Obama Proposes Overriding the Tenth Amendment

Obama’s speech at Cedar Falls, Iowa was like most of his speeches; much to do about nothing. He is proposing nothing short of allowing municipal governments to use taxpayer funds to compete against private enterprise, and he is encouraging the FCC to override 20 state laws in contradiction to the Tenth Amendment. I make no bones that I am a free market capitalist and I am strongly against the government taking over or competing against private enterprise. What Obama is proposing is not only anti-capitalism but also illegal.

I have written here that our current duopolies are not optimal for consumers, but replacing them with a subsidized government bureaucracy is a move in the wrong direction. I support municipal governments determining their own broadband destiny as much as I support removing restrictions allowing new entrants into the market by removing obstacles that municipalities and states have created. Twenty states have created laws to protect taxpayers from having to pay for cities failed attempts into the broadband services markets. These states realized that the communications market is competitive and fast moving. They have seen how over 50% of all municipal broadband efforts have failed leaving taxpayers to pay off creditors and bondholders (link, link). Proponents of government broadband, including the press, are quick to point out the few successes like EBP in Chattanooga and Cedar Falls, but they don’t bring up UTOPIA or Longmont, Colorado that is going for its forth attempt to provide residential broadband services. There are a variety of reasons that municipal broadband efforts fail which is why it is better to leave the risk to private enterprise.

Obama cannot instruct the FCC to just override the 20 state laws enacted to protect taxpayers. The Tenth Amendment gives states the ability to make its own laws without the federal government overriding them except for powers expressly granted by the Constitution and states. The Supreme Court has already upheld the authority of the states to prevent municipalities from providing telecommunications services in Nixon v. Missouri Municipal League by a 8 to 1 decision. He can say what he wants but case law is already pretty clear on states’ authority granted by the Telecommunications Act of 1986.

There is no question to the value of broadband services to a community, but it should be delivered in a competitive environment to enjoy all of the value that it brings. Either industry partnerships or cities should be allowed to come together to build open-access broadband fiber infrastructure as done in many cities and countries outside the United States. Sharing a common infrastructure will reduce the barrier to developing a profitable business model for a service provider; therefore, promoting competition that will benefit everyone in the community. This is the direction that Obama should be encouraging states to go.

Technorati Tags: broadband,municipal broadband,open access,telecom,FTTH,broadband penetration,FCC,Obama

Incumbent Carriers Use Political Muscle to Stifle Competition

Time Warner Cable and other incumbent communications carriers in the state of North Carolina are pushing for a bill that would prevent municipalities from building or even repairing broadband networks.  An article in Indy Week states that state senator David Hoyle is introducing a bill in the NC senate that would prevent municipalities from building their own broadband networks unless they spent taxpayer dollars for a referendum on the issue.  This bill is backed by Time Warner Cable, AT&T, and Embarq (CenturyLink).  I am all for transparency in government, and I believe that any use of taxpayer money should be fully vetted, but requiring an election on the issue could add more than a million dollars to the price of the network.  The resulting impact would stop most municipalities considering building their own infrastructure.  If a city was bold enough to put the issue on the ballot, such as Longmont, Colorado did in 2009, the incumbents would campaign hard to defeat the issue.  The bill is clearly aimed at erecting as many roadblocks to municipal broadband deployment as possible.  The cost of a ballot measure is equivalent to wiring at least 1,000 homes.  Please read the article then come back for the rest of my analysis.

I do not like this bill for two reasons.  The first reason is that large public corporations are using their money and political muscle to stifle potential competition from smaller companies.  We need to stop allowing big corporations from manipulating the law for their own benefit.  You would have thought we would have learned our lesson after the telecom and housing bubbles, but we did not!  Corporations continue to buy influence through PAC and other organizations.  The second reason I do not like this bill is that the incumbents are not making the investments in infrastructure to remain globally competitive.  Structurally they cannot make these investments and provide a decent ROI to their shareholders.  Municipalities are realizing this fact which is why they are pursuing building of these networks themselves.

This last reason is why incumbent carriers should embrace municipal broadband networks instead of fearing them.  They can leverage the long-term investment capabilities of local governments to build the infrastructure in which they can deliver their services.  Cable and telephone companies frequently refer to the cost of building these networks as reasons why they cannot offer more channels and higher speeds or greater download capacities.  By working with municipalities in the design of this open-access infrastructure, they can lease their last-mile access instead of spending the capital to build it which looks better on their balance sheets.  True they will face competition from other carriers, but they can use their size for economies of scale and innovation.  The problem is that they like the stasis that a duopoly provides. 

State and federal governments must not be swayed by the political contributions and lobbying from big telcos and cable and allow competition to flourish.  Once again we have to look to public/private partnerships to rewire America.  One hundred years ago it was cost prohibitive to wire every house so the FCC and state governments made a deal with AT&T for them to provide service to every household in return for a monopoly.  This public/private partnership gave AT&T the economies of scale to economically wire 80% of homes and rate-of-return regulation enabled them to wire the rest of them.  Now it is time to enter into new public/private partnerships to rewire America that encourages competition.  Enlightened local governments realize the benefits that an open-access broadband network brings to their community.  On one hand the process should be open and transparent so the community understands how the network will be financed and built.  It should not be cross-subsidized by other sources unless taxpayers agree.  On the other hand, governments should not be swayed by vested interests that may block competition just to preserve their own revenue sources.  Elected officials work for their constituents not the corporations.  Open-access networks can be built taxpayer neutral that can serve incumbent service providers and competing service providers alike.  We need to eliminate barriers to spur competition, not erect them.

Technorati Tags: AT&T (T),broadband penetration,Longmont,politics,Time Warner Cable,North Carolina

It’s All In How You Market It: Loosing the Case for Competition

A few years back, I was working with Longmont Power and Communications (LPC) to take advantage of the fiber ring and FTTH capabilities that they have.  Longmont, Colorado is a city with a population of 100,000 just north of Boulder.  They are in an economic transition into a knowledge-based community.  Their tax base is eroding as retail shops close up to make way for the big-box stores.  Providing the community with low-cost broadband services from more than just the two incumbents would give the town a much needed economic shot in the arm.

LPC and other departments in the city saw the value in trying to utilize these virtually stranded assets unfortunately state law prevented them from taking advantage of them.  The only way to get around this law was to let the voters decide if the city should get into the telecommunications business.  At that time the political will was not there because they were embarking on another ill-fated venture for municipal Wi-Fi and the newly elected mayor was a Qwest-lifer.  I moved on.

Several months ago, RidgeviewTel in Longmont thought that they could utilize the city’s assets to provide broadband services to the community.  Much like before, they were not asking for the city to actually sell the services, but lease access to the existing fiber network so they could provide the services.  They went through the effort to have Question 2C placed on the ballot for yesterday’s election.

Big telecom and cable caught wind of the effort and started a very effective marketing campaign backed by a conservative grassroots organization.  They accurately brought up the past attempts of the city’s failed ventures, but they failed to mention that the city ended up with some very valuable assets without any taxpayer expenditures.  Also, this group failed to mention that the city is not going to be the service provider just lease the infrastructure of which will generate revenue.  They painted a picture of another government takeover of the private sector like is being proposed for healthcare. 

The voter’s bought the cleverly marketed campaign and overwhelmingly defeated the measure by 12%.  What they also bought was a loss of a third and possibly more service providers in the city that could offer a variety of voice, video, and data services in competition to Qwest and Comcast.  The City was not proposing government provided services to compete with the incumbents.  They were just going to provide non-discriminatory access to infrastructure for another company.  The secondary benefit would have been to taxpayers in the revenue that RidgeviewTel would have paid to lease the bandwidth on the network.

Although this ballot question seemed counterintuitive to voters because it asked them to let the government do something which sounds like the domain of private enterprise, it was really a vote towards keeping the status quo for a duopoly. 

The battle in Longmont will be a battle we will see time-and-time again as the federal government disperses the stimulus money to small telecom companies wanting to build broadband networks.  Some of these networks are based on a public/private partnership like was being proposed in Longmont.  My only hope is that voters in other communities are not swayed by the tactics used in Longmont.

In subsequent articles I will discuss the value of the public/private partnership as a business model for building broadband open access last-mile networks.

Technorati Tags: Longmont,Colorado,Qwest,Comcast,fiber,broadband