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Fat Pipe Dreams in North Carolina

There’s a big fight going on in North Carolina over rural broadband. Representative Avila and Senator Apodaca have introduced bills that would place some fairly light restrictions on the business practices of municipal (government owned and operated) broadband networks that have drawn the ire of network equipment vendors and out-of-state muni broadband activists.

Charges and counter-charges are flying fast and furious. Well-travelled muni broadband consultant Craig Settles says the authors are in the pockets of Time-Warner Cable, and urges people around the country to lobby NC legislators to kill the bills:

The battle is now fully joined in NC. But it’s not just their fight, and it’s not a fight solely about broadband. This fight affects everyone who believes that communities deserve the freedom to choose their own best solutions to key problems involving economic development. Communities own the problems of this terrible economy.

Philip Dampier, the supporter of former New York Congressman Eric Massa who joined the broadband policy fight when Time Warner was experimenting with metered pricing, is even more shrill than Settles:

But Marilyn Avila does not care. She is only working for the interests of a single cable company that donates to her political campaigns. Tell your legislator to vote NO on H129, and let them know you are appalled that this anti-consumer, anti-competition legislation keeps coming up year after year because of the lobbying influence of Time Warner Cable. Make it completely clear you are watching their vote on this bill like a hawk, and it means everything to you at the next election. Tell your representative to stand up for competition, stand up for advanced fiber optic networks, and to stand down on special interest legislation like H129, which only benefits the cable company that has overcharged you for years.

Karl Bode, the New York City downloading and piracy enthusiast who writes the DSL Reports blog, is righteously indignant:

Again overlooked by incumbents trying to shutter North Carolinas community broadband efforts is the fact that if these communities were happy with their service, these builds wouldn’t pop up. Also unexplained is — if these efforts are always destined to failure as carriers claim — why not just let them fail? Why try to pass the same law four years running? Hint: the word begins with c, ends with n, and isn’t Cancun.

What’s that spell? Competition! It’s an odd fight.

Reading the text of the bills, I don’t see what our perpetual network operator-haters are so worked up about, although I can certainly see that the network equipment vendors want more outlets for their gear; more power to them. The bills actually don’t place any restrictions at all on unserved communities (where 90% or more can’t get broadband) who want to build themselves a first-class, triple-play enabled, broadband network or anything else better than dial-up. If there weren’t such an exemption, I’d be just as riled as the people I’ve quoted.

What the bill actually does is address the use of taxpayer-guaranteed funding to create second or third networks in towns that already have broadband access from commercial providers, and even in these cases, it doesn’t impose an outright ban on the second or third pipe. Rather, it seeks to ensure that cities, who function in the dual role of regulator and competitor in such markets, don’t abuse their regulatory power to privilege themselves with respect to their competitors. If this sounds like the aspirations of net neutrality, you understand what’s going on.

The bills require municipal broadband operators play by the same rules and regulations that apply to commercial operators, to refrain from cross-subsidizing their networks by raiding other kitties, to price at cost or above, and to allow fair access to rights of way. In part, the rationale for these measure is complaints the lawmakers have heard from residents of Davidson and Mooresville, the North Carolina towns who bought the Adelphia cable system out of bankruptcy by forcing the issue in court (Time Warner Cable wanted to buy it as well) and have run up some impressive losses since the purchase: They committed $92M in bonds, and have lost $6.1M on operations since 2009.

The local officials who authorized the purchase are embarrassed:

Commissioner Mac Herring, who voted in favor of the purchase, blames “flawed financial models.” He says “there were financial details that I did not know all the ins and outs of.” … “until our community buys into the system there is potentially a huge financial drain to municipal resources that was not predicted in our projections for MIC.”

Herring said he “should have more fully investigated the details” and said he “take(s) responsibility for my own ignorance to these details. My support hinged upon my belief that we were providing for a superior Fiber Optic Infrastructure for the benefit of Mooresville’s citizens as well as economic development. Hindsight is 20/20, but I would probably still vote the same way given the arguments before me at the time.”…

Commissioner Chris Carney, who voted in favor of the purchase said the board was not aware of some of the financing elements of the bond process “and that’s disturbing.That’s the kind of decisions that were unfortunately were made by a select group and we were not aware of that.” “We owe the citizens an apology.” The town would like to sell the system at some point because most officials never really wanted to own it anyway… but “we couldn’t sell it if we wanted to.”

Overbuilder projects like this follow a familiar trajectory: They begin with great enthusiasm on the part of a few broadband activists, and then slowly erode as costs increase, subscribers fail to sign up, and debts mount. All government-funded broadband networks don’t follow this path, of course: Those that bring service to unserved areas often do quite well, but the over-builders that bring in the second or third pipe are rarely sustainable.

Unsustainable networks waste societal resources.   By definition, a second or third municipal network means fewer subscribers for existing providers. Even if some of the lost revenue from the fewer subscribers goes directly to lower profits, it is unlikely that all of the loss will, with the result that the provider will have to raise prices (or at least not reduce them as much as they would otherwise), hurting broadband consumers outside the community.  If the companies don’t raise prices, they have less revenue to support investment in next-generation networks inside as well as outside the community. Public-private cooperation is a better approach in these scenarios than competition between government and the private sector.

At the end of the day we need to recognize that much of the support for the municipal broadband movement – and it is just that, a movement – is more ideological than practical.  John St. Julien, the “grassroots champion” of Lafayette, Louisiana’s municipal fiber broadband network, stated that he resented incumbents because “they treat us like serfs, like it’s their network… We can own our networks, we can take control of our networks.” Broadband users of the world unite; you have nothing to lose but your broadband service agreements. As Settles says: “it’s not a fight solely about broadband;” it’s a fight over capitalism and its discontents.

The muni broadband consultants and activists express bewilderment over the bills’ rationale. Bode makes the telling comment: “…if these efforts are always destined to failure as carriers claim — why not just let them fail?”

This question reveals the intent behind the bills. If, as Bode imagines, the Avila and Apodaca bills were simply about doing Time Warner’s bidding, there would be no need for them; the over-builder networks will simply fail of their own accord (there’s ample evidence to that effect, of course.)

But what if the bills are meant to address a wholly different problem, such as the willingness of rural officials to commit taxpayer funds to ill-advised projects without voter approval that are destined to end in tears?

Bingo, there’s your answer: The bills also require ballot-box approval by the citizens before committing funds to these projects. I suspect that’s the issue that perturbs the traveling band of rural overbuilding consultants, the modern day Music Men who sell fat pipe dreams to small towns across America and skip out before the bills come due.


UPDATE: In the interests of full disclosure, I’d like to mention the fact that I received a $20,000 research grant from Time Warner Cable’s research program last summer to write about the future architecture of the Internet, and to recommend some changes to the existing cable network. Time Warner Cable publicized this grant at the time, as well as similar grants to John Palfrey of the Berkman Center, Scott Wallsten of the National Broadband Plan team, and Dale Hatfield, former Chief Technologist at the FCC. You’ll have to make up your own mind as to whether Palfrey, Wallsten, Hatfield and I are shills for Big Cable.

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