Few Changes Seen in State Muni Broadband Regulatory Environment

New efforts to block municipal broadband systems have been limited. North Carolina has been the main battlefield on municipal broadband in recent years, attorney Jim Baller said. The incumbents there have unsuccessfully promoted anti-municipal legislation in three of the last four years, he said. Each time, they ran into “stiff opposition from municipalities, high tech companies and associations and public interest groups,” Baller said. The only other significant battle last year was in Maine, where FairPoint failed to get a bill through the Legislature to prevent the University of Maine from taking advantage of $25 million in federal stimulus funds to develop a big dark fiber network, he said.

In other states, no new barriers to public entry have passed in recent years, nor have there been successful efforts to roll back existing state barriers, Baller said. So, he added, “we're stuck with about 18 states that have some form of impediment to public communications initiatives.” In some of the states, municipalities can’t take money from other departments to support networks, a practice that cities often use on the sly, said consultant Craig Settles.

Many municipal projects are in places that already had broadband, said President Robert Atkinson of Information Technology & Innovation Foundation. Unserved and underserved areas should be the places to go for future municipal projects, he said. And cities and potential municipal network providers should work with current providers, Atkinson said. “The first choice should always be see if you can work out an arrangement with the private sector,” he said.

Bundling is important to a workable business model for municipal broadband, Atkinson said. “You have to have triple play. … There are just too few people who just want to buy broadband. They want to bundle.” Subsidization is also important. But only one provider should be subsidized, he said. Helping two in a high-cost area is expensive and a waste of money, Atkinson said. And building demand is important, Atkinson said, citing efforts by groups like Connected Nation and One Economy to increase take rates. Technology-neutrality is also key, he said. Many places can be connected by wireless, he said.

Meanwhile, the National Broadband Plan and the broadband stimulus program have prompted many more state and local governments to become active in broadband, Baller said. The plan and the stimulus program have pushed many public entities rapidly up the learning curve and should continue to generate momentum, he said. While local governments received stimulus funding primarily for middle-mile and computer center projects, many are exploring creative ways to bring high-capacity last-mile networks to their communities, including a variety of public-private partnerships, he said.

North Carolina’s Legislature is taking steps to make general-obligation bonds mandatory to finance these efforts, because state governments are usually “the final backstops for funding of these projects,” said Steve Titch, a Reason Foundation analyst. If the projects fail, the cities don’t have the financial resources to recover and are sometimes left with millions of dollars of debt. They tend to look to their state governments to bail them out, he said. Some state barriers are well intentioned efforts to prevent municipalities from wasting tax money, said Craig Moffett of Bernstein Research. Some are intentionally designed to ensure carriers that they can safely invest without the fear of a municipal overbuilder, he said.

Many municipal projects have shown a pattern of coming up short on funding, Titch said, adding that costs are often underestimated and revenue often overestimated. There has been “lots of unrealistic optimism,” he said. Adoption rates are also often overestimated, said Moffett. Some municipal broadband networks aren’t as robust as private ones and they can’t handle technologies like iPhones, Titch said. The states don’t want to be harsh, he said: They are just trying to work within their fiscal restrictions. Many municipal projects have failed to provide the services they had envisioned, said Bartlett Cleland, director of the Institute for Policy Innovation Center for Technology Freedom. The institute has cautioned governments to be careful not to sponsor ventures like municipal broadband networks. It always comes down to the issue of funding, said Moffett.

Still, many projects have changed course and turned the infrastructure to support government services and other uses, Titch said. Some cities have converted their failed free broadband networks into government-operated projects for city services like meter reading and traffic systems, he said. They've given up trying to compete with unsubsidized private providers, Titch said.

Many cities now have choices in network buildout, operation and financing, said Ken Fellman, president of the National Association of Telecommunications Officers and Advisors. Municipalities can be creative in skirting legislative restrictions, consultant Craig Settles said, citing Google’s project to take gigabit fiber to communities. Efforts like that can help legislation to scales back or remove legal barriers, he said. Even as North Carolina companies were trying to block municipal fiber networks, the bill to place the hurdles had an exemption for Google Fiber, he said.