On March 18, 2014, I had the opportunity to attend the Free State Foundation’s Sixth Annual Telecom Policy Conference.  Keynoted by Commissioner Mignon Clyburn, former acting chairman of the Federal Communications Commission (FCC), and Federal Trade Commissioner Maureen Ohlhausen, the conference covered the continued need for spectrum, broadband deployment in the U.S., the use of TV whitespaces for wireless use, and updating the Communications Act of 1934.   

Commissioner Clyburn’s address to the conference emphasized making broadband accessible to everyone, particularly in rural communities.  She also expressed support for an FCC review of state laws prohibiting municipal broadband development.  FCC Chairman Tom Wheeler included that study as part of his response to the U.S. Court of Appeals for the District of Columbia ruling in Verizon v. FCC on net neutrality, under the heading of “enhanced competition.” 

Chairman Wheeler’s proposal was brought up during the second panel, when Free State Foundation President Randolph May asked for comments on the FCC’s role in municipal communications services.  AT&T Senior Executive Vice President for External and Legal Affairs Jim Cicconi said that municipalities are creations of state law, and for the FCC to preempt those laws in order to allow municipalities to engage in these services is a matter of “dubious constitutionality.”  He hoped that the FCC would be very cautious in proceeding.  In fact, the U.S. Supreme Court held in Nixon v. Missouri Municipal League (541 U.S. 125), that the Telecommunications Act of 1996 does not permit the FCC to overrule state laws regulating how municipal governments engage in telecommunications services.

Several states have imposed some form of restrictions on municipal broadband build out by local communities, including Alabama, Arkansas, California, Colorado, Florida, Louisiana, Michigan, Minnesota, Missouri, Nebraska, Nevada, North Carolina, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington and Wisconsin.  The restrictions range from requiring that municipal communications services must be both mandated by a referendum and self-sustaining, to complete prohibitions on cities and towns selling telecommunications services if a private sector company already provides such services.  

CAGW’s newest publication, Telecom Unplugged: Ushering in a New Digital Era highlighted a few examples of poorly managed municipal broadband networks, including the build-out of Provo, Utah’s iProvo network.  The iProvo network was supposed to be operated as a publicly-run utility.  It accrued a debt of $39 million to be paid for through a $5.35 tax, known as a “telcom debt charge,” found on monthly utility bills of city residents.  Unable to manage the system, the city agreed on April 18, 2013, to sell the existing municipal fiber deployments to Google for $1, and permit the company to bring Google Fiber to the city.  While the sale gets Provo out of the business of providing Internet service to its residents, the taxpayers are still paying the bill on the prior debt.

Chattanooga, Tennessee was the first city to offer speeds of up to one Gbps broadband service, which is 200 times faster than the average speed in the U.S. and 10 times faster than the 2020 goal set by the Obama administration, as well as “smart metering” services for businesses.  However, as Widener University Professor of Economics Joseph P. Fuhr, Jr., PhD noted in The Hidden Problems with Government-Owned Networks, Chattanooga needed a one-time infusion of $110 million in federal taxpayer dollars in order to build its fiber system, and remains more than $200 million in debt with repayment not expected until at least 2020.  Even with the financial issues in building municipal broadband, Tennessee legislators are working on bills to allow an expansion of broadband services by municipal electric companies to any location within their county or adjacent counties.    

Randolph May pointed out in a March 7, 2014 article in The Washington Times that “Government systems pose inherent conflicts of interest with private-sector companies attempting to compete by investing tens of millions of dollars in building out new broadband networks.”  Highlighting troubled systems such as those in Burlington, Vt., and Provo, May further maintained that it is “no wonder, then, that so many states have adopted bans to prohibit their localities – which, after all, are solely creatures of the state – from competing with private sector companies providing broadband services in the same locales.” 

Building wireline broadband infrastructure is not an inexpensive proposition.  Since, 1996, the cable industry has invested more than $210 billion to build the broadband infrastructure many Americans use today.  The industry is continually working on upgrades to the systems, while expanding their footprint to more regions of the country.  According to the National Telecommunications and Information Administration, the country is making steady progress in expanding access to broadband, with 93 percent having access to wired broadband, and 98 percent having access to wireless broadband.  Wired broadband is accessed by 87 percent of the country from cable providers, while 25 percent of the country can also access broadband through fiber connections.

Wireline broadband is not the only means for Americans to access the Internet.  With the advent of smartphones, tablets and mobile computing using Wi-Fi and wireless networks, access to broadband services is on the rise.  As noted by CTIA President and CEO Steve Largent during the conference, 90 percent of Americans have access to at least three wireless broadband providers and 98 percent have access to two or more wireless broadband providers.

Performing a review of state laws regulating what municipalities can and cannot do is a waste of money for the FCC, since the agency has no jurisdiction over such activities.  Chairman Wheeler’s proposal appears to be nothing more than a fishing expedition to show that local municipalities should be allowed to enter into the broadband business in direct competition with the private sector.  The resources that would be allocated to this review should be used instead for the FCC’s statutory activities.