Breaking the Broadband Monopoly

Publication Date: 
May 3, 2010
Author(s): 
Christopher Mitchell - Institute for Local Self-Reliance

The Institute for Local Self-Reliance is pleased to release this comprehensive report on the practices and philosophy of publicly owned networks. Breaking the Broadband Monopoly explains how public ownership of networks differs from private, evaluates existing publicly owned networks, details the obstacles to public ownership, offers lesson learned, and wrestles with the appeal and difficulty of the open access approach.

Download Breaking the Broadband Monopoly [pdf]

Executive Summary

Across the country, hundreds of local governments, public power utilities, non-profits, and cooperatives have built successful and sometimes pioneering telecommunication networks that put community needs first.

These communities are following in the footsteps of the publicly owned power networks put in place a century before. We watch history repeating itself as these new networks are built for the same reasons: Incumbents refusing to provide service or charging high rates for poor service.

Cities like Lafayette, Louisiana, and Monticello, Minnesota, offer the fastest speeds at the lowest rates in the entire country. Kutztown’s network in Pennsylvania has saved the community millions of dollars. Oklahoma City’s massive wireless mesh has helped modernize its municipal agencies. Cities in Utah have created a true broadband market with many independent service providers competing for subscribers. From DC to Santa Monica, communities have connected schools and municipal facilities, radically increasing broadband capacity without increasing telecom budgets.

These pioneering cities have had to struggle against many obstacles, often created by incumbents seeking to prevent the only real threat of competition they face. Eighteen states have passed laws that discourage publicly owned networks. When lawsuits by entrenched incumbents don’t thwart a publicly owned system, they cross-subsidize from non-competitive markets to temporarily reduce rates in an attempt to starve the infant public network of subscribers.

Despite these obstacles, more and more cities are building these networks and learning how to operate in the challenging new era in which all media is online and a high speed tele-communications network is as much a part of the essential infrastructure of a modern economy as electricity was 100 years ago.

Communities that have invested in these networks have seen tremendous benefits. Even small communities have generated millions of dollars in cumulative savings from reduced rates – caused by competition. Major employers have cited broadband networks as a deciding factor in choosing a new site and existing businesses have prospered in a more competitive environment.

Residents who subscribe to the network see the benefits of a network that puts service first; they talk to a neighbor when something goes wrong, not an offshore call center. At the municipal fiber network in Wilson, North Carolina, they talk of the “strangle effect.” If you have problems with their network, you can find someone locally to strangle. Because public entities are directly accountable to citizens, they have a stronger interest in providing good services, upgrading infrastructure, etc., than private companies who are structured to maximize profits, not community benefits. Residents who remain with private providers still get the benefits of competition, including reduced rates and increased incumbent investment.

Some publicly owned networks have decided to greatly increase competition by adopting an “open access” approach where independent service providers can use the network on equal terms. Public ownership and open access give residents and businesses the option of choosing among many providers, forcing providers to compete on the basis of service quality and price rather than simply on a historic monopoly boundary.

Perhaps the greatest benefit communities have gained from owning their telecommunications networks is self-determination. Recent court rulings enable private network owners to set their own rules, including increased charges for accessing some sites – much like a cable bill charges more for some programming. The rules are made far from where the customer resides and the criteria used to design such rules maximizes benefit to the private firm, not the community.

There is no one model for community broadband. Communities vary greatly in their needs, assets, desires, and culture, not to mention a regulatory environment that varies from state to state. This report presents case studies, evaluates existing networks, offers lessons learned, and highlights the most important issues facing both communities and policy makers at all levels. Public ownership offers the best prospect for building the networks we need to succeed in the 21st century.

Press Release

Publicly Owned Networks Spur Competition And Offer Fastest Speeds at Lowest Prices, Says New Report

“Publicly owned fiber networks have proven globally competitive – they offer the single best hope for communities that need to stay competitive in the digital age,” says Christopher Mitchell, Director of the Institute for Local Self-Reliance (ILSR) Telecommunications as Commons Initiative and author of a newly released ILSR report Breaking the Broadband Monopoly.

The comprehensive study offers details on many successful publicly owned broadband networks and draws lessons from their experience.

Lafayette, Louisiana, and Monticello, Minnesota, the report notes, built citywide fiber-to-the-home networks offering a symmetrical 10 Mbps (million bits per second) package for less than $30/month. These packages offer the best broadband value of any connection in the U.S.

The report explores the ways publicly owned networks have created true competition for citizens by breaking the stranglehold of cable and telephone oligopolies. As Mitchell, a national expert on community networks says, “Public ownership offers the only realistic option communities have to create competition in broadband services. Communities with these networks pay lower prices and have faster services.”

“Breaking the Broadband Monopoly” is the most comprehensive and up-to-date report on public ownership, combining case studies and a discussion of lessons learned with an in-depth analysis of the many obstacles to public ownership created by state and federal policies.

“That so many barriers to public ownership exist is sobering,” says Mitchell. “But it is uplifting to see the growing number of communities who are overcoming these hurdles and establishing the most impressive broadband networks in the country.” The report is available as a free download.

About ILSR and the New Rules Project:

Since 1974, ILSR has worked with citizen groups, governments and private businesses in developing practices that extract the maximum value from local resources. A program of ILSR, the New Rules Project focuses on local, state and national policies that enable that goal.

Comments

Government should not compete with the private sector.

It destroys jobs, harms local economies, and cannot provide services as efficiently as the private sector. What's more, the unfair competition from entities which have no need to actually remain financially solvent is anticompetitive and will preclude competition and consumer choice. I'm very glad that my state has wisely prohibited government from engaging in such destructive behaviors except as an absolute last resort if NO private entity will provide service.

About time

I wondered how long it would take this particular troll to show up on muninetworks.org. Those who take the time to read my report will find just how nonsensical this anti-government argument is. I prefer competition to the monopolies always defended by people like Mr. Glass.

The Truth About Muni Broadband

Untrue and uninformed.

Dalton Utilities built a system on internal funds that the utility controlled. They take NO tax dollars from the local economy to operate, they are a revenue based system just like their water and sewer divisions. DU added 20+ high paying technical jobs to the community that the incumbent’s were unwilling to do. As a matter of a fact, the incumbents were cutting local jobs before the utility entered the game. They enjoy a 65% market share because they are good at Broadband....not because they can undercut the competition....they cannot. They have loans to pay back like most businesses. So DU created even yet competitive playing field; is beating the incumbents at their game through excellent local service and system performance: and has given Dalton the connectivity the big boys wouldn't provided (at least not until Dalton introduced it to the community).
As our cities die, they must do something to keep the businesses they have. They cannot rely on the incumbents to invest in the lower tier cities (like Dalton GA) that are small pieces of their entire system. Dalton's project may not have created new local businesses, but it saved it from a fate that the rest of the US small cities are experiencing, permanent small business decline.

Local Muni Broadband, IOC Broadband, and City Owed Broadband are necessary to keep our small towns thriving....just as these cities did in the 1920s when they introduced electricity and local telephone....this is an investment they must make inside their communities, no for profit company is going to come to their rescue, they have stock holders to satisfy, so they strap on their boots and drive the problem instead of letting the problem drive them!

Ray Buzzard (I built and operated Dalton's and Tullahom's Systems)

government and essential services

I f we admit that net access is now essential it must be affordable. Mr Bratt is so wrong!!

Just look at Palo Alto (CA),  acity that still manufactures it's own electricity and provides gas at a MUCH lower price than PG&E does in localities nearby!

 Either we align prices on competitive ones from Europe, via regulation commissions, and we get $ 42/mo for High speed internet + 50 TV chanels + you won't beleive it FREE unlimited phone calls to 110 countries .

NO other hidden fees or set up fees

Yes all that for 30 Euros or about $42 while I pay $62 for internet only in New Mexico!!  My net  rate should be below $25! I want that 60% discount

Municipal broadband is good for the private sector

Here in North Carolina we just received an astounding level of support from the private sector in our fight to block a municipal broadband moratorium, being sponsored by AT&T and Time Warner Cable The Companies included Google, Alcatel-Lucent, Intel, Fiber to the Home Council, the United Telecom Council, the American Public Power Association, and Atlantic Engineering. Municipalities build these systems because they have to when the private sector fails to provide the level of infrastructure needed for their local economies to survive. The private sector is the first to benefit - equipment provider, fiber providers, router companies, car and truck companies, installers, and then small businesses and large who have access to competitive broadband capacity and much more affordable rates. Mr. Glass needs to open his eyes and look at what's really going on.

Government "competition" with private sector

The private vs. public competition debate is a false dichotomy.

In order to have competition, there first has to be a competitive market which economists define as one having many buyers and many sellers.

By that standard, telecommunications infrastructure isn't a competitive market. It's a natural monopoly due to the high barriers to entry and high capital cost of engineering and constructing telecommunications infrastructure that make it inefficient to have multiple providers.

How Municipal Broadband Harmed Glagsow's Local Economy

Because we did not have the clairvoyance of Mr. Glass back in 1988, we decided to build a broadband network in parallel to our electric system and in direct competition (if you can call it competition when we built a fully bidirectional HFC network over the "competitor's" ancient cable television network) with a private cable company. Rampant competition and innovation ensued, resulting in Glasgow having the first high speed internet service and still, the lowest cost cable television in the nation. Our system still saves local residents over $2.8 million per year when our revenues are compared to what they would be if a private cable company remained in Glasgow charging their customary rates. Since we have been doing this for 22 years, the sum of $62 million has been trapped in our local economy and has provided the prosperity for every small business in the community.

Yes, Mr. Glass, something must be done to stem this tide of disaster!

Electric argumentation

It's remarkable to see how history recapitulates itself. The reason government should be involved in providing services that could otherwise be offered by private companies is when the investment is too large and requires too long a time horizon to provide universal access to all those in a given area of government, such as a city or county.

Private companies typically exploit specific niches, sometimes vast, in which universal provision of a basic service isn't the point, but rather carving out the piece of the pie that produces the greatest return.

Electricity in the late 1800s even up to the 1940s was under constant debate as to whether it was a service or a luxury. I've written about this a lot, and read hundreds of contemporary accounts from 1900 and beyond. Many of the arguments are word for word the same, dropping in broadband for electricity.

Looking at 100 years of commercial and privately owned electrical generation, I don't see that there's a clear answer as to whether government or industry provides the service better nor for greatest benefit of a community. I do know that government invests and subsidizes even commercial efforts (through rights of way, discounts, rebate, incentives, tax structures, and other methods) to allow private enterprise to turn a profit by providing a universal service in an area.

I suspect broadband is in the middle of the transition towards an essential service that needs to be universally available to promote the public good. That, again, doesn't mean broadband has to be entirely in the hands of industry nor government, but rather that government will continue to subsidize, encourage, cajole, and be involved at various levels to make it happen.

Does anyone argue today that a class of people by income or location shouldn't be allowed access to electricity?

Falacy of Private Sector Supremacy

100 years ago, no one was interested in providing electricity to Brigham City, Utah, so the City established its own electric utility. Today, this utility provides reliable service to its customers/citizens. We are used to seeing our lights ablaze while neighboring communities experience outages. There is no movement in Brigham City toward privatization of our electrical utility because too many people have had the experience (as I have more than once) of having the lights go out in Wal-Mart in the neighboring community of Perry, being forced to leave my basket of goods I need in the aisle while I'm shepherded out of the store, only to find the light blazing away in the parking lot, which is in Brigham City.

There's a lesson in this for the broadband market. The private sector service providers that service Brigham City provide a certain tier of broadband. It is, and always will be, several tiers below the service available in Salt Lake City, the "big city" where the real money is. Communities like Brigham City will always be at a disadvantage to such metropolitan areas when it comes to the investment of limited for-profit capital, even though demand exists for such services. Because Brigham City is a member of UTOPIA, I am days away from having 20 mbps internet service (both up and down), with my choice of several service providers if the one I chose lets me down (there are now 12 using the network without competition from the network owner.) I will also be purchasing I.P. based phone device that will eliminate my monthly phone bill and give me free nationwide calling, and will have 170 TV stations, all delivered over my 100 mpbs residential connection. I'm going to be paying about twice what I was paying on a monthly basis for my dial-up internet, basic cable with 30 some odd stations, and basic phone with no long distance, caller i.d., call waiting, etc. It is well worth the cost to me. Far from hindering competition and private sector opportunity, this network is actually enhancing it. I am no longer at the mercy of a monopoly that wants to decide for me how much broadband I need and want. What you may call socialism, Mr. Glass, I call appropriate response to market failure. Municipal networks, particularly open-access fiber optic networks, will demonstrate their effectiveness in the marketplace with more (not fewer) companies able to compete for customers, innovation and improvement in service offerings, and ever increasing capabilities.

Mr Glass must be out of it OR a sposperson for big monopolies

Palo Alto (CA) has also been providing it's utilities and the rates are MUCH lower than people pay PG&E  in neraby communities . I'm sure there are many other examples!
Net + TV 950 basic channels + FREE tel to 110 countries cost $42 in France where private competition is strong in spite of  no public involvement at this point. I bet  aGovt-run service would cost $30-35!

COMPETITION is the key look at how cable TV monopolies have lied to us and tripled their initial fees! We should nationalize them. They used public funding to install the cables . Remember the promises given then in exchange for OUR $$??

Private greed hijacked public investment

Private companies have hijacked the huge public investments in creating the internet for private greed. In the US we pay a lot more for slower internet. This is a national security issue. To economically compete in the 21st Century we need fast internet.

Good day all, some words for

Good day all, some words for Mr. Glass: Being that I generally agree that large government (federal level) is not generally a good thing to drop blanket regulation across the country, I would love to see where you live and what access you have to your services, as I used to live the next town south of Monticello, MN in Buffalo and know first hand the reason and need for such an implementation. I would like to point out that the entire county of Wright (now minus the city of Monticello and it's local townships) has the need still as the private companies, while providing services, were seriously price gouging their "customers". I can say this for a fact as I had a friend in Annandale MN, Wright county- I lived in Buffalo and had the hi-speed internet+unlimited phone & long distance+full cable (minus ppv and movie channels) for around $150/mo while, over in annandale, his price, per their website at the time (was lakedake link, now windstream and no longer posts prices on site last I checked) was DSL for the same price internet only for the entire cost of my package just two towns away. Tell me how the private companies are equally providing competitive service to their customers? Also note that lakedale owns the lines and have been approached by other companies to lease or rent space on their lines, yet lakedale will not allow anyone else in- I believe if another company approaches and will pay reuested amount- they must comply, though I may be wrong- but seems to me that's a monoply- and that is not legal. You probably have decent service and have no quams about it- Like I said I agree about the over-regulation on business- however you must remember now they are no longer working for their customers, so it was a necessary evil that must happen to even the playing field. Most local governments honestly don't want to get involved as it's much red tape, politics, etc and would rather steer clear but will fight locally for their communities should the need arise and is fully community supported.