Defining Municipal Broadband Roadblocks

Municipal broadband has become an increasingly important and polarizing topic as repercussions of the digital divide continue to plague rural communities across the U.S.

Municipal broadband refers to broadband networks owned and operated by public entities such as local governments that provide broadband service to residents within a specific jurisdiction. These publicly-owned networks are needed in areas where commercial internet service providers are unwilling to invest in infrastructure, leaving rural residents without access to competitive high-speed internet services.

BroadbandNow’s annual Municipal Broadband Roadblocks report tracks telecommunications-focused legislation at the state level that impacts communities’ ability to respond to market failures in broadband deployment. In 2019, we tracked 25 states that have state laws on the books — many of them backed by the telecom lobby — written to hinder municipal broadband networks and protect telecom industry interests under the guise of supporting a “free market.”

There are a handful of other organizations tracking municipal broadband legislation, including the telecommunications law firm Baller Stokes & Lide and Muni Networks, which is part of the Institute for Local Self-Reliance (ILSR).

ILSR recently took issue with our report, claiming that it “incorrectly inflates state barriers” to municipal broadband, and arguing that the correct number of states with blocks to municipal broadband should be 19. While trying to determine the “true” number of states with laws on the books that block municipal broadband networks is largely an academic exercise, there are a few points made by ILSR that we feel are worthy of further exploration.

Running fiber on overhead poles is often the most economical solution, seeing as excavation makes up as much as 90% of the cost for ground fiber deployment.

Differences in methodology

ILSR derives its number from Baller Stokes & Lide’s work tracking municipal broadband legislation. Using its own set of metrics, the law firm has identified 19 state laws that present significant restrictions on municipal broadband. In general, we support and recognize this methodology as being reasonable and valid. BroadbandNow’s report, on the other hand, has identified 25 states with laws on the books that are designed to impede municipal broadband initiatives. This is the main distinction between ILSR’s count and BroadbandNow’s report. ILSR admits this much, noting that BroadbandNow “cast a wider net in its report.”

With all this said, we respectfully disagree with the contention that we have inflated our number by doing so.

Case in point: The state of Colorado requires a majority referendum for municipal broadband, something that both BroadbandNow and Baller Stokes & Lide consider a roadblock to municipal broadband deployments. ILSR notes the law firm recently removed Colorado from it list, not because the state removed the referendum requirement, but because the law firm has deemed this requirement a “mere annoyance” rather than a “bonafide barrier.”

We believe citizens are interested to learn about all the state laws written with the help of the telecom lobby and designed to protect industry interests over those of the community, regardless of how significant one law firm believes those barriers to be.

Connecticut’s state law on the use of pole space is another example of this central difference in methodology. The state’s Public Utilities Regulatory Authority (PURA) made a ruling in 2018 barring municipalities from using reserved space on utility poles to build fiber networks for offering broadband to residents. While that may seem like a small constraint, laying fiber underground is an incredibly expensive undertaking, and stringing fiber along existing utility poles is a much more cost-effective way to deploy the network. By removing the community’s most cost-effective option for deploying fiber, the state law presents an important barrier to municipal broadband.

ILSR states that access to pole space is “a potential advantage that exists in no other state,” and therefore doesn’t not constitute a roadblock to municipal broadband deployments. However, municipal governments in Connecticut legally have access to reserved space on utility poles, referred to as “municipal gain,” which has been on the law books in Connecticut since 1905. A 2013 amendment further clarified the language of the law, stating that municipal governments can use the utility pole space for “any use.”

The exclusion of municipal broadband networks from that definition of “any use” is another great example of lawmakers seeking to protect industry interests over those of the community, at the behest of the telecom lobby.

Similar arguments can be made in the cases of Wyoming and Massachusetts — two other states that ILSR doesn’t believe should be included on our list. Wyoming and Massachusetts both restrict the use of state broadband funds for municipal networks, under the guise of preserving “fair competition” between municipal broadband and commercial ISPs.

ILSR correctly argues that such restrictions do not prevent local governments from leveraging other financing methods to fund municipal broadband. But to be clear, these state laws do indeed restrict what tools communities can leverage to bring competitive broadband services to their neighborhoods, in hopes of protecting private interests. In scenarios of market failure, protecting the interests of a commercial ISP over the economic development of an entire community (a well-documented side effect of municipal broadband deployments) is simply bad policy, and absolutely warrants inclusion on our list.

ILSR also found Oregon’s inclusion on our list as controversial, as the state law listed deals with state-level broadband networks, not local-level networks. But the law does have potential implications for municipal-level broadband initiatives, which is precisely why we included it on our list.

The law enables the state Chief Information Officer (CIO) to provide broadband services in “unserved” or “underserved” areas to any other public body or any nonprofit organization that the State Chief Information Officer designates as a community of interest. At the time, state CIO Alex Pettit, had hoped to help bring broadband to 10 counties with 49 school districts without connectivity, using some 2,300 miles of fiber optic cable, and leveraging local public-private partnerships with municipal governments.

Incumbent ISPs predictably responded to the proposal with vitriol. The Oregon Telecommunications Association claimed the proposal would threaten its members, and claimed the CIO was exaggerating the scope of lack of access across the state. After an aggressive telecom lobbying campaign at the state legislature, the resulting bill severely limits the state’s ability to provide connectivity to any entity beyond government and university offices, and only in areas where the state won’t compete directly with commercial ISP. This is another example of legislation that (now) seeks to protect the interests of private industry by limiting the options made available to local communities in response to market failures in broadband across the state.

Finally, we completely agree with ILSR that California should be removed from our list. In 2018, lawmakers in California successfully passed legislation that removed the state’s restrictions on limiting publicly-owned broadband networks for “community service districts.” This is a huge win for residents of California, and we commend everyone who helped passed the bill. We have since removed the state from our list.

ILSR broadly argues that our report “mischaracterizes their actual impact on local governments and could even discourage communities from pursuing a publicly owned broadband solution in a state where the legal stipulations can be overcome.”

We humbly disagree on this point. Citizens are increasingly interested in how their local and state governments regulate broadband and municipal broadband, thanks to reports like ours and the work of ILSR. Anecdotally, we have received responses from individuals across the country who have read our Municipal Broadband Roadblocks report and are interested in tackling municipal broadband to improve their communities.

Ultimately, we believe it’s important to consider these state laws from the perspective of the community first and foremost, rather than the legislature or the telecom industry. And it’s important to remember that not all broadband networks are equal. For residents, qualifiers like “served” and “unserved” are moot when the quality of service is much lower than what residents in neighboring communities enjoy, and those qualifiers become particularly arbitrary when they are used to shield an incumbent ISP from municipal broadband initiatives. Therefore, any state law that seeks to constrain how a community can serve itself, for the sake of protecting the interests of private industry, has been considered a roadblock in our analysis.

Rural America still lags behind urban centers in terms of broadband deployment. Efforts like municipal broadband are helping to bridge this divide in places across the country.

A brief history of internet deployment

The history of the internet in the U.S. is similar to that of the telephony and electricity. In fact, early internet networks relied in telephony infrastructure (remember dial up?) to reach customers. The first internet providers were telephony providers. Initial deployments were focused on major population centers where lots of potential customers live in a relatively small geographic area. Dial-up internet spread throughout the country, piggybacking off the telephone lines that blanket the country. Cable company providers later began deploying their own internet networks to compete with the telephone providers, and the competition between them has helped to bring broadband access to thousands of communities around the country.

The sheer size of the U.S., and the geographic distribution of communities across the country, has led to challenges in infrastructure deployment. In rural areas, where smaller total populations are spread out across relatively large geographic areas, the cost to deploy infrastructure typically surpasses potential revenue generation from providing the service. In other words, it’s very hard for commercial companies to justify deploying infrastructure in rural areas where they are unlikely to recoup the costs.

This is referred to as “market failure,” meaning the economics of the deployment prohibits commercial enterprises from providing service to those markets. And as a consequence, rural communities have historically been the last to receive services such as electricity, telephony and broadband.

Government intervention was required to bring both electricity and telephony to rural communities. In 1934, Congress passed the Communications Act in order to regulate communications infrastructure and ensure “a rapid, efficient, nationwide, and worldwide wire and radio communication service with adequate facilities at reasonable charges” was made available to all U.S. citizens. And one year later, the federal government created the Rural Electrification Administration, tasked with administering loan programs for electrification and telephone service in rural areas.

Rural communities across the country took to forming their own electric and telephony cooperatives to provide services in areas where commercial companies refused to deploy infrastructure. In recent years, communities across rural America have similarly begun forming broadband cooperatives and municipally-operated broadband initiatives to provide service where commercial companies do not. And in many places, the electric coops themselves have begun offering broadband service to fill gaps in access.

Despite its importance to Americans in modern life, broadband is not considered a utility by the federal government, as it stands today. Instead, it’s considered a luxury service, much like cable TV, and is regulated as such. Without more formal government intervention to ensure adequate broadband access to all Americans, many rural communities have been left behind in the digital world, and are unable to participate in the digital economy that robust broadband infrastructure supports.

It is precisely because of this lack of regulation at the federal level that municipal broadband has become such an important issue. And while the federal government does now offer grant and loan programs for deploying broadband in rural areas, these awards are typically used by commercial companies for deploying sub-par service, and there is little accountability for those providers in their buildouts.

On the other hand, municipal governments across the country have demonstrated time and again that publicly-owned and operated broadband services are not only a public benefit, but often times these services spur commercial providers to deploy new services or upgrade existing services to compete with the municipal broadband service. In other words, municipal broadband can improve the local economy, reduce the digital divide, and even spur competition at the local level.

The telecom industry has a long history of interfacing with and influencing policy at both the state and national level.

The telecom lobby

While there have been a few attempts at regulating broadband as a utility at the federal level under the Communications Act, those attempts have so far failed — thanks in large part to the telecom lobby.

In 1996, Congress updated the Communications Act to ensure that no state or local statute or regulation may “prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service.”

This update led to a wave of telecom-backed lobbying efforts at the state level aimed at passing laws to prevent municipal entities from offering broadband services that might compete with private industry.

In Missouri, for example, a telecom-backed bill that barred any political subdivision, including towns and counties, from offering broadband service to residents was signed into law just one year after the 1996 update to the Communications Act. A group representing rural local governments across the state opposed the new law and asked the FCC to preempt it. The issue eventually went to the Supreme Court, which found the FCC had no grounds to preempt the state law. As a result, the state of Missouri today bars municipalities from selling or leasing broadband services to residents. It also bars municipal governments from leasing broadband infrastructure to other communications providers.

The telecom lobby has argued time and again that, in the spirit of capitalism, public entities should not compete with industry. In larger markets, there is typically no need for public entities to intervene or challenge industry. But the axiom falls apart under market failure conditions, and tends to protect the interests of industry at the expense of rural communities.

The issue of federal regulation came to a head again in 2015, when then-chairman of the FCC, Tom Wheeler, designated broadband a utility under Title II of the Communications Act of 1996. The decision sparked a partisan debate on net neutrality which culminated with the next FCC Chairman, Ajit Pai, rescinding the decision in an act of deregulation. Once again, the telecom lobby achieved success at the expense of rural communities.

By our count, there are five more states — in addition to Missouri — that have directly banned public entities from offering broadband service. But direct bans are just one way that telecom companies have prevented communities from deploying their own broadband networks. We’ve seen a slew of other strategies adopted at the state level, in many cases directly due to telecom lobbying, that seek to prevent or otherwise constrain how communities respond to market failures in broadband deployments.

We believe that it is important to highlight laws and regulations that make it more difficult than necessary to establish municipal broadband operations, not only those that outright ban them.

Types of municipal roadblocks we consider

For the purposes of our reports, we have considered a wide variety of telecom-backed legislation and statutes that constitute roadblocks to municipal broadband. These include outright bans on municipal entities providing broadband service; rules that prohibit or constrain municipal entities from competing with private industry in offering broadband service; and statutes that constrain municipal broadband networks indirectly through funding constraints, burdensome requirements, or other bureaucratic barriers.

Here’s a look at how we categorize and interpret these rules:

Direct sale prohibitions on municipal broadband

These laws act to prohibit local governments from offering broadband service directly to residents. Missouri and Nebraska bar it outright, while in the cases of Pennsylvania and Texas, municipalities are barred from providing broadband service to residents unless no such services are provided by private telecom companies.

Bureaucratic barriers to municipal broadband

These barriers vary from state to state. Some bureaucratic barriers we considered include compliance with vague legal requirements, refraining from using specific financing mechanisms and pricing mechanisms, proposal-stage barriers, phantom cost requirements, and additional tax burdens imposed on community-owned broadband networks.

Prohibitive referendum requirements on municipal broadband

Referendum requirements are used to constrain community-owned broadband network projects in a number of states. Referendum votes tend to inhibit municipal broadband projects in a number of ways: holding a referendum vote can itself be a challenge, and holding a vote enables incumbent ISPs — and in some cases neighboring ISPs — to spend lots of money in astro-turf campaigns against community broadband.

Population caps on service areas for municipal broadband networks

Nevada is the only state that uses this mechanism to constrain municipal broadband. Population caps such as Nevada’s can lead to situations in which portions of urban or suburban areas — often low income — are without adequate service because private telecom companies are unwilling to expand service, but the size of the population prevents a municipal entity from providing service instead.

Excessive taxes on municipal broadband services

Imposing taxes is another mechanism used to constrain community broadband networks. Florida state laws, for example, impose “ad valorem” taxes on municipal broadband networks, but does not impose such taxes on other public utilities or services sold to the public. Broadband infrastructure deployments are capital-intensive endeavors, and imposing more financial burdens onto entities trying to provide broadband service tends to make such initiatives unfeasible.

Other tactics used to roadblock municipal broadband

There are a number of other ways state laws constrain community broadband initiatives that can potentially have a chilling effect on municipal broadband initiatives.

In many states, communities can be caught in a “served” vs “unserved” qualifier limbo. These state laws prevent municipalities from offering broadband service to residents if there is one commercial provider already offering service — or willing to begin offering service — in the jurisdiction. These requirements are considered roadblocks to municipal broadband because communities can be considered “served” if any provider is present, regardless of what kind of Internet service is being offered.

In the case of Massachusetts, for example, two state entities have been established to distribute funds to communities for publicly-owned broadband infrastructure. But telecom lobbyists ensured that these funds are only available to communities that are “unserved” by commercial ISPs. A rural and low-income county that only has access to spotty, slow and expensive satellite Internet, for example, would not be eligible to receive state funding for a municipal broadband network. Instead, residents are left with subpar Internet service and no help from the state to bring better Internet to residents.

Other states have limited how or where municipalities can deploy infrastructure to support public broadband initiatives. In the case of Connecticut, for example, the state’s Public Utilities Regulatory Authority (PURA) made a ruling in 2018 barring municipalities from using reserved space on utility poles to build fiber networks for offering broadband to residents. While that may seem like a small constraint, laying fiber underground is an incredibly expensive undertaking, and stringing fiber along existing utility poles is a much more cost-effective way to deploy the network. By removing the community’s most cost-effective option for deploying fiber, the state law presents an important barrier to municipal broadband.

Finally, state initiatives aimed at helping expand broadband access create other barriers that communities must overcome. In Oregon, for example, the state has set up public broadband initiatives to help rural “unserved” communities, but imposes a string of requirements for such funds that communities must meet to be eligible.

Conclusion

There are a variety of ways that state laws have posed obstacles for communities to launch their own broadband networks, and many if not all of these laws have been backed by telecom companies looking to prevent public entities from competing directly with private industry.

But these roadblocks have not always been successful in stopping communities from developing their own municipal broadband systems, and in fact, many communities have championed municipal broadband despite the obstacles that these roadblocks present.

In Missouri, electric coops across the state have taken up the mantle of providing broadband service to residents, while municipalities themselves are barred from doing so. And the community in Lafayette, Louisiana was able to launch one of the country’s first municipally-owned fiber-to-the-home networks, despite state law setting challenging referendum requirements for such initiatives.

By examining the full gamut of state laws that prevent or constrain community initiatives on municipal broadband, we can help to inform and empower citizens to get involved in local broadband issues and initiatives and take on these roadblocks in their own states. And the responses to our municipal broadband report from community members have been encouraging. Readers from across the country have reached out to learn more about what they can do to help bring municipal broadband to their respective communities, despite these roadblocks.

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