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BY JOHN MURAWSKI - Staff Writer June 22, 2010

RALEIGH -- Alarmed by the prospect of competing for customers against local governments, the cable TV industry is pushing for a state law to prevent North Carolina cities from offering Internet and cable systems to their residents.

The industry, led by Time Warner Cable, wants to protect itself from what it calls unfair competition. The industry's concerns are gaining urgency as some two dozen towns in the state are either planning or exploring their own telecommunications and television service for residents and businesses.

A proposed moratorium on municipal broadband has sailed through the state Senate and is now awaiting debate in the House of Representatives. But some lawmakers in the House are intent on derailing any proposal that would delay the development of local broadband networks. They say the future of the state depends on unfettered broadband access.

The bill is pending in the House Ways and Means Committee, whose chairman, Rep. Bill Faison, sees the moratorium as an attempt to protect the powerful cable monopoly. Faison, a Democrat who represents Orange and Caswell counties, is meeting Wednesday with representatives of the telecommunications industry and local government leaders to discuss options.

"I decide what gets put on the agenda," Faison said. "It's unlikely that any bill with a moratorium in it has a chance of getting through the House."

Local growth

Virtually unheard of just a few years ago, a high-speed Internet and cable TV service offered by your local government is becoming a reality for some.

The City of Wilson's $28 million Greenlight service is the prototype of municipal broadband in this state, launched just two years ago and now claiming about 4,800 customers. The City of Salisbury will be next with its $30 million Fibrant service, scheduled to be offered later this year. Meanwhile, Fayetteville is set to study its own version of municipal broadband this summer and could decide this year whether to proceed.

Additionally, the towns of Davidson and Mooresville recently bought telecom assets from Adelphia Communications during bankruptcy proceedings, and now both provide municipal broadband. Their jointly owned system has been hobbled by revenue shortfalls as the towns seek to convince more citizens to subscribe.

City officials say municipal telecom service is an economic development strategy that will increase competition and provide high-speed Internet access to those who lack any kind of broadband. They point out that local governments traditionally provide public services - water, sewer, electric, natural gas, transportation - where the options are nonexistent or inadequate.

"We're running this as a public utility," said Doug Paris, assistant to the city manager in Salisbury. "It's really not a luxury anymore - it's a necessity."

Potential dangers

Opponents warn that towns run a major risk of defaulting when competing against Wall Street-backed industries. In addition to contending against Time Warner Cable, the state's dominant cable provider with 1.7 million customers, government broadband networks would also have to compete against satellite services, AT&T's U-verse where it's offered, and the expected spread of Internet-streaming services.

Sen. David Hoyle, a Democrat from Gaston County, says he heard similar arguments from government officials decades ago when city halls were eager to get in on the business of selling electricity. Several dozen North Carolina towns, including Wilson, joined to buy a share in utility-owned power plants, and now their residents pay some of the highest power bills in the state.

A similar proposal last year was also deferred for study by the General Assembly's Joint Revenue Laws Committee, which led to the bill proposed by Hoyle this year.

Hoyle originally proposed restricting municipal broadband by requiring a public vote on a general obligation bond issue before a town could invest in a broadband network. Hoyle said such a vote would essentially prevent the systems from being built once citizens see the costs involved.

But the Senate preferred a year-long moratorium so the matter could be further studied by a panel to be named by the Joint Revenue Laws Committee. If municipal broadband expands, Hoyle worries that it's just a matter of time until local towns are asking the state for bailouts.

"They're going to have debt up the ying-yang," Hoyle said. "It's people getting into business they don't know anything in the world about."

Faison's concern is promoting universal broadband access. It's estimated about 10 percent of the state's population, mostly in rural and remote areas, lacks access to high-speed Internet. Still, the networks being developed by local governments largely overlap with existing networks.

The argument

About half the nation's states restrict municipal broadband. The N.C. Cable Telecommunications Association says local governments have an unfair advantage over Time Warner or other providers because they don't pay taxes and consequently have significantly lower operating costs.

Other conflicts can arise as well. For example, in 2007, when Wilson was developing its Greenlight service, the town tripled its rate for using municipal utility poles from $5 to $15 a year. That raised the pole fee for Time Warner Cable from $82,000 to $246,000 a year, but Time Warner is still paying the old rate while it negotiates with town officials over the issue.

"When the regulator becomes your competitor, it's not a good situation," said Marcus Trathen, a lawyer for the cable lobby.

The moratorium provision before Faison's committee is the result of a compromise between the N.C. League of Municipalities, the city government's lobby, and the N.C. Cable Telecommunications Association, the industry's lobbying arm. The moratorium doesn't apply to towns that are already planning or developing municipal broadband, towns that received federal stimulus grants for broadband deployment, or towns chosen by Google for its Fiber Project.

Restrictions on municipal broadband also are opposed by Google, Intel, Alcatel-Lucent and several other telecom companies that wrote a letter to lawmakers in May.

"North Carolina should be lowering barriers to public broadband initiatives rather than establishing new ones," their letter says, arguing that the state would be cutting off potential federal stimulus grants.

Both sides accuse the other of putting profits before the public interest.

"It's like, say, Barnes & Noble saying we shouldn't have a public library system because it stops private sector investment," said Kelli Kukura, the League's director of governmental affairs. "The bottom line is they need to get busy working on this or get out of the way so we can serve our citizens."

john.murawski@newsobserver.com or 919-829-8932

Updated: FCC Votes 3-2 To Launch Broadband Transmission Classification Inquiry

As Expected, Agency's Democratic Majority Moves To Launch 'Third Way' Efforts

John Eggerton -- Multichannel News, 6/17/2010 12:20:06 PM

The FCC's Democratic majority Thursday voted 3 to 2 to launch its effort to clarify the FCC's authority to regulate broadband transmissions by classifying them under a handful of Title II common carrier regs and forbear (not apply) the rest, the so-called "third way" approach proposed by chairman Julius Genachowski and general counsel Austin Schlick.
The two Republican commissioners respectfully, but strongly, dissented.
That vote came in the form of a notice of inquiry into that and other possible responses to a D.C. Federal Appeals Court's April 6 decision that the commission did not sufficiently establish its ancillary authority over Comcast's broadband network management practices, and by extension everybody else's network management practices.
The comment deadline for the inquiry is July 15, with reply comments due Aug. 12.

The inquiry did not declare a next step once that comment is collected, but in a press conference afterward, Schlick said the precedent -- when the FCC classified broadband under Title I in 2002 -- was simply to issue a declaritory ruling, which would require no further commission vote.

That is one of the reasons why both Republicans needed to register their opposition to the third way now.

Genachowski again called the third way approach a compromise between doing nothing and overregulation via applying all of Title II regs, including unbundling and price controls, on Internet transmissions, though he also said he was open to other input.
"My focus is not an any particular legal mechanism," he said, but that the FCC "simply restore the status quo and have a workable, light-touch framework for broadband access."
In fact, the inquiry also solicits comment on options other than the three ways offered up.

ISPs, including phone and cable operators, have argued that Title II reclassification is imposing legacy phone-style regs that could chill investment and innovation, points made by Republican commissioners Robert McDowell and Meredith Attwell Baker.

The chairman referred to the third way on several occasions as a "possible" or "preferable" solution, rather than a foregone conculsion. but while he said he was open to considering whatever framework would insure innovation, opennes, and competition, he did suggest an obvious preference.
He said he recognized that there were pros and cons to all three ways, he said. "I remain open-minded."

But he did suggest in some instructions to stakeholders that his mind was disposed toward his own proposal. "I ask only this of all participants in this discussion. Let's not pretend that the problems with the state of broadband in America don't exist [his Republican opponents have focused on what they see as a glass that is 80%-90% full]. Let's not pretend that the risk of excessive regulation is not real, or at the other extreme that the absence of basic protections for competition and consumers is acceptable."

He said he thinks the full-boat Title II way is not acceptable either, but left its threat in the minds of his listeners.
Commissioner Baker had said that she was concerned that the chairman's public support for the third way meant he had prejudged the issue. His care in using conditional language about the proposal during the meeting was meant to suggest otherwise, as were his several statements that he was open to suggestions and focused on the goal of open, robust, competitive broadband however that could be legally sustainted. It was a point he reiterated at a post-meeting press conference when Baker's concern was highlighted.

There were visitors from Pakistan at the meeting, and McDowell wanted to make sure they understood that most of the FCC's decisions (90%) are bipartisan and unanimous. But this issue marks one of the 10 times when the divergence in views was strong. "I fundamentally disagree with the premise that has been offered to support this item," he said, arguing that the Title II plan was not already unnecessary but had caused harm to the marketplace already.

McDowell and Baker both maintain that the move, and its threat,could chill investment and may wind up hurting broadband deployment, not helping it. McDowell said whatever clarification the FCC needs for its broadband authority needs to come from Congress.

Genachowski said that he fully supported an effort by top Democrats to revise the communications act and provide a solid broadband regulatory framework, but that should be a complementary track to the FCC's NOI and that it would not serve either the public interest or the future of broadband for the FCC to do nothing.
Democratic Commissioner Michael Copps said he would have preferred an even swifter lassification of broadband under Title II than could be the case with the NOI, and dismissed suggestions that doing so would be regulating the Internet. Instead he said, it would be insuring that people could have unimpeded access to the Internet via network on-ramps.

Copps said he was not comfortable leaving the future of the countries broadband hopes and dreams in the hands of industry. "Permitting this chaotic stand-off to persist can only leave consumers, innovators and even broadband companies themselves on an uncertain and perilous path," he said.

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Cable TV fights municipal broadband

Updated: FCC Votes 3-2 To Launch Broadband Transmission Classification Inquiry

As Expected, Agency's Democratic Majority Moves To Launch 'Third Way' Efforts

John Eggerton -- Multichannel News, 6/17/2010 12:20:06 PM