Summer II Group 4 - North Carolina's new broadband Internet access law

Abstract

Broadband internet access is defined by the Federal Communications Commission as any internet service that provides download speeds of four megabits per second and upload speeds of at least one megabit per second. Amid much controversy, the North Carolina General Assembly passed House Bill 129, the “The Level Playing Field/Local Government Competition Act,” and Governor Bev Perdue allowed it to become law. This law prevents municipalities in the state from establishing broadband services for citizens. Is this North Carolina law fair to both citizens, governments, and private providers and in the spirit of the National Broadband Plan? Our review does not believe that the law is fair to citizens and municipalities, especially in underserved portions of the state, where private investment might not happen without other competition. Instead, the law appears to exclusively cater to private companies seeking to protect profits and existing monopolies or oligopolies.

Background

National Broadband Plan

The Internet is an extremely powerful tool and as such has become vital to the economic growth, job creation, global competitiveness and a better way of life in the 21st century. Broadband service has grown in the United States, but still approximately 100 million Americans do not have broadband at home. In 2009 Congress directed the Federal Communications Commission (FCC) to develop a National Broadband Plan to ensure every American has access to broadband capability. Congress also required that the plan include a strategy to achieve affordability and maximize use of broadband to make national advancements.

The plan recommends six goals to serve as a guide for the next decade.

  • Goal No. 1: At least 100 million U.S. homes should have affordable access to actual download speeds of at least 100 megabits per second and actual upload speeds of at least 50 megabits per second.
  • Goal No. 2: The United States should lead the world in mobile innovation, with the fastest and most extensive wireless networks of any nation.
  • Goal No. 3: Every American should have affordable access to robust broadband service, and the means and skills to subscribe if they so choose.
  • Goal No. 4: Every American community should have affordable access to at least 1 gigabyte per second broadband service to anchor institutions such as schools, hospitals and government buildings.
  • Goal No. 5: To ensure the safety of the American people, every first responder should have access to a nationwide, wireless, interoperable broadband public safety network.
  • Goal No. 6: To ensure that America leads in the clean energy economy, every American should be able to use broadband to track and manage their real-time energy consumption.1

North Carolina House Bill 129

In most of the United States Internet service is provided by only a few companies depending on the area. This means certain companies do not face much competition and therefore are not motivated to update their technology, this has led to the US falling behind in broadband service when compared to the rest of the world.

North Carolina has one of the slowest and most expensive Internet services. Several cities in the state, such as Wilson, Salisbury and some others, created their own city network because of this. These networks were very effective, much faster and the prices were far less compared to commercial Internet providers. They were also a source of competition for private companies.

Private companies such as Time Warner Cable and Embarq argued that they could not compete with taxpayer sponsored Internet service providers such as these, even though foreign countries are able to provide services ten times faster at the same prices or even less. They in turn lobbied North Carolina legislature into proposing bills that would outlaw these types of services. This led to House Bill 129 - Level Playing Field/Local Government Competition being filed in February 2011 and this bill was eventually passed into law in May 2011.2

Although some cities such as Wilson and Salisbury were exempt, this bill severely limits cities that want to build their own networks. Cities will now have to take their plan to a public vote and are now subject to the same taxes and fees as private companies. So instead of competing, the big telecommunication companies have effectively passed a law that will now restrict the public from competing with them.3

Public/Private competition

Competition

The United States federal government passed laws that prevent powerful companies from becoming monopolies, like the Sherman anti-trust law, Clayton Anti-Trust Act, etc. While there are several prominent companies that offer internet service in the United States, AT&T, Comcast, Time Warner Cable, etc, in several areas of the country there is only one or two of these provides present which allows them to become a “natural monopoly”.4 Natural monopolies are formed because it is expensive for a competitive company to install new infrastructure, so if one of these companies is already present in an area the other company will not usually intrude and instead will find an area where the dominant company is not present. If each individual municipality generated their own public internet service this would create competition against the established companies in the area, the companies present do not want this competition, for fiscal reasons.

If municipalities did install their own form of internet service it would drive down the cost that the private companies have established. The private companies claim that municipalities have the ability to go into debt and still provide service, while their companies do not have that ability. This is the reason the private companies have pushed laws that would limit or prohibit the individual municipalities from generating their own form of internet service.

Restrictive Laws

In the Unites states there are currently laws that prevent and/or limited adequate public and private competition concerning municipal broadband. These laws make it impossible for a community to effectively implement their own system of providing internet access to their public. The following is a list of states that currently have laws that limit or prevent public internet:

Arkansas, Colorado, Florida, Iowa, Louisiana, Maine, Michigan, Minnesota, Missouri, Nebraska, Nevada, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin

Concentrating primarily on the North Carolina, the law that was passed in that state primarily restricts the amount of funding that can be put towards the generation of municipal internet. This restriction in money makes it almost impossible for a community to implement a similar or better system then what is already present. Following is a table comparing the effects of the North Carolina Laws on private versus public internet service:

Issue Public Private
Service (90% of the residents must not have access to internet to be considered unserved) (160A-340.2) For a municipality to service an un-served area, they must first petition the utilities commission Allowed to file with the commission within 30 days vetoing the notion that the area is un-served
Infrastructure (160A-340.1.5) Has to share their network or wires with the private companies if they want to use them Is not required to allow use of their lines if the public wants to use them
Advertisement (160A-340.1.6) Not allowed to advertise the service Allowed to advertise as much as they like
Cost (160A-340.1.8) Shall not price the cost of the service below the cost of providing it Allowed to charge whatever they like/can

Table Data56

Benefits of municipal broadband

Municipal Broadband provides a great number of benefits for communities in which it is deployed. While several of these benefits may be obvious, there are also others that may be overlooked. These benefits include: expanded service and lower rates, public service priorities, and increased competition in highly-concentrated broadband markets.7

Expanded Service and Lower Rates

Private broadband companies are interested almost exclusively in terms of the bottom line. Therefore, decisions made to expand coverage or alter prices will usually be answered by the question “Is it profitable?” While this is important for the success of the private sector providers, it isn’t in the best interest of the community.

Municipal Broadband on the other hand is often free or greatly cheaper in price compared to alternatives. These networks have also been the technology providing access to rural communities where the private sector did not consider it sufficiently profitable to deploy. In other rural communities the absence of private competition leads to extremely high prices or even no service at all.

Despite the lack of municipal competition, North Carolina has raised the percentage of households with broadband availability up to 92% as listed in a July 2009 assessment.8 However that statistic can be deceiving, seeing as of August 2010, only 80% of North Carolina homes had internet access.9 This means that despite it being available, reasons such as cost are preventing many homes from usage.

Prohibiting municipalities from deploying broadband networks removes an important provider and a valuable alternate competitor to the private sector. Therefore, banning or restricting municipal networks will subject many communities to substandard service and overly high rates.

Public Service Priorities

Municipal communication networks, unlike private sector counterparts, operate with a “public motive” as opposed to a “profit motive”. A 2005 study in Florida said, “While a profit-centric view may be good business, it is obviously not good for communities forced to endure substandard education, poor health care, and a sluggish economy."10

Municipal networks are open and accountable to the public, and operate on a level of government that allows easy and extensive participation by local residents. This allows them to meet community needs unmet by private service providers. A private provider may have no interest in satisfying low-income customers, offering non-profit service to schools and city offices, or reaching out to a rural community isolated from service. A public network, however, considers these areas as key to the mission of universal, affordable access.

Increased Competition in Highly-Concentrated Broadband Markets

Broadband “competition” for many Americans consists of the choice between one cable company and one telephone company; sometimes there may not even be a choice. Oligopoly market control cannot and will not yield the consumer benefits the come from true competition. When cable companies sell their high speed internet service, they only offer themselves as an ISP. Likewise, when telephone companies sell DSL, it is bundled with the phone service. Both types of companies are very selective in where they will make improved services available, and often focus on wealthy neighborhoods first. With this limited competition prices have remained high and expanded range of services has not happened. This shows an obvious need for more competition and choice for the consumers.

A 2010 report on internet speeds in each state reinforces the idea that our country needs improvement on staying competitive. The average internet speed in the United States is 3.0mbps which pales in comparison to speeds such as 18.0 mbps for Japan, 22.2 mbps in Sweden, and especially the 34.1 mbps speed in South Korea. This puts us ranked 15th behind other industrialized countries in high speed Internet adoption, and 25th in Internet speeds.11

North Carolina specifically can use the competition as the state ranks 38th in our nation in internet speeds and 57% of households have internet speeds below minimum national standards. Despite the struggles, the need for the broadband service in North Carolina is apparent . On October 28, 2010 e-NC and SNG announced findings of a comprehensive study of residents and businesses in the state of North Carolina, revealing the potential of broadband for competitiveness and economic opportunity:12

  • Nearly one in five (18%) of new jobs were created as a direct result of Broadband Internet. Small businesses (less than 20 employees) are especially dependent on Broadband Internet as 28 percent of new jobs in that sector are attributed to using the Internet.
  • More than half of all businesses (54%) said that they would not be in business if they did not have broadband while two in five (41%) would have to relocate if broadband was not available in their community;
  • The number of households either currently running (31%) or planning to run a business from their home in the next twelve months (14%) is nearly half (45%) of North Carolina’s broadband households;
  • Even more broadband households are either now using (41%) or planning to use (24%) broadband to sell items online. That’s nearly two-thirds (65%) of broadband households using it to at least supplement their income;
  • Most (85%) of home-based businesses said that broadband was essential to their business.

Municipal networks provide an important alternative to the oligopolistic tendencies found in the consolidation of multiple telecommunications providers. The existence of open access public networks can serve as a deterrent, allowing consumers access to content that private sector competitors can choose to block. Additionally it is dangerous for a democracy to allow its entire telecommunications infrastructure to be held by unelected and unaccountable private actors that hold no obligation to behave in nondiscriminatory manner. Municipal networks answer directly to local community and their polices are subject to modification by public action. The threat of entry of municipal networks often prompts private providers to deploy new services or lower rates to combat the public networks. This behavior shows the true need for our society to be offered the mix of both municipal and private options for broadband service.

Conflict with National Broadband Plan

The National Broadband Plan defines broadband internet access as a "general purpose technology," one that can spawn a new era of technological and economical development. The proliferation of general purpose technologies can lead to the development of both new devices and entirely new industries13.

Specifically, one portion of the Plan addresses current availablity of broadband access across the United States. While some counties in North Carolina have broadband penetration rates in excess of 90%, a nearly equal number of localities suffer from very low availability, sometimes as low as 21%. Many of these areas with low adoption rates are rural areas, where private providers currently offer limited or no services14.

The National Broadband Plan directs Congress to “make clear that state, regional and local governments can build broadband networks.” 27% of Americans are currently served by publicly-developed electric utilities, created in response to a lack of investment by private utility companies since the turn of the 20th century. The proliferation of broadband internet access is following a similar pattern; dense, highly profitable urban areas are becoming targets of development while broadband companies minimally build out networks to small towns and rural areas15. Municipalities often seek out private investment prior to developing their own broadband networks, as municipal networks can discourage future private investment in a region.

House Bill 129 had been given a short title of “The Level Playing Field/Local Government Competition Act” when introduced into the North Carolina House of Representatives. Following passage by the House, Federal Communications Commissioner Mignon Clyburn issued a criticism of the act, advising that "This piece of legislation certainly sounds goal-worthy, an innocuous proposition, but do not let the title fool you." This legislation has stripped the ability of municipalities to compete with private providers, creating a situation where either municipalities are forced to offer extremely atypical incentives to ensure that providers can establish profitable private networks in unserved areas, or private providers are free to ignore areas where it is not profitable to build out a network any further. By denying citizens high-speed Internet access, the effects can be far reaching, damaging a region’s economy and quality of life16.

There is evidence of this having already taken place. As mentioned, Salisbury, North Carolina, developed its own municipal network, called Fibrant, in order to provide service to its citizens. Fibrant competes with Time Warner Cable in the greater Salisbury area. Time Warner, however, did not provide service to several portions of the town, including the downtown business district. Despite repeated requests from Salisbury officials, Time Warner refused to expand its investment in the town, either in the form of an expanded service area or upgrades to a new fiber optic infrastructure17. Though Fibrant will be grandfathered and exempt from the new regulations, other cities in similar situations but lacking their own broadband network will not have the same opportunity.

Conclusion

North Carolina’s new law restricting broadband competition appears to sacrifice the ability of municipalities to provide for their citizens’ best interests and is in favor of existing service providers. Municipalities have now been stripped of the right to establish municipal broadband networks, and private providers now have a stronger reason not to invest in marginally or completely unserved areas. This law counteracts the intention of the Federal government’s National Broadband Plan, which affirms that state and local governments have the ability to create municipal broadband networks, and also advocates the need for cooperation between public and private providers in order to maximize broadband penetration across the country. While the law’s stated goal is to “level the playing field,” it does anything but.


1819

Response - Kevin Pfab

I was shocked to learn this bill existed. We live in a country where the Internet connection speeds are but a fraction of what they could be, at exorbitant prices. The idea that the competition in North Carolina was so unchecked that individual cities stepped in is brilliant, and I firmly believe they should not have bene shut down. In a competitive market, the businesses that can offer the consumer the highest value should be one of the leaders of the market, but instead of bringing our internet connection up to standards, the large cable companies shut them down in court.

Greed and anti-competitive bills such as this one just help prove that we are falling behind the technological curve. We still have a huge technology sector, but how long can we hold onto that if the grip is so tight that we cannot innovate? In just Blacksburg, Comcast holds a huge monopoly over what internet service you choose (you only have two choices) and even if you choose Comcast's largest plan, the slowdown during peak hours is far greater than it should be. If Blacksburg tried to give us better terms for our internet connections by law, Comcast would shut us down in court too instead of just laying down the new and improve infrastructure they desperately need.

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