The Municipal Broadband Brouhaha: Tech Firms Caught in Middle

By Drew Clark

Cities and counties that want to offer high-speed, Internet-based communications have been fighting regional Bell telecommunications and cable companies on the state level, and now the battle is erupting on the national stage.

For local governments, public interest groups and the technology community, permitting such municipal broadband is a no-brainer. "It makes no sense for us to be wasting our time and energy fighting battles when the country has such a challenge to get broadband to everyone," said Jim Baller, an attorney for the municipalities -- citing a call by President Bush for universal and affordable broadband by 2007. Baller has helped to spearhead a new group called the Community Broadband Coalition.

Until recently, the debate has occurred primarily in the states -- 14 of which have imposed some legal barriers to state-run municipal service. Two rival pieces of federal legislation have been introduced: In the House, H.R. 2726, which would bar states from allowing municipal broadband in areas served by the private sector; and in the Senate, S. 1294, which would bar states from opposing government-run broadband if municipalities do not discriminate against private competitors.

Some see the conflicting bills as pressuring tech companies to choose between some big customers -- the Bells and cable companies -- and a market opportunity that may be growing, but that is not fully ripe.

Wireless Life for Municipal Movement

Early conflicts over municipal broadband centered on the availability of fiber-optic lines to homes. But wireless technologies such as Wi-Fi have breathed new life into the movement. Although fiber-optic cables have far greater capacity -- including the ability to offer multi-channel video -- stringing them to homes costs more than $1,000 on average. Philadelphia is planning a metropolitan-area Wi-Fi network that it believes it can create for $25 per home. Once in place, the city believes it can wholesale its service to commercial providers for $9 a month.

That does not sound attractive to Verizon Communications and Comcast, which sell high-speed Internet service for prices ranging from $20 to $45 a month. Both companies supported telecom legislation last December in Pennsylvania barring municipal broadband projects. After complaints from public interest groups, an exception was granted for Philadelphia. This year, Colorado, Florida and Nebraska put restrictions on municipal networks in their states, although similar measures were defeated in Illinois, Iowa and Texas.

"Cable operators are not uniformly opposed to all municipal broadband projects, but they do have serious reservations about local governments investing increasingly scarce taxpayer dollars for telecommunications services already being provided by the private sector with state-of-the-art technology," said Brian Dietz, a spokesman for the National Cable and Telecommunications Association.

"We believe there are many other ways to speed the deployment of broadband, like creating a regulatory climate that encourages investment and innovation," added Allison Remsen, a spokeswoman for the U.S. Telecom Association. "With telecom networks, government intervention could chill private investment and further delay new services for consumers. When government-owned networks are used, presumably as a last resort, the networks should be regulated and taxed like private carriers."

Tech Firms Stuck in the Middle

Technology companies eager to see more widespread adoption of Internet computing have generally favored doing something to promote broadband. They have sought tax credits for broadband deployment, as well as deregulation of traditional telecom rules when it comes to broadband -- stances favored by the Bells. But the tech firms also have promoted municipal networks. Dell, Intel, the political fundraising group Technet and the High-Tech Broadband Coalition -- which articulated a position against state laws as recently as March -- are among the companies and groups supporting municipal broadband initiatives.

In the Texas battle that peaked over the Memorial Day weekend, Intel and Dell vigorously fought legislation supported by two Bell companies, SBC Communications and Verizon Communications. The unsuccessful final bill attempted to grant telecom providers the ability to offer statewide cable television franchises and also would have extended an existing ban on municipal telephone and cable systems to broadband.

"Michael Dell lobbied this personally down in Texas, and was pretty critical in stemming the tide," said Mark Uncapher, vice president of the Information Technology Association of America. The Texas-based Dell Corp. is an ITAA member.

ITAA, the electronics group AeA and the Fiber-to-the-Home Council were among the 40 groups that signed onto the Community Broadband Coalition, which released its list of signers as a means of showcasing its support for the Senate bill (sponsored by Sens. John McCain, R-Ariz., and Frank Lautenberg, D-N.J.). The High-Tech Broadband Coalition thus far has taken no position on the legislation.

"Intel will be taking a position on federal legislation shortly," said Peter Pitsch, director of communications policy for the semiconductor firm, which is a major supporter of Wi-Fi and a member of several of the associations that comprise the coalition. "We will continue to oppose state prohibitions on municipal broadband but recognize that municipalities should operate in a non-discriminatory and completely neutral fashion."

Pressured By Bells And Cable?

An association of several leading tech associations that includes the Business Software Alliance, the Information Technology Industry Council, and the Telecommunications Industry Association -- the broadband coalition organized itself in 2002 to lobby for deregulation at the FCC.

In 2003, it joined with the Fiber-to-the-Home Council in a friend-of-the-court brief for the Missouri Municipal League in a Supreme Court case about the right of municipalities to deploy broadband networks. The court held 8-1 in March 2004 that the 1996 Telecommunications Act does not pre-empt states from regulating the conduct of its own municipalities. "I think it is embarrassing that you are publicly filing a Supreme Court brief and then stepping back from legislation that generally supports that position," said an industry source close to the coalition.

Baller and others believe more tech companies soon will publicly support federal legislation promoting municipal networks. A good percentage of revenue for telecommunications manufacturers comes from Bell carriers, making manufacturers wary of alienating key customers.

"Municipalities are saying, 'We want no limits on our ability to offer broadband,' and industry is saying, 'We can't prohibit you from the market, but you are going to participate on the same terms and conditions we are in the market,'" said William Kovacs, vice president, of technology and regulatory affairs for the U.S. Chamber of Commerce. As with Baller, Kovacs sees a parallel in the country's experience with rural electrification and municipal solid waste treatment, which are provided by both the private sector and by municipal governments.

Supporters of community broadband also are promoting the words of an unlikely ally: Bush. In a speech on June 24, 2004, he cited a Wi-Fi project in Spokane, Wash., "that allows users within a hundred-block area of the city to obtain wireless broadband access. Imagine if you're the head of a Chamber of Commerce of a city, and you say, 'Gosh, our city is a great place to do business or to find work. We're setting up a Wi-Fi hot zone, which means our citizens are more likely to be more productive than the citizens from a neighboring community.' It's a great opportunity."

Copyright 2005 by National Journal Group Inc. The Watergate 600 New Hampshire Ave., NW Washington, DC 20037

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