South Carolina Faces AT&T Legislation to Preempt Local Competition

South Carolina has been quietly debating a bill to further erode the right of communities to decide locally whether they want to build broadband networks. South Carolina already restricts the rights of communities to build these networks but HB 3508 / SB 483 will effectively make any local government ownership of telecommunications facilities impossible.

Unsurprisingly, this bill is opposed by the South Carolina Association of Counties and the Municipal Association of South Carolina. But the lead opposition to it has come from Bill Clark, an Administrator from rural Orangeburg County. On the other side is AT&T, the nation's 10th largest company.

The bill is blatantly protectionist for AT&T interests, throwing South Carolina's communities under the bus. But as usual, these decisions about a "level playing field" are made by legislators solely "educated" by big telco lobbyists and who are dependent on companies like AT&T for campaign funds. Even if AT&T's campaign cash were not involved, their lobbyists talk to these legislators every day whereas local communities and advocates for broadband subscribers simply cannot match that influence.

We see the same unlevel playing field, tilted toward massive companies like AT&T, in legislatures as we do locally when communities compete against big incumbents with their own networks. Despite having almost all the advantages, they use their tremendous power and create even more by pushing laws to effectively strip communities of the sole tool they possess to ensure the digital economy does not pass them by.

South Carolina's access to broadband is quite poor -- 8th worst in the nation in access to the the kinds of connections that allow one to take advantage of the full Internet according to a recent FCC report [pdf].

A letter from Bill Clark to Senators notes that their county has an industrial park with over 1 million sq ft of developed facilities housing two Fortune 500 companies that private companies have not served [pdf].

This comes as no surprise given the facts:

  • South Carolina is served predominately by massive private providers like Time Warner Cable and AT&T, who have little incentive to invest in next-generation networks in South Carolina given the lack of competition -- noted in a story called "The State Time Warner Cable Forgot: South Carolina's Yesterday Broadband
  • They have made it more difficult for communities to build their own networks to remain competitive regionally and globally
  • South Carolina has many rural areas, where private sector business models do not work (not because they are not profitable but because the profits are not large enough or returned fast enough).

And what is the answer to this indictment of the status quo according to the Legislature? Doubling down on a bill pushed by the very companies that have failed to invest in the needed networks. Let's dig into HB 3508.

It actually defines broadband service as a connection offering "not less than 190 kbps," -- a lower bar than even the much criticized standard the FCC used to use! That definition was barely appropriate a decade ago. This would be funny if not for its capacity to effectively chain an entire state to the infrastructure of the previous century. Bill Clark's letter to Senators includes quotes from the FCC as to why they increased their previous threshold [pdf], which was already higher than that proposed by this legislation. In short:

FCC Logo

The National Broadband Plan recommends as a national broadband availability target that every household in America have access to affordable broadband offering actual download (i.e., to the customer) speeds of at least 4 Mbps and actual upload (i.e., from the customer) speeds of at least 1Mbps. This target was derived from an analysis of user behavior…

Compare that reasoned metric to the one proposed in South Carolina, which was almost certainly proposed by massive companies like AT&T merely to minimize the number of areas which would be considered unserved for the purposes of this bill to limit local authority to build the networks AT&T and others refuse to invest in.

We have uploaded a document discussing major problems with the legislation. The following blockquotes come from it.

As we have seen in other states, this bill tries to appear reasonable by exempting some rural areas that meet certain requirements (including not having absurdly low minimum speed noted above) from provisions of the bill. However, if a community builds a network in these areas, the provisions would begin applying with 1-3 years. Translation: if a rural community qualifies, it can build a network that the state would likely regulate out of existence right around the time it began making a difference.

No reasonable provider will invest in expensive broadband infrastructure in an unserved area if it must stop providing communications services within 12 months of a Commission finding that a private provider has begun to offer at least 190 kilobits per second to more than 10 percent of the households in the area.

Public sector entities will be subjected to "the same local, state, and federal regulatory, statutory, and other legal requirements to which nongovernment‑owned communications service providers" are held. This is similar language we see in North Carolina and other states, betraying the total lack of ignorance on telecommunications policy among legislators and their staff.

Requiring public communications providers to comply with all applicable local, state, and federal requirements would be appropriate, but requiring them to meet the same requirements that non-government entities must meet would be tremendously time-consuming, burdensome, and costly for public entities. It would also lead to endless disputes over which requirements public entities should comply with and how they should do so. For example, incumbent local exchange carriers, competitive local exchange carriers, Internet service providers, cable companies, private non-profit entities, and other communications providers are all subject to different requirements.

Requiring public communications providers to comply with all requirements that apply to private communications providers will not achieve a “level playing field” unless private providers are simultaneously required to comply with all open records, procurement, civil service, and other requirements that apply to public entities.

This bill will actually shut down the federal broadband stimulus projects meant to improve broadband access in rural areas, probably because they threaten AT&T's potential future revenues that will be greater if they can monopolize access. We aren't talking about last-mile projects that will compete with AT&T or Frontier DSL, but rather middle-mile projects that are intended to benefit all manner of private investment and new service providers in the private sector.

Any time we see the term "impute" in a bill, we know the bill is intended to prevent any communities from building new networks. The public sector already has far higher costs for building networks than a massive company like AT&T that can take advantage of economies of scale (volume discounts on many aspects of networks, to name one advantage). But the "impute" idea is that these small governments should incorporate even higher prices into their costs to be "fair."

An imputed cost requirement would also be extremely burdensome, time-consuming, and costly. For example, to impute income taxes, a public entity would first have to decide on the kind of private entity to use as a comparison. Should it use an established provider or a startup? an incumbent carrier or a competitive carrier? a successful company or a struggling one? a for-profit or a non-profit private entity? Once the public provider decided on the right kind of provider for purposes of comparison, it would then have to guess at the level of income, tax rate, tax credits, deductions, carry forwards, carry backs, etc., that such an entity would typically experience. Obviously, this would result in endless disputes, particularly in the absence of publicly-available information on the taxes that private entities pay.

And again, as in North Carolina, we see "an amount equal to all taxes, licenses, fees, and other assessments applicable to a nongovernment‑owned communications provider." Not what these providers actually pay, because they routinely avoid paying their fair share of taxes, but rather what they should be paying.

With this long list of deficiencies, no wonder we see major private sector companies calling on South Carolina to stop considering this approach:

We support strong, fair and open competition to ensure that users can enjoy the widest range of choices and opportunities. HB3508/SB483 is a step in the wrong direction. South Carolina should be removing barriers to public broadband initiatives rather than establishing new ones, so that high technology companies can spread and prosper into all the communities in this beautiful state. Please oppose HB3508/SB483, repeal SC Code § 58-9-2600 et seq., and reject any future measures that could significantly impair municipal broadband deployments or public-private partnerships in South Carolina.