“Broadband killer” is dead

Legislation that would have temporarily restricted local governments’ ability to get into the Internet and cable TV business died in the wee hours of July 10, shortly before the General Assembly adjourned for the year.

By Michael Muller

Hailed by proponents as a necessary measure to preserve free-market competition and assailed by critics as an industry-sponsored chokehold on the expansion of rural broadband access, it marked the fourth such attempt in recent years.

First proposed back in May by Sen. David Hoyle, D-Gaston, S1209 was overwhelmingly approved in early June on a 41-7 vote in the Senate. But, in the last-minute rough-and-tumble in the House, Hoyle’s language was folded into another bill, then watered down, and ultimately died in committee. The proposal would have temporarily barred cities from building, buying or operating their own retail broadband networks until a task force could make recommendations to the General Assembly.

Hoyle’s bill would have required the Legislature’s Revenue Laws Study Committee to establish a blue-ribbon task force, made up of representatives of cities and private telecommunications providers, to study the various complex legal and funding issues involved and report back to the General Assembly by March 1, 2011.

Five North Carolina towns — Wilson, Salisbury, Morganton, Davidson and Mooresville — already operate their own Internet services, which would have been exempted from the ban. Other exemptions would have covered projects already under development or tied to federal broadband stimulus grants, as well as internal high-speed networks serving local entities. Private companies, such as Charter Communications and Time Warner Cable, provide most broadband access in the state.

At your service

Critics of Hoyle’s initiative — including the North Carolina League of Municipalities, various consumer advocacy groups, newspapers, progressive political action committees and broadband technology proponents — were particularly vocal in their opposition. The legislation, they charged, was nothing more than an industry-sponsored attempt to stifle competition — a so-called broadband killer for rural communities that would put North Carolina at a competitive disadvantage with other states.

Due to the relative scarcity of customers, it’s often unprofitable for private companies to go into outlying rural areas to lay and maintain high-speed lines, so these locations often lack access to cable TV and Internet services that’s comparable to what more populated areas enjoy. To address this inequity, some advocates believe local governments should have the option of building their own networks. They equate broadband with other basic infrastructure (such as roads, water, sewers, electric power or bus service) that local governments often provide when these services aren’t otherwise available.

Hoyle, however, dismisses that argument, declaring, “I've heard that BS, and it's just not true … period. Anybody that needs [broadband] service can get served in this state.”

But Hunter Goosmann, general manager of ERC Broadband — a local nonprofit that works to improve the technological infrastructure in the western Carolinas — believes Hoyle has been misled. “He claims that competitive service is already available all over North Carolina,” Goosmann told Xpress, adding, “I’d love to give him a tour across our mountains.”

Who pays the bills?

The existing municipal broadband systems in North Carolina are financed using something called “certificates of participation,” which rely on projected revenues from the project they’re funding to pay off the debt. Widely used in other states, such certificates were themselves the subject of some controversy when they were narrowly approved by a referendum in 2004, in part because they don’t require direct approval by voters (see “Amendment One,” Feb. 9, 2005, Xpress).

Cities and counties have traditionally borrowed money for capital projects such as roads, schools, jails and parking decks by issuing general obligation bonds backed by the government’s ability to levy taxes. By law, voters must approve such bond issues through a referendum. Hoyle says he wants to make sure that city governments that choose to build and operate their own broadband systems secure them via general obligation bonds — and the accompanying voter approval.

But municipal broadband advocates say subjecting such proposals to local referendums will all but guarantee that they never pass, because voters generally tend to reject anything that might increase their taxes.

Hoyle also fears the state’s cherished AAA credit rating could be at risk if cities continue issuing certificates of participation for these massive projects and end up defaulting on their debt. The towns of Davidson and Mooresville have been operating their jointly owned, $92.5 million cable TV and broadband system at a loss since 2007, and they recently informed residents that they’ll need an additional $6.4 million taxpayer subsidy to keep the operation afloat.

Voters in those cities weren’t asked how they felt about the $80 million certificate of participation that initially funded the project (along with a $12.5 million bank loan), or about what some say amounts to going head to head with private industry.

Hoyle, a self-described free-market advocate, believes private investors — not taxpayers — should be taking that kind of financial risk, and that if this particular measure had been put up for a vote, residents would have rejected it.

“I want the cities to make the case that they need to be in this business,” he told Xpress. “But I can tell you that the ones who are in it are not doing it very well. Wilson has got a mess on their hands — an unadulterated mess.” A city of about 50,000 people just east of Raleigh, Wilson implemented Greenlight, its $28 million municipal broadband system, last year.

Stuck

There are other issues as well. Some worry that letting governments compete with private corporations is not only inherently unfair — because they don’t pay taxes — but unwise, due to their lack of business experience and technical expertise. Buncombe County may be a case in point: Its free Wi-Fi service, which once covered much of downtown, hasn’t worked in over a year.

Another potential problem Hoyle sees is leaving taxpayers on the hook for tens of millions of dollars worth of outdated technology. He points out that new Internet services such as WiMax, which can offer broadband speeds comparable to today’s cable modems over distances of up to 30 miles, could supplant hard-wired systems — particularly as more and more people opt for mobile computing.

“They're going to own an Internet cable system that may become obsolete,” Hoyle predicts, "and they're going to expect the taxpayers of this state to bail them out.”

Opponents have accused Hoyle of being nothing more than a shill for the telecommunications industry, but he dismisses the charge. “The lobbyists don't influence me,” he declares. “I'm in the pocket of the people that provide jobs for this state, and Time Warner Cable employees — 8,500 in this state — and I can't imagine anyone that would want to compete with that. … Business and free enterprise built this country and this state, and I'm going to do every damn thing in my power to keep them happy and keep them doing business here. … These call centers can be in India or anywhere.”
The Time Warner PAC contributed $6,000 to Hoyle’s re-election campaign in 2009, according to his campaign-finance report.

Hoyle, who’s in his seventies, plans to retire this year after serving nine terms in the state Senate.

Michael Muller can be reached at at 251-1333, ext. 154, or at mmuller@mountainx.com.