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Blame Local Government, Not Big Cable, For Lack of Broadband Competition
Despite public, political, and business interest in greater broadband deployment, not every American has high-speed internet access yet (let alone a choice of provider for really fast, high-capacity service). So who’s really to blame for strangling broadband competition?
While popular arguments focus on supposed “monopolists“ such as big cable companies, it’s government that’s really to blame. Companies can make life harder for their competitors, but strangling the competition takes government.
Broadband policy discussions usually revolve around the U.S. government’s Federal Communications Commission (FCC), yet it’s really our local governments and public utilities that impose the most significant barriers to entry.
Deploying broadband infrastructure isn’t as simple as merely laying wires underground: that’s the easy part. The hard part — and the reason it often doesn’t happen — is the pre-deployment barriers, which local governments and public utilities make unnecessarily expensive and difficult.
Before building out new networks, Internet Service Providers (ISPs) must negotiate with local governments for access to publicly owned “rights of way” so they can place their wires above and below both public and private property. ISPs also need “pole attachment” contracts with public utilities so they can rent space on utility poles for above-ground wires, or in ducts and conduits for wires laid underground.
The problem? Local governments and their public utilities charge ISPs far more than these things actually cost. For example, rights of way and pole attachments fees can double the cost of network construction.
So the real bottleneck isn’t incumbent providers of broadband, but incumbent providers of rights-of-way. These incumbents — the real monopolists — also have the final say on whether an ISP can build a network. They determine what hoops an ISP must jump through to get approval.
This reduces the number of potential competitors who can profitably deploy service — such as AT&T’s U-Verse, Google Fiber, and Verizon FiOS. The lack of competition makes it easier for local governments and utilities to charge more for rights of way and pole attachments.
It’s a vicious circle. And it’s essentially a system of forced kickbacks. Other kickbacks arguably include municipal requirements for ISPs such as building out service where it isn’t demanded, donating equipment, and delivering free broadband to government buildings.
But the story changes when ISPs have enough leverage.
In Kansas City and Austin, local governments wanted Google Fiber more than they wanted kickbacks. So they expedited the permitting process, gave Google rights-of-way access for little to no cost, and allowed Google to build-out selectively — i.e., in neighborhoods where consumers actually expressed demand.
It also helped that these local governments had less leverage because the states of Kansas, Missouri, and Texas had streamlined video franchising laws so a provider need only get one license for the entire state. “[I]t’s clear that investment flows into areas that are less affected by regulation than areas that are dominated by it,” observed Milo Medin, Google’s Vice President of Access Services, in summarizing the lessons of Google’s Kansas City experience in Congressional testimony.
When even well-established companies like Google are deterred by such barriers to entry, is it really surprising that there aren’t more competitors jumping into the broadband market? As Medin pointed out, “just imagine the impact on small and medium-sized enterprises.”
So far, everybody has benefited from clearing regulatory barriers for Google Fiber. And many more will benefit as local governments relax their regulations to make new entry feasible for Google Fiber and other new entrants. Even if it’s just the potential to expand, Google Fiber exerts competitive pressure on cable. (Remarkably, cable’s sharpest critics don’t even mention Google Fiber and other fiber companies in portraying cable as a permanent monopoly.)
Yet in this seed of success lies the potential for a new competition-strangling problem: What if local governments lower barriers for some competitors — like Google or their own public utility service — but not others? Local politicians and regulators could then take credit for new high-speed broadband without giving up the exorbitant fees and other kickbacks they can force incumbent providers to pay today.
But selectively clearing barriers won’t let broadband competition flourish either.
The ‘open access’ term gets thrown around a lot as code for creating artificial competition among resellers of a monopoly service at government-controlled rates. There’s no better way to kill incentives for building out or upgrading new networks.
But ‘open access’ really means promoting easy, inexpensive and open access to publicly owned rights-of-way. Because broadband competition can work — if localities would just get out of the way.
Google showed in Kansas City, and now in Austin and Provo, just what can happen if local governments work with — instead of against — broadband providers to bring high-speed broadband to their citizens. Medin explained that “part of the reason we selected Kansas City for the Google Fiber project was because the city’s leadership and utility moved with efficiency and creativity in working with us to craft a real partnership.”
In return, Kansas City got a fiber network it couldn’t possibly afford to build on its own — or maintain. Municipalities like Provo, Utah that thought they could afford to build their own public fiber network found they couldn’t afford to run it. That’s why Provo, Utah sold their fiber network to Google for just $1.
This is the best kind of public-private partnership: By removing regulatory barriers, local governments can let the private sector deploy broadband. That’s far better than borrowing money (which taxpayers will eventually have to repay) to build lumbering public broadband utilities that have no incentive to keep costs down.
Furthermore, by granting open access to their rights-of-way, local governments can drive competition and innovation in broadband infrastructure overall. After Google announced their plans for Austin, AT&T promised to follow suit — but only if they got “the same terms and conditions as Google on issues such as geographic scope of offerings, rights of way, permitting, state licenses and any investment incentives.”
Some called that hypocritical, but the fact remains that we, they, and other broadband providers do need tech-neutral deregulation. Because broadband providers have repeatedly tried to deploy network infrastructure, but gave up when cities and states demanded excessive rights-of-way fees or slowed the approval process to a crawl. Even when ISPs succeeded in building new networks, they were often delayed by lengthy lawsuits.
Promoting broadband deployment to all Americans therefore requires that local governments expedite rights-of-way approvals and charge only to cover maintenance costs (like the cost of digging up a street to lay fiber).
Even the FCC knows this. Recognizing that securing access to publicly owned infrastructure is difficult, time-consuming, and a turn-off to investment, the FCC’s 2010 National Broadband Plan called on governments at all levels to “ensure that network providers have easier access to poles, conduits, ducts and rights-of-way.”
Yet very little has changed in three years due to utility lawsuits; outdated definitions in the Telecommunications Act; uneven deployment of the FCC’s pro-competition rules across the 50 United States; and the looming threat of state and local government lawsuits against streamlined rules.
Localities are scared of losing revenue, but those revenues are really hidden taxes that are ultimately borne by broadband users.
Politically, open access won’t really happen until local governments realize they’ve been thinking too small and too short-term; they’ve become used to thinking of rights-of-way and franchising concessions as revenue streams. But they’re missing the bigger opportunity: promoting broadband as a basic ingredient of economic growth — and growing their tax base.
If we really want more ISPs building better broadband, let’s start by not making it so damned hard to build. The key to promoting broadband competition is streamlining the process for anyone who wants to build a network.
The game of kickbacks benefits only incumbent providers and local politicians. The game of networks benefits us all — because the battle for customers will drive prices down, improve service, and force everyone to keep innovating.