Who Gets to Decide What a City Can Do with Broadband Internet?

Image from Free Press Pics.Licensed CC-BY-NC.
Image from Free Press Pics.
Licensed CC-BY-NC.

by David Morris

“Without power and independence, a town may contain good subjects, but it can have no active citizens.” That was the conclusion of Alexis de Tocqueville after touring a youthful American Republic in the early 1830s, as recorded in his classic Democracy in America. Today we are engaged in a renewed debate about the authority of governments closest to the people.

On July 16, by a vote of 223-200 the House of Representatives voted to strip the Federal Communications Commission (FCC) of the authority to allow communities the right to determine their broadband futures. Republicans voted 221-4 in favor.

In a letter to FCC Chairman Tom Wheeler 60 Republicans insisted the federal government shouldn’t interfere with the 20 state laws that either prohibit or severely inhibit municipally owned broadband networks. “Without any doubt, state governments across the country understand and are more attentive to the needs of the American people than unelected federal bureaucrats in Washington, D.C.” A similar letter signed by 11 Republican Senators asserted, “States are much closer to their citizens and can meet their needs better than an unelected bureaucracy in Washington, D.C.… State political leaders are accountable to the voters who elect them…”

The Republican rationale is that state legislatures should be given deference over Congress and federal agencies because they are closer, more attentive and more accountable to their constituents. The same reasoning should lead Republicans to agree that city councils and county commissions should be given deference over state legislatures and state agencies. But it doesn’t.

The Senate letter warned, the FCC “would be well-advised to respect state sovereignty.” But Republicans apply the principle of state sovereignty so inconsistently that it’s hard to call it a guiding principle. On July 15th, the day before Republicans loudly proclaimed their allegiance to states’ rights the House voted overwhelmingly to make permanent a ban on the right for states and localities to tax our Internet bills the way they tax our phone bills. Their legislation would also overturn existing laws in seven states. The collective loss of state revenue will exceed $500 million a year. Texas alone will lose $350 million.

Then there is the issue of whether the price of products sold on-line should include sales taxes equal to those paid by local stores. In 1992 the Supreme Court ruled that states could not compel on line vendors without a physical presence in that state to collect sales taxes, unless Congress gave permission. In May 2013, the Democratic Senate voted to give them that permission. House Republicans refused. Loss of state and local revenue for 2013 was estimated at $1.7 billion. For those who may be unaware, the issue at hand is not whether we should pay taxes when we buy goods on line. Almost all states require us to do so. The question is whether on-line vendors must, like brick and mortar stores collect those taxes.

In 2006, Rep. Henry A. Waxman (D-CA), exasperated by the Republican Party’s hypocritical stance on “states’ rights” asked a Special Investigations Division (SID) to examine legislative actions since 2001 when George W. Bush took office. (His campaign pledge was that under his administration, the federal government would not “impose its will on states and local communities.” The SID found “a wide gulf between the pro-states rhetoric of Republican leaders and the actual legislative record”. It cited 57 instances of Republican-approved bills preempting state authority.

One of those occurred in 2002 when the Republican House voted to prohibit states and cities from demanding competition in broadband services. Using language eerily similar to that used recently by Republicans to justify their refusal to allow the FCC to require states to promote broadband competition, 6 organizations representing state and local officials maintained, “state and local officials–those closest to understanding and meeting the needs of our citizens” should make such decisions. Republicans were unmoved.

The Paternalism of Republicans

When they are not justifying their broadband votes on the basis of states’ rights, Republicans argue they’re protecting us against ourselves: we might be led astray and support the construction of a sure-to-fail municipally owned network. In May FCC Chairman Tom Wheeler gave the small d democratic response, “I understand that the experience with community broadband is mixed, that there have been both successes and failures. But if municipal governments want to pursue it, they shouldn’t be inhibited by state laws that have been adopted at the behest of incumbent providers looking to limit competition.”

The debate about whether to build municipal broadband networks has proven to be one of the most considered, transparent and democratic of all policy debates in our country, certainly far more than those made in Washington and state capitols

Usually citizens vote on the issue directly through ballot referenda. The opposition has a disproportionate ability to make its case. Corporate opponents outspend community proponents by 10 to 25 to 1 or more. Meanwhile, in many cases state laws prohibit cities from campaigning for their own proposal.

The mantra of Republicans and private cable and telephone companies is this: cities lack the capacity to build and manage broadband networks. That argument has been empirically proven wrong. The successes vastly outnumber the failures among the 160 municipal owned broadband networks. Muni networks offered the first gigabit service (no, not Google). Muni networks have saved their communities hundreds of millions of dollars, created tens of thousands of jobs, and have come to be viewed as a public infrastructure as vital and necessary as road and water networks.

If the FCC is allowed to let communities determine their own mind about municipal (muni) broadband, it will first respond to a petition from muni networks so successful that surrounding communities want to connect but cannot because of state law. In this context, the argument that the state is protecting cities against themselves lacks any factual basis.

That so many muni networks have succeeded is a testament to their communities’ entrepreneurialism, creativity and patience. Lawsuits often delay operation for years at a significant financial cost to the cities. The huge customer base of cable and phone companies allows them to negotiate far lower prices for cable channels than tiny muni networks. Cities that build networks often are prohibited from tapping into other city funds if needed while private telephone and cable companies are free to use profits gained from cities in which they have a monopoly to engage in predatory pricing in cities where there is a muni network. After Monticello, Minnesota built its own network, the company Charter Communications slashed its combined cable and broadband package price from $145 to $60 per month while maintaining the higher price in nearby cities like Duluth and Rochester.

The Success of Municipal Broadband Systems

For cities that persevere the rewards can be very great. Muni broadband in tiny Kutztown, Pennsylvania saved the community an estimated $2 million in its first few years, a result of lower rates by the muni network and reduced prices charged by the incumbent cable company in response to competitive pressure. In 2004 Governor Ed Rendell gave Kutztown an award for its network. Shortly thereafter, to his lasting shame, he signed a Verizon-sponsored bill ensuring that no other Pennsylvania community could follow in Kutztown’s footsteps.

Bristol Virginia (population: 17,000) estimates its network has saved residents and businesses over $10 million. Lafayette, Louisiana estimates savings of over $90 million. The economic development and financial benefits of muni networks have been amply catalogued by the Institute for Local Self-Reliance and its Community Broadband Initiative.

Sometimes the arguments of private corporations verge on the ludicrous. After five North Carolina cities proved that muni networks could be wildly successful, Time Warner aggressively lobbied the state legislature to effectively prohibit any imitators. Time Warner insisted it was only asking for a level playing field. “The bill is intended to create a level playing field so if local governments want to provide commercial retail services in direct competition with private business, they can’t use their considerable advantages unfairly”, Time Warner declared.

It’s very hard to believe that tiny Salisbury, North Carolina has a competitive edge over mammoth Time Warner with annual revenues of $18 billion, more than 500 times greater than Salisbury’s $34 million budget and 14 million customers to Salisbury’s Fibrant network customer base of 1000.

But after Republicans gained control of the North Carolina legislature in 2012 the unbelievable became the basis for public policy when the legislature passed the Time Warner bill.

Aside from the numerous proven quantifiable economic benefits of muni networks, there are the equally important unquantifiable benefits. One is far greater accountability. No longer must people rely on distant corporations for better service. Leaders in Wilson, North Carolina describe this benefit of muni networks as the “strangle effect.” If you have problems with the network, you can find someone locally to “strangle” (well, not literally).

For Harold DePriest, head of Chattanooga’s state of the art municipally owned broadband network (and electricity company) an even more fundamental issue is involved. “(D)oes our community control our own fate, or does someone else control it?” he asks. Questions about the digital divide and net neutrality can be debated and decided at the local level, not in some distant boardroom or having to rely on federal agencies to act and federal courts to support their actions.

Freedom to Choose

If Congress does allows the FCC to proceed with overturning state bans on municipal broadband networks, there will be still be another even more fundamental obstacle. Cities and counties are not mentioned in our Constitution. This has has led courts to decide that cities and counties have little or no standing in our federalist system. Established law relies on the famous dictum of Judge John Foster Dillon in an 1868 case: “Municipal corporations owe their origin to, and derive their powers and rights wholly from, the [state] legislature. It breathes into them the breath of life, without which they cannot exist. As it creates, so may it destroy. If it may destroy, it may abridge and control.”

Congress passed the Telecommunications Act of 1996 to foster competition in the burgeoning industry. The text of the 1996 law was crystal clear. “No State or local statute or regulation, or other State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service.” If the Commission determines that a State or local government has violated this section “the Commission shall preempt the enforcement of such statute, regulation, or legal requirement to the extent necessary to correct such violation or inconsistency.”

If anyone doubted the meaning of the phrase “any entity” they had only to read the Congressional record. Senator Trent Lott’s (R-MS), for example, commented, “I think the rural electric associations, the municipalities, and the investor-owned utilities, are all positioned to make a real contribution in this telecommunications area, and I do think it is important that we make sure we have got the right language to accomplish what we wish accomplished here.”

But the Supreme Court didn’t find the language clear at all. In 2003, by an 8-1 decision, it affirmed outright prohibitions on municipal utility networks by Texas and Missouri.

The Supreme Court ruled that established law considers cities and counties, “created as convenient agencies for exercising such of the governmental powers of the State as may be entrusted to them in its absolute discretion.”

Ultimately then, this is a fight not about broadband but about democracy and the locus of authority. Of course corporations prefer to fight to protect and expand their privileges in 50 remote state capitols rather than in 30,000 local communities. But genuine democracy depends on allowing to, the greatest extent possible, those who feel the impact of decisions to be a significant part in the decision making process.

Whatever Congress or the FCC decides, we need to challenge the concept that the communities in which we live are simply vassals of our state legislative lords. This can be done on many levels. Perhaps the most effective and productive can occur at the state capitols. A broad coalition cutting across parties and ideologies marching under the banner “freedom to choose” may be powerful enough to challenge the seemingly inexhaustible financial resources giant corporations have available to influence politics and politicians.

Reprinted from On the Commons.

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