Lifting the Ban on Municipal Competition

FCC_New_LogoFCC Chairman Tom Wheeler said a few weeks ago that the FCC was strongly considering lifting state barriers to municipal competition. His reasoning is that there is such a large need for broadband infrastructure that governments should not stand in the way of anybody who is willing to make the last mile investment. There are twenty-two states that have barriers that are significant enough to either ban or make it almost impossible for municipalities to compete with broadband.

There are a number of kinds of existing barriers to entry in State laws. First there are states like Texas that just have an outright ban on municipal competition. But there are also a few states that handled this a different way, like North Carolina, which instead created a list of barriers to entry that are impossible for any City to meet. North Carolina’s law is an effective ban, but it never explicitly bans municipal competition, but instead is written to sound like there might be a path to compete.

Utah has an unusual restriction in that Cities there are allowed to build fiber networks, but they can only operate them on a wholesale basis, meaning that some commercial provider must come in to provide the services. This same restriction is also in place in Washington where the Public Utility Districts (rural electric companies) have this same restriction. As it turns out it is very difficult, and maybe impossible over the long-run to make money with a wholesale network. This was the issue faced by Provo who finally gave up and sold their network to Google. And the problems faced by Utopia in Utah are well known.

Finally, there are states like Louisiana that create extra hurdles for a municipal provider. These restrictions are generally couched in language that creates a ‘level playing field’. That sounds good on paper, but the municipal provider ends up being regulated and having to comply with more rules than the incumbent. An example of this is the Fair Competition Act in Louisiana that places a lot of requirements in Lafayette, the only municipal provider there so far. But since that law has been written, AT&T has been effectively deregulated in the state but leaving Lafayette with significant and expensive regulation

What is interesting is that these bans are sponsored by the large incumbents like AT&T and Comcast. But for the most part the Cities that have decided to build fiber are small, rural and are in places that the incumbents have written off years ago. No large NFL City has ever given really serious consideration to building fiber. And only two Tier 3 Cities – Chattanooga and Lafayette have done so. Most of the places that want to get into the fiber business are towns that realize that no commercial company is going to make an investment in their community.

The cities that want fiber see that their kids leave town because there are no decent jobs in the local economy. With poor broadband the businesses that are there have trouble competing today and many of them will eventually relocate to where there is fiber. Most towns that decide to consider fiber feel they have been pushed into that decision. They generally have asked the incumbent providers to make the investments, but those big companies are not investing in small town America. In fact, just the opposite is happening and AT&T told the FCC that they would like to disconnect millions of rural landlines.

I don’t know a town that built fiber that didn’t do it reluctantly. But I think everybody is finally coming to understand that fiber has become basic infrastructure. It’s as essential to the well-being of a community as streets and sewers. Places without broadband are going to fade away over time and become irrelevant in economic terms. And towns get this. They want fiber as a way to make sure that their community is still here and still relevant twenty and thirty years from now.

It just seems incredibly selfish and greedy for the incumbents to work so hard to ban small towns from building fiber, when they themselves will never make any investment in those communities. I guess that is just in the nature of large corporations to generically fight against any competition if it can be legislated. They want to milk the last dollars out of their aging copper plant before they cut it down one day and leave these communities stranded.

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