Our Uneven Regulatory System

The Florida Legislature recently passed a bill that brings poles under state jurisdiction for any electric cooperative that elects to enter the broadband business. That would be a change from current regulatory rules that exempt cooperatives and municipally-owned electric companies from federal and state oversight of pole regulation.

This blog isn’t going to debate the pros and cons of this specific legislation but will instead point to our uneven regulatory environment in the U.S. Over the years, State legislatures have passed laws that create regulatory rules that apply only to specific entities and not to everybody.

Laws affecting electric cooperatives related to broadband are a good example. Over the last several decades, a lot of states passed laws that prohibited electric cooperatives from entering the broadband business. These laws were clearly prompted by telephone and cable companies that didn’t want a new competitor. In the last few years, a lot of legislatures reversed these laws due to pressure from the public to allow their local electric cooperatives to bring them fiber broadband. These new laws have been effective, and a Google search tells me that 250 of the 900 electric cooperatives are either offering broadband or have plans to do so.

Most of the legislation that created exceptions has been aimed at squelching broadband competition. A lot of states have laws that either prohibit or restrict municipalities from entering the broadband business. It’s a little hard to get a precise count these days because there is a wide range of laws against municipal broadband that range from outright bans to rules that only create a few hurdles for a municipality to enter the business that aren’t faced by other competitors.

Most of the restrictions against municipal broadband are written in such a way as to make it seem like there is a path for cities to provide broadband. But most such laws often have a kicker that makes it extremely difficult for a municipality to comply.

As an example, North Carolina imposes a long list of requirements on a municipality that wants to offer broadband. A public entity must impute phantom costs into their rates, conduct a referendum before initiating service, forego popular financing mechanisms like bond financing, refrain from using typical industry pricing plans, and must make their commercially sensitive information available to their incumbent competitors. These rules collectively make it nearly impossible for a municipality to launch a broadband business.

As the new Florida law shows, it’s a never-ending battle with incumbents trying to legislate away competition. Last year there was a major push in Ohio for new legislation that would prohibit municipalities from providing broadband. The law was ultimately defeated, but it seems that several laws that create hurdles to market entry are introduced around the country every year.

Because of the push to get broadband to everybody, some restrictions have been relaxed in the last few years. It’s now a bit easier for municipalities in Arkansas to offer broadband. In Washington, there was a law prohibiting the municipal Public Utility Districts (county-wide electric companies) from offering any broadband except open-access. Last year, in a bizarre legal move, the Washington legislature passed two conflicting laws that allow PUDs to offer retail broadband. The Governor simultaneously signed the two bills rather than choose one of them, and now it’s unclear what the law is. Colorado just lifted the requirement that municipalities must hold a referendum before entering the broadband business.

It’s not surprising that there are laws that restrict some entities from becoming ISPs. Every textbook about monopoly power and abuse predicts that monopolies can’t resist the temptation to quash competitors.

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