Broadband is a transformative technology for businesses and consumers. It offers important development opportunities to our communities – similar in many respects to the railroad in the late 19th Century. Communities that have universal and affordable access to broadband services will see economic growth, new jobs, better schools, improved health care, and a higher standard of living than communities without broadband. - The Case for Municipal Broadband in Florida, Florida Municipal Electric Association p. 2

Attract New Business

The Case for Municipal Broadband in Florida, Florida Municipal Electric Association p. 2 (telling the story of Big Ben Rebar that went to the local telecom provider TDS to get required telecom service, was unable to receive the needed service, and who was able to receive the required service from the municipality.

Andrade pitched the wireless network as a way to lure relocating businesses to the city and boost computer literacy in poor households- WiFi almost ready to fly, The Post and Courier (Dec. 31, 2005)

In the small rural city of The Dalles, Oregon, Google is building its new technology center and creating 50 to 100 new jobs. The natural beauty of the Columbia River Gorge may have played a role in the company’s decision to locate there, but a larger factor was surely the city’s municipal high-speed data network. Seventeen miles of fiber-optic cable connects city institutions, hospitals, schools and libraries, and dramatically improves the region’s potential for economic development. - - Municipal Broadband: Sidestepping Information Roadblocks, Media Alliance nd

“A lot of the cities want to bring in new business but can't without broadband infrastructure. -Kevin Fitchard, Bridging the Cumberland Gap, Telephony March 18, 2002

Allegany County is faced with a competitive disadvantage in attracting and expanding companies dependent upon these telecommunication services. This competitive disadvantage is in direct contrast to Allegany County’s effort to attract and retain companies in the fields of Information Technology/Computer Science, Biotechnology and Advanced Manufacturing. All of which require telecommunication services of the same level and at the same cost as they could find in places such as Northern Virginia. It is more critical than ever to the health of Allegany County to be connected for economic and educational advancement. - Allconet Project Proposal, p. 2 PDF

Lose Existing Business

In Auburn, Indiana, (pop. 12,000) Cooper-Standard Automotive was going to move its worldwide data system team of 75 employees. But after the company requested assistance from the Mayor, the city began offering broadband and the company kept the jobs in town.96 If the city had not filled the void left by the private providers, the local economy may have been changed for the worse. In Scottsburg, Indiana, (pop. 6,000) a similar story happened when Chrysler threatened to close a repair shop. After Scottsburg decided to deploy a broadband network, Chrysler decided to stay.97 - The Need to Permit Broadband from Public Entities, Brennan Center for Justice at NYU Law School, p. 36 (May 2006) PDF

International Competition

American residents and businesses now pay two to three times as much for slower and poorer quality service than countries like South Korea or Japan. Since 2001, according to the International Telecommunications Union, the United States has fallen from fourth to 16th in the world in broadband penetration. Thomas Bleha recently argued in Foreign Affairs that what passes for broadband in the United States is “the slowest, most expensive and least reliable in the developed world.” While about 60 percent of U.S. households do not subscribe to broadband because it is either unavailable where they live or they cannot afford it, most Japanese citizens can access a high-speed connection that's more than 10 times faster than what's available here for just $22 a month. (Japan is now rolling out ultra-high speed access at more than 500 times what the Federal Communications Commission considers to be “broadband” in this country.)
The economic ramifications are profound. “Asians will have the first crack at developing the new commercial applications, products, services, and content of the high-speed-broadband era,” writes Bleha. Already, South Korea, which leads the world in the percentage of its businesses and homes with broadband, is the number one developer of online video games—perhaps the fastest-growing industry today. What's more, societies in which broadband use is near-universal will adapt to its uses much more quickly than those where access is available only to the well-to-do few. - Robert McChesney and Jon Podesta, Let There be WiFi, Washington Monthly 2005

The United States is falling far behind other world leaders in broadband availability. We pay more than 10 times as much as the Japanese or Koreans. Community Internet brings innovation and competition to the broadband marketplace. - Benefits of Community Internet, Free Press

Broadband as Utilitiy / Essential Facility

For many communities, the availability and affordability of broadband services is just as important to their future as roads, schools, water systems, airports and convention centers have been in the past. - The Case for Municipal Broadband in Florida, Florida Municipal Electric Association p. 2

Access to advanced communication services, including broadband data services, is increasingly viewed as essential infrastructure that is critical for the economic and social health of communities. Continuing innovation in computing and communications technology and the growth of the Internet and eCommerce have made data services increasingly important in modern life. - Lehr, Sirbu, Gillett, Wireless is Changing the Policy Calculus for Municipal Broadband, Government Information Quarterly 2006

Electric Utility History

Borrowing from Richard Rudolph and Scott Ridley's 1986 book, Power Struggle: The Hundred-Year War Over Electricity, Baller showed that when electricity first became available in the 1880s, privately owned utilities marketed “the new technology as synonymous with wealth, power and privilege,” lighting large cities, businesses, and the homes of the rich. Electricity also allowed factories to stay open 24 hours a day, and led to the institution of swing shifts. But communities that didn't have electricity couldn't produce as much, and couldn't keep up with urban competitors. Rural communities were left with the choice of forming a government-owned utility or being left in the dark. Even big cities like Detroit built municipal power systems to cut prices and extend service. In response, private utility companies responded with a massive propaganda and misinformation campaign that attacked advocates of municipal power as “un-American,” “Bolshevik,” and “an unholy alliance of radicals.”But the expansion of electricity, Baller argued, showed that the presence—or even threat—of competition from the public sector is one of the surest ways to secure quality service and reasonable prices from private enterprises delivering critical public services. FDR, he notes, called municipal power systems “a birch rod in the cupboard, to be taken out and used only when the child gets beyond the point where more scolding does any good.” - Robert McChesney and Jon Podesta, Let There be WiFi, Washington Monthly 2005

Natural Monopoly

Furthermore, there is growing awareness that next generation communications infrastructure, capable of delivering a bundle of high-speed services, may be a natural monopoly in at least some communities. - Lehr, Sirbu, Gillett, Wireless is Changing the Policy Calculus for Municipal Broadband, Government Information Quarterly 2006

Market Failure

According to the “market failure” rationale, government intervention may be justified if private alternatives are perceived to be inadequate. The costs of deploying infrastructure and operating services may be too high relative to the revenue that can be expected so that an insufficient number of private sector providers enter the market. In the most extreme cases, it may be uneconomic for any private carrier to offer service. - Lehr, Sirbu, Gillett, Wireless is Changing the Policy Calculus for Municipal Broadband, p. 5 Government Information Quarterly 2006

As alluded to earlier, private providers have not offered universal broadband service. On the positive side, private providers have built millions of high-speed lines across America.93 “The downside is that they only deploy these products in markets where they believe they can turn a profit quickly.”94 The motivation for this behavior is the well-known fiduciary obligation to maximize profits for their shareholders. However, because private companies do not have to act in the best interests of the public, deploying broadband to large swaths of low-density, rural communities has not occurred.
     Private providers’ market choices have been further affected by larger economic trends in the telecommunications industry generally. In particular, private providers in the telecommunications industry have been roiled by bankruptcies over the past five years. Coupled with the bursting of the dot-com bubble, telecommunications companies are often economically constricted in the range of investment choices they can make. The conservative investment strategies of telecommunications companies come at a particularly bad time for rural communities that want to expand deployment of broadband services.
    To address the market failure of private providers, public providers have stepped in to fill the gap. - The Need to Permit Broadband from Public Entities, Brennan Center for Justice at NYU Law School , p. 35-36 (May 2006) PDF

Incumbent Services

Frustrated by their dealings with Verizon Communications and searching for an economic development tool, the municipal governments have taken matters into their own hands... The local government spent years trying to negotiate terms with Verizon to provide broadband infrastructure at reasonable prices, said Jeff Blank, Allconet's supervisor of microcomputing and networking. But because of its small size, the county made no headway... “There are a lot of cities that are being overlooked for broadband, places the RBOCs have chosen to ignore,” said Andy Fuertes, broadband wireless analyst for Allied Business Intelligence... So far, Verizon appears to have ignored Allegany County's project, but that hasn't impaired its funding requests in the Maryland legislature. Analysts said Verizon's indifference is no surprise because there's no profit for high-speed data in a small town like Cumberland. And the Bell companies are unlikely to start paying attention any time soon, said Abby Christopher, senior analyst for Ovum. -Kevin Fitchard, Bridging the Cumberland Gap, Telephony March 18, 2002

Despite our recognized success and documented return on our investment, Allegany County suffers from a non-competitive environment in which telecommunications customers are forced to pay higher rates for services. - Allconet Project Proposal, p. 3 PDF

Incumbents Lack Full Incentive

Broadband creates better schools, new jobs, a more attractive business climate for the community as a whole, and a broader and more high-quality tax base – benefits that private suppliers may not recognize in making profit-oriented investments... In studying the role of municipalities in broadband infrastructure deployment, it is important to remember that municipalities act with a public motive and not a profit motive. Municipalities invest in schools, roads, hospitals, senior centers, marinas, airports, and convention centers, all assets that positively differentiate one community from another. In those areas, direct investment by municipalities is accepted and indeed often encouraged, even though private firms can (and do) build private schools, hospitals, health clubs, marinas, and conference centers that coexist with municipal infrastructure. In today’s economy broadband communications is just as important as these community assets, if not more so. Consequently, it makes as little sense to limit investment in municipal networks as it would to limit public investment in schools and hospitals.Like schools, hospitals, and other public services, investment in broadband infrastructure delivers substantial benefits to a community that private economic actors will not necessarily recognize and take into account when making investment decisions... By definition, private firms owe fiduciary obligations to their shareholders to maximize their profits and not to behave altruistically. But while a profit-centric view may be good for business, it is obviously not good for communities forced to endure substandard education, poor health care, and a sluggish economy. Instead of paying dividends to shareholders, municipalities owe a duty to maximize the economic development and well-being of the communities they serve, and we should expect that local communities would act and respond to this broader public motive, instead of the narrow profit motive. In cases where the public benefits of a service or technology are very large yet not fully recognized by private firms, the public provision of such service or technology is entirely legitimate. Indeed, the public provision of such services is one of the very foundations of government. - The Case for Municipal Broadband in Florida, Florida Municipal Electric Association p. 4 & 6, 7.

According to the “market failure” rationale, government intervention may be justified if private alternatives are perceived to be inadequate. The costs of deploying infrastructure and operating services may be too high relative to the revenue that can be expected so that an insufficient number of private sector providers enter the market. In the most extreme cases, it may be uneconomic for any private carrier to offer service. - Lehr, Sirbu, Gillett, Wireless is Changing the Policy Calculus for Municipal Broadband, p. 5 Government Information Quarterly 2006

It has been argued that municipalities invest in broadband infrastructure to serve a diffuse “public purpose” (better educated public, more business opportunities, etc.) that private communications providers acting alone may ignore since these external benefits cannot be captured as profits. The Bureau of Economic Advisors estimates that for each $1 invested in broadband, the economy benefits nearly $3 – but unless a private communications provider can gain the lion’s share of that economic benefit, its incentive will be to under-invest in broadband infrastructure. Economic theory indicates that in the presence of large externalities, which broadband Internet probably produces, public ownership of resources may be desirable.- George Ford, Thomas Koutsky, Broadband and Economic Development: A Municipal Case Study from Florida, Applied Economic Studies p. 1 & 3 April 2005

Network Neutrality

Failure of incumbent networks to provide open networks

Intranet Rationale

In other words, justifications for building a network to serve government needs (regardless of whether it services private sector needs).

Internal Communications

delivery of a cost-saving municipal application to increase government efficiency and productivity; • replacement or enhancement of legacy communications infrastructure because of bandwidth undercapacity, expensive recurring costs, and insufficient upgrades; - Digital Community Best Practices, p. 3 Intel

Public Safety

The City of San Mateo, California, Police Department installed a Wi-Fi mesh network that allows 72 officers in 40 patrol cars to take their desks on the road, helping to make the public safer and officers more effective in their jobs. “We have an intranet in San Mateo County connected to all the law-enforcement agencies, and we use it to share data, photographs, and large files,” says Lt. Wayne Hoss, project leader. “In the past, officers would return to the station and use this intranet to get a DMV photograph, a report from another city, or a six-pack of mug shots to show victims, but now they can do this in their patrol cars.” - Digital Community Best Practices, p. 4 Intel

Wireless Philadelphia Business Plan, p. 48 (February 2005) (Public Safety)

Schools / Libraries / Education

To meet educational needs. Broadband for Higher Education

Improved distance education

Wireless Philadelphia Business Plan, p. 49 (February 2005) (Education)

Social

Digital Divide

The city of Charleston is drawing up a contract with Mount Pleasant-based Widespread Access to blanket the peninsula with a wireless Internet network in an effort to boost economic development and increase computer literacy in poor households. - Charleston is going wirelessFrom Charleston Post and Courier, September 30, 2005

San Francisco TechConnect is a strategy to promote digital inclusion by ensuring affordable internet access, affordable hardware, community-sensitive training and support, and relevant content to all San Franciscans, especially low-income and disadvantaged residents. - TechConnect

Andrade pitched the wireless network as a way to lure relocating businesses to the city and boost computer literacy in poor households- WiFi almost ready to fly, The Post and Courier (Dec. 31, 2005)

- Western Maryland's Revolutionary WAN, Allconet2 Case Study p. 1

"Rural and low-income urban areas are badly underserved by providers of DSL and cable modem broadband. Service is scarce and prices are high. No community should be denied opportunity due to a lack of technology. Community Internet treats broadband access as a public necessity, not a privilege." - Benefits of Community Internet, Free Press

Wireless Philadelphia Business Plan, p. 49 (February 2005) (Digital Divide)

First Amendment

Thomas Jefferson wrote in 1786:

I think by far the most important bill in our whole code, is that for the diffusion of knowledge among the people. No other sure foundation can be devised for the preservation of freedom and happiness. . . . The tax which will be paid for this purpose is not more than the thousandth part of what will be paid to kings, priests and nobles who will rise up among us if we leave the people in ignorance.9

Jefferson was writing in support of public education, a controversial topic of his day because education had been the province of private schools and private tutors. But his sentiment just as forcefully applies to the diffusion of knowledge today through the Internet. In order for the nation to have an educated and productive populace, the general public needs low-cost, high-speed Internet connections. We believe that to achieve ubiquitous service, public providers must be allowed into this market. - The Need to Permit Broadband from Public Entities, Brennan Center for Justice at NYU Law School, p. 7 (May 2006) PDF

eGovernment

Community Internet increases the number of voices in the public sphere. Using local networks, communities can offer citizens numerous advanced media services for everything from pubic safety and political forums to church services and Internet radio stations. - Benefits of Community Internet, Free Press

Opposition

Vertical Integration into Enhanced Services

Opposition to entrance of municipalities into higher layer applications and services where the market is otherwise competitive.

Existence of Private Sector Players

Joseph Bast, Why States Should Stop Municipal Broadband Jan 2005

Private Sector Better to Handle Risk

Municipal broadband is a risky venture. Due to their much larger size, experience, and economies of scale, commercial competitors are able to offer better content and lower prices than municipalities. The costs of programming, marketing, customer acquisition, and account maintenance, often underestimated or unplanned for, have forced municipalities to raise taxes, subsidize broadband out of electricity revenues, or scrap the project halfway through. Fiber-to-the-home networks are especially risky because their installation costs are many times the cost of wireless competitors. The Tri-Cities proposal, for example, would have cost $62 million--about $3,539 per household. - Joseph Bast, Why States Should Stop Municipal Broadband Jan 2005

These municipal leaders are doing an enormous disservice to their constituents. They are putting them needlessly at risk, and are risking the credit ratings of their cities and counties. - Tom Giovanetti on 10/07/2005, Restrain Municipal Broadband Delusions: When Cities Rush Into the Broadband Business, Their Constituents are at Risk Institute for Policy Innovation

Policy Uncertainty

Allowing the nation’s 55,000 towns and municipalities to create and subsidize their own local broadband utilities is equivalent to inviting 55,000 government units and their attendant regulators, bureaucrats, and “technology officers” to help determine national telecommunications policy. It’s a bad idea. - Joseph Bast, Why States Should Stop Municipal Broadband Jan 2005

Munis Usurp Private Investment

Private telecommunications companies have also argued and even threatened that public investment in telecommunications would stop private investment. This argument relies on the assumption that government investment in telecommunications will “crowd out” private investment. Yet, economic researchers at the University of Florida and University of North Texas found that municipalities were not “crowding out” competitive local exchange carriers (CLECs). The researchers concluded:

[M]unicipalities may not pose a significant competitive threat to CLECs, due primarily to demographic characteristics that encourage municipal as opposed to CLEC participation. CLECs locate in more urban areas where incomes are higher and the possibility for higher revenues through selling more services to those interested in expanded capabilities is greater. Municipalities provide telecom services in areas heretofore underserved by CLECs, in which revenues are limited by both population and income of customers.91

In fact, another study by economist George S. Ford in Florida found “statistically significant evidence of more private firm entry in markets where municipalities operate communications network[s] (a 63% increase).”92 So, instead of crowding out private industry, municipal broadband networks stimulate local economies. - The Need to Permit Broadband from Public Entities, Brennan Center for Justice at NYU Law School, p. 24 (May 2006) PDF

A recent analysis by Applied Economic Studies, Inc., shows that municipal investment in broadband infrastructure does not restrict private investment in similar infrastructure; indeed, the two often coexist and benefit one another.22This study uses robust statistical analysis to examine the relationship between municipal broadband investment and the health of competition between local providers in Florida. Results show that where municipalities have invested in broadband infrastructure, local telecommunications competition is more robust and vibrant. - The Case for Municipal Broadband in Florida, Florida Municipal Electric Association p. 10 (citing George S. Ford, Does Municipal Supply of Communications Crowd-Out Private Communications Investment? An Empirical Study, Applied Economic Studies Manuscript (2005)).

However, before pursuing a municipal-owned or sponsored network, we should first look to private solutions... If our country wants to encourage investment in private networks; if our providers are to have access to the necessary capital to adequately invest in their systems; and if our consumers are going to see the benefits of investment, innovation and competition, including lower prices and advanced services; then we must ensure government ownership meets appropriate criteria and does not waste or usurp private investment.-- Mr. Robert Sahr : SD PUC, State and Local Issues and Municipal Networks Senate Commerce Committee February 14 2006

Municipal interference in broadband displaces private investment, distorts prices and forces taxpayers to subsidize services they may not use. - The Municipal Broadband Compact, Reason Foundation

Level Playing Field: Taxes

Response

Moreover, there is no evidence that Florida local governments subsidize these services to a greater extent than the subsidies received by incumbents – subsidies not available to other entrants in the marketplace. The Florida Legislature has acted in the past to require that when a local government provides telecommunications services, it should pay substantially the same taxes as do incumbents. Local governments collect and pay the same 13.5% communication service tax that incumbents pay, the same sales taxes on tangible personal property purchased for the provision of such services, the same intangibles tax related to communications systems, and the same ad valorem tax, to the extent it is constitutionally permissible. A study by FMEA in 2003 concludes that municipal electric utilities remitted 14.6% of their revenues to state and local governments in the form of taxes and direct payments-in-lieu-of taxes. While no study has been done to date on municipal communications enterprises, analysts predict that the contribution to general government will be in the range of 6-10%. On the other hand, data reported by the incumbents to the FCC shows that the Florida state and local tax burden for private incumbent telecommunications companies in 2003 was approximately 3.5%. By comparison, this contribution hardly constitutes an argument for “leveling the playing field.” - The Case for Municipal Broadband in Florida, Florida Municipal Electric Association p. 12

Level Playing Field: Access to Facilities

Access to ROW

Level Playing Field: Subsidies / Funding

Response

In addition, it is disingenuous to claim that municipal communications infrastructure may be inappropriately subsidized when, in fact, incumbent telecommunications firms remain among the most-subsidized private companies in the United States. Over the years, Florida’s incumbent telephone companies have received hundreds of millions of dollars in direct federal and state subsidies. Table 3 shows that Florida’s incumbents still receive more than $80 million a year in direct federal subsidies, and have received nearly $400 million over the past five years. In certain small and rural communities, these subsidies are substantial and amount to several hundred dollars per year for each household – yet robust broadband service still is not available in many of them. A closer look at the primary arguments levied against municipal entry reveals an undeniable truth: the companies that are most vocal in opposition to public, municipal broadband investment are some of the largest recipients in this country of corporate welfare. Do not be fooled – this debate is not between “purely” private companies and municipal governments; it is between heavily-subsidized beneficiaries of governmental handouts on one side and locally-elected and openly-accountable public servants on the other.- The Case for Municipal Broadband in Florida, Florida Municipal Electric Association p. 12

Private providers have argued that it would be “unfair” for them to compete against public entities because private companies’ sole source of funding is from the private capital markets. This reasoning is inherently fallacious: private capital markets are not telecommunications companies’ only source of funding. Besides the revenues generated by their customers, telecommunications companies receive a range of governmental subsidies. A white paper from the Media Access Project critiqued this “unfairness” argument:

For years incumbent telephone companies have received billions of dollars in federal and state subsidies, ILECs and cable companies have received exclusive geographic franchises from state and local governments and have accrued huge competitive advantage over other providers by virtue of longstanding government-protected monopolies. Exclusive licenses frequently continue to protect their spectrum.

Admittedly, public providers do have some advantages such as the ability to raise money through municipal bonds and access to public rights of way. However, incumbent private providers have the advantages of existing customer bases. Even more importantly, large private telecommunications companies have budgets that can dwarf those of a small Nebraskan town. - The Need to Permit Broadband from Public Entities, Brennan Center for Justice at NYU Law School, p. 32-33 (May 2006) PDF

Competition

MuniB Does Not Seek to Compete with Private Investment

In providing free wireless, Alexandria and other cities -- dozens of which have existing wireless Internet hubs -- in some cases have raised the ire of private network providers. Verizon recently tried to block Philadelphia's $10 million effort to connect the entire city. Fifer said Alexandria's effort is narrowly tailored not to compete with or replace private providers. He said the network is not secure. "We're not encouraging you to do anything sensitive with it, like balancing a checkbook or running a business," Fifer said. When trash talks: embracing wireless technology, GCN April 6, 2005

Municipalities rarely, if ever, go forward with a municipal broadband project for the purpose of competing with the private sector, even though that would arguably be a worthy goal. Rather, they
step forward only when the public demands it, because the private sector is either not providing a service at all, or is charging excessive rates, providing poor service, or offering unduly limited
consumer choice. - Jim Baller, Deceptive Myths about Municipal Broadband, The Municipality Telecom Link, p. 1 July 2005

Opponents also warn that municipalities will “crowd out” more efficient private players. In reality, most municipal networks are a last resort by desperate local governments. Often their choice isn't between a municipal system and a private one, but between municipal and nothing. - Robert McChesney and Jon Podesta, Let There be WiFi, Washington Monthly 2005

Lack of Market Competition as Driver to Private Sector

Unfortunately, with the collapse of the competitive local exchange industry (CLEC) during the global telecom industry recession that began in 2000 and the subsequent consolidation in the industry, there is growing concern in some quarters that the privatesector might fail to invest widely enough or fast enough in delivering the needed nextgeneration facilities. - Lehr, Sirbu, Gillett, Wireless is Changing the Policy Calculus for Municipal Broadband, Government Information Quarterly 2006

Lack of Private Sector as Driver for Public Sector

Private telecommunications companies have also argued and even threatened that public investment in telecommunications would stop private investment. This argument relies on the assumption that government investment in telecommunications will “crowd out” private investment. Yet, economic researchers at the University of Florida and University of North Texas found that municipalities were not “crowding out” competitive local exchange carriers (CLECs). The researchers concluded:

[M]unicipalities may not pose a significant competitive threat to CLECs, due primarily to demographic characteristics that encourage municipal as opposed to CLEC participation. CLECs locate in more urban areas where incomes are higher and the possibility for higher revenues through selling more services to those interested in expanded capabilities is greater. Municipalities provide telecom services in areas heretofore underserved by CLECs, in which revenues are limited by both population and income of customers.91

In fact, another study by economist George S. Ford in Florida found “statistically significant evidence of more private firm entry in markets where municipalities operate communications network[s] (a 63% increase).”92 So, instead of crowding out private industry, municipal broadband networks stimulate local economies. - The Need to Permit Broadband from Public Entities, Brennan Center for Justice at NYU Law School, p. 24 (May 2006) PDF

Municipalities rarely, if ever, go forward with a municipal broadband project for the purpose of competing with the private sector, even though that would arguably be a worthy goal. Rather, they
step forward only when the public demands it, because the private sector is either not providing a service at all, or is charging excessive rates, providing poor service, or offering unduly limited
consumer choice. - Jim Baller, Deceptive Myths about Municipal Broadband, The Municipality Telecom Link, p. 1 July 2005

Opponents also warn that municipalities will “crowd out” more efficient private players. In reality, most municipal networks are a last resort by desperate local governments. Often their choice isn't between a municipal system and a private one, but between municipal and nothing. - Robert McChesney and Jon Podesta, Let There be WiFi, Washington Monthly 2005

Less Likely to Deploy MuniB where Competition

In the APPA data, MEUs that offer only residential services (Table 1) are significantly smaller than those that offer only businessoriented services, suggesting that MEUs are more likely to diversify into consumer-oriented communications services – including FTTH – when the community feels overlooked
by private sector communications firms. Analysis of the data shows that MEUs in communities served with broadband from private sector cablemodem providers were less likely to offer communications services to the public. Similarly, municipal FTTH plans may be driven or constrained by delays or accelerations, respectively, in private sector FTTH rollouts.- Sharon Gillett, Municipal Trends, p. 22 Broadband Properties Sept 2004

Reduced Prices

In Tacoma, Washington, Comcast subscribers pay 20 to 25 percent less for cable and Internet service than customers up the road in Seattle. The difference? Tacoma residents have the option to choose between Comcast and a municipal service provider owned by the local power utility. Tacoma Click! provides cable television and high-speed Internet service comparable if not superior to what Comcast offers. The resulting competition lowers prices for everyone. - Municipal Broadband: Sidestepping Information Roadblocks, Media Alliance nd

Private Competitors Does Not Mean No Public Role

The coexistence of public and private broadband is no different than the joint presence of public and private schools, public and private hospitals, and even public libraries and private bookstores. No one would seriously argue that the presence of private schools and hospitals justifies a prohibition on cities from providing a public education or public health care; nor does the presence of private booksellers such as Borders or Barnes and Noble imply that municipalities should close their libraries. No one would seriously ask a town faced with overcrowded schools to grant a “right-of-first-refusal” for private firms to construct private schools before building new or expanding public schools; nor would anyone seriously argue that the construction or expansion of a public library should be postponed without permission from the local book stores. Yet that is exactly what a right-of-first-refusal asks communities faced with inadequate broadband services to do. - The Case for Municipal Broadband in Florida, Florida Municipal Electric Association p. 7.

Technology

Fiber

Broadband Failures, Fiber for our future, refuting claims that various FTTH projects have failed financially.

Ben Scott, Telco Lies and the Truth About Municipal Broadband Networks Free Press April 2005 refuting claims that various FTTH projects have failed financially.

fiber municipal operations are virtually always built on the infrastructure of municipal utility operations. Municipal Broadband: Digging Beneath the Surface, Balhoff & Rowe, LCC, p. 35 (Sept. 2005)

Fiber vs Wireless

Paving the Cyber Sidewalks: Cities Debate Public Fiber Optics , Sci Tech Today March 24, 2006

With government offices already grounded in wireless through the point-to-point network, the county's
first thought was to lay fiber. But it hit a stumbling block. Connecting the county's sparse, widespread
populace with fiber would have cost $180 million. By comparison, the radio buildout will cost the county between $2.9 million and $5 million, most of which the county plans to raise through state grants, Blank said. With that investment, Allconet will be able to offer 85% of the county's population, 95% of its businesses and 100% of its business parks broadband access. -Kevin Fitchard, Bridging the Cumberland Gap, Telephony March 18, 2002

Wireless

Large Wifi usuage can increase spectrum interference and decrease throughput. This can erode user experience and decrease user participation in the network service.

Difficulty in attaining density to guarantee carrier grade service. Access to physical infrastructure (poles and power). QoS particularly for VoIP which is currently best effort resulting in coverage holes, uneven quality and dropped calls. - Stagg Newman, State of Tech Dev, TAC July 2006

Wifi standard equipment is used, CPE is standard embedded Wifi device at $0 incremental cost or home wifi port at $0. Base stations are inexpensive wifi AP suitable for outdoor mount. - Stagg Newman, State of Tech Dev, TAC July 2006

Scalability w reliability and good QoS need to be demonstrated in large sclae deployments. Wifi mesh net do not nec support low latency needed for VoIP until differentiated QoS can be provided. - Stagg Newman, State of Tech Dev, TAC July 2006

The primary factor that makes Wi-Fi attractive to municipalities that are considering offering a public network is its low cost. A researcher from the University of Denver has found that “the breakeven point for Wi-Fi systems is significantly lower than that of wireline networks because of the substantially lower capital and operating costs [and] the municipality has two revenue streams, incremental revenue and cost recovery [from Wi-Fi].”131 Therefore, municipalities that could never afford to build a wired broadband system are now planning to build wireless broadband networks. - The Need to Permit Broadband from Public Entities, Brennan Center for Justice at NYU Law School, p. 43 (May 2006) PDF

For consumers, each base station will transmit 360° on the 2.4 GHz unlicensed frequencies offering 3
Mb/s of capacity. For business customers, Allconet will transmit from the same base stations using the 5.8 GHz frequency to offer up to 60 Mb/s of capacity. -Kevin Fitchard, Bridging the Cumberland Gap, Telephony March 18, 2002

Deployment

Municipal Electric Utilities

Why are communities with MEUs the most likely to deploy FTTH? The reason is a relatively lower cost of entry into wired communications. As the local power company, the MEU already has access to conduit and/or utility poles, a fleet of trucks to provide outside plant and customer premises servicing, and a service relationship with consumers and businesses in the community. Moreover, many MEUs also enjoy a long history of political support from the local community. - Sharon Gillett, Municipal Trends, Broadband Properties Sept 2004

In December 2004, the American Public Power Association (APPA) reported that a survey of its members identified 621 public power systems that supply community broadband services.3 The number was up by 9 percent from 570 companies offering broadband, as reported in 2003, and up 37 percent since 2001.4 APPA represents approximately 2,007 cities and towns with "public
power" utilities, which, up to the present, have been the enterprises most likely to sponsor “wired” communications services. And APPA has been a major defender of the principle that municipalities—and utility operations in particular—should be able to diversify into commercial
communications services. - Municipal Broadband: Digging Beneath the Surface, Balhoff & Rowe, LCC, p. 18 (Sept. 2005)

Economics

See ILEC Incentives.

Scale

- Sharon Gillett, Municipal Trends, Broadband Properties Sept 2004 (arguing that munib is able to scale off of existing Municipal Electric Utilities and off of municipal internal communications infrastructure)

Decision Methodology

Process

Referendum Expensive

Broadband quest cost $300,000, Daily Herald ( Feb. 2, 2005 ) http://lafayetteprofiber.com/imagesNRef/Docs/TriCitiesCosts.html

Look to Private Solutions (what broadband services)

However, before pursuing a municipal-owned or sponsored network, we should first look to private solutions... If our country wants to encourage investment in private networks; if our providers are to have access to the necessary capital to adequately invest in their systems; and if our consumers are going to see the benefits of investment, innovation and competition, including lower prices and advanced services; then we must ensure government ownership meets appropriate criteria and does not waste or usurp private investment.-- Mr. Robert Sahr : SD PUC, State and Local Issues and Municipal Networks Senate Commerce Committee February 14 2006

Look to Attracting Private Investment

Demand Aggregation

Second, where market failure exists, communities should ascertain whether or not providers are willing to serve the market immediately or in the near term. One of the best possible sources for a broadband solution may be a provider that already has networks in close proximity to the underserved area. This step should also include the consideration of whether or not technological improvements or lower investment costs may yield a broadband solution in the immediate future. Third, municipalities should consider available funding sources and possible incentives to attract private investment. These could include federal assistance through broadband loans and grants, a variety of state and local tools to encourage investment, and even marketing the area as a test market for providers or equipment manufacturers. -- Mr. Robert Sahr : SD PUC, State and Local Issues and Municipal Networks Senate Commerce Committee February 14 2006

Regulatory Forebearance

Government can best encourage broadband deployment by eliminating tax and regulatory barriers to broadband investment and market competition... Access to broadband can often be expanded by eliminating unnecessary regulations that delay, raise the cost, or even effectively ban the construction of new network facilities. -- The Municipal Broadband Compact, Reason Foundation

Determine Opportunity for Private / Public Partnerships

Fourth, after pursuing the first three options, municipalities should consider public-private partnerships. This has the benefit of bringing private experience to the venture and helps the community share some of the risk of the project versus pursuing a solely-owned network. Additionally, the municipality may have expertise, facilities or other advantages that may make an otherwise unviable network attractive to private investment. -- Mr. Robert Sahr : SD PUC, State and Local Issues and Municipal Networks Senate Commerce Committee February 14 2006

Move as Much Cost and Risk to Private Sector

Mr. Donald Berryman Earthlink, State and Local Issues and Municipal Networks Senate Commerce Committee February 14 2006

Muni Does it itself

First, municipalities should act only where a market failure exists... Fifth, municipalities, after assessing the appropriate risks and benefits, may consider constructing and operating a municipal-owned or sponsored network. In these situations, the municipality should continue to evaluate opportunities for non-governmental solutions.-- Mr. Robert Sahr : SD PUC, State and Local Issues and Municipal Networks Senate Commerce Committee February 14 2006

Avoid Discriminatory Actions

[Discriminatory access to ROW] Mr. Michael F. Altschul CTIA State and Local Issues and Municipal Networks Senate Commerce Committee February 14 2006

Avoid Exclusive Franchise

In the worst cases, government ownership usurps, prohibits or discourages private investment. One of the most egregious cases is currently pending before the Federal Communications Commission and involves the Massachusetts Port Authority’s attempt to create a monopoly on Wi-Fi services at Boston’s Logan International Airport. -- Mr. Robert Sahr : SD PUC, State and Local Issues and Municipal Networks Senate Commerce Committee February 14 2006

Muni B should not be used as Revenue / Taxing Opportunity

Mr. Douglas A. Boone Premier, State and Local Issues and Municipal Networks Senate Commerce Committee February 14 2006

Open Non Discriminatory at Lowest Layer

EarthLink has long recognized that consumers are not best served by exclusive-access Internet networks. We believe that consumers are best served by an Open Access model – where network owners offer fair, reasonable and non-discriminatory wholesale rates to others who seek to bring customers to that network. EarthLink’s municipal networks will follow the letter and spirit of that commitment. Any qualifying ISP will get the same low wholesale rate, and we welcome them to bring consumers to our network. And, we welcome the competition that ensues – it will ultimately deliver the best service and experience to consumers. - Mr. Donald Berryman Earthlink, State and Local Issues and Municipal Networks Senate Commerce Committee February 14 2006

Planning Considerations

• RF Coverage: Customer satisfaction issues with wrong expectatitons. Additional CPE may be necessary to reach indoors.
• Customer support: how is it branded and extent of support provided
• Changing business models
• Time to live service
• Consider outsourced operations: Lower the risks for service provider and municipality
• Project launch: Soft launch / pilot project
• Back office and service management
• Nomadic users services; user plug and play, flexible registration
• Multi tiered pricing and service profiles
• Wholesale model
• Flexible roaming
• integrating applications into service offerings
• legal intercept
• Security features
• QoS control
• Vertically optimized features for local businesses
• VoIP services
• Scaling and avilability