The Industry What Customers Want

A New Vision of Economic Development


Photo by Drew C. Wilson of the Wilson Times

I attended a forum in Wilson, North Carolina last week that talked about how fiber is transforming their city. They talked about how they are trying a new model for economic development.

The traditional economic development model concentrated on searching for big piles of jobs. Communities made efforts to attract major employers and worked hard to keep companies from leaving their town. But it’s pretty obvious when looking around rural America that this model stopped working somewhere along the line. I visit far too many communities that have lost big employers and that are not finding anybody to replace them. This is due to some degree to the overall huge decrease in US manufacturing jobs. But it also is due in part to the general decline of businesses located in smaller communities.

Wilson is a community of around 50,000. Historically the city was known as the ‘world’s greatest tobacco market’ in the 19th century and tobacco was huge in the area until a few decades ago. Wilson was also the birthplace to BB&T bank, which is still the largest employer in the city. But like happened with many US cities, Wilson also went through a decline. Some small manufacturers closed and the tobacco business died. In a scene that is familiar across the country the downtown business district dried-up as retail moved to other places.

Wilson started its fiber optic business in 2008 under the tradename of Greenlight. They were one of the first cities in the country to offer gigabit broadband to residents. And that fiber network was the linchpin for the city in developing their new vision of economic development.

The concept behind Wilson’s vision sounds simple. They figure that that the best way to attract jobs to the community is by working to make their community a place where people want to live. They want visitors to the city to like it enough that some of them will want to move there. And they figure that when they reach that goal that businesses will naturally want to locate there. So they are looking to grow their economy by concentrating on and improving the assets they already have.

Of course, this is anything but simple. Many cities have tried this and only a few have found a way to rebound from the decaying downtowns we see all over the country. Wilson is making the turn by concentrating on the downtown area. They lured the Wilson Times, a local daily newspaper, to refurbish an old building and move back into downtown. They raised the money to renovate an old theater to create the Edna Boykin Cultural Center. There is a project to build new housing downtown next to the whirligig park (the picture accompanying this blog). They attracted Peak Demand to make a $2.6 M investment to manufacture electrical components in an old tobacco processing plant. And these investments are bringing back other businesses. There are new restaurants and two brew pubs that have opened in the downtown.

Wilson is using an approach that other cities should consider. They involve all of the stakeholders in the community in the effort to improve quality of life there. That includes working with Barton College, a 1,200-student liberal arts university and nursing school. They challenged the arts community to move and grow downtown and have a thriving art scene. They put an emphasis on buying local, which we all know has a tremendous local economic multiplier effect. The various constituencies in the city meet often to discuss ways to make the city better.

But they credit the fiber network for being the change that started everything. While big companies and big employers are important to every community, Wilson understood that the work-from-home entrepreneur movement is creating a lot of jobs and a lot of wealth. And so they foster innovation in a number of different ways and strive to make small and new businesses successful.

The big shame is that the North Carolina legislature passed a law to prohibit other communities in the state from following the Wilson model. Cities are no longer allowed to become retail ISPs in North Carolina. If they build fiber it has to be operated by somebody else – and we know that is a far harder model to make work. One only has to look at what’s happening in Wilson to understand that fiber is an important component these days for economic vitality. But fiber alone is not a guarantee for economic success. It takes a community-wide effort like the one in Wilson to take advantage of what fiber offers. Wilson still has a way to go, but you can feel the excitement in the community – and that is what makes any city a place where people want to live.

Regulation - What is it Good For?

Court Setback for Municipal Competition

The Sixth Circuit Court of Appeals in Cincinnati ruled that the FCC didn’t have the authority to overturn state limitations on municipal broadband. Specifically the case looked at the two FCC orders that would have overturned state restrictions for Chattanooga, Tennessee and Wilson, North Carolina to expand their municipal systems to serve customers outside of their base service territory.

While this ruling has only been to one court so far, I could foresee an opposite reading from another court on the same facts. This is one of those cases working in the gray areas where the court has to interpret the intent of a law, not just the specific language.

The specific issue at hand in these cases was whether the FCC had the authority to overturn the state prohibitions against broadband under Section 706 of the Telecommunications Act of 1996. In that Act the Congress had instructed the FCC and State Commissions as follows:

The Commission and each State commission with regulatory Jurisdiction over telecommunications services shall encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans (including, in particular, elementary and secondary schools and classrooms) by utilizing, in a manner consistent with the public interest, convenience, and necessity, price cap regulation, regulatory forbearance, measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment. (Bold emphasis is mine)

In that Act the Congress clearly told the FCC and State regulatory commissions to encourage broadband competition and to remove barriers to infrastructure investment. The judges in this case did not dispute that the FCC was tackling a barrier to infrastructure investment in their orders.

Interestingly, the court didn’t dispute any of the facts in the case. They recognized the benefits of fiber broadband and acknowledged that the areas where Chattanooga and Wilson want to build have no existing competition (or even any broadband). The court also recognized that the state laws in the two states were clearly barriers to infrastructure investment by the cities.

It would seem by accepting the facts presented by the cities that the court would then rule in their favor. But they didn’t and the court’s ruling boiled down to deciding that the FCC didn’t have a clear mandate to preempt state law under the authority of Section 706. The court says that the language in Section 706 is not strong enough to support preemption.

I guess it all comes down to an interpretation of language. Certainly the statute uses the word ‘encourage’ (instead of some stronger word). But the Act goes on to suggest that the FCC use the regulatory rules at its disposal (such as regulatory forbearance) to effectuate this encouragement. To me, a non-lawyer, that sounds like Section 706 is instructing the FCC to act, not just to passively encourage competition.

As is usual with these kinds of appeals, this case is not only an interpretation of the language that I’ve highlighted above. Various parties intervened in the case and argued that this was an issue of states’ rights versus federal authority. And I am sure that the politics and the underlying judicial philosophy on that larger issue had a lot to do with the decision.

The FCC is an interesting federal agency because they regularly preempt states’ rights on telecom issues. The most recent such decision was one that ordered state and local calling rates from prisons be reduced in line with federal rate guidelines. The agency has a long history of overriding state Commissions to bring state telecom rules in lines with FCC policies.

I’m not enough of a lawyer to understand if there is an obvious appeal to the Supreme Court, or what the likelihood of winning such an appeal might be. But I have followed appeals of FCC decisions for a long enough time in my career to see that this ruling is not strong enough to be the final word on the issue. I am sure we’ll see this topic come up again.


The Industry

A Forever Fight Against Municipal Competition?

The appeals of the FCC’s attempt to overturn state laws that preclude municipalities from building broadband networks is working its way through the courts. Both the states of Tennessee and North Carolina have sued the FCC to stop them from overturning existing telecom laws.

It’s hard to say which way the courts will rule on the issue. The states are painting this as a states’ rights issue. In a recent filing in the case, Tennessee said that states have an, “inviolable right to self-governance . . . Far from being a simple matter of preemption, as the FCC claims, this intervention between the State and its subordinate entities is a manifest infringement on State sovereignty,”

Meanwhile, the FCC is following one of the basic responsibilities that it was tasked with by Congress. Section 706 of the Telecommunications Act of 1996 directed the FCC to take actions to remove barriers to broadband investment. I remember when the Act came out that there was a lot of discussion of how this would allow municipalities everywhere into the broadband business. Even then there were numerous barriers to municipalities becoming telephone companies and my peers and I at the time read this language to mean that the FCC would do precisely what they were told to do – which was to remove barriers. It certainly took the FCC a long time to tackle the issue.

Perhaps in the long run it doesn’t really matter what the courts say. In the two cases being appealed, the FCC ruled against specific laws only in North Carolina and Tennessee that prohibited certain actions by municipalities in those states. Even should Chattanooga and Wilson, NC win those cases the victory would apply only to those specific laws in those states.

There would be nothing stopping the legislators in those same states from trying to pass legislation that would put different blocks on municipal competition. Over the years this tactic has been tried as states have tried to overturn federal abortion laws, and more recently in states’ fights against gay marriage. Note that I am not equating the fight for municipal broadband to those hot button topics, but rather pointing out that the same legislative tactics are available to the states that don’t like the FCC ruling. They are free to try to pass different laws to chip away at the FCC until they find something that sticks.

In my mind the FCC ruling might well provide some relief for both Chattanooga and Wilson, but one has to ask if it is going to provide much help to other cities. The cost of fighting these laws has to be steep for those two cities, and one would think that there are not a lot of other cities ready to fight this hard to overturn a broadband prohibition.

I might be wrong about this and there might be dozens of cities lining up awaiting the court decisions in these cases. But realistically, the cost of the expensive court fights needed to challenge existing telecom laws is in itself a big barrier to entry for cities and most of them are probably not willing to tackle the issue.

What is most interesting about this whole fight is that there are not a huge number of cities wanting to become ISPs. I’ve seen dozens of RFPs this year from cities wanting fiber and the majority of those RFPs are seeking a commercial provider to bring broadband to the cities. For the most part cities only end up getting into the broadband business when they don’t see any alternative.

It ought to be clear to all legislators by now that just about every city that doesn’t have a fiber network wants one. Cities without broadband can see themselves slipping against cities who have been lucky enough to get it. Affordable broadband brings a lot of things to cities such as jobs, small business growth, the ability of citizens to telecommute, increased property values, etc.

But the telecom lobby is one of the more powerful lobbies in the country. The large telcos and cable companies contribute to politicians the whole way down to the local government level, and that has paid off for them in many ways. In a lot of states the legislation that is blocking municipal competition was written by the large ISPs like AT&T. And I suspect the large ISPs are willing to keep writing more legislation if that will keep away competition.

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What Does the FCC Municipal Ruling Really Mean?

On the same day that the FCC passed its new net neutrality rules it also granted the petitions of Chattanooga TN and Wilson NC to allow them to expand their broadband networks. In both of these petitions the municipal network is surrounded by areas with poor or zero broadband, and residents of the area have been asking the two cities to extend their fiber network to serve them. But in both cases there were state laws that restricted the systems from expanding.

On the surface, the FCC ruling is only about these two specific cases, but the FCC has made it clear that they will entertain petitions by other jurisdictions that are being restricted by state laws. FCC Chairman Wheeler said in the ruling that there are several ‘irrefutable truths’ about broadband: “One is, you can’t say that you’re for broadband and then turn around and endorse limits on who can offer it. Another is that you can’t say, I want to follow the explicit instructions of Congress to remove barriers to infrastructure investment, but endorse barriers on infrastructure investment. You can’t say you’re for competition but deny local elected officials the right to offer competitive choices.”

While this ruling obviously gives great hope to many communities that don’t have broadband, there is still a long way to go until this ruling makes any practical difference in the market. There are already several parties that say they are going to challenge the ruling in court, so this issue will have to slog its way through the legal process before it goes into effect. The primary issue for a challenge is the FCC’s authority to overturn state restrictions on broadband.

The FCC is relying on language passed by Congress as part of the Telecommunications Act of 1996. In that law, section 706 of the Act says the following:


(a) IN GENERAL-The Commission and each State commission with regulatory jurisdiction over telecommunications services shall encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans (including, in particular, elementary and secondary schools and classrooms) by utilizing, in a manner consistent with the public interest, convenience, and necessity, price cap regulation, regulatory forbearance, measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment.

Further, Section 253 of the Act also included language that that bars states from enacting laws that prohibited ‘any entity’ from providing any interstate or intrastate telecommunications service. I’ve read that language from the Act a number of times and it certainly, on the surface, seems to give the FCC the authority to override the telecom laws in North Carolina and Tennessee that stopped the municipal systems from expanding. I’ve chatted with a few of the legislators over the years that helped to write the Telecom Act and they believed that when they wrote the Act that they were enabling municipal competition.

But as is often the case, a law that Congress passes isn’t fully effective until it’s been tested in court. In this case there have been two prior challenges to the law. A year after the passage of the Act, the City of Abilene challenged the Texas law that was a flat ban on municipal competition in the state, and lost before the FCC and then on appeal to the federal Court of Appeals for the DC Circuit. In 1997, Missouri also banned public entities from providing telecom services. Cities in the state challenged this at the FCC, lost and then appealed to the Eighth Circuit Court of Appeals, which unanimously ruled in cities’ favor. The Supreme Court took the case and let the Missouri law stand.

But the current cases are different than the two prior challenges. Both of those cases challenged an outright ban to competition. But in the new cases, the cities asked to be relieved from specific restrictions that stopped them from expanding their existing service beyond a defined footprint. In Tennessee, the City of Chattanooga is restricted to offering broadband in the same area where they serve electric customers. In Wilson, the City is restricted to the City boundaries. In both cases there are nearby customers just outside of those boundaries that each city wants to serve, and the ruling gives them the right to expand.

So this is going to be up to the courts to decide. Certainly one thing has changed since those two earlier rulings in that the FCC is now in favor of overturning states’ rights. In the earlier cases the FCC ruled against the petitioners, and so the courts started with that refusal in judging the cases. These kinds of cases usually boil down to whether the FCC has the authority to rule, which is not exactly the same thing as ruling about whether the challenger to the law was right or wrong. In the last challenges the courts said that the FCC had the authority to deny the municipal petitions. This time any challenges will begin with an FCC ruling in favor of the cities and we’ll just have to wait and see if that makes any difference in the courts.

Current News

Politics and Municipal Competition

Not long ago I had a blog that looked in amazement at how political the issue of net neutrality had become, and how it was being debated more along partisan lines than on the merits of the issue. And I noted that this was the biggest political issue I had remembered during my career in the industry that had started back in the 70’s.

And now, in a very short period of time national politics has entered our industry again on the issue of allowing municipal competition in broadband. I find this issue interesting because it looks at state barriers to competition, and states vary widely on how they handle the issue today. The press reports that there are 20 states that have a ban on municipal competition, or else rules that are draconian enough to effectively stop it.

This issue has been political for years at the state level. There is a group, the American Legislative Exchange Council (ALEC) that writes and promotes various laws that support conservative policies. These laws are then introduced into state legislatures whenever the environment seems ripe. ALEC has been pushing anti-municipal broadband legislation for several decades. In recent years we’ve seen bans enacted against municipal broadband in North Carolina in 2011 and South Carolina in 2012. Just this year an ALEC bill was introduced in Kansas.

But the fight has now moved from the state legislatures to the FCC. In the last week there were two petitions filed at the FCC by existing municipal fiber systems in Chattanooga, Tennessee and Wilson, North Carolina. These petitions ask the FCC to remove barriers in those states that prohibit those municipal fiber businesses from expanding outward to serve other communities. The FCC accepted these petitions and has asked for comments by August 29th. This probably means that the FCC will consider granting the petitions, which is in line with statements made all year by FCC Chairman Tom Wheeler who says that there should be no restrictions on municipalities from building fiber networks.

The FCC granted the hearing of these petitions in the face of open political opposition. On July 16 the House of Representatives voted to strip the FCC of any authority to allow communities to pursue broadband businesses. The bill passed 223 – 200 with Republicans voting 221 – 4 in favor of the bill. Just like with net neutrality, this issue is heavily partisan with Republicans staunchly against municipal competition while democrats, while not so staunch, seem these days to be for whatever the republicans are against.

And so, just like net neutrality, this debate has left the arena of public discourse and now is highly partisan. This seems odd to me since there is already a lot of municipal competition in the states that allow it. It’s been reported that there are over 150 communities that have built and are operating fiber networks to customers. And there are hundreds more that have built fiber networks to serve their own government, schools and even sometimes large businesses. And so we have many examples of how municipal competition works and what it means to a community. This is not a national fight on whether cities can get into the fiber business, but rather we are debating whether states can prohibit it.

It’s interesting because the Chattanooga petition to the FCC quotes republican Trent Lott, the Speaker of the House at the time of the Telecommunications Act of 1996, as saying how that Act would help communities to compete in the telecom space. So this hasn’t always been so clearly partisan, but like many issues it is now clearly divided along party lines.

I don’t like this political fight any more than I like the one on net neutrality. Call me old fashioned, but I would rather see topics in our industry decided on their merits rather than being divided straight along party lines. There certainly are arguments to be made on both sides. But to me, the argument that trumps them all is that there are tens of thousands of small rural communities that don’t have sufficient broadband. And in most cases there is nobody lining up to build broadband network in these places.

I say that we should let localities decide on their own what is in their best interest. Fiber networks and Internet access are growing to become a natural utility like water lines and electric lines. Communities without broadband are going to be at risk of withering away and becoming irrelevant. I look at this issue in the context of what happened with electricity a hundred years ago. At that time big companies scrambled to build electric networks in all of the major cities. But rural America was left behind and many small towns decided then to electrify their towns in order to be relevant and to be a place that people want to live. Broadband is this century’s electricity. In those places where no incumbent steps up to bring broadband the local community needs to have the right to do it on their own.

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