FCC Gives Municipal Broadband Providers (and Internet Competition) a Boost

Today, in addition to reclassifying broadband from an “information service” to a “telecommunication service,” the Federal Communications Commission voted to preempt state laws in Tennessee and North Carolina that previously restricted municipal governments from expanding their broadband services and competing with commercial Internet service providers in surrounding areas. The decision was not a surprise, as FCC Chairman Tom Wheeler has been talking about preempting such state laws for over a year

There are at least 19 states with laws that restrict or limit municipal broadband. Just last month, Missouri lawmakers proposed strengthening existing restrictions in their state. Today’s decision only applied to the two specific petitions filed with the FCC—one from The Electric Power Board of Chattanooga, Tennessee, and a second from the city Wilson, North Carolina—but it may set a precedent that encourages other municipalities to submit petitions. In the meeting, Wheeler said, “I do hope, however, that this attention…calls out the activities of incumbents to block consumer choice and competition through legislation.”

Many other cities, fed up with the speeds and prices offered by the commercial Internet service providers in their areas have also tried to provide broadband to citizens directly. But it’s not always easy. In many cases, there’s already a commercial ISP that doesn’t welcome competition. For those who support municipal broadband, more competition is exactly the point. “You can’t say you’re for competition, but deny local elected officials the right to offer competitive choices,” Wheeler said in the meeting. 

“The competitive landscape is pretty bleak,” says Vishal Misra, an associate professor of computer science at Columbia University. He points out that at “true broadband speeds,” some Americans have two broadband providers to choose from, but most have only one (or zero).

When the FCC redefined broadband last month, it did so largely to highlight the lack of consumer choice at higher bandwidths. In general, ISPs prefer to invest in areas where they’ll be the sole provider, as it’s expensive to try to poach customers from an existing provider.

ISP competition matters, because it tends to lead to more bandwidth at lower prices. When Google Fiber came to Kansas City with gigabit speeds, AT&T quickly responded by launching their own gigabit fiber service for a similar price. (They did the same thing in Austin, Texas, too.) Nothing had prevented AT&T from offering those higher speeds, but they weren’t sufficiently motivated. If they can now do so in Kansas City and Austin, asks Misra, “why are they not doing it anywhere else?”

Misra has long been interested in broadband competition: in 2011, he and Richard Ma applied a cooperative game theory model [PDF] to the competing business interests in the broadband ecosystem. They found that when customers can only purchase access from a single ISP, that ISP has both the incentive and the leverage to try to also extract payment from the content provider. The addition of just a second ISP greatly reduces that leverage, and with three or four ISPs, competition renders net neutrality regulations unnecessary. In fact, if you have enough competition, “then network neutrality regulations can actually be harmful for the user,” says Misra. (For a more detailed explanation, read Misra’s blog post “How much competition is enough”.)

For many in the broadband industry, more competition is preferable to more regulation. The American Cable Association, which represents many of the country’s smaller cable companies as well as several dozen municipal broadband providers, applauded the preemption of state bans. But like their larger cousin, the NCTA, they’re worried about the potential for greater costs stemming from the common-carrier ruling. Some municipal providers have asked to be exempted from the sections that the FCC might use in the future to regulate rates based on customer complaints. 

If small or municipal ISPs were granted such an exception, you can bet that you’d hear a lot about fairness. Some municipal ISP opponents argue that it’s inherently unfair for municipalities to compete head-to-head with private businesses. That’s nominally why the Tennessee law prevented the municipal ISP from serving communities that weren’t part of the existing electricity service area. In North Carolina, the city of Wilson (which has already fought off several legal challenges by Time Warner Cable) was restricted both in financing and pricing.

Municipal broadband opponents would prefer that competition comes from the private sector. The think tank TechFreedom, for instance, blames municipalities for discouraging competition by making it expensive for companies to access rights of way and utility poles they need to build out their networks and mandating service for unprofitable areas. Certainly, reforming right-of-way and pole access would help further encourage competition. But encouraging competition isn’t the same as directly creating a competitive landscape.

Most of the arguments against municipal ISPs still boil down to the idea that the government doesn’t belong in the marketplace, because they won’t be as effective or fiscally responsible as private providers.

“It is not the government’s role to offer services instead of, or in competition with, private actors,” said Commissioner Michael O’Rielly, one of the two Republican commissioners who voted against preemption.

But beyond of the philosophical and political questions regarding the government’s role in broadband service, future public support of municipal ISPs is likely to depend on whether or not they actually provide the benefits they promise. Fortunately we have an increasing number of case studies to examine.

In the early days of municipal broadband, there were some notable failed experiments like Utah’s innovative UTOPIA project, which Steven Cherry profiled for IEEE Spectrum in 2006. Slow deployment and a general lack of subscribers caused the project to exhaust most of its bond proceeds, and it now requires further funding to proceed. The city of Provo, Utah, didn’t want to wait for UTOPIA and went it alone with their own $39 million network, only to find it unsustainable to operate. The city recently sold the rights to operate the network to Google Fiber for $1.

But in the years since, plenty of other municipalities have been able to show that a varieties of models can work. In addition to cities like Chattanooga, where the city provides broadband service to customers directly, Scott County, Minnesota built their own network [PDF] that private companies can use to offer competing services. Ultimately, says Misra, municipalities are better off owning the underlying infrastructure, regardless of whether they’re providing service directly or not.

But even if competition would improve the current Internet landscape, building competing last mile networks is kind of like “improving electric competition by having different electrical grids,” says Bob Frankston, a member of the IEEE Consumer Electronics board of governors. As he wrote recently, “there is one Internet, so why do we have the expense of multiple broadband infrastructure? 

Frankston envisions municipal networking that’s fundamentally separated from the concept of service providers. He argues that wires and fiber should be treated as a shared resource, usable without relying on a service provider as a middle man. “We’re [currently] just quibbling over who collects the fare and whether the city can act like a phone company,” he says, but with access to common infrastructure, consumers wouldn’t need anything like a phone company at all.