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Government Rules Stymie Broadband Expansion

Original Article

U.S. Rep. Jay Inslee, D-Wash., recently noted that the United States has fallen from 13th to 16th place in the world in terms of the availability of broadband, according to the International Telecommunications Union. Most Americans with “high speed” Internet service presently make do with three megabits per second (Mbps) or less, while South Koreans enjoy connections typically three times as fast as we do at lower prices.

Unlike firms in the United States, South Korean and Japanese companies hoping to build nationwide broadband networks don’t have to negotiate with thousands of municipalities. Reforming the local franchises that currently place barriers to entry in cable television markets is absolutely necessary if we want to restore American global leadership in telecommunications.

Inslee delivered his remarks at the Nov. 30 launch of Verizon’s FiOS high-speed fiber optic network at the University of Washington-Bothell campus. Verizon promises download speeds of up to 30 Mbps for customers in King and Snohomish counties, but Verizon and competitors such as AT&T (formerly SBC) have a lot more work to do before the United States can catch up with world leaders Japan and South Korea.

While Congress outlawed exclusive local franchises in 1992, the time and expense required to obtain video licenses from municipalities has considerably delayed the rollout of a truly national competitive marketplace for broadband.

Take Verizon as an example. The company currently serves 10,000 municipalities, but according to spokesman Kevin Laverty, Verizon obtained only 16 local video licenses in 2005, in spite of employing nearly 100 lawyers to negotiate with towns and cities in several states.

There are an estimated 30,000 municipal video franchises in the United States, and for a new competitor to negotiate to enter all of those markets at the current pace would take 30 years.

Fortunately, several states are moving to eliminate local video franchising. In Texas, the state Legislature created a single statewide franchise, though providers still pay a 5 percent charge to municipalities for use of local rights-of-way. Not coincidentally, Texas has seen a surge in broadband investment, with AT&T and Verizon competing to provide high-speed, fiber optic networks to consumers in the Dallas/Fort Worth area. Other states considering statewide video franchises include New Jersey and Indiana.

While state legislatures can move the cause of deregulation forward, the biggest fight for consumer choice will be at the federal level. U.S. Sen. John Ensign, R-Nev., has introduced a bill to abolish local video franchises nationwide, while still permitting municipalities to collect 5 percent fees. Local governments nationwide collect an estimated $3 billion in fees annually. More than protecting their right to collect these revenues, which would be preserved in the Ensign bill, the municipalities want to reserve the ability to extract concessions from cable television providers.

A recent article in The Wall Street Journal listed some of the demands local officials have made of companies hoping to build fiber into their towns, including requests to build multimillion-dollar television recording studios and traffic-light monitoring systems. While franchise agreements have funded many laudable initiatives, such as wiring elementary school classrooms, surely taxpayers can be asked to fund these programs rather than letting politicians quietly slip the costs into the customers’ cable bills.Simply because these practices have been accepted for 25 years is no reason that either franchised cable companies or new entrants to the market should have to accept them today.

A 2004 study conducted by the General Accounting Office confirms that more competition for broadband services means lower prices for consumers. Without new competition in video markets nationwide to provide cheaper, faster broadband access for entertainment, teleconferencing and home health monitoring, the United States is missing out on thousands of new, well-paying jobs, many of which would be created here in Seattle.

One option that has increasingly appealed to municipalities to spur this kind of growth is for local utilities to provide high-speed Internet and digital television services. Here in the Northwest, the Seattle City Council has discussed building its own wireless network, and Ashland, Ore., built fiber connections for 9,000 homes. However, a recent independent study of municipal broadband conducted by former Montana public utility Commissioner Bob Rowe found that every municipal network surveyed, including Ashland, ran into significant cost overruns. Municipalities have learned many costly lessons about their optimistic projections in the course of trying to start up networks, but the real question is whether these losses should be paid by taxpayers or by investors.

Without a clear and limited regulatory regime, investors will not put up the billions of dollars needed to build a truly national broadband infrastructure. It’s time for state legislatures and Congress to unleash the telecommunications industry from increasingly irrelevant and outdated regulations, and let them build the world’s finest broadband network.

CHARLES GANSKE is a writer for the Technology and Democracy Project and Cascadia Center at Discovery Institute in Seattle.