Lafayette and a Level Playing Field

This is a great inside look at how one community built a globally competitive broadband network (probably the best citywide network in the US) and the barriers they faced from incumbent providers Cox and BellSouth.

Terry Huval, the Director of Lafayette Utilities System in Louisiana, spoke to the U.S. Senate Committee on Small Businesses Entrepreneurship on April 27, 2010, on the topic of: "Connecting Main Street to the World: Federal Efforts to Expand Small Business Internet Access." Huval's full testimony is available here.

Huval's presentation told the back story of LUS Fiber, focusing on the barriers to publicly owned networks in Louisiana.

The FCC National Broadband Plan, on page 153, includes Louisiana as one of 18 states that “have passed laws to restrict or explicitly prohibit municipalities from offering broadband services.” While the Louisiana law did not prohibit Lafayette from providing broadband services, its mere presence provided, and continues to provide, a fertile playground for BellSouth (and its successor AT&T), Cox and their allies to create mischief, resulting in discouraging local governments from stepping in to provide these services even when the private telecom companies refuse to do so.

Louisiana, as with many other states including North Carolina, has powerful incumbents that claim there is an "unlevel playing field" and that local governments have too many advantages in building broadband networks (incomprehensibly, they simultaneously claim that local governments are incompetent and publicly owned networks always fail). But state legislators - who hear constantly from the lobbyists of these wealthy companies, have passed laws to discourage publicly owned networks.

Huval details just some of the disadvantages the public sector faces in comparison with the private sector (we detail many other disadvantages in our "Breaking the Broadband Monopoly report).

For example, while Cox Communications can make rate decisions in a private conference room several states away, Lafayette conducts its business in an open forum, as it should. While Cox can make repeated and periodic requests for documents under the Public Records Law, it is not subject to a corresponding obligation – a “show me your plans, but don’t dare ask to see mine” mentality. Louisiana law limits the ability of a governmental enterprise to advertise, but nothing prevents the incumbent providers from spending millions of dollars in advertising campaigns. An important focal point of the legal challenges involved the right or ability of Lafayette to pledge assets of the utilities system as security for the bonds, something that the private corporations do all of the time without the slightest scrutiny. To be sure, the “playing field is not level,” but it is the government which is disadvantaged, not the private companies.

Additionally, Cox and BellSouth engaged in many activities to break the will of the community to build a network. Common tactics are "push polls" and glossy mailings with inaccurate claims to scare people - particularly before a referendum. Usually, they are not this silly, but a Lafayette resident recorded one call:

One of the questions alluded to the city requirements for lawn watering during dry summer conditions. The question generally was phrased as “Since the city only allows you to water your lawn only three days per week, how do you feel about the city offering you cable TV service where you could only watch television three days per week?” The community member and, ultimately, the out-of-state questioner in this push-poll, are both heard chuckling at the ridiculous nature of the questions.

Make no mistake though, these polls are often effective at confusing and scaring people away from publicly supporting a community network.

Lafayette, along with other cities like Chattanooga, Tennessee; Bristol, Virginia; and Monticello, Minnesota, had to spend a lot of time in the courts before building the network.

By the time the Louisiana Supreme Court rendered its decision in 2007, almost three years had passed since the city’s first announcement of this project in 2004. The political and legal battles brought and promoted by the incumbent telecoms cost the city of Lafayette nearly $4 million. Interestingly enough, Cox Communications, which had been increasing its rates several times a year prior to Lafayette’s initial announcement to explore its offering of telecommunications services, decided to freeze its rates in Lafayette between 2004 and 2007. At the same time, Cox continued to increase its rates in other parts of the state. Estimates indicate that Lafayette citizens and businesses saved nearly $4 million due to these deferred cable rate increases, so in a roundabout way Lafayette’s citizens saved in reduced cable TV rates the amount the city spent defending itself in this extensive litigation process.

This quote reveals that quantifying the costs and benefits of publicly owned networks is difficult. Communities often see lower rates from all providers when they build a competitive, publicly owned network. The lower rates to everyone in the community are a tremendous benefit of public ownership.

However, the incumbent companies do not always advertise the lower rates directly. These companies can cross subsidize - using their massive profits from communities with no competition - financing large efforts to go door to door, offering special discounts to subscribers to starve the publicly owned network.

Cox has increased its rates in the multi-parish area, which includes Lafayette, and is going door-to-door to offer lower customized pricing to regain customers already being served by LUS Fiber. Apparently the notion of “fairness” espoused by the private companies does not include the increasing of rates to customers in non-Lafayette areas who have very few competitive options which allows Cox to use the resultant higher revenues to offer much lower pricing in Lafayette areas where there is now meaningful competition from LUS Fiber.

Then there is the simple matter of payback. These are powerful companies with massive resources.

In addition, Cox representatives were recently active in attempting to undermine the future of the city’s century-old electric, water and sewer utility system. During a recent rate increase effort for these traditional utilities, Cox representatives were lobbying Lafayette council members to oppose the rate increase in order to adversely affect the utility system’s future viability. All of these examples indicate an underlying strategy to hurt the city simply because the city voters dared to choose to authorize the building of their own telecommunications system.

Building a publicly owned network is a difficult task, but certainly beats the alternative of relying on these companies and their dirty tactics to prevent any competition.

Update: Thanks to Lafayette Pro Fiber for providing time stamps on the video of the committee hearing when Huval speaks.