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Virginia Tech
Broadband for the masses?
Taken from CNET External Site
Written By Marguerite Reardon
April 14, 2004

Jim Baller is no friend of the large cable companies or the Baby Bells that dominate local telecommunications markets around the country.
As a principal attorney for the Baller Herbst Law Group, he has fought these interests on behalf of local governments and utilities for the right to build and operate new telecommunication networks.

Baller's clients include the American Public Power Association, the National Association of Telecommunications Officers and Advisors, and individual local governments and public power utilities in more than 35 states. Over the last decade, he has been involved in many of the leading community broadband projects in the United States and in most of the legislative and court battles over state barriers to municipal entry.

In particular, he was lead counsel in cases that struck down barriers to entry in Missouri and Virginia. Baller was also counsel of record when the case in Missouri went before the U.S. Supreme Court.

As Americans thirst for more advanced technology, such as high-speed Internet access, some municipalities and government-owned utilities are building their own fiber-based or advanced wireless networks. Most of these networks so far have been built in rural regions where large phone companies and cable companies are reluctant to build out infrastructure. But the movement is also spreading into more densely populated areas as communities look for ways to attract new businesses.

The increased competition has struck a nerve with local phone and cable providers, who argue that municipalities have an unfair advantage because they have access to tax money to build and maintain these networks. They also argue that municipalities are often the ones regulating and approving the construction of such networks.

CNET News.com recently spoke to Baller, who is considered one of the most knowledgeable lawyers in this field, on two separate occasions from his office in Washington, D.C., about the growth of municipally owned networks, competing with the Baby Bells and the cable companies, and losing the Missouri case in the Supreme Court.

Q: What's driving the growth of municipal broadband?
A: Local governments across the United States have come to view affordable access to advanced telecommunication services and capabilities as being vital to economic development and educational and occupational opportunity. They also see it as a key component to competing regionally and globally, revitalizing urban areas, modernizing health care, reducing traffic and environmental harms, and a variety of things that go into contributing to a high quality of life for the community.

At the same time, local governments are increasingly frustrated by constantly rising cable rates, poor customer service, (and) the sense that the large and increasingly growing cable companies and telephone companies do not seem to care much about local concerns.

Are these cities and local governments building out their own networks because they wouldn't be able to get new services otherwise?
In the more rural areas, that is true. But even when services are available, they're not fast enough for the goals of some communities. For example, cable modem service offered by cable companies and DSL services offered by phone companies typically run at about 3 megabits per second. Those rates are very low and insufficient to support the kinds of goals that I mentioned before. The Department of Commerce has said that what we regard as broadband today--cable modem service and DSL--are going to be the roadblocks for tomorrow as demand for bandwidth goes beyond the capacity that's available today.

It seems like the incumbents are dragging their feet in aggressively building out high-speed networks.
Well, they have made their investments in the kind of infrastructure that they believe maximizes their revenue streams. But many government entities, particularly those that have the need for infrastructure that goes beyond what the cable companies and the phone companies are basing their business plans on, want to leapfrog what is available today. They want to bring themselves truly into the future, just as countries around the world have done by adopting true broadband at a far faster pace than we have in this country.

What kinds of infrastructure and technology are municipalities using to build these networks?
For communities that operate their own electric utilities, fiber is a natural fit. Some communities that do not have electric utilities might consider fiber, but many are thinking about wireless technologies of some kind, particularly in places where fiber would not currently be feasible.

Wireless is gaining popularity in densely populated urban areas.
Some major cities want to make investments in citywide Wi-Fi hotspots or new WiMax (Worldwide Interoperability for Microwave Access) technologies, because some neighborhoods or areas still do not have access to a high-speed network. Some local governments are considering offering free wireless access as a vehicle to attract businesses downtown. There are a lot of things that are going on all around the country in which local governments are just beginning to take matters into their own hands.

The telephone and cable companies generally don't like competition. What are they doing to try to stop the spread of these kinds of networks?
They are doing a number of things at different levels. In state legislatures, they have been seeking laws that would have the effect of restricting local governments from engaging in communications activities or defining the ways that would make it impractical, if not impossible for them to build and operate these networks.

They've also been very active and very aggressive in local processes, where they've tried to dissuade decision makers, like city council members, from going forward with projects. A good example of that is all documented by a citizen group in Illinois called Tri-City Broadband Citizen Support. On their Web site they give a pretty good picture of how major incumbent providers of cable and telephone service resist efforts by communities to create advanced communication systems.

They've even been lobbying at the federal level. In the next Congress, there will likely be a major overhaul of the communications laws. I would imagine phone and cable companies will try to address some of these issues then.

They're also arguing before state public service or public utility commissions about terms of entry. And they've filed lawsuits in a variety of states.

Recently, local telephone companies won a key battle when the U.S. Supreme Court ruled that Missouri had the right to pass laws prohibiting cities and local governments from selling telecommunications services. You helped litigate this case on behalf of the local governments. What's your reaction to the decision?
We are disappointed by the Supreme Court's ruling in the Missouri case. But three points stand out from the majority's opinion.

First, the court made it clear that the decision is not a ruling on the merits of municipal telecommunications.

Second, the majority gave two main reasons for finding that the term "any entity" in Section 253(a) does not cover public entities. One reason was that Congress could not have intended to create the "crazy quilt" of potential outcomes from state to state that could result if "any entity" were interpreted broadly. We, like the dissent, would have preferred that the majority decide the case on the basis of the facts before it, rather than on the basis of hypothetical (situations) that may never arise.

Third, the majority's other main point, in which Justice (Antonin) Scalia concurred, was that Congress had not spoken with sufficient clarity in Section 253(a) to satisfy the court's high standards for determining whether a federal statute pre-empts a traditional state power. We disagree, but when eight justices of the Supreme Court have spoken on a point like this, we must accept their conclusion.

What does this mean for the future of municipally owned networks? Is it the beginning of the end?
Only a handful of states currently have barriers to municipal entry, and we hope that other states will take to heart the Federal Communications Commission's admonition that such barriers are unwise, unnecessary to achieve any legitimate state interest, and contrary to the purposes of the Telecommunications Act. Some states have already reversed or relaxed barriers enacted in the past, and we hope that this trend will continue as well.
We also hope that state legislators everywhere will realize that, without the involvement of local governments, our nation cannot achieve our national goal of rapid deployment of truly advanced and affordable telecommunications services and capabilities to all Americans, including those in rural and high-cost areas.

But you've got to be very disappointed by the outcome.
A victory in the Missouri case would have been helpful, but (the loss) is by no means the end of the road. We're basically right back where we started. A decision in our favor would have made it illegal for states to limit municipally owned networks. But even without the benefit of a federal law, we are still finding success in many areas of the country, based on the merits of these networks.

There's been a lot of activity going on around the Utah Telecommunications Open Infrastructure Agency (UTOPIA) project. How is that situation shaping up?
Qwest tried to kill the UTOPIA Project, but it did not succeed. The law that is currently on the governor's desk would not deal with the cities that were originally part of UTOPIA. It would essentially impose a three-year moratorium on other cities wanting to join UTOPIA or projects like UTOPIA.

Would you say that the telephone companies and the cable companies have been successful in keeping many municipalities from building new networks or have they just slowed the process?
I would say that they have been successful in some places and they have not been successful in others. There are only a relatively small number of states that have restrictions. But where those constraints exist, we have quite a lot of friction and heat. In places where there are not constraints, there have been a number of projects that have moved forward and been successful.

Are there any particular telephone companies or cable companies that stand out as being more aggressive in challenging these types of build-outs?
In the telephone industry, it's easy. There are only four (Verizon Communications, SBC Communications, BellSouth and Qwest), and all of them are actively opposed to municipal involvement. While they focus on different regions, there are examples of all of them involved in strong efforts to resist municipal projects. Most of the cable companies have been quite active. Comcast, Charter Communications and Mediacom Communications are ones that come to mind. But I would not exclude others.

Critics claim that municipally owned networks have not been successful and that many are struggling financially. What's your reaction?
It's just not true. The studies that the critics rely upon to support their claims are full of errors and are simply inaccurate. To understand the argument to begin with, you have to accept the framework that the industry imposes on the question of what a successful system is. A successful system to a private sector company means that you have to cover your cost and show a profit within a relatively short period of time because you have shareholders and other investors who are looking for a return on their capital and a profit, dividends et cetera.

A local government has different goals. They look more at the long-term benefits of the project. They can finance the project so that it's not designed to produce a profit, but...designed to recover its cost and develop an asset that encourages businesses to come into the community and create jobs and tax revenue. So if you judge a project under the criteria of a public works project, many of these projects are extremely successful. It's a matter of holding the wrong ruler up to this standard.

Are there any communities that stick out as success stories?
There are several. The fiber-to-the-home network in Bristol, Va., is more than a year ahead of projections only after a few months of being operational. Kutztown (in Pennsylvania) is right on its projections. After four months in operation, Dalton, Ga., had take-rates exceeding 27 percent. Even Cedar Falls, Iowa, which was criticized in its early days by one of the reports that many of the critics rely on, is a marvelous success story. During the peak of the economic decline when other communities around it were suffering, Cedar Falls' economy boomed. The bottom line is that the charge that the systems are not successful, is just not true. Of course, there may be a network here or there that is not as successful as some of the others are, but there are no real failures to speak of.

Is there an opportunity for telephone companies or cable companies to work with the municipalities? Maybe run the networks for them once they're built?
There are some examples of cooperation. But by and large, the cable industry rejected cooperation out of hand and the phone industry did pretty much the same. I know that in many cases, local governments, particularly those that operate their own utilities, would love to have projects that are products of cooperation where it is a win-win game for everybody.

Do you see large cities like New York City or Los Angeles building their own fiber networks?
In the major cities, the economics are different. If you are in a large city where there are many providers offering services to different segments of customers, the take-rates that you would need to be able to build out a fiber-to-the-home system would be very difficult to achieve. We have something of a reverse digital divide. Communities that are outside the major population centers, where there is less competition, are more likely to be able to build out a fiber-to-the-home system. This isn't to say that cities, such as Los Angeles or New York, may not play an important role supporting fiber development in certain underdeveloped areas. But the likelihood of a fiber-to-the-home overbuild by a municipal provider is a long shot.
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