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New Year, Same Lame Cable and DSL Monopolies

It's a new year, but most of us are still stuck with the same old DSL and cable monopolies. Though many communities have built their own networks to create competition and numerous other benefits, nearly half of the 50 states have enacted legislation to make it harder for communities to build their own networks.

Fortunately, this practice has increasingly come under scrutiny. Unfortunately, we expect to see massive cable and telephone corporations use their unrivaled lobbying power to pass more laws in 2012 like the North Carolina law pushed by Time Warner Cable to essentially stop new community broadband networks.

The FCC's National Broadband Plan calls for all local governments to be free of state barriers (created by big cable and phone companies trying to limit competition). Recommendation 8.19: Congress should make clear that Tribal, state, regional and local governments can build broadband networks.

But modern day railroad barons like Time Warner Cable, AT&T, etc., have a stranglehold on a Congress that depends on their campaign contributions and a national capital built on the lobbying largesse of dominant industries that want to throttle any threats to their businesses. (Hat tip to the Rootstrikers that are trying to fix that mess.)

We occasionally put together a list of notable achievements of these few companies that dominate access to the Internet across the United States. The last one is available here.

FCC Logo

As you read this, remember that the FCC's National Broadband Plan largely places the future of Internet access in the hands of these corporations. On the few occasions the FCC tries to defend the public from their schemes to rip-off broadband subscribers, Republicans (joined by a number of Democrats) threaten to overrule what is supposed to be an independent agency to defend the corporations that just happen to be donors to their campaigns.

Back when most assumed AT&T would be able to push its horribly anti-competitive takeover with T-Mobile through an impotent federal government, a few stories exposed the tip of the iceberg of AT&T's astroturf efforts, as with this report from the Center for Public Integrity:

“It is important that we, as Christians, never stop working on behalf of the underserved and forgotten,” the Rev. R. Henry Martin, director of the clinic, wrote to FCC Chairman Julius Genachowski in June. “It might seem like an out-of-place endorsement, but I am writing today in order to convey our support for the AT&T/T-Mobile merger.”

...

Not included in Martin’s letter to the FCC was the fact that his organization had received a $50,000 donation from AT&T just five months earlier. Indeed the Shreveport-Bossier Mission is one of at least two-dozen charities that were recipients of AT&T’s largesse and have written in support of the T-Mobile buyout, which will cut the number of national wireless companies from four to three.

When AT&T's wasn't able to buy enough influence with legitimate groups willing to sell out the interests of their members (who would pay more for their communications in a less competitive environment), it would simply create its own groups to push its interests:

AT&T Logo

Tallahassee Mayor John Marks brought an Atlanta nonprofit to the city as a partner in a $1.6-million federal-grant project, saying it would put high-speed Internet into the hands of poor people.

What he didn't say, and now says he didn't know, was that the Alliance for Digital Equality (ADE), in its first three years of existence, was nearly 100-percent funded by AT&T and spent most of its money — four of every five dollars — to pay board members, consultants, lawyers and media companies to push the global communication giant's positions on Internet and wireless regulation. Nor did Marks disclose, initially, that ADE had paid him $86,000 over several years as a member of its board of advisers.

We continue to see these massive companies abuse their market power to increase their prices, knowing that their lobbying arms will continue pushing legislation to stop communities from building their own networks.
Time Warner Cable hiked its rates in North Carolina immediately after passing its legislation to stop communities from building networks. Mediacom raised its prices while it attempts to sabotage efforts in rural Minnesota to build networks in unserved areas. And invented new fees to rip off its subscribers while trying to disrupt a rural fiber-to-the-farm initiative that slightly overlapped some territory in which they have long refused to invest.

Even as profits on cable broadband services approach Exxon proportions, Time Warner Cable has pushed for usage-based pricing to further overcharge subscribers, but mostly to strangle enormously popular competitors like Netflix. CenturyLink is not far behind, with usage caps prioritizing its own video content over competitors.

Verizon Wireless tried to sneak a new fee past subscribers by announcing it just before Christmas but backed down after outraged consumers reacted. One has to wonder whether it would have backed down in a world where AT&T took over T-Mobile, resulting in 3 out of 4 wireless customers being with Verizon Wireless and AT&T. Four competitors isn't the robust competition envisioned by Adam Smith, but it still beats the duopoly dynamic that results from even less competition.

Verizon Logo

Speaking of less competition, the recent deal between Verizon and cable companies is troubling. We already knew that FiOS was all but dead, but this deal truly puts a fork in it:

I'll assume that neither cable operators or Verizon are going to let us see the deal fine print to confirm the Times guess, but the logic fits Verizon's strategy. Verizon already cherry picked the most valuable FTTH upgrade markets, and has shown total disinterest in further upgrades. This deal allows them to save money on FTTH upgrade costs, instead soaking up remaining customers with LTE -- which we noted was the plan some time ago. This deal is very bad news to the rural telcos without the cash for large-scale upgrades (CenturyLink, Frontier, Fairpoint, two of which Verizon sold aging DSL networks to), and for satellite broadband providers.

The future of next-generation networks is now only community networks, cooperatives, and some small private networks.

We've long argued that phone and cable companies have systematically overstated their coverage in mapping efforts as part of their effort to blunt any sensible public policy that would result in all Americans having a choice between fast, affordable, and reliable connections to the Internet. The New England disaster called FairPoint is back in the news for overstating the number of subscribers that have access to DSL. The company has not met the requirements it agreed to when purchasing Verizon's lines a few years ago.

Comcast Logo

And in the continuing saga of Comcast's growing domination over the information people can access, Bloomberg TV is fighting Comcast's practice of discriminating against channels in which it has no ownership stake. Comcast has long strongly encouraged those who want to put television channels on its lineup to give Comcast a piece of the action, not unlike a mobster encouraging a small business to pay protection money. It wants to continue expanding its role as a gatekeeper to the Internet, particularly in the many areas where people have no real choice from other high speed providers.

And perhaps the best example of why we should not trust these massive corporations to run essential infrastructure is the revelation that AT&T defunded 9-11 call centers in Tennessee to gain a market advantage over competitors, a practice they were previously caught doing, leading to settlements out of court.

These corporations are not evil, they are following a sensible mandate to maximize their shareholder value. It is our government that is not sensible -- entrusting them with the future of Internet access without even bothering to enact the most basic regulations. Communities must continue to wise up and ensure they have the access they need to modern communications -- access that reponds to their needs, not those of distant shareholders.

Salisbury's Fibrant Hits 1600 Subscribers

The muni FTTH network owned by the city of Salisbury, North Carolina, is finishing the calendar year with over 1600 subscribers. The network just began signing up customers 13 months ago.

“We already said in the first four years, we would not break even,” City Councilman Brian Miller said. “That’s not a surprise to anyone.”

According to documents, the city expects Fibrant to become cash-flow positive after four years. The city billed the first Fibrant customers one year ago in December 2010.

The city expects Fibrant to eliminate its deficit as more people sign up and revenues increase. The utility, which competes with private providers like Time Warner Cable, has a 13 percent market share, interim City Manager Doug Paris said, and is billing about $200,000 a month.

“We’re growing in what is an extremely tough market,” Paris said.

Paris said after the meeting Fibrant has about 1,600 customers. The utility needs about 4,500 to become cash-flow positive.

Salisbury has a new mayor coming into office, but he is a supporter of the network, as was the outgoing mayor, who spent a significant amount of time defending the community network from Time Warner Cable's attacks via the state legislature.

Business Week Tackles Anti-Community Broadband Lobbying

Publication Date: 
December 1, 2011
Author(s): 
Alison Fitzgerald
Author(s): 
Brendan Greeley
Publication Title: 
Business Week

Brendan Greeley and Alison Fitzgerald have authored an in-depth exposé of the role the American Legislative Exchange Council (ALEC) played in passing a law in Louisiana designed to cripple community-owned networks ... while falsely claiming the bill was about creating a "level playing field."

This article may not have been possible without the work done by the ALEC Exposed folks at the Center for Media and Democracy.

The aptly-titled "Pssst ... Wanna Buy a Law?" article starts with the background of one of our favorite community broadband champions: Joey Durel, the Republican City-Parish President of Lafayette, Louisiana.

In April of 2004, Lafayette announced their intention to do a market survey to get a sense of whether the community would be interested in a publicly owned FTTH network run by the public utility. By that point, it was not possible to introduce new bills at the Louisiana Legislature. Or at least, that is a technicality when it comes to the lobbying prowess of big cable and telephone companies (mainly Cox and BellSouth - one of the major companies that later became AT&T).

Worried about losing their de facto monopolies, they tapped State Senator Winnsboro to take an existing bill, delete all the words from it and then append their anti-community broadband (anti-competitive) language.

The lobbyist brought back to Lafayette a copy of what would become Senate Bill 877. It named telecommunications as a permitted city utility, then hamstrung municipalities with a list of conditions. It demanded that new projects show positive revenue within the first year. It required a city to calculate and charge itself taxes, as if it were a private company. Cities could not borrow startup costs or secure bonds from any other sources of income. The bill demanded unrealistic accounting arrangements, and it suggested a referendum that would have to pass with an absolute majority. It also, almost word for word, matched a piece of legislation kept in the library of the American Legislative Exchange Council. The council’s bill reads, “The people of the State of _______ do enact as follows … ”

According to Ellington, he substituted the bill after a lobbyist for several of the state’s cable companies approached him, concerned about Lafayette’s project. Ellington’s district did not have plans to run fiber. Nor did any other city or parish in the state. “We were just making sure that the field was level,” he says. “We weren’t trying to keep them from doing what they wanted to do, we just wanted to make sure the public entity couldn’t go in and shortstop the private entities.” Ellington is probably sincere about that. The lobbyist who came to him probably wasn’t. The bill was not designed to level the playing field. It was designed to keep new teams on the sidelines.

The story goes on to track this bill back to Utah in 2001 (when Comcast and US West (later Quest and now CenturyLink) wanted to outlaw communities from building their own networks -- often in areas the private companies had refused to offer access to the Internet anyway). ALEC serves to spread those bills around the nation. When enacting corporate agendas, legislators prefer to get their bills from a nonprofit (ALEC) as opposed from directly from the corporations. Nevermind that the same corporations still write the bills and fund ALEC. It is sufficiently removed for what passes for democracy in America.

LUS Fiber

The bill passed. Lafayette managed to remove some of the ALEC bill’s barriers to entry but, as Huval had predicted, the law embedded into Louisiana code a set of handholds for future litigation. BellSouth and Cox Communications called for a referendum in Lafayette, which the law only suggests. The city’s attorney determined that the petitions to force a referendum did not meet the city’s standards, and BellSouth sued. Lafayette lost on appeal, paid for a referendum, and BellSouth ran ads against approving the project. (According to KLFY, a local television channel, Cox paid for a phone poll that suggested a government-owned provider might ration television on Tuesdays, Thursdays, and weekends.) Lafayette tried to issue bonds, and BellSouth challenged them. By 2007, when the Louisiana Supreme Court upheld the bond issue, Huval estimates that the city had paid $4 million in legal fees, more than the cost of the original fiber ring. A spokesperson for AT&T, which now owns BellSouth, says the company has backed away from BellSouth’s aggressive approach. But the damage is done. As with Utah, no other city in Louisiana has attempted to follow Lafayette.

According to data provided to Bloomberg Businessweek by the Sunlight Foundation, which posts government information online, state legislators who have signed on to sponsor the ALEC bill limiting municipal telecommunications have tended to receive donations from local cable and phone incumbents, as well as rural telephone associations. The pattern is consistent across states. In North Carolina, where the bill passed in May of this year after four attempts, these companies and groups consistently gave more money to the bill sponsors.

Noble Ellington hasn’t followed what became of his bill. “I just hope we fixed it,” he says, “so private industry and the city and parish were satisfied with what we did.” Terry Huval and Joey Durel both travel around the country now, talking to other small towns about how to get wired. Durel believes it’s going to get worse before it gets better. Huval is working with towns in nearby states but won’t say where. When a plan goes public, he explains, a bill—that bill—is not far behind. ALEC’s model bill on municipal broadband works because the idea of a city providing Internet access is alien to even most lawmakers. If a bill shows up at the right time, in response to one or two cities, it smothers an idea that hasn’t yet gathered many defenders. “I tell people this is not for the faint of heart,” says Huval. “If you don’t have the drive, don’t even start.”

We deeply covered the fight in North Carolina's legislature funded by Time Warner Cable. The bill in North Carolina was carried by ALEC members.

Most of the state laws restricting community broadband initiatives are included on this preemption map.

This is the kind of story that should be forwarded to elected officials. We are likely to see more of these cable and phone company attacks on local freedom next year than we have in any other year since 2005. We need to prepare and educate ourselves.

You can read our previous coverage of Lafayette here.

Local, Nonprofit Broadband Infrastructure Essential for Sustainability

Wally Bowen, of North Carolina's Mountain Area Information Network, recently gave an excellent presentation that explained the importance of broadband and media infrastructure that puts community needs before the profit motive.

In 1889, Statesville, N.C., opted for self-reliance by building its own municipal power system after failing to attract an investor-owned utility. Half a century later, said Bowen, most American farms still lacked electricity, so Congress passed the Rural Electrification Act of 1936 to help finance nonprofit rural electric cooperatives.

In the 1980s, Morganton, N.C. opted for self-reliance by expanding its municipal power system to offer cable TV, after years of complaints – including the 1982 blackout of the UNC-Georgetown national championship game – about its commercial cable provider.

Bowen cautioned that corporate interests often oppose local communities which “self provision” critical infrastructure. Morganton’s commercial cable-TV provider sued the city to block its cable venture. Only in 1993, after a decade-long legal battle, did Morganton win the right to self-provision cable TV. Today, Morganton’s municipal cable system offers broadband Internet access at competitive rates and with no contract.

Unfortunately, the North Carolina Legislature has made it much harder for local governments to build the necessary networks (as a favor to Time Warner Cable, which just happened to have given massively to many of the candidates). But Wally has an answer -- nonprofit approaches that have been inspired by rural electric cooperatives.

MAIN is making important investments in western North Carolina and should be recognized as making a difference in a region the private sector has largely abandoned.

NC Labeled a "Tech Turkey" For Bill Killing Community Broadband

In a nod to Thanksgiving, Government Technology has collected 11 "Tech Turkeys - "Half-baked lowlights from the year gone by" (2011).

North Carolina made the list at Number 9 after its Time Warner Cable-sponsored Legislature decided to effectively outlaw community fiber networks. This might not have been as big a deal if those communities were not the only entities in the state actually investing in next-generation broadband. Time Warner Cable and CenturyLink prefer to "save the best for last" when it comes to investing in the state.

The stated reason for revoking local decision-making power from communities? It wasn't fair for Time Warner Cable to compete against cities like Salisbury. We looked deeper into that claim and found it wanting, as illustrated below in an infographic and video:

600-TWC-Salisbury-infographic3.png

Video: 
See video

MI-Connection Shows Solid Growth in North Carolina

Ever since the towns of Mooresville and Davidson purchased and began fixing the failed Adelphia franchise in their part of North Carolina, private sector purists have tried to portray their efforts as a disaster. MI-Connection has had some serious difficulties amid higher than expected costs, but just reported a promising increase in revenues.

At their monthly board meeting at Davidson’s Town Hall on September 22, Transition Manager David Auger said that, from July through September, the system had increased its voice customers by 48 percent over the first quarter last year, its video customers by 296 percent and its data customers by 2,248 percent. 83 days of the gains, said Auger at the time, were actual, and 9 were projected, since September was not yet over.

The final customer numbers, which the system released today, showed that the last few days of September growth activity exceeded projections: voice customers grew by 60 percent over the first quarter last year, video customers by 319 percent, and data customers by 2257 percent.

This network was targeted time and time again by Time Warner Cable and its allies in pushing the anti-competitive bill that has effectively stopped any investment in next-generation networks in the state by killing local authority to make broadband investments.

They regularly blamed the network's problems on the local governments owning it while providing no context -- the network was in terrible shape because its prior private-sector owner saw little reason to invest in it. The network is now far superior because the local governments care more about encouraging economic development and creating local jobs than producing a quick profit for out-of-state shareholders.

As MI-Connection continues to correct its problems, Davidson's government is remarkably open and transparent. You can read just about all the documents relating to the network, finances, and history here.

Fibrant Buys More Set-Top Boxes

Salisbury's Fibrant network, a muni FTTH network in North Carolina that is approaching its one year anniversary, has decided to celebrate by ordering 5,000 set-top boxes. Because the order was so large and only available from a single vendor due to software issues, City Council had to approve the deal.

The city will order 5,000 additional set-top boxes for Fibrant at the discounted price of $721,572…

Fibrant’s original inventory of 5,000 set-top boxes purchased in March 2010 is running low, Behmer said. The city’s new broadband utility, which sells Internet, cable TV and phone services to Salisbury residents, has about 1,200 customers and averages about three set-top boxes per home, he said.

This is a reminder of the economics of these networks. Each set-top box costs something like $150. Household that subscribes for television service average 3 set-stop boxes, meaning that the cost of those boxes alone is about $450 of loss to Fibrant before the subscriber pays a dime to Fibrant.

This is why muni networks take so long to break even. The additional install costs like the equipment on the side of the house and the labor to set everything up grow quickly -- often to between $1200-$1500 per subscriber. It takes years to pay down those costs, plus the interest of borrowing to build the network.

So when you hear that a community network is running in the red in year 3, you should say, "Duh." Infrastructure often takes a long time to pay off, which is one of the main reasons the private sector does such a poor job of providing it.

NonProfit MCNC Builds Middle Mile in North Carolina

The Salisbury Post discusses MCNC's new middle-mile networks that are being built with stimulus funds. MCNC, an independent nonprofit so old that few remember what it stands for (Microelectronics Center of North Carolina), already runs the North Carolina Research and Education Network connecting libraries and schools across the state.

MCNC is a private, nonprofit organization that runs the North Carolina Research and Education Network. The organization secured two grants through the U.S. Department of Commerce’s Broadband Technology Opportunities Program (BTOP) to fund the infrastructure. Broadband Technology Opportunities Program funds make up $75.75 million of the funding for this phase; MCNC raised $28.25 million privately, including $24 million from Golden LEAF Foundation.

The total project includes more than 2,000 miles of broadband infrastructure to be outfitted through 69 counties in North Carolina.

“The great work being done here … is going to be able to be shared over the world,” said Freddoso [CEO of MCNC].

Freddoso said MCNC has had conversations with the city of Salisbury, distributor of Fibrant cable and Internet service. While the new fiber optic infrastructure will not provide service directly to customers, MCNC will offer wholesale broadband to companies like Time Warner Cable and municipalities that run their own services, like Salisbury.

While we are always happy to see libraries and schools getting access to the connections they need at affordable prices, we believe some of these state-wide educational networks can be counter-productive. Schools and libraries should be anchor tenants on networks owned by the local community (ownership options include coop, nonprofit, or muni ownership). When schools and libraries are served instead by statewide "silo" networks that do not connect residents and businesses, it becomes harder for local communities to finance the networks that will actually connect everyone.

However, as this middle mile is open to others on fair terms (as required by the stimulus broadband programs), we hope it will help communities to build the networks they need once North Carolina comes to its senses and removes the Time Warner Cable-sponsored legislation to gut local authority over essential infrastructure.

North Carolina and Broadband as Infrastructure

We dedicated a lot of coverage to Time Warner Cable's purchasing legislation to handicap communities from building competitive networks. Kara Millonzi, from the University of North Carolina School of Government, examined the new law and made a potentially interesting point.

Communities have a steep mountain to climb to build a self-financing community network in the state but if a community wanted to treat broadband infrastructure like the roads they manage, the law may not impact them.

As stated above, S.L. 2011-84 imposes some significant limitations on a municipality’s authority to provide cable and Internet services. With some exceptions, the limitations apply to a “city-owned communications service provider.” A city-owned communications service provider is defined as:

  • a city
  • that provides cable, video programming, telecommunications, broadband, or high-speed Internet access service (collectively, communication services)
  • directly, indirectly, or through interlocal agreement or joint agency
  • to the public
  • for a fee
  • using a wired or wireless network (communications network).

This definition is important because the new limitations only apply to municipalities that meet all of its elements. In particular, the Act’s provisions only apply to a municipality that provides the listed services “for a fee.” That means that the requirements do not apply to any municipality that provides the above-listed communication services for free to the public. Many local governments provide free Wi-Fi service in their downtown or other central business areas. (In fact, I am taking advantage of Town of Carrboro’s free Wi-Fi as I draft this post.) If a municipality uses its unrestricted general fund revenue to finance this service, or any other communications services, it is not subject to the new Act’s provisions. (Note that many local governments actually offer this service by taking advantage of excess capacity on their internal broadband networks.)

Though it is an extreme long shot, it would be fascinating to see a community build a network without charging a direct fee to access. It would also be fun to see Time Warner Cable hoisted on their own petard after pushing such self-serving and harmful-to-the-public legislation through an incredibly ignorant legislature.

Community Networks Provide Cable/Broadband Competition That is Otherwise Unlikely

You can also read this story over at the Huffington Post.

How can it be that the big companies who deliver some of the most important services in our modern lives (access to the Internet, television) rank at the top of the most hated? Probably because when they screw up or increase prices year after year, we have no choice but sticking with them. Most of us have no better options.

But why do we have so few choices? Government-sanctioned monopolies have been outlawed since the 1996 Telecommunications Act. Unfortunately, the natural tendency of the telecommunications industry is toward consolidation and monopoly (or duopoly). In the face of this reality, the federal government has done little to protect citizens and small businesses from telecom market failings.

But local governments have stepped up and built incredible next-generation networks that are accountable to the community. These communities have faster speeds (at lower prices) than the vast majority of us.

Most of these communities would absolutely prefer for the private sector to build the necessary networks and offer real competition, but the economics of telecom makes that as likely as donuts becoming part of a healthy breakfast. In most cases, the incumbent cable and telephone companies are too entrenched for any other company to overbuild them. But communities do not have the same pressures to make a short-term profit. They can take many years to break even on an investment that creates many indirect benefits along the way.

One might expect successful companies like AT&T and Time Warner Cable to step up to the challenge posed by community networks, and they have. Not by simply investing more and competing for customers, but by using their comparative advantage – lobbying state legislatures to outlaw the competition. As we noted in our commentary and video last week, massive cable and telephone companies have tried to remove local authority to build networks.

These companies frequently claim they are at an unfair disadvantage when they have to compete against a broadband network owned by the local government. This claim resonates strongly with some politicians, particularly those who happen to receive a lot of campaign contributions from big telco and cable companies -- as recently demonstrated in Wisconsin. They say they just want a "level playing field."

We decided to take a deeper look. We compared Time Warner Cable to Salisbury, North Carolina -- which built one of the newest community fiber networks – to see who is at a disadvantage.

TWC v Salisbury Fibrant InfoGraphic

Big companies like Time Warner Cable have some big advantages over any community that decides to build a network. Of course, communities do not build their own networks on a lark, they do it because they need fast, affordable, and reliable networks for economic development and maintaining a high quality of life.
But a better comparison goes beyond simply the scale of the competitors in order to complete a more meaningful comparison. For that, we created our “Level Playing Field” video, attached below.

There should be no doubt that massive incumbent cable and phone companies have a monopoly on the “unfair” advantages in telecommunications. Fortunately, community networks have a host of local advantages and often superior technology with which to invest in the networks they need. The question is whether Congress and the states will protect the right of communities to choose for themselves if a local community network is necessary.

Video: 
See video