rstreet27

ALTERNATIVES TO GOVERNMENT BROADBAND

Steven Titch

INTRODUCTION

Universal access to high-speed broadband is a desir-able social goal. There is no question that broadband brings incalculable utility and value to individuals, businesses and organizations. Because broadband

expands the Internet as a whole, it also creates a “network effect,” in which each marginal addition to the network sub-stantially multiplies the value of the network as a whole.1

While there is little debate that widespread broadband access has social value, there has been considerable pol-icy tension about how best to accomplish it. This tension is rooted in the massive telecommunications deregulations of the early-to-mid-1990s that were designed to introduce competition and steer the industry away from the monopo-ly-utility model that had been the rule since the 1920s. The concurrent expansion of the Internet and introduction of the World Wide Web upended traditional monopoly phone

1. Metcalfe’s Law, named for Ethernet pioneer Robert Metcalfe, states that the value of a telecommunications network is proportional to the square of the number of con-nected users of the system. This increase in value can be defined mathematically as n(n-1)/2 where n is the number of nodes on the network. Hence, two nodes yield a value of 1 connection; 10 nodes yields 45; 100 yields 4,950.

models, as well. The development of the early browsers, such as Mosaic, gave users a point-and-click interface to the Web and opened the Internet to images, video and other applica-tions that called for more bandwidth than copper land lines could handle. Service providers had to alter their long-term network-evolution plans to accommodate developments beyond their control. They faced huge capital outlays to upgrade their networks and to meet the burgeoning demand for household broadband.

Up until deregulation, U.S. telephone companies guaranteed universal phone service in return for a regulated monopoly. The standard utility thinking applied: telephone service was a social good that could best be met with one network per franchised area. Universal service goals could be met through a variety of subsidy formulas: business subsidizes residential; long-distance service subsidizes local service; urban subsidizes rural and so forth.

The emerging trends of long-distance competition, followed in short order by cable entry into broadband and, finally, the transition of telephone users from wired to wireless and Voice over Internet Protocol (VoIP) all upended the monop-oly-utility model. The upshot was that, by the mid- to late 1990s, it was clear that broadband infrastructure was going to be expanded by companies with private investment, tak-ing risks in a competitive market.

As a result, concern arose that many high-cost areas would be left behind, as telecom companies pursued wealthier communities in more densely populated areas. One idea that took hold to alleviate this perceived problem was municipal broadband. Local governments would take responsibility for financing and building broadband networks, as well as providing service and support. As a model, supporters cited telephone and electric co-operatives that brought service to many rural towns in the 1930s and 1940s. Their belief was that broadband could be done just as easily.

R STREET POLICY STUDY NO. 27 September 2014

CONTENTSIntroduction 1Municipal broadband failures 2How local government can fuel broadband 3Franchise fees and special taxes 4Pole attachments 7Underground conduit 7Tower siting and permitting 8Expedited permitting 10Lessons of Google Fiber 11Conclusion 12About the author 12

SIDEBAR: Keys to successful franchise reform 6

Figure 1: Capital expenditures by U.S. broadband companies 4

R STREET POLICY STUDY: 2014 ALTERNATIVES TO GOVERNMENT BROADBAND 1

However, some correctly feared that municipal broadband was too risky. However laudable the goal, a municipal sys-tem would require a small city to borrow millions of dollars against projected revenue streams 10 to 20 years out. There also would always be the lingering threat that a private-sec-tor competitor would enter the market at some future date, placing the municipality in direct competition with a deep-pocketed commercial provider with a national footprint and the accompanying marketing and technological clout.

While some local governments explored municipal broad-band, others looked to exploit market forces that were in the process of transforming telecom’s value proposition from a one-size-fits-all utility to a tool that businesses and individu-als could shape in line with their own needs. Private enter-prises operating in a competitive environment could respond to opportunities more quickly, meet customer needs more efficiently and, if need be, react more decisively to changing market conditions. Rather than invest taxpayer money in gov-ernment-run broadband operations, the alternative approach to encourage broadband expansion would be to make local investment in infrastructure as attractive as possible.

Yet to do so meant revisiting some long-held tax and regula-tory shibboleths of the monopoly era. These included special taxes and fees on service, franchise fees and onerous charges for rights-of-way and pole attachments. Under the monop-oly model, these costs were passed along to captive custom-ers, so local governments saw an easy way to raise revenue without resorting to higher sales or property taxes. But now that broadband service providers were in competition, these extra costs created barriers to entry in local communities.

The latest major entrant into the broadband market, Google Fiber, has upped the stakes of this contest. In response to Google’s promise to build 1 Gbps fiber-optic broadband net-works in select cities, municipalities across the country have fallen over themselves to make their towns attractive.2 In some cases, the efforts have become theatrical, such as when Topeka, Kan., temporarily renamed itself Google and Green-ville, S.C. arranged for 1,000 citizens to use glow sticks to spell out the name “Google” large enough to be visible from the air.3

As discussions between Google and prospective fiber cities have gotten serious, the company has generally asked that various fees and requirements that are imposed on incum-bent broadband providers be waived. The emergence of Google Fiber is helping local governments understand how

2. Associated Press, “More than 1,100 communities seek Google network,” Huffington Post, March 26, 2010. http://www.huffingtonpost.com/huff-wires/20100326/us-tec-google-broadband-network/

3. Cole Stryker, “Cities Woo Google Fiber With Zany Stunts,” URLesque.com, March 26, 2010, available at http://www.urlesque.com/2010/03/26/cities-woo-google-fiber-with-zany-stunts/.

their legacy of regulations inhibits broadband investment. Unfortunately, for the most part, cities have thus far mostly only been willing to make regulatory accommodations for this one competitor. But Google is not the only broadband player. If certain changes in local regulatory requirements are enough to spark investment from one major company, there’s every reason to believe the same approach would work with others.

This paper will review reasons government broadband large-ly have failed and why, despite continued cheerleading from some corners, its prospects are worse now than they have ever been. It will then look at some of the major legacy costs and regulations that inhibit the spread of broadband and how cities are beginning to confront them. Finally, it will look at the lessons that can be learned from Google Fiber’s entry into broadband service provision.

MUNICIPAL BROADBAND FAILURES

Supporters of municipal broadband claim the private sec-tor will never be able to provide universal broadband service because rural areas of the country and low-income urban neighborhoods do not offer the necessary profitability to justi-fy investment. They see municipal broadband as an important element to accomplish several social goals. These goals are:

• Increased broadband penetration in small cities, rural towns and other areas of low population density

• Increased broadband speeds, at least as fast as the 12-to-15 Mbps achieved with current cable modem and 4G wireless technology, and potentially up to 100 Gbps fiber

• A choice of providers

• A choice of service packages and pricing tiers

• Economical delivery with minimal cross-subsi-dies on the supply side

The Federal Communications Commission has supported municipal broadband efforts and currently is examining a proposal to preempt state laws that prevent municipalities from launching their own broadband projects. Municipal broadband efforts have been endorsed by such influential policymakers as Tim Wu, former senior advisor to the Fed-eral Trade Commission and current candidate for lieutenant governor of New York, and Susan Crawford, former White House special assistant for science, technology and innova-tion policy.

Yet despite hundreds of attempts at government broadband over the past 20 years, the best that can be said of them is that


they consistently fail to meet expectations. Most fail entirely and some failures have costs cities millions of dollars. 4 5 6

These failures continue to make news. In May, the Utah Telecommunications Open Infrastructure Agency (UTO-PIA), after 12 years of financial underperformance and fac-ing $1.88 billion in debt obligations, reached an agreement to hand over operations to the Macquarie Group, an Austra-lian investment bank. UTOPIA was a massive government-broadband project created to bring fiber-optic connections to residences in 11 small-to-mid-sized Utah cities (Salt Lake City opted not to participate). The Macquarie agreement called for residents of the participating cities to pay a $240 utility surcharge, set to increase annually for the next 30 years, to pay down the UTOPIA debt. Six of the 11 UTOPIA cities approved it, and their residents will now be on the hook for the cost.7

Even systems held up by supporters as good examples of government broadband, such as LUS Fiber in Lafayette, La.,8 raise questions when examined. Lafayette’s city financial report for 2012, released May 2013, showed that LUS Fiber was significantly behind its five-year business plan in terms of revenues and assets. LUS Fiber’s original plan called for it to break even in its sixth year and have a net surplus from operations of $6.6 million. For Fiscal Year 2012, its sixth year of operation, LUS Fiber’s operating expenses exceeded oper-ating revenues by $5.3 million. Its net loss was $11.9 million. Its net deficit (assets against liabilities) was $40.7 million.9

Also troubling is the near three-fold spending increase by the Lafayette Utilities Service, LUS Fiber’s city-owned parent, on the municipal broadband agency. For Fiscal Year 2014, LUS budgeted $1.3 million for telecom services from LUS Fiber. This compares to LUS’ $484,000 in telecom spend-ing projected for Fiscal Year 2013. The proposed 185 percent increase outpaces all other non-personnel budget line items, most of which remain flat or decrease. While the parent LUS utility can be viewed as a legitimate telecommunications cus-tomer, and it might be desirable for the city to purchase ser-

4. Sonia Arrison, Ronald Rizzuto and Vince Vasquez, “WiFi Waste: The Disaster of Municipal Communications Networks,” The Heartland Institute, February 2007. http://heartland.org/sites/all/modules/custom/heartland_migration/files/pdfs/20849.pdf

5. George S. Ford, “Do Municipal Networks Offer More Attractive Service Offerings than Private Sector Providers: A Review and Expansion of the Evidence,” Phoenix Center for Advances Legal & Economic Public Policy Studies, Jan. 27, 2014. http://www.phoenix-center.org/perspectives/Perspective14-01Final.pdf

6. Steven Titch, “Lessons in Municipal Broadband from Lafayette, Louisiana,” Reason Foundation, November 2013. http://reason.org/files/municipal_broadband_lafayette.pdf

7. Benjamin Wood, “UTOPIA board votes to move forward with Macquarie deal,” (Utah) Deseret News, June 30, 2014. http://www.deseretnews.com/arti-cle/865606086/UTOPIA-board-votes-to-move-forward-with-Macquarie-deal.html?pg=all.

8. cf. Susan Crawford, Captive Audience: The Telecom Industry and Monopoly Power in the New Guilded Age, Yale University Press, Kindle e-book edition, loc 4742-71.

9. Titch, November 2013, p. 20.

vices from its own enterprise, the size of the increase raises questions as to what services LUS will be purchasing and, given that LUS Fiber owes $35 million to LUS, whether LUS is inflating its purchases to subsidize LUS Fiber’s debt.10

If government broadband was a bad idea to start, it’s worse now. Market factors have changed significantly over the past 10 years. Demand for the conventional broadband triple-play bundle of television, telephone and Internet service – a private-sector model that municipal broadband followed– is breaking down. Conventional landline phone service has been replaced by wireless and international long distance—once a dependable cash cow—has been replaced by soft-ware-based services like Skype. The biggest shift, however, has been in video, as more and more consumers exchange expensive multichannel video for on-demand providers such as Netflix, Hulu and Amazon Prime.

Each year, more households are “cutting the cable cord” in favor of wireless and/or video-on-demand. The number of cord cutters reached 7.6 million in 2013, up from 5.1 million in 2010, according to one market research firm.11 It is becom-ing more difficult to sell the public on the idea of a cable/telco monopoly when there is ready access to satellite ser-vices, a wide choice of wireless providers and video-delivery options. Meanwhile, as noted, Google Fiber has arrived with a new broadband business model and has shown a willing-ness to invest in areas where barriers to entry are low. AT&T and Verizon have continued steady deployment of U-Verse and FiOS services respectively. Given these conditions, cit-ies should be extremely wary of launching new broadband operations. Instead, municipalities can accelerate broadband expansion by working in tandem with market forces, not against them. That would give them a much better chance of meeting their local broadband goals.

HOW LOCAL GOVERNMENT CAN FUEL BROADBAND

According to U.S. Telecom, the broadband industry invested $1.2 trillion in capital expenditures from 1996 through 2012. However, that doesn’t tell the whole story. Investment plum-meted during and following the dot-com crash of the early 2000s, falling from a peak of $118 billion in 2000 to just $57 billion in 2003. Annual nominal capital expenditures have been roughly flat since 2005, rebounding again after falling slightly during the financial crisis, but still coming nowhere near their turn-of-the-century peaks.

10. Ibid, p. 23

11. Press release, “’Cord-cutters’ grew by 44 percent in the past four years, with 7.6 mil-lion households using high-speed Internet for streaming or downloading videos instead of traditional cable or satellite television,” Experian Marketing Services, April 21, 2014. http://finance.yahoo.com/news/cord-cutters-grew-44-percent-160000796.html


It isn’t that service providers are intentionally halting or slowing build-out. Today, the nation’s populated areas are mature markets where the opportunity for growth has pla-teaued. This creates ongoing pressure to stimulate demand in smaller markets. But unlike in the monopoly era, when costs could be passed through to customers or subsidized from other services, providers must be able to price services to compete. This can be especially critical in smaller cities and towns: margins are much tighter, there is less revenue per user and satellite providers have significant market share.

As service providers make decisions about where and when to build or add broadband capacity, upfront and ongoing costs are a significant factor. Cities and towns that make adjustments and reforms to their legacy utility regulations and fees will reduce barriers to investment and signal they want the private sector to succeed. The reforms include:

• Cities must wean themselves off of taxes and fees that date from the monopoly era. Taxes and franchise fees should not discriminate among market partici-pants and should balance properly against the cost incurred on the common community infrastructure. No special tax breaks or waivers should be given to one provider that are not offered to others.

• Pole attachment rules should be based on up-to-date safety and maintenance standards. For example, 30- and 40-year-old rules regarding height and cable

spacing should be revisited. Like right-of-way fees, pole attachment fees should be priced to reflect the actual cost to the pole owner, whether it is the municipality itself or a private entity (often a power company).

• Cities can manage construction projects to build conduit and bury cable through better communica-tion and through the use of “dig once” programs that allow all service providers access to an open trench. These changes would simultaneously lower costs for service providers and provide incentives for their build-out.

• Tower-siting reviews should be done in a timely and consistent manner.

• Efforts to expand broadband service should receive expeditious, streamlined consideration in permitting processes. The way that permits were issued in the past should not be considered a relevant factor in deciding how they should be issued in the future.

FRANCHISE FEES AND SPECIAL TAXES

Franchise fees charged for the “right” to do business in a community long have been a way for local governments to extract funds from cable television providers. In exchange for an exclusive franchise, the cable company agreed to pay

FIGURE 1: CAPITAL EXPENDITURES BY U.S. BROADBAND COMPANIES ($ BILLIONS)

Source: U.S. Telecommunications Association


a portion of its revenues to the city, town or village. Initially, the fees were justified on grounds that they compensated the community for the expense and loss of convenience when streets and sidewalks were dug up to lay cable, as well as general use of rights-of-way and other costs related to the cable operation that the city might incur.

Cities soon realized that franchise fees could be mined for much more. Because cable companies were local monopo-lies, cities realized that they could pass costs on to captive customers. In the 1960s, New York City Mayor John Lindsey was said to have remarked that cable amounted to an “urban oil well” beneath the city streets.12

Over the decades, franchise fees grew more elaborate. Ini-tially, cable companies were obliged to set aside a public access channel and provide studio facilities for communi-ty members who desired to produce their own television shows. These requirements grew to include demands that cable companies provide facilities to cover city council meet-ings and for local educational programming, which became known as public, educational and government, or “PEG,” channels. Sometimes cities would require up to three chan-nels each. By the late 1990s, cities were demanding free cable television service for government offices, support for secu-rity and surveillance and other benefits.

This arrangement could last only as long as cable companies held a monopoly. As satellite television began making market inroads at the turn of the 21st century, the costs that franchise fees were adding to cable bills became a competitive issue. Some cities tried to force satellite companies to pay a “tax” equivalent to cable franchise and right-of-way fees, but these attempts were successfully rebuffed in court.

The franchise fee set-up then came under greater pressure as companies traditionally associated with telephone service began to offer multichannel TV services. As municipalities were dunning telephone companies with a separate set of surcharges and fees, disparities were soon apparent in the fee structures city governments were changing to companies that offered essentially identical and competitive services. Between 2007 and 2010, states began legislating franchise reform, essentially developing uniform franchise fee struc-tures for cable and telephone companies to be used state-wide.

The FCC endorsed these policies, noting “[the] current operation of the franchising process constitutes an unrea-sonable barrier to entry that impedes the achievement of the interrelated federal goals of enhanced cable competition and

12. Cf. The History Factory, Making Connections: Time Warner Cable and the Broad-band Revolution, Time Warner Cable, 2011, p. 41, available at history.timewarnercable.com/download/TWC-History-Low-Res.pdf.

accelerated broadband deployment.”13 The commission fol-lowed up in the National Broadband Plan, recommending that states and cities “improve rights-of-way management for cost and time savings…expedite resolution of disputes and identify and establish ‘best practices’ guidelines for rights-of-way policies and fee practices that are consistent with broadband deployment.”14

So far, at least 19 states have enacted franchise reform. Research shows that it is helping decrease prices and increase adoption. Prices for basic-cable services are about 5.5 to 6.8 percent lower in states that have reformed their franchis-ing process for cable television, according to a 2013 study by the University of Michigan School of Business. These find-ings were adjusted for existing pricing trends, number of channels offered and the amortized cost of installation. The study also found evidence for a significant additional market entry rate, particularly by telephone companies, of between 7.95 and 13.8 percent in reformed states.15 This confirmed an earlier study by FreedomWorks showing a surge of deploy-ment in California, Indiana and Texas, three states that were among the first to enact franchise reform:

The recent approval of franchise reform by the Cali-fornia Assembly prompted AT&T to announce its intention to invest more than $1 billion in network upgrades in the state. The recent passage of statewide franchising in Indiana will produce an expansion of high-speed DSL service to 33 rural communities. Franchise reform in Texas resulted in new broadband service to 71 communities and an analysis by the Per-ryman Group projects more than $3.3 billion in new telecom investment and thousands of new jobs for the state.16

While some progress has been made in reforming franchise fees, the special taxes and fees that states and municipali-ties levy on telecommunications service providers continue to pose barriers to build-out and adoption. Their legacy as monopoly providers makes telecommunications companies a favorite funding source for legislatures. Over the years, excise taxes, surcharges and fees have snowballed. A 2007 study by this author and three economists at the Beacon Hill

13. Federal Communications Commission, “In the Matter of Implementation of Section 621(a)(1) of the Cable Communications Policy Act of 1984 as amended by the Cable Television Consumer Protection and Competition Act of 1992, March 5, 2007, available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-06-180A1.pdf.

14. National Broadband Plan, p. X

15. Sutirtha Bagchi and Jagadeesh Sivadasan, “Barriers to Entry and Competitive Behavior: Evidence from

Reforms of Cable Franchising Regulations,” University of Michigan School of Busi-ness, May 2013, p. 3, available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2268646.

16. “Assessing the Case for Cable Franchise Reform,” FreedomWorks, 2007 [Full Cita-tion TK]


Institute found that cable television and phone services, on average, are taxed at twice the rate of other goods. Consum-ers pay $37 billion a year in telecom taxes and fees. The aver-age customer pays a total of $20.11 per month in taxes and fees on cable, phone and Internet services. The report deter-mined households would save $126 a year if telecom taxes and fees were no higher than retail sales taxes.17

These taxes are all the worse because they are regressive. Low-income households pay the same rate as wealthier cus-tomers, but the tax accounts for a greater percentage of dis-posable income. This tends to inhibit adoption and, there-fore, investment.

Telecom taxes are also highly discriminatory, with the same services subject to different tax rates. For example, ordering a movie via a cable box from a provider such as Comcast or Time Warner Cable could be taxed anywhere from 9 to 12 percent, because it is a cable company charge. Ordering the same movie from a telephone company service like FiOS or U-verse might be taxed at 5 to 6 percent, because that’s the structure imposed on phone companies. Finally, the same movie downloaded from a Web-based service like Netflix, Amazon or Hulu might be subject to no tax at all, or simply local sales taxes.

Despite calls for reform, states and municipalities still seem addicted to these taxes. Only a handful in recent years have undertaken reform. Among the most recent was a bill intro-duced last year in Texas that proposed eliminating state and local sales taxes, which reach 8.25 percent combined in some areas, on the first $75 of monthly cable bills.18

For those states that have opted for reform, the initial results are encouraging. In 2000, Florida became one of the first states to enact sweeping reform by reducing, streamlining and standardizing taxes across telecom providers. According to one study, Florida’s broadband connectivity measures are now very strong relative to peer states in the region.19 Vir-ginia passed a reform bill in 2006. Provisions of the Virginia bill call for a single statewide telecom tax at same rate as state and local sales taxes; a separate, uniform statewide 911 fee; and a separate, uniform statewide cost-based “right of way” component that is assessed per line instead of as percent-age of revenues. An economic study in 2012 found that local

17. David Tuerck, Paul Bachman, Steven Titch, and John Rutledge, “Taxes and Fees on Communication Services,” Heartland Institute and Beacon Hill Institute, May 2007, pp. 1-3, available at http://www.beaconhill.org/BHIStudies/Telecom/07MayBHI-Heartland-TelecomTaxes.pdf.pdf.

18. Ibid.

19. Richard R. Hawkins, “Lessons for Georgia: Telecommunications Tax Reform in Some of the Other Southeastern States.” Georgia State University Andrew Young School of Policy Studies, January 2013, p. 19, available at http://ayspsprodweb.gsu.edu/drupal/sites/default/files/documents/Rpt%20256FIN.pdf.

SIDEBAR: KEYS TO SUCCESSFUL FRANCHISE REFORM

Franchise reform generally standardizes certain aspects of financial relationship between the local government and the service provider.1 These include:

The franchise fee percentage. Most states cap the fran-chise fee percentage formula at 5 percent, although there is a range. New Jersey’s effective rate is 4 percent. North Carolina’s is 7 percent. All legislation prohibits local fran-chising authorities from collecting a higher percentage of revenues from a new entrant than they do from the incumbent.

The definition of “gross video revenues.” Since fran-chise fees are levied on a percentage of revenues, pay-ment sums can be dramatically affected by what services states classify as video revenues. All bills define income from service provision – billings for set-top box rental, monthly service, premium channels and pay-per-view— as video revenue. Revenue from other services—tele-phone, cable modem, DSL—do not qualify. More contro-versial have been local government efforts to classify as “video revenues” income from local advertising, commis-sions paid by programmers such as the Home Shopping Network and QVC on sales of merchandise to franchisee customers and promotional fees paid to franchisees by cable programmers for including their channels on the system. Most reform measures disqualify these revenues from the formula.

Build-out requirements. Most bills impose no build-out requirement, allowing new entrants to deploy service in response to market conditions and economies of scale. Some bills set specific time frames. All legislation prohib-its “red-lining,” that is, a deliberate decision not to build in certain areas. Bills vary in the deadlines they impose on new entrants regarding the coverage of the entire area.

Incumbent transition. Some bills have required the incumbent cable company to remain bound by its exist-ing local franchise agreement until it expires. Others per-mit incumbents to apply for a statewide franchise upon the entry of a competitor.

1. For a detailed discussion of franchise reform measures, please see Steven Titch, “I Want My MTV: Reforming Video Franchises for competitive TV Services,” Reason Foundation, November 2006, available at


revenues under the reform measures exceeded what they would have received under the status quo.20

POLE ATTACHMENTS

Pole attachment regulations are a true holdover from the monopoly era. Traditionally, power companies built and maintained poles and leased space to telephone and cable companies. Lease rates were often regulated according to the company’s category. In some cases, pole attachment rates for telephone companies were four to five times higher than for cable companies. As recently as last year, critics were saying the disparity, if left unaddressed, “could undermine the pub-lic’s access to advanced services and broadband by distorting infrastructure investment decisions.”21

Power companies argue that telephone companies get better position on the pole in terms of ease of access, height, and space of separation from other cables. Yet when telephone and cable companies began to compete with combined phone and video packages, power companies sought to des-ignate the cable companies as telecommunications service providers and raise their lease rates to the telco level.22 Natu-rally, the telephone companies argued that, as multichannel TV providers, their attachment fees should be lowered to the cable rate.

The FCC, for its part, encouraged rates that were both low and equitable. Efficient access to poles at fair prices could drive infrastructure upgrades and competitive entry, accord-ing to the commission’s 2010 National Broadband Plan.23

The FCC followed up in 2011 with an order for utility com-panies to make pole attachment fees “competitively neutral” between phone and cables companies. Although it was not approved by the Office of Management and Budget until 2013, the order, plus the pressure from cable company peti-tions against large rate increases, led to renegotiations of pole attachment rates.24

More remains to be done. While changes to the FCC rate

20. Scott Mackey, “Communications Tax Reform:State Experiences,” KSE Partners LLP, presentation, Annapolis, Md., Nov. 7, 2012, available at http://www.ctrc.maryland.gov/archive/pdf/11-7-2012/State_Experiences_Mackey.pdf.

21. Christopher S. Huther and Thomas B. Magee, “Determining joint use Utility Pole Rates: What’s Fair?” Western Energy, Fall 2013, pp. 14-17, available at http://www.west-ernenergy.org/we/Archives/2013_Fall/13_fall_edition.pdf.

22. Chip Yorkgitis, “FCC pole attachment rule provisions obligating poles owners to make information regarding rates available take effect after a long wait,” Telecom Law Monitor, Kelley Drye & Warren LLP, August 29 2013, available at http://www.telecomlawmonitor.com/2013/08/articles/fcc/fcc-pole-attachment-rule-provisions-obligating-poles-owners-to-make-information-regarding-rates-available-take-effect-after-a-long-wait/.

23. Federal Communications Commission, National Broadband Plan, March 2010, p. xii.

24. Yorkgitis.

formulas brought pole-attachment rates for telecommuni-cations carriers closer to those of cable operators, there can still be considerable differences between the two. Google and AT&T sparred over this issue recently in Austin, Texas. An FCC petition for reconsideration from the National Cable and Telecommunications Association, asking the commis-sion to bring the telecommunications carrier rates down to the cable operator rate in virtually all situations, is still pend-ing. Until that happens, wherever a cable operator is also providing telecommunications, local regulatory definitions of “telecommunications services,” not uniform FCC criteria, will determine the rate paid.25

Some states have been proactive in revising or taking control of pole-attachment statutes. Vermont was one of the early actors when, in 2008, it required utilities to grant nondis-criminatory access to entities seeking to attach their facili-ties to poles for Internet provision. Massachusetts requires that utilities permit all attachments for the transmission of intelligence via wireless communication or any television technology, in addition to telephone and cable services. Ten-nessee extended the federal access mandate beyond cable operators, to include all video-service providers.

On the local level, Smyrna, Ga., requires users of its rights-of-way to share access to their poles, conduit and related facili-ties. Superior, Wisc. reserves the right to require joint use of poles or conduit.26

UNDERGROUND CONDUIT

Equitable access is just as important in areas where cables are buried instead of strung on poles. However, underground conduit presents additional challenges, because stretches of roadway, sidewalks or community landscaping must be dug up and replaced, making for increased costs and public out-cry if done too frequently. The FCC’s National Broadband Plan suggested ways states and cities could work in tandem with the private sector, notably “dig once” initiatives that provide service providers with an opportunity to lay cable or share conduit when other construction work is underway, such as when local roads are built or widened. The FCC plan suggests making federal financing of highway, road and bridge projects contingent on states and localities allowing joint deployment of broadband infrastructure.27

25. Yorkgitis.

26. These examples and others were compiled by the Fiber-to-the-Home (FTTH) Council. See David C. St. John, “State/Local Gov’t Role in Facilitating Access to Poles, Ducts, and Conduits in Public Rights of Way,” FTTH Council, August 2013, available at http://www.ftthcouncil.org/p/cm/ld/%20fid=47&tid=79&sid=1249.

27. Federal Communications Commission, National Broadband Plan, p. xii.


Independent studies have pointed to immense savings and efficiencies that can be gained when highway construction and broadband build-out is coordinated. Construction costsfor highways are generally at least $3 million per lane, per mile. If installation of conduit pipe for fiber optic cable is done at the same time, it adds only $10,000 and $30,000 per mile—as little as 1 percent on average—to the overall cost.28

Policymakers may debate whether the amount is sufficiently inconsequential for the government to pay, but free-market advocates could argue that this is a legitimate cost for broad-band providers to contribute. The incentive is that, by partic-ipating in a “dig once” program, the broadband provider cuts 90 percent of the deployment cost it would otherwise entail if it chose to dig up and repair the road at a future date. 29

“Dig once” initiatives also might spur private-sector deci-sions to deploy in new areas. The opportunity to get fiber in the ground at a much lower cost by splitting it with other companies or agencies may be enough to prompt broad-band rollout from several providers. Although fiber is often thought of in connection with phone and cable companies, wireless companies also deploy considerable amounts to backhaul traffic between cell towers and call-switching cen-ters. These policies would benefit those firms, as well.

A city’s willingness to provide avenues of communication among service providers in its area can pay off. CTC Energy and Consulting advises cities to notify all providers in the locality when a construction project is scheduled, regard-less of whether it’s a private- or public-sector agency initi-ating the operation. Each party would have the opportunity to make infrastructure upgrades while the trench is open:

Providers can reduce both costs and the use of under-ground space by placing conduit as part of the same construction project. By placing their conduit at the same time, the providers can also reduce the instances of one conduit ‘wrapping around’ another one—which occurs when a bore operator avoids existing conduit that is not readily seen. This reduces the complex-ity of repairs and reduces the risk of damaging infra-structure.30

Hong Kong, one of the most competitive local telecom mar-kets, employs this type of program. It adds even greater

28. Benjamin Lennett and Sascha Meinrath, “Building a 21st Century Broadband Superhighway: A Concrete Build-out Plan to Bring High-Speed Fiber to Every Com-munity,” New American Foundation, January 2009. No link available.

29. Peter Swire, “Smart Grid, Smart Broadband,Smart Infrastructure: Melding Federal Stimulus Programs to Ensure More Bang for the Buck,” Center for American Progress, April 2009, p. 3, available at http://www.americanprogress.org/issues/technology/report/2009/04/08/5992/smart-grid-smart-broadband-smart-infrastructure/.

30. Joanne Hovis and Andrew Afflerbach, Gigabit Communities, CTC Technology and Energy, 2014, p. 39, available at http://www.ctcnet.us/wp-content/uploads/2014/01/GigabitCommunities.pdf.

incentive for cooperation by setting a multi-year moratorium on digging along the path once construction is finished. 31

In the United States, cities have been taking more of a pub-lic-private partnership approach, using public-works proj-ects as an opportunity to lay dark fiber, with an eye toward leasing it to commercial service providers. In Arlington, Va., the ConnectArlington project added additional fiber-optic capacity when the city was laying fiber for connection of traf-fic signals. When the City of Durango, Colo. adds fiber and conduit to connect government facilities, it makes available additional capacity for leasing out to private providers, dur-ing sidewalk replacement projects, waterline replacements and upgrades to electric utility plants.32 There’s every reason to expect programs like these can be extended to the private sector as an incentive to build-out.

TOWER SITING AND PERMITTING

Additional towers and antennas are often necessary to ensure optimal coverage and performance of wireless service, espe-cially as the latest generation of wireless networks have been deployed for broadband applications. Unfortunately, tow-ers and antennas can be intrusive. When communities learn of plans to place a tower in a neighborhood, there is often organized, vocal opposition. Most often, aesthetics are the main concern. But activists often cloud matters further by claiming towers pose risks to public health and the environ-ment, despite the scientific community’s repeated refutation of such claims33 and a federal law prohibiting the denial of applications on these grounds.34

Residents deserve to be heard and it’s simply good business for service providers to take aesthetic issues into account when planning tower placement. But the policy consensus is to create more competition. To be viable competitors, wire-less companies must be able to deliver quality, reliable voice and high-speed data connections.

In early 2014, Bob Davis, director of state government affairs for Verizon, told members of the U.S. House Energy, Utili-ties & Telecommunications Committee that U.S. wireless demand is expected to increase by 850 percent between 2012 and 2017. According to his testimony, by 2015, the majority of Americans will be using wireless.35

31. Hovis and Afflerbach, p. 40.


33. American Cancer Society website, “Learn About Cancer—Cellular Phone Towers,” available at www.cancer.org/cancer/cancercauses/othercarcinogens/athome/cellular-phone-towers.

34. Associated Press, “Cell-Phone Tower Debate Grows,” Wired.com, Aug. 21, 2005, available at http://archive.wired.com/gadgets/wireless/news/2005/08/68600.

35. Dave Williams, “Cellphone towers bill on fast track,” Atlanta Business Chronicle, Jan. 23. 2014, available at http://www.bizjournals.com/atlanta/blog/capitol_vision/2014/01/cellphone-towers-bill-on-fast-track.html?page=all.


The primary obstacle to wireless tower siting is not the per-mitting or public hearing process itself, but rather, the power that can be wielded by a small group of intransigent oppo-nents or a recalcitrant neighborhood governing board to delay indefinitely any decision or resolution. One tactic opponents use is to file petition after petition for site review, environ-mental impact studies and extension times for comments or review. Town boards and homeowners’ associations have been known to sit on applications for several months, only to return them as “incomplete” prior to a hearing. In such cases, the hearing is likely to be postponed while the service provider is forced to resubmit the application and begin from scratch.

Most reform efforts are aimed at eliminating these sorts of tactical bureaucratic delays. The FCC calls for a 150-day “shot clock,” meaning a city or local community must reach a decision within the specified time frame or allow the work to proceed by default. Georgia and Missouri provide mod-els for states looking to balance community concerns with timely action.

Georgia House Bill 176 would hold local governments to a 150-days shot clock to approve or deny an application. The pending bill also requires local governments to return incomplete applications within 30 days and end the practice of imposing excessive permit-processing fees.36 The bill also would hasten approval of site modifications and would not require a re-hearing if a proposed change would make no difference to the appearance, height or design of a facility.

Missouri’s bill, the “Uniform Wireless Communications Infrastructure Deployment Act,” passed in July 2013 and places even more limits on local government, requiring authorities to make decisions on new wireless applications within 120 days of receipt, 90 days for a “substantial” modi-fication and 45 days for a co-location application. The act also prohibits authorities from issuing moratoriums of more than six months on the construction or approval of wireless facilities if no good cause is shown.

Other provisions include:37

• A local authority may not question the appli-cant’s business decisions regarding the design of the network, customer demand for service or quality of service.

36. Judson Hill, “State Wireless Facility Reforms Promise Jobs and Economic Benefits,” The Hill, July 9, 2014, available at http://thehill.com/blogs/congress-blog/technology/211740-state-wireless-facility-reforms-promise-jobs-and-economic#ixzz39pmShqOP.

37. Leslie Gallagher Moylan, “Missouri enacts statute favorable for wireless industry and broadband deployment,” Lexology, Aug. 12, 2013, available at http://www.lexol-ogy.com/library/detail.aspx?g=99865ffb-4c6a-4493-8104-625649833276.

• An authority is prohibited from evaluating an application based on the availability of other poten-tial locations for a facility, although an authority may require an applicant to state whether it analyzed available co-location opportunities within the same search ring.

• An authority may not dictate the type of technol-ogy used by an applicant to deploy its facilities.

• An authority may not unreasonably dictate the appearance of wireless facilities, such as what types of materials are used or how the facility must be screened or landscaped, although the bill leaves some discretion to the local authority as long as the requirements are “reasonable.”

• The act also reinforces the federal prohibition against denying applications based on alleged envi-ronmental effects of radio-frequency emissions.

• An authority may not impose application fees or other requirements that are not imposed in connec-tion with similar types of commercial development within the jurisdiction. Authorities also may not con-dition an approval on leasing co-location space to the government at less-than-market rates.

This last provision represents a win for legislators who seek to lower costs of build-out, rather than using utilities a source of local revenues. The bill succeeded, despite opposi-tion from the city of Columbia. According to a memo from Columbia staff, the city collects $300,000 annually from wireless facility leases. The city estimates it would lose about $100,000 annually as a result of the legislation.38

A similar bill in Massachusetts is facing more opposition. SB 2183, “An Act upgrading mobile broadband coverage in the Commonwealth,” gives a municipality 90 days to review and act upon a co-location application, and only to reject applica-tions if they fail to meet the state building code. If a munici-pality does not complete its review 90 days from the start of the “shot clock,” applicants could immediately go to court to compel the issuance of a license. In addition, authorities would not be able to use zoning laws to prohibit or restrict co-location of wireless facilities on existing structures. Wire-less-facility application fees cannot be higher than munici-pal fees for other types of commercial applications, and fees for technical consulting would be capped at $1,000.39

38. Andrew Denney, “City leery of tower legislation,” Columbia (Mo.) Daily Tribune, April 20, 2013, available at http://m.columbiatribune.com/news/politics/city-leery-of-tower-legislation/article_b76a89c0-a974-11e2-8ead-10604b9f6eda.html.

39. “Local Zoning Threatened by Wireless Telecom Industry Bills,” Stop Smart Meters Massachusetts, June 17, 2014, available at http://stopsmartmetersmassachusetts.


Meanwhile, consultants urge service providers to be as can-did and transparent as they wish authorities to be. Planning and timelines can then be coordinated with the permitting process.

CTC Technology and Energy noted that Montgomery Coun-ty, Md. has had extensive success encouraging deployment from the earliest cellular voice networks to the most recent 4G and small-cell technologies:

The county’s success arises partly from a formal, effi-cient, structured process with clear requirements and timeframes, both for the private sector entity seeking to site facilities and for the county’s own oversight process. The transparency and predictability have enabled a win-win outcome, in which both parties understand their relative obligations, the steps nec-essary for progress, and the timeframe.40

EXPEDITED PERMITTING

“Dig Once” initiatives and rules streamlining tower approv-als are part of a larger effort to expedite construction permit-ting across the board. President Barack Obama took the lead on this through a 2013 executive order to make broadband construction cheaper and more efficient along federal high-ways and properties.41

The order aims to streamline approvals and eliminate red tape when it comes to approving the installation of cable or antennas alongside roadways or in or around government buildings. The working group created by the order recom-mends creation of an interactive mapping tool that service providers could use to identify federal rooftops where com-mercial antennas can be placed to support wireless networks. The national map includes data on broadband availability, environmental or historic information, property locations and contact information. The working group also recom-mends creation of a Web-based “broadband inventory tool-kit” that allows companies to access permitting forms, lease agreements and other federal broadband application docu-ments from various agencies, making it easier to navigate the process to access federal lands and properties controlled by different departments.

In addition, the General Services Administration, as direct-ed in the executive order, is working to implement common forms and templates across agencies – such as a single mas-

org/?p=329, and Senate Bill No. 2183, Commonwealth of Massachusetts, 2014, avail-able at http://legiscan.com/MA/text/S2183/2013.


41. . Ron Hewitt and Martha Benson, “Accelerating Broadband Infrastructure Deploy-ment Across the United States,” White House Office of Science and Technology Policy, Sept, 16, 2013, available at http://www.whitehouse.gov/blog/2013/09/16/accel-erating-broadband-infrastructure-deployment-across-united-states.

ter application for deploying broadband on federal proper-ties – to provide multiple broadband-service providers and public-safety entities with streamlined business documents for the deployment of wireline and wireless facilities on fed-eral property.

The executive order has prompted several state and region-al programs designed along similar lines. These programs generally apply to all types of private-sector infrastructure construction, but broadband facilitation is among the stated objectives.

For example, the U.S. Department of the Interior is work-ing with the states of Oregon and Washington to expe-dite review and permitting of energy generation, power transmission, broadband and other critical infrastructure development in the Pacific Northwest. The Pacific North-west Regional Infrastructure Team, modeled on a simi-lar arrangement in California, will coordinate the per-mitting processes for infrastructure projects where both state and federal agencies have review responsibilities. This state-federal team will use a cross-agency and cross-jurisdictional strategy to identify siting conflicts and miti-gation early in the development and permitting process.42

Separately, Oregon and Washington had already taken steps to spur infrastructure investment and expedite their per-mitting processes. In Oregon, Gov. John Kitzhaber issued executive orders in 2011 and 2012 to expedite environmental reviews and remove financial and regulatory barriers in order to attract investment and deployment of new technologies. Washington, for its part, published a best-practices guide for local government permitting to streamline approval of infra-structure projects, including broadband.43 Other examples include Virginia, where the state’s associa-tion of counties adopted recommendations for a Virginia Tech study for review and update of permitting policies to facilitate broadband delivery. Specifically, the Virginia Asso-ciation of Counties (VACO) recommended ending require-ments for weekly or daily permits—a practice that apparently was common in some localities—and instead issue an over-all project permit. The guidelines noted that, not only does this reduce costs for local businesses, it eliminates additional expenses and overhead on the government side, as well.44

42. “Secretary Jewell Signs Agreement with Pacific Northwest States to Expedite Review, Permitting of Energy Infrastructure,” U.S. Department of the Interior, May 14, 2013, available at http://www.doi.gov/news/pressreleases/secretary-jewell-signs-agreement-with-pacific-northwest-states-to-expedite-review-permitting-of-energy-infrastructure.cfm.

43. “Local Government Permitting: Best Practices,” Washington State Governor’s Office of Regulatory Assistance, 2008, available at http://www.ora.wa.gov/docu-ments/lgp_best_practices_report.pdf.

44. Sandie Terry, Caroline Stolle Gorham and Jean Plymale, “Policy Considerations for Telecommunications Development,” Virginia Tech Center for Innovative Technology pp. 1-2, available at http://www.vaco.org/VACoEducation/2014/BroadbandPlan-


Finally, the Federal Permitting Improvement Act of 2013, introduced in Congress in 2013, would build on the Obama administration’s executive order and would improve the permitting process for capital projects of greater than $25 million in three ways: better coordination and deadline-set-ting for permitting decisions; enhanced transparency; and reduced litigation delays. The bill covers capital projects across all sectors, including broadband.45

LESSONS OF GOOGLE FIBER

Google Fiber became a wild card in local broadband develop-ment when, in 2009, it announced a plan to select a handful of cities where it would build out fiber-optic facilities to sup-port 1 Gbps synchronous Internet to homes and businesses. Now, five years later, as its first project approaches comple-tion, there is an opportunity to assess the policy changes municipalities made to lure the company. As such, it presents an interesting case study in the opportunities and pitfalls for municipalities in urging private-sector development.

Google’s chief advantage is that it is not an incumbent tele-phone or cable company. It has no franchise legacy and therefore can pick and choose where it wants to build. It comes with no sunk infrastructure costs it needs to amortize, nor an established business model that might constrain its flexibility. All this, plus its image as a leading-edge Internet company with a reputation for thinking outside the box, cap-tured the imagination of consumers and policymakers look-ing to expand broadband availability in their communities.

Google Fiber fashioned its decision to enter the service busi-ness into a national contest. Its plan was to entertain offers from municipalities around the country and choose three “winning” cities for initial construction. Some 1,200 cities applied, and Google Fiber ultimately chose the dual cities of Kansas City, Mo. and Kansas City, Kansas, along with Provo, Utah and Austin, Texas. It is worth noting that each of these cities already were well-served by wireline and wireless broadband service providers, as are the 34 cities that have submitted applications to become Google “Gigabit Cities” in the next round.

Google’s willingness to invest in infrastructure underscores that broadband is no longer a monopoly or duopoly market. As a broadband provider, Google would compete with wire-less and satellite companies, in addition to cable and telcos. What’s more telling are the deals city leaders offered to win Google, which include significant advantages and benefits that none of its competitors have.

ning14/TelecomDeploymentPolicy14.pdf.

45. S.1397 - Federal Permitting Improvement Act of 2013, 113th Congress, Introduced July 30, 2013, available at https://beta.congress.gov/bill/113th-congress/senate-bill/1397 .

In Kansas City, Google requested and received:

• Free power

• Free office space for Google employees

• Expedited permits and inspections (with fees waived)

• Free marketing, including direct mail

• Free right-of-way easements (i.e. Google can build anywhere they want without compensating the city for noise or increased traffic)

• The right to approve or reject any public state-ments the city makes about the company 46

In Provo, the city agreed to sell its failed municipal-fiber net-work to Google for $1. While upgrades will still be required, Google Fiber essentially was gifted with a $39 million met-ropolitan-area fiber backbone. Provo benefits from offload-ing a money-losing system, although local taxpayers will still shoulder significant expenses, as the agreement calls for Pro-vo to retain the debt on the network.

In Austin, city officials said the city offered no financial con-sideration to Google Fiber. Early in the process, however, Google sought an ordinance from the Austin City Council to force AT&T to allow Google Fiber to attach to its poles and set the price. This conflict illuminated the lingering dispari-ties in the way municipal regulation treat phone and cable companies. Although Google plans to be a provider of bun-dled video, Internet and telecom services, it was seeking the cheaper pole-attachment rates accorded cable companies. The two companies arrived at an agreement before the coun-cil vote, leading to the ordinance being tabled. Google also attaches to poles owned by the city, but terms of that arrange-ment have not been disclosed.

By granting the waivers it did, Kansas City validated the idea that many regulations and fees hinder investment. Other cities have caught on. In its application, Portland, Ore. has offered to waive the PEG fees that it demands from other ser-vice providers. Similar concessions were offered by other cit-ies that lost out. As Brian Fung wrote for The Washington Post:

Usually, companies have to go through complicated or costly processes to dig up the streets and install new infrastructure. In Kansas City, where Google Fiber is being built, officials waived fees and made other con-cessions to woo the company. But Google is attractive

46. Jon Fox, “The Real Cost of Google Fiber,” IGN.com, Sept. 11, 2012, available at http://www.ign.com/articles/2012/09/11/the-real-cost-of-google-fiber.


enough to many mayors that it’s been able to turn that model on its head. Google is asking the cities to com-plete a checklist of requirements before the company will consider bringing its fiber service to those cities.47

At Ars Technica, Timothy B. Lee critiqued Google Fiber’s Kansas City deal:

Space under a city’s streets and along its utility poles is a scarce, taxpayer-owned resource. When a city offers a private company access to those resources for free, it’s forgoing an opportunity to raise revenue. The implicit subsidy is even clearer when taxpay-ers, rather than Google, pay to hire extra city staff to supervise the project.48

The lesson here is that government subsidies to the private sector can be as bad an approach as municipal broadband. Both should be avoided.

In general, Google Fiber is a positive development in the broadband market and should be given every opportunity to succeed, as long as the playing field is truly level. Toward that end, municipalities must be clear that any breaks on fran-chise fees, right-of-way costs and pole attachment regula-tions they are going to grant Google Fiber ought be granted as well to incumbent service providers and any other new com-petitors who can provide the same levels of service. If these fees and surcharges are going to be waived for one company to encourage build-out of 1 Gbps networks, they should be waived for all companies who look to do the same.

CONCLUSION

Perhaps the ideal solution is being missed because it is so obvious. Reduce or repeal taxes, eliminate outdated regu-lations and bureaucracy, and broadband investment will increase. Competitors will be willing to enter a market against entrenched incumbents. Incumbents will raise investment.

Google Fiber makes a great case for revisiting the decades-old tax and regulatory structures that may have worked in the monopoly era, but are counterproductive now. To lure Google, cities are waiving long-cherished revenue mecha-nisms. At some level, they understand the economic gain from greater broadband exceeds the loss from these obso-lete models.

47. Brian Fung, “Map: The 34 Cities That May Be Awarded Google Fiber By Year’s End,” Washington Post, The Switch blog, Feb. 19, 2014, available at http://www.wash-ingtonpost.com/blogs/the-switch/wp/2014/02/19/map-the-34-cities-that-may-be-awarded-google-fiber-by-years-end/.

48. Timothy B. Lee, “How Kansas City Taxpayers Support Google Fiber,” Ars Technica, Sept. 12, 2012, available at http://arstechnica.com/tech-policy/2012/09/how-kansas-city-taxpayers-support-google-fiber/.

But what’s good for Google is good for everyone—incum-bent and newcomer alike. Furthermore, research shows that states and cities who took initiative to reform franchise fees, reduce taxes and streamline construction and permit-ting processes saw better outcomes in terms of broadband growth.

A multi-million dollar municipal system is not necessary for universal broadband. The private sector is well-positioned to do the job. All it needs is the right climate for investment. That includes a local government willing to do its best to work with prevailing market forces, not against them.

ABOUT THE AUTHOR

Steven Titch is an associate fellow at the R Street Institute, focused on telecommunications, Internet and information technology. He also serves as a policy advisor to the Heartland Institute and is a former policy analyst at the Reason Foundation. His columns have appeared in

Investor’s Business Daily, the Washington Examiner and the Houston Chronicle.

Titch also was co-founder and executive producer of Security Squared, a business-to-business Web publication covering IT con-vergence in physical security and surveillance. Previously, Titch was editor of Network-Centric Security and director of editorial projects for Data Communications magazine. He also has held the positions of editorial director of Telephony, editor of Global Telephony maga-zine, Midwest bureau chief of Communications Week and associate editor-communications at Electronic News.


rstreet27

Documents