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Fleeced by the Telecoms and Your State is Blessing It

(PAUL J. RICHARDS/AFP/Getty Images)

Joey Durel was not an obvious champion for building a municipal broadband network in his city. He owned multiple private businesses and was the head of the local chamber of commerce prior to becoming mayor of Lafayette, Louisiana, one of the most conservative urban centers in America.

In the early 2000s, like today, the big telephone and cable companies were extremely unpopular. DSL and cable Internet access were growing, but smaller markets like Lafayette always had to wait to get the speed upgrades they saw the larger cities getting. However, Bellsouth (now AT&T) and Cox were not slow to increase prices, which led to obvious customer frustration.

When first presented with the idea of a city-run network, Durel was skeptical but open minded. He looked toward the Lafayette Utility System, which already handled electricity, water, and wastewater for the community—and had a much better reputation than the cable and telephone monopolies—to make an assessment.

Durel soon determined that a city-run broadband network would provide better services at lower prices than Bellsouth or Cox, but he was under no illusion those companies would go quietly into the night. However, he probably didn’t expect such a challenge to his authority—a challenge that went right up to the state legislature to stop him. This was preemption, and Durel was about to get one heck of an education in how monopolies use the levers of government to get what they want.

Preemption is when the federal government or states preclude lower levels of government from enacting certain laws. The recent rise of conservative legislatures has actually led to more cases in which states are preempting localities—from plastic bag bans and minimum wage hikes, to sick time ordinances and tougher gun laws. In many, but not all cases, these are conservative legislatures preempting more liberal city laws.

But in Lafayette a conservative legislature is stream-rolling what can only be described as a local conservative effort to save money and increase the quality of service to the community.

On its face, municipal broadband may appear to be a page right out of Bernie Sanders’ playbook. Possibly because it is—he strongly supports them. There are many variations, but a common denominator is the local government owning a network that offers broadband services (as well as cable television and telephone service historically, but less commonly today). In the open access model, the city leases the network to independent companies that compete on the municipal network to offer services.

When the Institute for Local Self-Reliance (ILSR) analyzed which communities have built these networks, we found the majority consistently voted for Republican candidates. Most are smaller cities located in areas that the telephone and cable companies did not prioritize, and those areas have only become more politically conservative since.

Joey didn’t see this as “government-owned broadband” as the cable and telephone lobbyists like to label it. He sees it as a community solving a problem that the private sector could not. When he gets riled up, he’ll go even further, saying the big cable and telephone companies—with their many lobbyists in DC and state capitals—are more akin to big government than local governments are.

Most of us have no real choice among high-quality providers, though there seems to be a concerted effort to pretend otherwise. Numerous organizations with ties to the big cable and telephone companies claim we actually have lots of choices, from switching to mobile Internet networks (with bandwidth caps and slower speeds than most cable customers are used to), satellite options (even people who only have very slow and unreliable DSL prefer that to satellite), or a bunch of providers that the Federal Communications Commission thinks might serve in the area. And no one, literally no one, defends the accuracy of that data.

In this progression, accusations come right after denial. Some lay the blame for the lack of competition at the feet of local officials who are supposedly hostile to new providers. In hundreds of conversations with local government officials and many small ISPs that are building the most advanced broadband networks in the country, ILSR has found that local officials are desperate for investment and motivated to work with providers. Some communities do have challenges—older regulations or permitting processes that need streamlining—but these challenges aren’t stifling competition.

No, basic economics is most responsible for the cable and telephone monopolies of 2019. Building a citywide fiber optic network from scratch takes approximately $1,000 per person, give or take.. Most of that money gets spent before any revenue starts to come in— a classic high barrier to entry. An existing network, especially one that has been largely amortized, can offer services at very low prices. So the same pattern unfolds:  a new network decides to compete with an established and hated incumbent. The incumbent lowers rates temporarily, the new network cannot attract enough customers for a good return on investment, and then exits in the market in some way.

Local governments are less vulnerable to this anti-competitive tactic because they can build the networks with patient capital and operate with a different spreadsheet. A local government can survive more years of losses before breaking even. Lafayette broke even in less than 10 years and is now expanding to nearby communities with its net income.

Durel’s  budding enthusiasm for creating local Internet choice pushed Bellsouth and Cox into what he describes as their core competency: “Buying steak dinners and football tickets.” In other words, lobbying. In 2004, the two sides began arguing over SB 877, one of many bills across the nation that pretended to “level the playing field” while actually hamstringing local networks. A compromise eventually allowed Lafayette to move forward with several restrictions but state law effectively prohibits new municipal networks.

Today, 19 states have laws that discourage municipal networks—ranging from outright prohibitions to sneaky de facto prohibitions and procedural challenges.

According to Pew polls, a strong majority of liberals, conservatives and independents believe local governments should be allowed to build their own networks. But in recent years, the elected officials at the state and federal level pushing to maintain or even increase barriers to municipal networks have been nearly uniformly Republicans. They appear captured by lobbyists who prey upon their desire for market solutions and distrust of government intervention.

One of the first cracks in this united front came from Arkansas earlier this year. As one of the least-connected states (despite hundreds of millions of dollars in subsidies going to AT&T, CenturyLink, and more), the legislature slightly reduced preemption to allow local governments to access broadband grants to create public private partnerships. The Republican Women’s Caucus in the Senate led the way, recognizing that local governments can play an important role in creating and maintaining the competition so desired by state and national policy.

Joey Durel fought this fight more than 15 years ago and won just enough freedom to prove Lafayette could indeed create local Internet choice. It is now one of the best connected cities in the state and has been among the first to get new upgrades from the cable and telephone companies. The municipal network has been a boon to local jobs—diversifying the economy with more than 1,000 new high tech jobs. Just as importantly for some, it brought new pride to the town as it began to be known for its high-tech network alongside it being the heart of Cajun culture. It has paid its debts and operating costs without spending a dime of taxpayer money—though it continues to be slandered by those who cannot imagine a local government so succeeding in this manner.

For more than 15 years, Republican state and national leaders have doubted local governments have the capacity to create local Internet choice. The track record is there for those who want to dig into it:  a few high profile failures, a few high profile stunning successes, and a lot of communities that are simply breaking even while giving their businesses and residents the benefits of a choice in this essential service.

Perhaps the more important metric is that of the states that have limited their local governments in rural areas throughout North Carolina, Pennsylvania, Texas, and others that continue to suffer from a dearth of consumer choice. More than 20 years of claiming that somehow satellite, broadband and mobile wireless will create real competition to the cable and telephone companies, there is anything but. In fact, the monopolies are more entrenched than ever before.

In ILSR’s experience, most communities would prefer not to build and operate their own network. But for those who feel it necessary, the key question is who should decide if they can. Joey knew Lafayette better than anyone in Baton Rouge or Washington, D.C. If he or his compatriots make the wrong decision, the community can vote them out. But it should be their decision to make.

Christopher Mitchell is the Director of the Community Broadband Networks Initiative at the Institute for Local Self-Reliance in Minneapolis. He tweets @communitynets

This article was supported by the Ewing Marion Kauffman Foundation. 

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