Thursday, May 13, 2010

Incumbent Carriers Use Political Muscle to Stifle Competition 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.

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