Hoyle to municipal broadband: Drop dead

Last Wednesday, state Sen. David Hoyle, D-Gaston, unveiled a bill that if passed, would severely restrict North Carolina municipalities attempting to build their own broadband network. Supported by the powerful telecommunications companies, the bill would interminably delay or even halt public broadband projects.

Political observers speculated that Hoyle’s bill would explicitly call for a moratorium on municipal broadband. The draft stops short of that, but the bill could kill efforts by rural communities to sidestep telecommunication companies, such as AT&T, Time Warner Cable and Embarq, and build their own networks, often at higher connection speeds than those offered by the private interests.

According to the bill draft, cities or counties would have to hold a public comment period and spend tax dollars on a referendum before a new municipal broadband network is approved. Municipalities would have to seek funding for the network through government bonds, forcing them to use taxpayer money even though previously they did not have to use public financing.

Furthermore, the bill could be interpreted as requiring a referendum even for repairs or upgrades to the public broadband network, as well as refinancing the debt.

Jay Ovittore, co-director for Communities United for Broadband and an unpaid consumer advocate in Greensboro, breaks it down like this: “If the moratorium was the brick wall, this bill is the Great Wall of China.”

Hoyle introduced the bill at the May 5 Revenue Laws Study Committee meeting. While state Rep. Paul Luebke, D-Durham, the committee co-chair, and Rep. Jennifer Weiss, D-Wake, spoke against the bill on behalf of consumers, it passed. Now it will be assigned to another committee that it must clear before going to either a second committee or the full House for a vote.

Hoyle says the purpose behind his legislation is to save municipalities from themselves. “These cities are getting into the broadband business with little or no experience and competing with private enterprise who pay the taxes,” he said.

However, according to a 2009 analysis by Democracy North Carolina, two telecommunications companies, AT&T and Embarq, both benefited from tax breaks on the purchases of telephone equipment that costs the state an estimated $31 million annually in lost revenue. In 2008, political action committees for AT&T and Embarq contributed $140,500 and $151,250, respectively, to legislative candidates, statewide candidates and party committees.

The telecommunications industry has some of the most powerful lobbyists at the statehouse. Hoyle contends he is not swayed by their support of the bill, even though the Time Warner PAC contributed $6,000 to Hoyle’s campaign in 2009.

“The lobbyists don’t influence me,” he said. “I’m in the pocket of the people that provide jobs for this state, and Time Warner Cable employees, 8,500 in this state, and I can’t imagine any one that would want to compete with that.”

Consider the city of Wilson, which implemented a $28 million municipal broadband system “Greenlight” last year. Wilson’s system offers speeds up to 100 mbps—10 times faster than typical connection speeds offered by private Internet providers.

Time Warner customers in Wilson are benefiting from Greenlight’s competition. According to a December 2009 presentation before the House Select Committee on High Speed Internet Access in Rural and Urban Areas, Time Warner raised its prices for basic service in the Triangle—as much as 52 percent in Cary—but did not impose any rate hike in Wilson. Nor did the company increase prices in Wilson for the digital sports and games tier, while Triangle customers paid 41 percent more.

Cable and broadband consultant Catharine Rice of Action Audits gave the presentation; she advocates for municipalities that want to build their own networks.

The bill could hurt Wilson’s Greenlight service, even though it’s been installed. “The way the legislation is worded, and how I interpret it,” says Ovittore, “is that if the city of Wilson … had a resident who was digging in their yard—let’s say putting a new mailbox in—and accidentally damaged a strand of fiber, before that strand could be repaired the city would have to go through a referendum and vote, spending endless taxpayer dollars.”

A public referendum could also be required if Wilson wanted to connect an additional household to their existing system, Ovittore said.

Hoyle says that of the $30 million to build the network, Wilson used $12 million of it from the utility account. “People there are raising hell about their electricity bill, and it’s just not right,” he said.

Wilson residents do pay higher utility rates than many other cities, not because of Greenlight, but Shearon Harris Nuclear Plant, said Wilson public affairs manager Brian Bowman said. The city is paying off debt incurred more than 30 years ago, when Wilson, along with dozens of other North Carolina cities including Apex, Greenville and Smithfield bought partial ownership in the Shearon Harris nuclear power plant, which was under construction at the time.

The cities and towns invesed in the plant to make sure they would have enough power—but the flip side is the muncipalities, and their residents, are still paying the costs of the plant today. Eight-two cents of every dollar spent on electrical service pays for purchased power and long-term debt.

Bowman said the city borrowed the $28 million on the private market. As for Hoyle’s $12 million figure, Bowman said, much less—only $3.6 million— had been set aside from the electric fund by City Council in 1989; it was re-designated in 1999. “It has always been part of our funding package,” he said. As for the electric bills, Bowman said they were higher earlier this year because of the particularly cold winter, not the cost of the network.

Time Warner Cable contends it doesn’t oppose municipal broadband systems in general and that the bill only applies to a city that chooses to take taxpayer money to build a competing network as if it were a private provider. “We just believe that they should have to operate under the same rules as the private provider,” said Melissa Buscher, director of media relations at Time Warner Cable. “We do believe people in the community should have a say-so in how large amounts of public monies are spent.”

Yet many broadband projects, such as Wilson’s, aren’t funded by taxpayer dollars. And subscribers pay for Greenlight service as they would Time Warner Cable.

Bowman said that the business plan does not call for Greenlight to operate in the black until at the end of the third year; the service is in its second year. “This would be the same for a private cable company serving a new area,” he said. “If they attributed all of their expenses to build the system and hire the employees specifically to the new area served, then it would take time to add customers until they reached the point where the customers in the new area were covering the expense to serve it.”

It is well established that public referenda are vulnerable to politicking and influence by private industry groups. For example, the land-transfer tax was defeated in several counties after the N.C. Homebuilders Association poured hundreds of thousands of dollars into a campaign to defeat it. Governments, by law, cannot advocate for their position in a referendum, which also requires tax dollars to hold. A similar anti-broadband effort by the telecommunications companies can be expected in any public vote.

Hoyle says broadband access is not an issue in the state. “I’ve heard that BS, and it’s just not true—period,” he said. “Anybody that needs service has got served in this state and will continue to get served.”

Hoyle’s words sound a lot like those of Time Warner Cable, which also contends broadband availability is not an issue. “Based on a map of the state done in 2009 by Connected Nation, more than 92 percent of homes in North Carolina have broadband available to them,” said Buscher. “A vast majority of those have two wireline providers, some have wireless providers, plus satellite offers broadband to literally every home in the state. This isn’t an availability issue. Anyone who wants Internet service can get it today.”

Those claims are dubious. Chatham County Commissioner Tom Vanderbeck has advocated for rural broadband access since 2006 in an area where pockets still have only dial-up and DSL. Vanderbeck was recently appointed by the General Assembly to serve on the e-NC Authority, which promotes statewide rural broadband. He calls Hoyle’s bill anti-competitive, one that would discriminate against local government.

(North Carolina communities were desperate to apply for Google’s fiber-optic contest Of the 1,100 applicants Google received, 36 came from North Carolina communities.)

Chatham County Director of Community Relations Debra Henzey says the bill runs counter to USDA studies proving rural communities must have broadband connectivity to economically succeed.

“Requiring a vote, when you have deep pockets that can fight it and put up as much money as they want, while making the project sound like a waste of taxpayer dollars—that would be a tragedy,” she adds.

Henzy says the broadband bill would harm Chatham County residents, 60 percent of whom commute outside the county for work. The county desperately wants to recruit new businesses, and according to the most recent Chatham County Economic Development Strategic Plan study, all of its target industries (health care, medical, marketing, etc.) are increasingly dependent on broadband.

“Broadband expansion is critical for North Carolina’s economy,” said Rep. Luebke. “Governments need to be among the potential providers, especially when a private sector isn’t encouraging that service.”

About Mark Milliman

Mark Milliman is a Principal Consultant at Inphotonics Research driving the adoption and assisting local governments to plan, build, operate, and lease access open-access municipal broadband networks. Additionally, he works with entrepreneurs and venture capitalists to increase the value of their intellectual capital through the creation of strategic product plans and execution of innovative marketing strategies. With more than 22 years of experience in the telecommunications industry that began at AT&T Bell Laboratories, Mark has built fiber, cable, and wireless networks around the world to deliver voice, video, and data services. His thorough knowledge of all aspects of service delivery from content creation to the design, operation, and management of the network is utilized by carriers and equipment manufacturers. Mark conceived and developed one of the industry's first multi-service provisioning platform and is multiple patent holder. He is active in the IEEE as a senior member. Mark received his B.S. in Electrical Engineering from Iowa State University and M.S. in Electrical Engineering from Carnegie Mellon University.
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