Thanks to Jeff Hoel for providing the transcript for episode 91 of the Community Broadband Bits podcast on overbuliding and expanding Internet access in rural area. Listen to this episode here.
Chris Mitchell: I'm sorry, your town can't get an interstate, because you've already got dirt roads -- and that's good enough for you.
Hello, everyone. It's the Community Broadband Bits Podcast. Again, we're doing a little format change, where it's just Lisa and I today talking. I'm Chris Mitchell, with the Institute for Local Self-Reliance.
Lisa Gonzalez: And this is Lisa Gonzalez, also with the Institute for Local Self-Reliance.
Chris: That's why your office is right across the hall. I was wondering that.
Lisa: Go figure.
Chris: We're going to talk about overbuilding today. And, in particular, when it makes sense. The practice of overbuilding is somewhat controversial -- the idea of building a new network where there's already an existing network. "Overbuilding," the term, comes from sort of cable competition. When the cable companies wanted to brand competition negatively, they called it "overbuilding," because it would be unnecessary to ever have a choice in providers.
But this all comes about because of this really interesting new report. Have you heard about this new report?
Lisa: Well, being one of the authors, I have heard a little something about it.
Chris: I'm glad to hear that.
Lisa: We just released a report. It's titled, "Minnesota Local Governments Advance Super-Fast Internet Networks." The report looks at five communities in greater Minnesota. They've all put in incredible fiber networks. And we told about the different approaches they took. One of the communities that we looked at was Lac qui Parle County.
Chris: This overbuilding subject also came up in the state legislature, which has been considering some policy changes to remove barriers to municipal networks, as well as encouraging partnerships. And even rolling out a loan fund that would encourage rural networks, often from coops and other entities that are really doing a good job already of serving their communities -- to help them to expand. And so there's a little bit of a debate, whether or not "overbuilding" is a good idea, and whether the state should encourage that, or even accept that, when it's making loans with this fund -- that may not even be enacted, but it's the discussion that's happening right now.
Lisa: Um-hum. Um-hum.
Chris: So, you know, we wrote about Lac qui Parle in this report that we just released. And we're also very familiar with Lake County, which will be included in a future report, in which we go into greater depth into all of these networks. But the interesting thing is that Lake County, when they built out this network in a very rural area, they included the two larger towns. And larger is a fairly comparative statement, because these are small towns. And they already had cable access, from Mediacom. And Mediacom has just thrown a temper tantrum at all levels of government, saying it's not acceptable for a government-subsidized network to compete with them, and they think it's unfair. And it was really interesting that when we looked at what Lac qui Parle had done, they took the opposite approach -- and they did not overbuild in the areas where Mediacom already offered services -- the two bigger towns in Lac qui Parle.
So, what did Lac qui Parle do?
Lisa: Lac qui Parle is one of these communities in greater Minnesota, like a lot of other communities across the country, that had very little options, in terms of connectivity for the people who lived there, especially people who were not in the quote-unquote "bigger towns" -- the largest towns in the community. And what they did is -- There was a coop in the community -- in the county. And it had been providing broadband through a fiber upgrade to its existing customers. And they developed a partnership with Farmers Mutual Telephone -- that's the coop. And they were very fortunate to get some broadband stimulus. And they brought the fiber network to about 1700 -- almost 1800 -- properties in the community, that had dial-up, possibly DSL. But in the two larger towns in the county, Mediacom already provided cable services. So they had to stay from that particular area.
Chris: Well, I think they made a choice to stay away, and that...
Chris: ... may have enhanced their chances of getting the stimulus, ...
Chris: ... which they ultimately did.
Chris: But was the final result of that, then? What happens today?
Lisa: The Economic Development Director in Lac qui Parle County, her name is Pam, and she lives in one of the smaller communities. And she works in one of the larger towns. And she told me that, you know, she has this great fiber service at home, but her connection at work is ridiculously slow. So there are many times when she's more productive at home than she is at work. And this is not the -- she is not the only person who told us that.
Chris: Right. And we've seen that in other communities, as well, over the years. So, we have this interesting result where, you know, the idea is that if you avoid overbuilding, then somehow the communities are better off. But what we fear will happen over time is that communities that are surrounded by good access will be hollowed out. Because if you're about to move into this area, or if you're trying to figure out where to set up this new business you've been thinking about starting, why would you put it in an area where you could only get really slow service from Frontier or Mediacom when, if you move it a mile, you'll get this fiber optic service, which is more reliable and lower price and from a provider that actually cares about the community, rather than these big companies that are headquartered out of state?
Chris: So, you know, this is the natural result that comes from a policy that basically says all overbuilding is bad. And so, one of the things we wanted to talk about in relation to overbuilding is what these consequences are, but also some of the arguments that are raised, and responses to them.
I think that the main point of both of these stories -- whether you're talking about Lake County or Lac qui Parle -- is, you're dealing with incumbents that have refused to provider modern services. And so, it would be one thing if Verizon's FiOS were here and we were building a new fiber network on top of it. Now, I think that there are a number of good cases to be made where that may make sense. But I think that's a different argument than where you have a very slow cable and DSL network. I mean, what it comes down to is this: if I said, Lisa, I'm sorry, your town can't get an interstate, because you've already got dirt roads -- and that's good enough for you, how would you feel about that?
Lisa: That would not make me happy. Where am I going to drive my Ferrari? It's not going to work on a dirt road.
Chris: [laughs] I need to talk to you about salary. All those bonus promises. They may not be coming through.
Chris: And so, we have an issue where -- you know, the common line from a lot of people that are trying to oppose government policy is: government shouldn't be picking winners and losers. Well, if you're enabling a fiber network but you refuse to provide it in a town, then you're basically picking the losers. And it's going to be the people in the town that are stuck with a crappy cable and DSL network. The better solution is to make sure that you're building a network that serves everyone's needs.
Lisa: Well, but, Christopher, all of these companies who have been providing all of these services have invested all this money in their networks, and that's not fair -- that they have to compete with a network that's been paid for with subsidies. What do you say to them?
Chris: Well, first of all, when it comes to fairness, I care more about fairness for the community than I do for these massive companies that are very profitable. I mean, that's just -- I'm not against profit. But, ultimately, if you're going to force me to choose between the health of the community and more profit for a massive company that's headquartered far away, I'm going to choose the community every time.
But this issue of subsidy always gets me, because many of these networks were built with subsidies.
Chris: I'm not talking about Minneapolis here. We're talking about Lac qui Parle, one of the smallest population counties in Minnesota. They've been getting Universal Service Fund dollars. They've had all kinds of subsidies for these rural providers, whether it's for telehealth, or for E-Rate for the school systems, or any number of subsidies the Universal Service Funds, that are all meant -- and, I think, you know, well-intentioned -- to expand access in rural areas. You know, this is not a situation where some guy invested his money and built a network and, you know, has never taken a dime of subsidy. These networks are ALL subsidized. And when you look at the cable companies, they haven't gotten as many subsidies as the telephone companies, typically. However, they also had decades of a monopoly, where they knew that they wouldn't have to face competition. And even today, they know that they don't have to face competition. Those are also subsidies, that prevent people from having the kind of services that they should.
And so, this is not a matter of, you know, like, the people in the black hats get subsidies and the people in the white hats don't get subsidies. It's a mix. And, ultimately, we should be choosing what outcome leads to the best results for the communities that desperately need access. And I think that's some level of overbuilding.
Lisa: It's not like they don't have the opportunities. Because, you know, Lac qui Parle approached Frontier, and asked them to work with them. And they just said, no thanks.
Chris: Right. Well, in fact, something we see often is that the local people from the telephone company were excited about it.
Chris: But it was their supervisors at the state level or the national level that consistently shoot down these ideas. And they refuse to work with communities.
Lisa: Yeah, well, they don't live there.
Chris: Right. They don't live there. They probably don't even know where "there" is.
Chris: You know, the final point about all of this is one that I care very deeply about, which is fiscal responsibility. Which is to say, are we going to build networks that require subsidies on an ongoing, or are we going to subsidize networks one time, and then they'll pay for themselves indefinitely? When you choose to build a network only in areas where there's no density whatsoever, the chances of that network being able to cash flow just based on the revenues of the subscribers is just very low. But if you do what Lake County did, and you build out, you know, you cover the existing towns, that already have some level of service, those areas are more profitable. And they can help balance the losses that you may see in the areas that have a much lower density. So, one of the things that's ironic about this is, some of the people who claim to be caring about fiscal responsibility are making an argument that effectively we should build networks that will forever require subsidies, so that we don't step on the toes of some distant private companies that have refused for decades to invest in the very communities they're serving.
Chris: It's just mind-boggling how we can come to this conclusion, and I think a big part of the reason is because it's complicated economics, and you have these people using sound bites, just saying, oh, government can't do anything right. When you look at the cable market in the United States, it's pretty clear that, when left to their own devices, private companies do a real crap job of things. You know, I can go to the DMV and deal with them a heck of a lot easier than I can deal with Comcast. So, ultimately, a lot of those sound bites are not accurate, but, still, people respond to them, unfortunately.
Lisa: Yeah. There is definitely a big misconception that the public sector is no good at handling customer service, or just taking care of business, you know. I had sent an e-mail to the FCC -- yesterday, as a matter of fact -- late in the afternoon. I had a question about, in their website, and filing, and I thought I'd be lucky if I got an answer in three weeks. Well, even before I got to work, they had already replied, and answered my question.
Chris: I've had similar experiences. And I sometimes feel bad criticizing the FCC decisions, and people within the FCC, for doing things that I think aren't good policy. But I've been amazed. They work long hours. And they're often very dedicated to their jobs. And I think that's true. My wife works for the state. And I see that on a regular basis, where they're putting in long hours, and a lot of her colleagues put up with a lot, because they believe in serving the public.
But that's a little bit off-topic. I think it's an important note to include. But the ultimate point to this discussion is one of overbuilding, which is to say that it can make a lot of sense. And we should not accept simplistic arguments that it would be wrong to build a new network -- particularly a very advanced network -- in an area that already has some level of DSL or cable, just because they got there first.
Lisa: Thank you again for joining us, as we discussed "overbuilding." To learn more about Lac qui Parle County, Minnesota, download the news report at ilsr.org. Be sure to check out our resources library, where you can find a plethora of resources on municipal networks.
As always, we ask you to share your ideas for the show. Is there someone you want us to interview? Is there a specific topic you want to know more about? E-mail us. Write to email@example.com. You can follow us on Twitter. Our handle is @communitynets. This show was released on March 25th, 2014. Thank you again to the group Valley Lodge for their song, "Sweet Elizabeth," licensed using Creative Commons.