Not a problem

Who knew America’s largest cable and phone companies were in the broadband shortage business?

Broadband evangelist Craig Settles has been as outraged about this year’s crop of anti-broadband legislation as we have here at Stop the Cap!

He wrote about the implications of allowing state laws to be changed in favor of the big cable and phone companies in a piece published by GigaOM that details where these anti-community Internet bills are coming from:

This push is brought to you by the American Legislative Exchange Council (ALEC), a group of corporate lobbyists who ghostwrite state bills behind closed doors that their pocket legislators then push on the floor. This “model” of anti-muni broadband legislation contains wording that is replicated in these latest bills and newspaper op-eds that attack community broadband.

Many of the nation’s largest phone and cable companies funnel funds into ALEC, and even sponsor wine-and-dine trips for state legislators and their families as part of a comprehensive effort to get their foot (and later proposed legislation) in the door.

Download this archive of ALEC-written and sponsored state legislation/policies affecting telecommunications and IT.  (16mb .zip file)

Few state legislators fully realize the implications of some of these measures, which can hamstring their state’s broadband networks into “good enough for you” broadband, as determined by Comcast, AT&T, Time Warner Cable, Verizon, and others.

ALEC’s dog-and-pony show opens with its corporate backers enhancing their campaign contributions to legislators likely to support their agenda.  ALEC’s lobbyists can then provide “boilerplate” templates for legislation that can be slightly modified and introduced at the state level for consideration.

With a significant increase in campaign contributions targeting friendly legislators, community broadband suddenly becomes a hot topic at the statehouse.

Legislators do not work alone to pass these measures.  As we’ve seen in other states, industry-backed lobbying firms deliver a comprehensive set of support services for the campaign to stop community broadband competition:

1. Talking points for legislators and others opposed to municipal Internet;
2. Professionally produced mailers that can be distributed to every home in a community bashing community networks;
3. Sample letters to the editor intended for local newspapers and easy-to-send letters to legislators asking them to support anti-broadband legislation;
4. Help from seemingly “independent” outside groups that criticize such networks, without disclosing their funding comes, in part or whole, from the cable or phone company.

Settles

Being hoodwinked by the companies that want these kinds of bills passed leave your community’s broadband needs entirely in the hands of providers that have performed so poorly in some cities, local governments have decided they have to provide the service themselves.  Settles illustrates the obvious:

This isn’t about unfair competition by local government. When Wilson’s 12-person IT department can plan, build and manage a network that can deliver speeds (up to a gig) 20 times faster than the best Time Warner Cable offers, that’s competing with superior technology. When Comcast customers switch to Chattanooga’s gig network because of their public utility’s better customer service, that’s competent competition. When tiny Reedsburg, Wis. refuses to compete against the large cable company on price, but beats competitors by offering greater value such as a better selection of Internet services, they compete based on local credibility.

So U.S. communities have to ask themselves, are they going to stay stuck on the train or will they be zipping along at warp speed?

Providers and their industry friends will always argue that you don’t need gigabit broadband speed — what you get from your cable or phone company today is “fast enough.”  Some go as far as to argue current providers are equipped to deliver whatever service customers need, but the demand “just is not there.”

Big Problem.

But as we argued on GigaOM ourselves, the nation’s largest telecom companies have already proven they apparently cannot meet the demand that exists today.  That is because an increasing number of them have started to slap arbitrary usage caps and other limits on their customers’ broadband usage.  Customers don’t want these Internet Overcharging schemes, yet they persist because of what providers effectively admit is a broadband shortage on their networks.

So for a city like Chattanooga, Tenn., which of the following providers should be punished (and potentially even banned) for being in the broadband business:

1. AT&T, which delivers around 6-7Mbps DSL in suburban Chattanooga or up to 24Mbps on its U-verse platform with 150GB/250GB usage limits respectively;
2. Comcast, which delivers up to 50Mbps over cable broadband with a 250GB usage cap;
3. EPB Fiber, which delivers up to 1,000Mbps over fiber optics with no usage cap.

If you are AT&T or Comcast, clearly the provider that must be stopped is #3 — EPB Fiber.  After all, you can’t be in the broadband shortage business when the competitor next door offers a broadband free-for-all made possible from an investment in a superior network that exists to serve customers, not shareholders and investment banks.

Phillip "Break Free from 'What's In It For Me'-AT&T" Dampier

[We are reprinting this because it succinctly and persuasively proves a point we’ve been making at Stop the Cap! since 2008.  Broadband is not just a “nice thing to have.” It is as important as a phone line, electricity, and safe drinking water.  News, education, commerce, and culture increasingly utilize the Internet to share information and entertain us. Essential utility services can either be provided by a private company operating as a monopoly with oversight and regulation, or operate strictly in the public interest in the form of a customer-owned cooperative, a direct service of local government, or a quasi-public independent non-profit.

In North America, broadband was originally considered a non-essential service, and private providers in the United States lobbied heavily to maintain absolute control of their broadband networks, free to open them to share with other providers, or not.  They also won sweeping deregulation and are still fighting today for decreased oversight.  The results have been uneven service.  Large, compact cities enjoy modern and fast broadband while smaller communities are forced to live with a fraction of the speeds offered elsewhere, if they have access to the service at all.

With broadband now deemed “essential,” local governments have increasingly sought to end the same old excuses with the “don’t care”-cable company or “what’s in it for me”-AT&T and provide 21st century service themselves, especially where local commercial providers simply won’t step up to the plate at all.  Suddenly, big cable and phone companies are more possessive than your last boy/girlfriend. The companies that for years couldn’t care less about your broadband needs suddenly obsess when someone else moves in on “their territory.” They want special laws (that apply only to the competition) to make sure your broadband future lies exclusively in their hands.

Susan P. Crawford understand how this dysfunctional, controlling relationship comes at the expense of rural America.  She’s a visiting professor at the Harvard Kennedy School of Government and Harvard Law School. In 2009, she was a special assistant to President Barack Obama for science, technology and innovation policy. Her opinions were originally shared with readers of Bloomberg News.]

In cities and towns across the U.S., a familiar story is replaying itself: Powerful companies are preventing local governments from providing an essential service to their citizens. More than 100 years ago, it was electricity. Today, it is the public provision of communications services.

Susan Crawford

The Georgia legislature is currently considering a bill that would effectively make it impossible for any city in the state to provide for high-speed Internet access networks — even in areas in which the private sector cannot or will not. Nebraska, North Carolina, Louisiana, Arkansas and Tennessee already have similar laws in place. South Carolina is considering one, as is Florida.

Mayors across the U.S. are desperate to attract good jobs and provide residents with educational opportunities, access to affordable health care, and other benefits that depend on affordable, fast connectivity — something that people in other industrialized countries take for granted. But powerful incumbent providers such as AT&T Inc. and Time Warner Cable Inc. are hamstringing municipalities.

At the beginning of the 20th century, private power companies electrified only the most lucrative population centers and ignored most of America, particularly rural America. By the mid-1920s, 15 holding companies controlled 85 percent of the nation’s electricity distribution, and the Federal Trade Commission found that the power trusts routinely gouged consumers.

Costly and Dangerous

In response, and recognizing that cheap, plentiful electricity was essential to economic development and quality of life, thousands of communities formed electric utilities of their own. Predictably, the private utilities claimed that public ownership of electrical utilities was “costly and dangerous” and “always a failure,” according to the November 1906 issue of Moody’s Magazine. Now more than 2,000 communities in the U.S., including Seattle, San Antonio and Los Angeles, provide their own electricity.

Today, the Institute for Local Self-Reliance, which advocates for community broadband initiatives, is tracking more than 60 municipal governments that have built or are building successful fiber networks, just as they created electric systems during the 20th century. In Chattanooga, Tennessee, for example, the city’s publicly owned electric company provides fast, affordable and reliable fiber Internet access. Some businesses based in Knoxville — 100 miles to the northeast — are adding jobs in Chattanooga, where connectivity can cost an eighth as much.

Meanwhile, less than 8 percent of Americans currently receive fiber service to their homes, compared with more than 50 percent of households in South Korea, and almost 40 percent in Japan. Where it’s available, Americans pay five or six times as much for their fiber access as people in other countries do. Fully a third of Americans don’t subscribe to high-speed Internet access at all, and AT&T Chief Executive Officer Randall Stephenson said last month that the company was “trying to find a broadband solution that was economically viable to get out to rural America, and we’re not finding one, to be quite candid.” America is rapidly losing the global race for high-speed connectivity.

Tamping Down Enthusiasm

We've done something like this once before.

Like the power trusts of the 20th century, the enormous consolidated providers of wired Internet access want to tamp down any enthusiasm for municipal networks. Last year, telecom lobbyists spent more than $300,000 in a failed effort to block a referendum in Longmont, Colorado, to allow that city to provide Internet access. Time Warner Cable managed to get a North Carolina law enacted last year that makes launching municipal networks there extraordinarily difficult. The pending measures in Georgia and South Carolina are modeled on the North Carolina bill.

The Georgia bill is chock-full of sand traps and areas of deep statutory fog from which no local public network is likely ever to emerge. In addition to the ordinary public hearings that any municipality would hold on the subject, a town looking to build a public network would have to hold a referendum. It wouldn’t be allowed to spend any money in support of its position (there would be no such prohibition on the deep-pocketed incumbents). The community wouldn’t be allowed to support its network with local taxes or surplus revenues from any other services (although incumbents routinely and massively subsidize their networks with revenue from other businesses).

Most pernicious of all, the public operator would have to include in the costs of its service the phantom, imputed “capital costs” and “taxes” of a private provider. This is a fertile area for disputes, litigation and delay, as no one knows what precise costs and taxes are at issue, much less how to calculate these amounts. The public provider would also have to comply with all laws and “requirements” applicable to “the communications service,” if it were made available by “a private provider,” although again the law doesn’t specify which service is involved or which provider is relevant.

The end result of all this vague language will be to make it all but impossible for a city to obtain financing to build its network. Although the proponents of Georgia’s bill claim that they are merely trying to create a level playing field, these are terms and conditions that no new entrant, public or private, can meet — and that the incumbents themselves do not live by. You can almost hear the drafters laughing about how impossible the entire enterprise will be.

Globally Competitive Networks

Right now, state legislatures — where the incumbents wield great power — are keeping towns and cities in the U.S. from making their own choices about their communications networks. Meanwhile, municipalities, cooperatives and small independent companies are practically the only entities building globally competitive networks these days. Both AT&T and Verizon have ceased the expansion of next-generation fiber installations across the U.S., and the cable companies’ services greatly favor downloads over uploads.

Congress needs to intervene. One way it could help is by preempting state laws that erect barriers to the ability of local jurisdictions to provide communications services to their citizens.

Running for president in 1932, Franklin D. Roosevelt emphasized the right of communities to provide their own electricity. “I might call the right of the people to own and operate their own utility a birch rod in the cupboard,” he said, “to be taken out and used only when the child gets beyond the point where more scolding does any good.” It’s time to take out that birch rod.

Georgia's broadband map shows just a smattering of 50Mbps broadband. That is half the speed required to attract new businesses, says the IEDC.

Suffering the Great Recession blues?  As communities continue to face the loss of manufacturing, heavy industry, and textile jobs to overseas outsourcing, local economic development specialists have discovered one of the most effective ways to lure new high-tech industry into areas hard-hit with job losses is the availability of cheap, plentiful, and fast broadband.

• 42% believe that that 1Gbps is the minimum speed needed to lure new businesses.
• 35% believe the minimum must be at least 100Mbps.
• Rural economic developers appear to be well ahead their urban counterparts in the area of planning. 58% of rural respondents either have broadband strategies and tactics worked into their economic development plans or are writing plans with these elements. Only 39% of urban respondents have done the same.
• 92% see no benefit from the FCC’s minimum broadband standard of 4Mbps, defined largely to suit telephone company DSL service common in rural areas.

Why are rural economies benefiting from better broadband planning? Because in the absence of commercial providers willing to provide the service, an increasing number of small towns and cities are building their own municipal networks to get the job done themselves.  Those networks are routinely superior to the facilities provided by most cable and phone companies serving less populated areas.

Community broadband is working in Wilson and Salisbury, N.C., where a transition from a textile/tobacco-based economy into higher-tech knowledge economy jobs required state-of-the-art broadband as a foundation.  Chattanooga, Tenn.-based EPB Fiber has already attracted dot.com giants like Amazon.com, creating hundreds of millions in local investment and thousands of new jobs.  Why Chattanooga?  Gigabit broadband for just a few hundred dollars a month is just one phone call away.

Relying on commercial providers to build 21st century broadband as a platform for economic transformation has delivered uneven results, especially outside of the largest cities. Large cities traditionally get most of the provider’s time, attention, and upgrades.  Smaller, more out of the way places often see little or nothing.

That is why this year’s latest push in Georgia and South Carolina to tie the hands of communities trying to remake themselves with modern broadband is so risky. While AT&T and the cable companies may position their argument as “protecting consumers,” in fact they are only protecting their own interests, even if it means the next Amazon.com distribution facility or Google data center finds a better home somewhere else.

Updated 3:55pm ET: We added a link to the full report, with appreciation to the author.

Burlington Telecom offices in Burlington, Vt.

Citibank has sued the city of Burlington, Vt., and the city’s legal firm demanding municipal-provider Burlington Telecom hand back their fiber-to-the-home network and pay damages in excess of $33.5 million dollars.

Citicapital, which owns the equipment that operates Burlington’s community network, says Burlington Telecom has defaulted on their lease payments, and has demanded the city “de-install and return” the fiber network — everything from set-top boxes and in-home wiring to ripping fiber cables directly out of underground vaults and off telephone poles.  Citi also wants BT’s vehicle fleet turned over to them.

Burlington Telecom has been a poster child of poorly-planned and implemented city-owned broadband, and a series of financial and operational scandals led state investigators to consider criminal charges for misappropriating taxpayer funds to sustain the network.  While prosecutors ultimately declined to file charges, the resulting scandal in the mayor’s office has left the city with a network it stopped paying for, and the potential much of it could be auctioned off to the highest bidder, which could turn out to be Comcast or FairPoint Communications.

Citicapital claims the city has not made a direct lease payment since November, 2009.  The bank had been drawing down funds deposited in a special escrow account the city was required to open as part of the lease-to-purchase transaction.  That account has also run dry, and the bank claims it has received no payments since May of 2010.

Citibank’s attorneys filed suit:

“BT continues to use Citibank’s equipment and vehicles unlawfully and without its permission and continues to depreciate the value of Citibank’s assets in order to generate revenue for itself,” the bank’s attorneys charged.

Citibank wants a judge to award punitive damages in excess of its remaining loan balance “because Burlington’s intentional breach of the agreement amounts to a reckless or wanton disregard of Citibank’s clear contractual rights.”

“It’s ironic that a bank that received a taxpayer-financed multi-hundred-billion-dollar bailout now wants taxpayers in Burlington to pay them excessive damages,” shares Stop the Cap! reader and Burlington resident Joe, who shared the story with us.  “I think we should be calling it even after three years of big bank bailouts.”

The lawsuit has city residents worried because attorney fees, and any resulting damages or settlement agreement with the bank, will likely run well into the millions of dollars.  Every month the city remains in arrears, Citibank’s agreement calls for at least $235,000 in missed payment fees and interest.  Taxpayers will likely cover most, if not all of that amount.

“I don’t think anybody should be surprised,” City Councilor Paul Decelles, R-Ward 7 told the Burlington Free-Press. “I always believed this day was going to come. Now we have enormous mess on our hands.”

Citibank wants their fiber back.

Christopher Mitchell from Community Broadband Networks notes Burlington Telecom was an aberration in a country with many successful community-owned broadband networks.

“We have watched in dismay as Burlington Telecom transitioned over the past four years from a model community network to the worst case scenario,” Mitchell wrote on the group’s blog. “This situation proves only that community networks can suffer from bad management in some of the many ways private telecom companies can suffer from bad management (resulting in anything from bankruptcy to prison).”

“Communities can learn lessons from Burlington’s situation — chief among them that transparency is important,” Mitchell observed. “As with other public enterprise funds, the operation should be regularly audited and oversight must be in place to catch errors early, when corrections are easier and less costly.”

Among Burlington Telecom’s problems included overpriced, uncompetitive broadband service that never took full advantage of fiber’s speed and versatility.  Earlier news accounts included speculation BT had trouble securing sufficient connectivity with a backbone provider to sustain faster speeds, but it left the company at a competitive disadvantage against incumbent cable operator Comcast.  Burlington Telecom also failed repeatedly to build community support to establish a firewall against frequent political shots fired at the network as it became a partisan hot potato.

The city promises a “vigorous defense” against the lawsuit, and observers suspect a judge will not order the city to shut the network down, because it would cease the only revenue stream the company generates that could be used to pay a negotiated settlement with the bank.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/WCAX Burlington Citibank Sues BT 9-20-11.mp4[/flv]

WCAX in Burlington explores how much of a case Citibank has in its lawsuit against the city and its attorneys over Burlington Telecom.  (4 minutes)

Time Warner Cable just fought a battle in the state of North Carolina to keep public tax dollars from being spent on community-owned broadband networks, but the company has no objection to accepting corporate welfare for itself.

Charlotte’s News & Observer this week reports the nation’s second largest cable company will win $3 million in state incentives if it meets hiring and investment goals. The city of Charlotte is also providing $2 million of its own incentives.  That’s $5 million dollars from the pockets of North Carolina taxpayers.

Corporate welfare

For that, Time Warner Cable is promising to add 225 jobs and build a data center to deal with anticipated broadband growth in the area.  That’s $22,222 per job.

N&O notes this is the third handout the cable company has gotten from the state government since 2004 — all in return for committed expansion in Charlotte.  The newest grant requires Time Warner to retain at least 1,113 jobs in the Charlotte area.  The state government is apparently willing to help pay for the cable company to not lay off its workers, but is all for smothering much-needed competition from community providers, which it stepped on in a big way earlier this year.

Ironically, the corporate-backed groups that loudly oppose taxpayer funding for broadband and critics of community networks are mysteriously silent over $5 million in public funds being directly transferred to a multi-billion dollar cable corporation.