IP Democracy: Ensign Bill on Municipal Broadband Networks

In two recent posts (see here and here), we considered the tangled interactions among provisions in Section 7 of the Ensign Bill related to network neutrality and open access. Section 15 of the bill also deals with a hot IPD-related topic—municipal broadband. Though it may be intended to provide “protection against undue government competition with the private sector,” the practical impact of Section 15, as written, could very well be “the prevention of any future municipal broadband network.”

Muni-broadband advocate Jim Baller, who argues that Section 15 “rests on numerous false assumptions,” says that, at best, it “would result in time-consuming, expensive, burdensome, and contentious delays and possibly years of litigation.” Though one can argue with Baller’s views on the merits of municipal broadband projects, it seems harder to argue with his point about the bill’s practical implications.

Section 15 starts with subsection (a)(1), which requires “[a]ny State or local government seeking to provide communications service” to “provide conspicuous notice of the proposed scope of the communications service to be provided, including— (A) cost; (B) services to be provided; (C) coverage area; (D) terms; and (E) architecture.

The government entity must also “(2) give a detailed accounting of all proposed accommodations that such government owned communications service would enjoy, including—(A) any free or below cost rights-of-way; (B) any beneficial or preferential tax treatment; (C) bonds, grants, or other source of funding unavailable to non-governmental entities; and (D) land, space in buildings, or other considerations.

Subsections (b) and (c) mandate a bidding process that would favor a private entity that submits a bid “identical” to that submitted by the government entity.

(b) Not later than 90 days after posting of the notice required under subsection (a)(1), a non-governmental entity shall have the option of participating in an open bidding process conducted by a neutral third party to provide such communications service on the same terms, conditions, financing, rights-of-way, land, space, and accommodations as secured by the State or local government.

(c) In the event of identical bids under subsection (b) the neutral third party conducting the bidding process shall give preference to a non-governmental entity.

In Baller’s view, the “false assumptions” underlying Section 15 include:

(1) that local governments have significant, unfair advantages over the private sector that must be nullified, without consideration of vast advantages of incumbency that established providers enjoy; (2) that it is appropriate to transfer any such public advantages to the established providers, without also subjecting them to the corresponding duties and accountability in serving the public interest that apply to local governments; (3) that the lack of access to the advantages that local governments supposedly have, rather than their own short-term profit objectives, are responsible for the failure of the established providers to make the investments that a growing number of communities want; (4) that the transfer of public “advantages” that the bill contemplates can occur without significant amendments to other federal, state and local laws, particularly tax laws; and (5) that a community that won a bid could realistically obtain financing in the face of the serious threats that the bill would pose to their ability to meet their bond obligations in the future.

Though one can argue with Baller’s view on the policy issues raised by his first three points, his fourth point about legal issues raised by subsection (b) is an important one regarding the bill’s practical implications. His final point about the bill’s impact on the financial feasibility of muni-broadband projects also seems valid, especially when viewed in light of the additional requirement set out in subsection (d):

If a State or local government wins the bid under subsection (b), a non-governmental entity shall have the ability to place facilities in the same conduit, trenches, and locations as the State or local government for concurrent or future use under the same conditions secured by the State or local government.

This seems to say that, should a city win the bidding process, virtually any company (whether they were bidders or not) has the right to piggyback on the city’s network construction plans “under the same conditions.”

Aside from the policy-based challenges Baller might make to this requirement, it also raises but does not address questions related to space constraints: what if more companies want to share the pole or conduit space than that space can support?

It seems likely that subsection (d) would put a cloud over any muni-broadband project’s financial feasibility by raising, early on, the non-specific but potentially lethal threat that a city would have to share on favorable terms any and all of its conduit, pole space, etc. with any private company seeking to use it for any “concurrent or future use.”

In the real world, how many cities would be able to—or even try to—develop a fundable business model in the face of subsection (d)’s requirement, especially when their efforts would be vulnerable to opponents’ attacks targeting the uncertainties and potential competitive threats raised by this requirement?

Though Section 15 seems likely to strongly discourage “pure” muni broadband projects, it’s less clear if and how it would apply to the kind of private-public deals being pursued by iTown, a company that describes its “Local Community Public-Use Networks” as “operated by a private company under non-profit objectives in partnership with and for the benefit of the local community.” For example, USA Today reports that, in a planned project in West Virginia, iTown plans to put up $30 million to help fund the project, with the rest coming from state revenue bonds.

Posted by Mitch Shapiro on July 31, 2005 2:56 PM to IP Democracy