Behind the municipal broadband battle

Introduction

What do you really know about the way the Internet works?

How did it get to you?

Who built the infrastructure behind it?

Who makes decisions about its future?

These are some of the questions Center for Public Integrity reporter Allan Holmes wanted to answer recently when he traveled to Tullahoma, Tennessee, and Fayetteville, North Carolina, for Reveal radio.

These two cities are battlegrounds, pitting big telecommunications companies against cities that want to build their own high speed Internet service in a fight playing out in State houses, ballot boxes and, ultimately, desktops across the country.

Jared Bennett: So Allan, what is it about the telecommunications industry that’s interesting to an investigative reporter?

Allan Holmes: Well on first blush it probably isn’t that interesting but you’ve got to realize these are some of the largest corporations in the world. They also give some of the largest amounts of money to campaigns; they spend some of the largest amount of money in lobbying. AT&T, Comcast and Verizon spend millions and millions of dollars, so they have a lot of influence. But I think what interests me even as much as that is that these corporations control the information we use to live our everyday lives and how we make decisions based on that information.

And this is only going to become more important and they’re going to become more powerful as the Internet of things evolves, which means that everything will have its own URL, even your light bulbs, and we run almost every facet of our lives on the Internet. So this is really important stuff.

JB: What makes the Internet interesting in cities like Fayetteville, North Carolina, and Tullahoma, Tennessee, where you visited and this story’s focus is on?

AH: We looked at these two cities, first of all Tullahoma has a broadband network, Fayetteville has fiber optic cable network underneath the ground but they can’t use it. So you have one city that has broadband and can give it to the residents and businesses and another one that doesn’t, Fayetteville, N.C. So we wanted to juxtapose these two cities. The other thing that’s interesting, and this actually happened after we went to these two cities back in the summer when we first started reporting this, is that Wilson, North Carolina, filed a petition to the FCC and Chattanooga filed a petition to the FCC asking the FCC to preempt the state laws that are holding them back from expanding their own city-wide broadband networks, so there’s even an added interest at that level.

JB: Right, in Tullahoma, they have this high speed Internet, but not everyone in the area can access that, is that right?

AH: That’s right. The state law in Tennessee basically says that if you have a municipal broadband network you can’t expand beyond the boundaries. And this is typically into more rural areas but even into subdivisions, and you go to these subdivisions and they look like any subdivision outside of a major city.

JB: So Internet is faster in Tullahoma than it is in other parts of Tennessee and than it is in Fayettevillle … what’s the big deal, what’s at stake?

AH: Well, a lot of people think it’s just a matter of being inconvenienced, that’s the way it’s thought about and presented to people. But really it’s more than that.

What’s interesting is that even the lawmakers who are getting these bills through think that way. For example in North Carolina there’s a representative named Marilyn Avila. She represents Wake County which is where Raleigh, the state capital, is in and she got a bill passed in 2011 and we went to her office in the state legislature there in Raleigh and asked her the very same question, and this is what she told us:

“I know that’s one of the issues that a lot of people have, and particular I hear it with downloading movies and things like that and people want to complain and I’m thinking OK, then don’t download that many.”

But this isn’t really about downloading movies, it’s really about jobs and development and making your community a place where people want to live and are set up for success, and you hear it from almost everyday people working in these communities.

JB: Sounds like it’s a big deal, but fast Internet and slow Internet, those can be abstract ideas so lay things out for me clearly: what can people do in Tullahoma that they can’t do in other parts of the state?

AH: In Tullahoma, there’s a small startup software company called Agisent, it actually moved from South Carolina to Tullahoma because Tullahoma’s very fast, it’s a gigabit network, one of the fastest in the world. For a town of 18,000 that’s pretty impressive. And also it’s very reliable and that’s what this company called Agisent needs. What they do is they provide a web document management service to police departments, prisons, courts typically; they are small to medium sized departments that can’t afford their own IT expert to manage their networks so that’s really important to them that they can do that in Tullahoma.

That’s fine for Agisent. But then you go outside of Tullahoma, you just drive like 3, 4, 5 miles outside of Tullahoma into this suburban area where there are some very nice homes, and they don’t have Internet access. They don’t even have AT&T, U-verse or Charter Communications which is another telecom there who provides service in Tullahoma. They don’t serve this area. And ran into a fellow named Matt Johnson, he is an entrepreneur, he started up a company called Road Rage Gauges, which are gauges that you put in your truck or high performance car to measure how it’s performing so you don’t overtax your engine or damage it in some way. What he did was he spent $2,000 rigging up a system so that he could get wireless access, but that’s just way too slow for him. He has clients in China and South Africa and Germany that he has to talk to and when we visited him at his home, this is what he told us about his experience:

“So I had to point the antennae out of this end of the house because nowhere in the house did I have any signal whatsoever. So I had to put the antennae here, protected, point it towards Tullahoma, towards town. I had to amplify it. I had to direct it and it was all sitting in here on a homemade contraption just to get Internet, so that’s what I had to do.”

JB: In the past the president has framed this as a jobs creation issue. And that’s what it sounds like when you talk about companies like Agisent and Matt Johnson’s company, but is that what you found through your reporting?

AH: Yeah, you even talk to big investors, venture capitalists, about the importance of having broadband in a city and you find out that, yeah, Obama is right. We talked to Cameron Newton in Tullahoma. He was an investment banker in New York and for a very large bank in Charlotte, and now he’s a venture capitalist and we sat down in his office in Tullahoma to ask him about the importance of broadband to a city.

“Manufacturing in the U.S. is very, very different than it used to be, and it’s changing rapidly. And now you’re having much more automation. The next move in manufacturing is to additive manufacturing, which is 3D printing. None of that equipment is going to be isolated so in other words it’s all going to be connected. So if you don’t have broadband accessibility, if you don’t have fiber in your community, where are these manufacturing plants going to go? Well, they are going to go to areas that do have it.”

JB: So if that’s the case, what’s the argument big telecommunications companies use against city-run broadband?

AH: Well, first of all they are worried about competing. In a lot of these cities you only have one, maybe two, if you’re lucky three companies competing but mostly it’s one or two.

In Tullahoma, as I said, it’s AT&T and Charter Communications.

In Fayetteville it’s Time Warner cable and Century Link but even they don’t cross over boundaries; they usually separate their areas so they don’t compete.

But what they’re saying is that it’s unfair competition. The government is competing against the private sector, which is unfair because they don’t have to meet the same requirements that a private company does. They don’t have to pay taxes; they don’t have to make a profit; they can borrow money at a much lower interest rate than private companies.

But this is the thing; you ask these cities, “Why don’t they just go with a private company?” And every one of them told us that, “Well, we did ask, the problem is that the incumbent Internet provider didn’t want to upgrade their networks or they didn’t want to expand it out into areas where they weren’t.”

So the cities basically said, “Well, where does that leave us?”

That leaves us, if we want to survive economically because we need to attract businesses and support local businesses, we need this network, so we got to do it.

JB: The people who make policy decisions, the lawmakers, they are on the same Internet that their constituents use, don’t they see limited connection as a problem?

AH: They do see it as a problem but they don’t think that having the government provide the broadband is the best way.

What’s also influencing that decision is the amount of money that’s flowing.

For example just at the national level there was $88 million spent last year on lobbying by the telecom industry and since 1996 the telecom industry has spent $167 million in giving to campaign donations.

Now these lawmakers have told us, of course that doesn’t influence the way they vote.

But we asked a number of lawmakers about taking money, and about why they have the positions that they do.

And one of those people was Glen Casada, he’s the third in line in the leadership in the Republican party in Tennessee, and he’s been involved in helping derail some of the bills that have been introduced that would allow expansion of broadband.

This is what he told us:

“My district is about 2/3 high-speed and 1/3 non-high-speed. So I do hear a lot of that, and I talk to several of those providers: ‘we need help, what’s the solution?’ and their retort is, ‘Well, we can’t afford to go to the southeast corner of your county because we would lose money and lose money hand over fist.’

And I said, ‘We’ve got to figure this out, and real quick, because if we don’t figure it out, then we’re going to have to go with a solution that may not be palatable to the free market system.’

So there is an answer, I contend we have to work it out and figure it out so that the free market solves it, because if a government-run entity solves it, it’s got long-term negative implications.”

JB: What are the possible long-term negative effects that he’s talking about here?

AH: Well first of all it’s competition and that the private companies will lose jobs. But mostly what people point to is that cities don’t know how to run these networks and that they’ll get into financial trouble and eventually that the taxpayers will have to bail out the losses. When we talked to Marilyn Avila about this she pointed to a very large thick binder basically showing that there isn’t any municipalities that are making money in the U.S. and many have failed. She mentioned for example Provo, Utah’s, Utopia which went bankrupt, true, but the interesting thing is that this study was put together by a law firm in North Carolina that is a lobbyist for the telecom communication.

But not everybody believes that. When we talked to Jim Baller, he’s the lawyer that is representing Chattanooga and Wilson, North Carolina, and the FCC for their petitions to preempt the state laws there, toallow them to expand their broadband. He had this to say about municipalities not making money:

“The large majority are doing just fine. They are recovering their costs, they are benefiting the community. The handful of projects that have struggled we hear about them over and over and over again as if repeating the same name 20 times means there are 20 failures.”

JB: The worry that politicians have, it’s pretty understandable, that failures will be passed on to the taxpayers and that they’ll have to foot the bill, is that right?

AH: Well, it’s how these laws are put together and the provisions that are in them. What’s interesting is that some of these laws, especially like North Carolina’s, they only give cities one option to fund the building of the networks and that’s called general obligation bonds. That puts taxpayers at risk, they’re on the hook if something goes wrong. But there’s other ways to finance these networks, and one is called revenue bonds where investors are paid based on the amount of revenue that’s being generated off the networks from being sold to businesses and to residents and the only people who are at risk to that are the people who chose to buy the bonds, it’s not the taxpayers.

JB: Did you run into anything about how telecommunications regulations work that would surprise the average customer?

AH: While people aren’t really happy with their service, the telecommunication companies, the Internet service providers, rank almost dead last in customer service in most surveys. But they don’t know why, and when you tell them the amount of money that’s involved in the state legislatures that are funding these bills, that are influencing or at least part of the whole play of lawmaking there, they are surprised. And this isn’t just relegated to the average person on the street, the state lawmakers aren’t aware of the amount of money that’s going to their colleuges and what might be motivating them, they’re surprised.

JB: Why should I care about municipal broadband laws in other states if I live in an area where my Internet runs smoothly and it’s running as it should?

AH: Well first of all I don’t know if it’s running smoothly and as it should, I think there are still some problems in the other 30 states that don’t have these type of laws. That said, they should be very interested in this because if municipalities are allowed in these states to create broadband networks or expand them, it’s going to create more competition, which leads to more innovation which will then spill over into their states.