How Big Telecom Gets Away With Rewriting America's Laws

The fact that lawmakers will take this telecom-backed paper masquerading as “economic analysis” seriously is demoralizing.

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Apr 6 2016, 5:53pm

Image: Flickr/ Brandi Redd

A telecom-funded policy paper slamming local government-owned broadband networks published Wednesday is masquerading as a serious "economic analysis," but is yet another example of the dominant players in telecom manipulating the political system to suit their interests.

In the last couple years, there's been a strong push by local municipalities to provide Gigabit fiber internet connections for their residents, whether that means incentivizing a company like Google to come to their city, partnering with a startup ISP, or building the entire network by themselves using taxpayer money. The "municipal-owned" broadband networks are the ones taken on by The Impact of Government-Owned Broadband Networks on Private Investment and Consumer Welfare, and are, at least in theory, the ones that present the biggest threat to existing ISPs.

Municipal networks are also the easiest targets for telecom lobbying—taxpayer money being used to build a service that competes with private companies make an easy mark for small-government types. And when muni broadband networks fail, they often fail spectacularly. That's why, over the past few decades, the most severe and destructive broadband lobbying has happened at the state level, as incumbent internet operators have found it easier to get state and local level policies against municipal broadband. So far, 23 states have passed anti municipal broadband laws, and often times, the legislation itself is written by lobbying groups such as the American Legislative Exchange Council.

The Federal Communications Commission is working to preempt some of these laws to allow greater municipal investment in some states, a crisis for telecom that has led to a bevy of pending lawsuits.

It's in this context that the paper is released, and there's no doubt that it will be used as a study to support telecom-written legislation that are passed to governors and state lawmakers as evidence that taxpayer-funded internet services just don't work.

This is not my opinion, this is the stated purpose of the paper, published by the State Government Leadership Foundation, a group that, like ALEC, "has assisted state elected leaders around the country in crafting sound policy solutions and promoting their successes."

On a conference call with reporters Wednesday, former Congressman Tom Reynolds, the chairman of the SGLF, said the purpose of the paper is to "protect taxpayers."

"When the FCC decided to preempt state laws in March of last year dealing with municipal broadband, SGLF realized it needed to lend its voice to help [state legislators] craft economically sound laws that protect taxpayers from undesired consequences of government-run broadband," he said.

The SGLF was founded in part with donations from AT&T and Time Warner, and has since made its funding sources unknown. As a lawmaker, Reynolds counted Verizon and AT&T among his top donors, according to Open Secrets. George S. Ford, the man they tapped to write the report, spent the late 1990s and early 2000s working for telecom companies MCI and Z-Tel. He now works for the Phoenix Center for Advanced Legal and Public Policy Studies, a think tank that grew out of AT&T's old research arm and has regularly received telecom support throughout its history.

Image: Beverly/Flickr

Last year, the organization filed a legal brief in support of the US Telecom Association's challenge of the FCC's net neutrality rules, and both Ford and his boss, Lawrence Spiwak, have written a dizzying array of op-eds and reports in support of the telecom industry.

This paper, then, will be fed to lawmakers and governors under the guise of a serious economic analysis that proves that local governments have no place becoming internet service providers. But if you actually read the study, it quickly becomes clear that there's little substance here.

The study itself paints municipal broadband networks as a financial disaster for taxpayers, for the communities that install them, and for the telecom companies that Ford argues should be receiving the subsidies that are used to build out municipal networks.

"If subsidies are to be used, theory indicates that subsidies to existing firms to increase output to achieve externalities is likely to be a more efficient approach," he wrote.

"People are kooky for broadband … there's no rational broadband thinking at the FCC and people are carrying on about it so much"

While Ford is correct that not every municipal broadband project has succeeded—there have been some catastrophic failures beset with scandal that have undermined the movement in general—there are many examples (Chattanooga, Tennessee; Lafayette, Louisiana; and Leverett, Massachusetts come to mind) of it working quite well. So far, at least 83 cities in the US have offered fiber to their citizens. Many—most—are not economic disasters.

The most glaring problem with Ford's paper is that he uses economic theory over and over to prove his point, without doing any deep dives into the economics of these real-world examples. Time and time again, cities have been thrilled with the fact that investment in broadband technology has led to businesses relocating to take advantage of fast and reliable internet. Ford dismisses this phenomenon as "business stealing" that may be good for one city but is bad for the rest of the country.

"Chattanooga and other cities were perhaps wise to get a first-mover advantage in stealing businesses from other cities, but as the deployment of fiber networks becomes more pervasive the first- or early-mover advantages of cities with municipal broadband networks is diminished," he wrote. "Most troubling is that the federal subsidies used to support financially municipal networks are funded through federal taxation; therefore, the people in cities losing businesses are perversely funding the broadband networks that are destroying their economy."

Municipal broadband is a repudiation of the status quo, an emphatic statement by voters and their representatives that the free market has not worked for them.

This is a bizarre argument does not leave room for the idea that top-of-class broadband can spur and support the creation of new businesses that take advantage of higher bandwidth connections; it also does not take into account research that suggests faster connections lead to higher real estate values and more educational opportunities for residents, which are associated with better economic outcomes overall. Finally, it operates on the assumption that the status quo should be good enough going forward—that America's businesses can and should continue to compete globally with companies based in countries with broadband that runs laps around ours.

Ford wrote that labeling broadband a "necessity" or "a human right" is "melodramatic" and wrote in the paper that "downloading a movie in five seconds rather than five minutes is a private issue, not a social good worthy of taxes and subsidies."

He also says that competition alone has not been proven to increase the quality or quantity of any given good, then uses this to suggest that building municipal networks will not be enough to improve someone's internet experience. But he does this in a totally abstract economic theory sense without looking at the fact that new fiber networks—be they run by Google, a startup, or the local government—are objectively leaps and bounds faster than the existing infrastructure.

"We're almost 'high' on it," Ford said in the conference call. "People are kooky for broadband … there's no rational broadband thinking at the FCC and people are carrying on about it so much."

Ford argues that existing telecom companies often can't compete with taxpayer-subsidized networks and thus don't end up trying, leading to less overall competition.

The thing is, there are multiple paths toward a sufficient broadband experience: In a perfect world, private companies would compete with each other and would offer fast cheap internet to its customers. In cities where that's happened, such as Kansas City and Austin, there is no clamoring for municipal networks.

Alternatively, a city—and its residents—can decide that they're tired of being underserved and overcharged and can opt, with their own tax dollars, to do something about it. Municipal broadband is inherently a repudiation of the status quo, an emphatic statement by voters and their representatives that the free market has not worked for them.

Municipal broadband certainly isn't right for every city, but it's an option that individual communities should be legally allowed to explore. State-level laws that put up significant barriers to exploring that option serve no one but the telecom companies that helped write them.

So Ford is right: Municipal broadband is bad for telecom companies. He says they can't compete with municipal providers who are "truly not interested in profit maximization." But after years of watching big telecom care about profits and nothing else, who can blame communities for taking control of their broadband destiny?