There is an interesting docket at the FCC that is examining the ability of a City to sign an exclusive agreement with an ISP that keeps other new ISPs out of the market. The case involves Cottage Grove, Minnesota, a suburb of St. Paul with a population of around 43,000. The City of Cottage Grove signed an agreement with Gateway Fiber to build fiber throughout the City. The City’s agreement with Gateway provides a three-year period during which the City would not issue new permits to any other fiber builders in some parts of the City, and five-years elsewhere.
An ISP, Intrepid(2), filed a petition with the FCC asking the agency to overturn that City’s action. My first reaction was that the FCC would probably rule in favor of Intrepid(2), but it turns out that laws in this area are a lot more nuanced than I understood.
The City had already explored its legal rights in this area before issuing the RFP and choosing Gateway to build a fiber network. The City addressed the rights-of-way issue in the following response to a question during the RFP process:
The City of Cottage Grove is not attempting to restrict or prohibit access to public rights-of-way for broadband companies. The City has simply implemented a fair and efficient manner in which to regulate and manage the installation and maintenance of broadband services through their Request for Proposals. The City’s primary goal is to provide sufficient broadband to each area of the City in an efficient and orderly manner – taking into account the limited space within the public rights-of-ways and the access needs of the community during construction.
Under Minn. Stat. 237.163, a local government is specifically authorized to manage and regulate the use of public rights of way. . . a local government may exercise the option to regulate the use of public rights-of-way so long as the regulation is carried out in a fair, efficient, competitively neutral, and substantially uniform manner. The City of Cottage Grove has chosen to exercise this option and manage the public rights-of-way pursuant to Cottage Grove City Code § 7-6-2.
The FCC has some jurisdiction in this area. Section 224 of the FCC code was created by the Pole Attachment Act of 1978 and further amended by the Telecommunications Act of 1996. These laws require utilities to provide access to poles, ducts, conduits, and rights-of-way to telecommunications carriers on fair and nondiscriminatory terms. It’s not fully clear the degree to which these provisions apply to local communities.
Cities have routinely entered into agreements with electric companies, gas companies, water companies, cable companies, and telecommunications companies to use public rights-of-way. Such agreements are often referred to as franchise agreements when the facility owner pays a fee to the government for continued use of the rights-of-way. But there are agreements that don’t include compensation.
Many of these agreements have been exclusive, and local governments agreed to not let in another similar provider. Many local governments are concerned about the consequences and problems that come from having too many buried utilities using the same public rights-of-way.
There have been many lawsuits over the years related to exclusive access to rights-of-way. Many such lawsuits centered on the fact that the right-of-way owner didn’t have a clear reason to insist on exclusive access. In this case, Cottage Grove fully researched the issue before granting an exclusive right-of-way. I’m sure the City wasn’t looking for a fight and hoped not to be sued over the issue. But the City has several issues in its favor. The City didn’t want to inconvenience citizens by having multiple companies constructing networks on the same streets. The restriction is also temporary, for up to five years in parts of the City. The City also doesn’t have an absolute prohibition against other fiber builders and will consider applications for right-of-way.
It gets even muddier in that the FCC’s authority to preempt local rules is not absolute. The FCC only has authority to preempt state laws if the FCC asserts jurisdiction over the disputed service. This is where it gets sticky for the FCC. The FCC has gone out of its way in recent years to declare that broadband is not telecommunications but is a service. That throws some doubt on the FCC’s ability to preempt a local law concerning construction of a broadband network. The FCC can’t pick and choose when it wants broadband to be considered telecommunications versus a service.
Past FCC’s have been cautious about overturning the local right to control rights-of-ways, and the FCC may not want to take on all local and state governments based on the facts in this case. Even if the FCC rules against the City, which is not a clear thing, the City could probably appeal the case and tie it up in court long enough to give Gateway a chance to construct the network unimpeded.
My main problem with this sort of stuff is that it’s a goverment (even a local one) making a substantial motion to create a monopoly. 3-5 years in broadband is a long time, and the first mover having such a massive advantage the city is deciding to create a monopoly by giving these advantages to one provider and so any subsequent provider has a massive financial disadvantage.
Sure, it sucks to be the ISP wanting to come in there second, but I think we can ignore that (As an ISP I’m saying this) and instead focus on damages to consumers when monopolies are present.
What are prices on those services likely to be when there’s no competition? Look at Comcast docsis prices in cities for examples, it’s more expensive in the franchise area than outside of it where there’s competition. Not good.
These trade-offs of ‘inconvenience to the community’ are not a balanced trade for lack of choices and lack of a thriving marketplace.
A natural utility monopoly is never going to be a truly competitive market. At best a duopoly. It’s what’s driving private equity investment to be first to the customer prem with fiber, in recognition of this and first mover advantage. And future opportunity to flip to a consolidator.
There is no ‘natural utility’ here. The only driving force to having a single provider is government facilitated exclusivity.
It almost went that way circa 1914 when the federal government considered taking over the telephone network on national security grounds.
‘natural monopoly’ is a farce to facilitate government ease of management/control or rent/franchise fee.
I’ve yet to see an ounce of evidence suggesting that ANY utility is better run by government selected single providers. The closest thing to a natural monopoly outside of roads, is power. And even that has very little strong evidence that enforced single provider is better.
In my state, efforts to break away from that single power provider are crushed. Neighborhoods/subdivisions that would like to install a neighborhood gen/battery bank and have rooftop solar in a small power co-op legally cannot. They can’t even share power between two hopes legally.
I only tangent off to this because power is the ‘best’ example of ‘natural monopoly’ and even that is a wreck.