How Lobbyists in Utah Put Taxpayer Dollars at Risk to Protect Cable Monopolies

Facing the threat of municipal broadband networks disrupting their cable and telephone monpolies, big telecom lobbyists wrote a law to restrict municipal networks under the guise of protecting taxpayers. Here's the irony: the law put taxpayers at much greater risk even while restricting their choice of Internet and cable providers.

Before Business Week became Bloomberg Business, Brendan Greely and Alison Fitzgerald published a remarkable story entitled, "Pssst ... Wanna Buy a Law?" It offers chapter and verse on the role of cable and telephone incumbents using the American Legislative and Exchange Council (ALEC) to push Internet anti-competition restrictions in many states.

We have been reflecting on these laws that discourage or bar municipal broadband networks while drafting a brief for the 6th Circuit regarding the FCC decision to strike down monopoly-protection statutes in North Carolina and Tennessee. We realized that the Utah law isn't just anti-competitive, it dramatically increased the risk to taxpayers from building a municipal network in the state.

The Debt-Financed Wholesale-Only Model

Industry lobbyists convinced Utah legislators to restrict local authority over municipal networks to "protect" taxpayers and that argument is still frequently used today by groups opposing local Internet choice. The law does not actually revoke local authority to invest in networks, it monkeys around with how local governments can finance the networks and requires that municipalities use the wholesale-only model rather than offering services directly.

However, the debt-financed citywide wholesale-only model has proven to be the riskiest approach of municipal networks. Building a municipal fiber network where the city can ensure a high level of service is hard and can be a challenge to make work financially. Trying to do that while having less control over quality of service and splitting revenues with 3rd parties is much harder. This is why we recommend either incremental efforts or subsidizing the upfront capital costs for those who want to use the wholesale-only model (which we continue to believe has tremendous potential).

Spanish Fork vs Provo

The Utah law, while purporting to be about protecting taxpayers, puts them at greater risk. Consider two Utah municipal networks: Spanish Fork Community Network and iProvo. Both were studying municipal broadband at the same time with the same consultant. Spanish Fork moved quickly to build its network and was grandfathered into the 2001 Utah law designed to discourage municipal networks. Provo, being larger and needing to inform the public and get feedback before embarking on the project lost its opportunity to use the retail model because the state revoked its authority to do anything but wholesale-only.

We checked in with Kevin Garlick, Provo City Energy Director from 1997-2013, about this time period and he shared interesting details, including this:

As a successful and reliable municipal electric utility, we wanted to leverage our customer relationship by offering telecom services. The community and municipal council supported that. We wanted and planned to use the same retail model that Spanish Fork used. However, the state law essentially forced us to the adopt the more risky wholesale-only model that led to our financial problems.

Thanks for the Protection, Jerks!

The results from Spanish Fork, where the taxpayers were not "protected" by the laws drafted by cable and telephone lobbyists, the city has paid off all of its debt, regularly reinvested net income into local budgets, and is on its way to gigabit fiber. More details on Spanish Fork here.

Provo, saddled with the state restrictions that forced a riskier business model on it, was not financially sustainable. The network generated some benefits but the costs were too great and it eventually became Google Fiber. Many envy the network they now have but the intervening years certainly were part of the plan to improving Internet access.

Since the 2001 law to protect taxpayers from having a real choice in Internet providers, the only two municipal networks (iProvo and UTOPIA) that have been built have encountered major financial challenges and required subsidies to operate. Anyone trying to justify that law on the basis of helping taxpayers has some serious explaining to do. Local governments should be able to make these decisions without interference from states or Washington, DC.