LARGE NUMBER OF MUNICIPAL UTILITIES EYING THE BROADBAND MARKET

Municipalities are encouraged that efforts to get measures introduced in Congress to restrict or even prohibit their ability to provide telecom and broadband services have floundered. “We had anticipated legislation in the House that would restrict our ability to offer services, but we haven’t seen that yet and… there isn’t very much enthusiasm for that legislation now,” said Joe Nipper, senior vp-govt. relations for the Assn. of Public Power Utilities (APPA). More than 500 APPA members are offering some form of broadband services and many more are exploring broadband options, he said.

As for the opposition to the tri-cities’ proposal to provide high-speed services, Nipper said such local resistance by the private sector was “pretty typical.” Intensive campaigning and the trading of charges marked the run-up to the referendum set for today [April 1] on the $63 million broadband project. Peter Collins, information systems mgr. of Geneva City, said the project was prompted by what he said were Comcast and SBC “broken promises” in the last 5 years to upgrade: “We wanted a faster rollout, primarily to benefit our small businesses. But they [companies] kept moving the targets.” After the companies resorted to newspaper ads, mailers and even TV spots to cast doubt on the viability of the project, the mayors of the 3 cities came out publicly for the first time last week in support of the move, he said. The companies had argued that the cities’ broadband project was a failing proposition and that taxpayers eventually would end up footing the bill, he said. “If the project will fail as they say, why do the companies spend so much money to fight the proposal,” Collins asked.

A Comcast spokeswoman said the issue in the tri-cities wasn’t a matter of the company’s fearing competition but was a question of whether the cities’ resources were best spent on building a broadband network. Companies that had franchises with the cities were put at a distinct disadvantage when the local govts. turned competitors, she said. She conceded that companies hadn’t kept build-out promises in the past. There had been as many as 8 cable operators in the Chicago market and over the last year there had been several acquisitions, the spokeswoman said. Each company had promised build-outs and “a lot of times promises were not met,” she said: “The difference now is Comcast has purchased these systems and rather than say we will do them [upgrades], we have actually committed the funds to do that.” Regardless of the outcome of the referendum, the spokeswoman said, the company intended to maintain its relationship with its franchise holders. As for charges by city officials that the companies were spreading “misinformation” about how municipal broadband ventures had failed elsewhere, Deb Piscola, mgr.-govt. affairs for Comcast’s Chicago region, said that in all the research it had done, the company hadn’t found even one municipal overbuild that was self-sustaining. “Either they borrow money internally, raise taxes or decrease city services in order to keep these entities afloat,” she said.

Municipal utilities were girding for legislation in Congress, said Nipper, with reports that the U.S. Telecom Assn. was looking for sponsors of a bill that would limit or in some way prohibit municipalities from providing service. But momentum for legislation seems to have dissipated because, he said: (1) Members of Congress now have a “better understanding and realization” of what municipalities are doing in providing broadband and why they're doing it. (2) Bell companies and others who would have supported such a bill have “other priorities and difficulties,” including the “fairly stunning decisions” by the FCC on UNEs. (3) The FCC’s UNE decision had split the political coalition that had supported Tauzin-Dingell. APPA plans to lobby members of Congress for clarification that Sec. 253 of the Telecom Act declare that the FCC must preempt state legislation that would prevent municipalities and municipal utilities from providing broadband services. But with little chance of adverse legislation in the House, APPA now is waiting for the U.S. Supreme Court to take up the issue, he said. The Mo. Attorney Gen. has sought Supreme Court review of an 8th U.S. Appeals Court, St. Louis, ruling that overturned an FCC decision declining to preempt a state statute that prohibited municipalities from providing telecom services (CD Feb 24 p7). The Supreme Court will have to decide on 2 differing appeals court decisions, Nipper said, with the D.C. Circuit ruling in favor of the FCC’s position on preemption in City of Abilene (Tex.) v. FCC. APPA says 11 states so far have set up barriers to municipal entry into the telecom and broadband business.

The principal motivating factor in a large number of municipalities looking to enter the broadband business is the “considerable slowdown” in private sector activity over the last 2 years, said attorney James Baller, who represents municipalities. Also, private sector offerings aren’t as “robust” as a number of communities are considering, he said. In many places, advanced services aren’t available at all, he said. Asked why municipalities were venturing into the broadband business now that even private overbuilders were rolling back build-out plans, he said the goals of the private sector and local govts. were different. Baller said the private sector would have to recover its costs and earn rates of return high enough to pay back its lenders and make a profit for its shareholders in a relatively short period or see investments migrating to other sources. Because their goals are economic development and education, municipalities can afford to invest in a project and recover their costs over a longer period of time, he said: “They don’t have to make a profit from the project.” Municipal utilities themselves have a need for communications services and have had to build such infrastructures anyway, Baller said. That infrastructure can be used to serve the communication needs of the local govts. as well as residential needs at incremental costs, he said. “But if you were a cable company, your project is going to be made or broken on whether you can sell enough services, primarily to residential users.”

Cable operators aren’t generally opposed to competition from municipalities, but want some safeguards in place, the NCTA said. When municipalities enter the telecom business, they become both regulators and competitors, a spokesman said, and when they own poles and conduits to which cable needs access, there “obviously is a problem.” That was why some states had enacted safeguards such as referendums and tax money not subsidizing the municipal systems, he said. There also was the philosophical issue of whether govts. should spend money to compete with the private sector, he said.