Why you can get the best deal on high-speed access in Glasgow, Kentucky.

In Glasgow, Ky., the man to see about broadband is Billy Ray. At $24 a month for 1 Mb/s of symmetrical cable modem Internet service, his is one of the best deals in the country.

by Ed Gubbins

TelephonyOnline.com

(Thanks to Mike McCue of Schooley Mitchell Telecom Consultants – Missoula for passing this along- Russ)

Ray is the affable superintendent of the Electric Plant Board, the municipally owned power utility for this small agricultural town of 14,000 located about 95 miles north of Nashville. The EPB began offering cable TV services in 1989 when criticisms about the local cable incumbent, Charter Communications, reached critical mass. “Pictures were fuzzy sometimes. You couldn’t get a lot of channels. We were never pleased with the reception or quality of service,” said John Berry, owner of a local PC retailer.

Because the EPB operated as a nonprofit entity (funded initially by utility bonds, later by revenues, but never by taxes, Ray said), it was able to undercut Charter’s prices drastically; at $18.95 a month, Ray boasts the country’s cheapest cable. Charter lowered its prices in kind, but to its peril. By 2000, the EPB had taken 75% of Glasgow’s cable market. Charter surrendered, sold its network to Ray and left town.

Today about 3000 of the EPB’s 8000 cable customers subscribe to broadband. The competition, South Central Rural Telephone, recently began adding DSL to its local exchange offering, trying to eat at the EPB’s market share by decrying cable’s bandwidth-sharing architecture. But it won’t be easy: SCRT’s lowest tier of service, 128 kb/s, still costs about $5 a month more than the EPB’s 1 Mb/s offering. And SCRT’s high end — 1.5 Mb/s for $88.95 — is more than triple its competitor’s price.

Given EPB’s advantage, has the city left customers without choice? And without competition, what motivates the EPB to serve its customers well? “Every two weeks when the city council meets, if people are mad, they can vote to cut my head off,” Ray said. “That works quite well.”

Glasgow is just one of many small towns across America that have empowered the local government to offer broadband through its power utility after being ignored by private telecom firms that equate small towns with meager returns. More than 400 public power utilities in America have deployed some form of telecom service, according to Uptown Services, a Silicon Valley telecom consultancy. Of those, 29 offer local telephony, 93 offer cable television and 59 offer DSL or cable modem Internet service.

Even where private companies have shown little interest in providing broadband, they’ve nevertheless shown great interest in preventing municipalities from doing so, often by supporting legislation at the state level. According to the American Public Power Association, nine states have passed laws restricting municipalities from getting into the telecom business. In Utah, state law merely imposes strict regulation of municipal telecom services. In Nevada, only cities with more than 25,000 people are prohibited. And in Texas, all cities and their utilities are flat-out forbidden to offer telecom services of any kind, even those offered indirectly through a private firm.

In some states, these laws have been defeated. Florida’s tax on municipal telecom was passed in 1997, only to be ruled unconstitutional by a circuit court in March 2002. Wisconsin, which has 23 municipal CLECs (four of which currently offer retail service), has evaded a few such bills in recent years. Another measure failed in Kentucky in 1998, but not for lack of support from the incumbent phone company, Ray said. “They hired all the best lobbyists in the state and generally gang-tackled [state legislators].”

Legal challenges to these laws are likely to reach the U.S. Supreme Court as early as next year. For many small-town citizens, the issue strikes at the heart of America’s digital divide.

“In the Glasgows of the world, the 10,000 cities our size across the country, people are asking for services from the private sector, and the private sector is choosing not to deliver,” Ray said. “So they say, ‘Well, why don’t we do it ourselves?’ Then the phone company comes in and says, ‘Hell no. I’m not going to do it, but you’re not going to do it, either.’ These people are just damned to suffer.”

The people of Palo Alto, Calif., — a city of 61,000 in the heart of Silicon Valley — may not have much in common with folks in Glasgow, but when it comes to broadband, they share some sentiments with Billy Ray. Palo Alto’s Utility Advisory Board is currently reviewing a plan to provide fiber-to the-home (FTTH), delivering cable TV (at prices below those of incumbent AT&T Broadband), telephony (with the help of a Bell company or CLEC partner) and about 1 Mb/s of symmetrical broadband.

AT&T hasn’t upgraded its network in Palo Alto and has stopped taking new orders, said Neil Shaw, president of telecom outsourcing consultants Uptown Services, which developed the business plan for the project. And Pacific Bell’s DSL coverage is “spotty,” he said. A spokesman for Pac Bell’s parent company, SBC Communications, said its DSL is available to 65% of its voice customers in Palo Alto — some 50,000 businesses and residents.

The FTTH proposal is projected to cost taxpayers nearly $50 million and pay for itself in 10 to 15 years — a commitment that makes some city council members nervous. And the project’s tentative pace (begun in 1998) conforms to the stereotype of government sloth. But public support of the plan has been vocal, especially among the participants in the city’s initial trial of FTTH services.

Neil Bauman, CEO of Geek Cruises, a Palo Alto computer conference-hosting firm, was one of the 70 trial participants. Working out of his home, he found the city’s FTTH service was more reliable than that of the phone and cable incumbents, and its customer support staff was more attentive. “It’s truly unbelievable. More cities need to do this,” he said. “This is a good kick in the butt to some of these [telecom] companies.”

Pacific Bell has persistently criticized the plan, poking holes in its cost projections and demand surveys. In late September, Stacey Wagner, Pacific Bell’s director of external affairs, presented a memorandum to city council members entitled “Muni-Toons: The Folly of Municipal Ownership of Broadband Facilities.” Authored by law firm Cole, Raywid & Braverman, the memo derided public telecom efforts (including Ray’s) as impossible to sustain without ongoing “subsidies,” often in the form of tax reprieves.

It also contends, “There are serious questions regarding the fairness of having a municipality, which has regulatory authority over broadband systems, compete with the entities it regulates.” Cities own the rights-of-way broadband providers must use to build out their networks, and although rights-of-way are often regulated at the state level, these local conflicts of interest have already given rise to lawsuits and accusations between public and private cable competitors in Scottsboro, Ala., and Truckee, Calif.

Pac Bell has discussed possible public/private partnerships with Palo Alto as an alternative, but nothing tangible emerged from those talks. Still, the SBC spokesman insisted the company has no ulterior motive to thwart the FTTH project.

“We’re not taking sides on this in any way, shape or form,” he said. “We’re mainly there to provide guidance for the city council, to make sure they make the best decision for their community.”

In Bristol, Va. — a town on the Tennessee border with about 42,000 residents — conflict between cities and telecom providers escalated to the state senate and crashed into courtrooms. In 2001, the city filed suit against the state in federal court to overturn a state law barring municipalities from offering telecom services. When it succeeded, the state’s attorney general, along with the Virginia Telecommunications Industry Association, appealed. But during the appeal process, the state passed a new law that rendered the case moot.

The new law, which went into effect in July, allows public utilities to offer telecom services, but only if they impute into their cost structure the same taxes and fees private companies have to pay. This way, the cities’ broadband prices would more closely match their private competitors’ and an even playing field would be created.

It’s a measure Ray can’t fathom. “People create governments to do for them what the private sector will not or cannot do,” Ray said. “The very idea of hobbling your government artificially by making it pay unnecessary fees makes no sense at all. I can only assume the people weren’t heard there.”

At press time, only Bristol and Danville, Va., — a town of 50,000 in the foothills of the Blue Ridge Mountains — had applied for certificates from the State Corporation Commission. While Bristol has it eye on a FTTH deployment that would deliver voice, data and cable TV service, Danville is merely looking to sell high-speed Internet service through local ISPs.

Bristol’s leaders, like those of many towns, feel pressure to roll out broadband in order to attract and retain local businesses. Ironically, though, Sprint — which offers Bristol DSL as well as wireline and wireless services, and employs more than 700 people there — said the town’s telecom initiative would discourage private investment in the area. “We’re one of the largest taxpayers in Bristol, and here they are competing with one of their largest sources of revenue,” said Tom Sokol, vice president of external affairs for Sprint’s local telecom division in Virginia. “That to me is a little awkward.”

Like many supporters of municipal broadband, Virginians admit they’d prefer to get these services from private companies rather than the government — if only those companies would step up to the plate. “In an ideal world, I’d want private enterprise to do this as opposed to the government,” said Delegate Danny Marshall, one of the sponsors of Virginia’s new law. “In rural areas, you need the government to get the ball rolling. Once it’s up and running, the government should get out of it. Hopefully the private sector will pick the ball up and run with it.”

Sprint provides DSL to about 5% of Bristol’s residents, Sokol said, calling it “the main provider” of telecom services in town. Meanwhile, Charter Communications has ardently challenged Bristol’s entry into the cable market, claiming the city failed to hold the necessary public hearings prior to creating another cable franchise and is giving its own municipal cable franchise unfair advantages.

PUBLIC POWER
Number of public power utilities that offer various services to city residents
Cable TV 93
Cable modem/DSL 59
High-capacity data services 83
Fiber leasing 122
Local telephony 29
Long-distance telephony 25
Wireless 16
Video on demand 4
ISP 105
Source: Uptown Services

The week before Thanksgiving, a judge granted Charter’s request to issue a restraining order against the city, preventing it from launching service until Dec. 9, when the judge was scheduled to hear oral arguments on Charter’s motion that the city be denied the right to launch service.

The Supreme Court may have the final say on the legal fight over municipal telecom, thanks to a case in the Show-Me State. Missouri passed a statute in 1997 forbidding cities from becoming telecom providers; the Missouri Municipal League, on behalf of the state’s 63 municipal electric utilities, asked the FCC to intervene and declare the statute unlawful in light of the Telecom Act of 1996, which says that no state or local government “may prohibit…the ability of any entity to provide any interstate or intrastate telecommunications service.”

The FCC has long supported the idea of municipal utilities as catalysts of competition in local telecom markets. “[They] have the potential to become major competitors in the industry,” the commission said in one report, “…to bring the benefits of competition to all Americans, particularly those…in small rural communities.” But it was unable to help the MML because of an earlier precedent set in Texas.

When the city of Abilene, Texas, tried to challenge a similar statute in its state, a D.C. circuit court eventually ruled against the town. The entire legal argument rested on the ambiguous definition of a three-letter word: “any.” Sure, the Telecom Act says “any entity” can provide telecom service, the FCC argued. But does it really mean “any entity?”

It sounds like a thin semantic argument, but it points toward a larger principle: Does Congress really want the FCC telling states how to govern their cities? Since this opens up a whole can of state sovereignty issues, the Telecom Act should have been more explicit about its intentions on the subject, the FCC said. The D.C. circuit court agreed.

With that precedent set, the FCC had no choice but to deny the MML’s request for help. In their ruling, former Chairman William Kennard and former Commissioner Gloria Tristani wrote, “We vote reluctantly to deny [the MML’s] petition…Such a result, while legally required, is not the right result for consumers in Missouri.” They urged Congress to amend the act’s language to give them more authority.

However, an appellate court in the 8th Circuit ruled in favor of the MML, contradicting the D.C. circuit’s opinion on Abilene by insisting that “any” means, in fact, “any.” Now the defendants in the case — Southwestern Bell, the FCC and the Missouri attorney general — have until February to appeal to the Supreme Court. A spokesman for the Missouri attorney general said they intended to do just that.

The Supreme Court is typically respectful of states’ rights, so it may sympathize with the attorney general, in which case it would be up to Congress to reword the Telecom Act if it wanted to protect municipalities.

If Southwestern Bell and the other defendants lose their case in the Supreme Court, private telecom firms still have another way to challenge the Billy Rays of the world: The Glasgow City Council meets every other Monday night.

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