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The FCC Can't Help Cities Trapped By Predatory Internet Deals With Big Telecom

Many cities have screwed themselves so bad with franchise agreements that there might not be much the government can do.
June 13, 2014, 9:00am
Image: Shutterstock

At least 20 states have laws that make it illegal for communities to offer local government-owned high speed internet access. Wednesday, Federal Communications Commission Chairman Tom Wheeler threw consumers a bone by suggesting that the agency could make it easier for cities to skirt those laws. That's a great first step—but many cities have locked themselves into telecom company-caused messes the FCC probably can't fix.

"I believe that it is in the best interests of consumers and competition that the FCC exercises its power to preempt state laws that ban or restrict competition from community broadband," Wheeler wrote in a blog post Wednesday. "Given the opportunity, we will do so."


As internet users suffer through slow broadband speeds, spotty service in rural areas, only one or two service providers to choose from, and now, the threat of preferential treatment via an "internet fast lane," many communities have been looking into becoming their own internet providers. Offering gigabit speeds, maintaining local control, and avoiding discrimination is enticing.

In theory, Wheeler's statement is very good news for consumers in those states where the legal roadblock makes it impossible for local communities to become an ISP. Provided that cities or municipalities actually file a request with the FCC.

"There are a number of approaches the FCC could take, including rulemakings, but one possible approach is for the FCC to conduct case-by-case, fact-specific evaluations of petitions filed by individual municipalities asking us to preempt a particular state law," an FCC spokesperson told me.

This preemption authority is apparently granted in the January Verizon v FCC decision—the one in which the court infamously struck down key aspects of net neutrality law. Telecom law suggests the government has the power to make rules to "remove barriers to infrastructure investment," and a consenting opinion by judge Laurence Silberman, specifically noted that "an example of a paradigmatic barrier to infrastructure investment would be state laws that prohibit municipalities from creating their own broadband infrastructure to compete against private companies."


That's the good news.

The bad news is, the FCC's power becomes much less certain once you drill into the other major reason why cities can't offer broadband to their constituents: local, long-term agreements with internet service providers.

These are the states with laws against community fiber. Image: MuniNetworks

Whether the agency is actually able to make any changes is dubious. Beyond those state laws, many cities throughout the country have specific, individualized noncompete agreements with telecom giants like Comcast, Time Warner, Verizon, and the other major players that further tie the community's hands. And there's likely nothing the FCC can do to preempt those. With sweet kickbacks from cable companies and cheap or free internet service to government buildings, it's not even clear that those cities even want to change the status quo.

Those agreements are entered into bilaterally—local politicians know what they're getting into when they sign one. But often, these franchise agreements can last for more than a decade, so politicians are locked in for several election cycles. Even if a new city administration has a change of heart—or simply wants to offer its residents another, better option—they're locked down for years at a time.

The ones getting screwed are the consumers, who are contractually faced with few, limited options.

The agreements aren't uncommon—if you have access to cable, your city has a franchise agreement. Beyond that, sometimes the telecom companies own or lease the actual pipes that the fiber would be laid in—and they aren't likely to let a community ISP use them.


Each city's franchise agreement is different, and forward-looking cities are able to either wiggle their way out of a noncompete agreement or simply don't agree to one in the first place. But, for every Chattanooga, Tenn., or Takoma, Wash., there's a city that has locked themselves into a noncompete deal. For a flavor of what noncompete text looks like, check out Portland, Oregon's agreement with Comcast, renewed in 2012. Word is, Google is about to save residents there from the terms of this deal, but it's instructive nonetheless.

In the agreement, Comcast agrees to hook up Portland's government buildings (Portland, however, pays for the construction and installation costs) with fiber internet, at cost. Portland is not expressly prohibited from starting its own fiber community network, but, if it does, it has to provide Comcast with two years' notice, so that it can negotiate "alternative service agreements" with its customers (that means, lower its prices or improve its service). Why would Portland agree to something like this? Because, by giving the contract to Comcast, it gets between 1 and 3 percent of the company's gross revenues in the city.

Here's part of the pertinent text:

"I-Net Subscribers shall not re-sell, lease, or assign use of I-Net bandwidth capacity or I-Net Services to any commercial third party or for any purpose generating income that might be taxed at the federal, state, or local levels … in the event that the City, or one of its agents, elects to provide commercial Cable Services or I-Net Services to Residential or business customers in competition with Grantee, on a wholesale or retail basis, during the term of this Franchise, Grantee’s Institutional Network obligations under this Section 6 and Grantee’s I-Net obligations to provide funds in support of I-Net Capital Costs under Section 7 hereof shall terminate upon physical activation and offering of such service in the manner provided in this Section."

The FCC likely has no way of preempting agreements like this—they aren't laws. It's possible, a city could petition them for help breaking a franchise agreement, and then we'd see what happens—likely after a very lengthy court proceeding. An official with the agency told me the agency is looking into its authority to work around these agreements.

If the FCC does attempt to give some cities a get out of telecom jail free card, the agency is going to start a shitstorm with the small government contingent in Congress. In fact, the agency has already pissed them off. Last week, after Wheeler suggested the FCC would consider preempting state laws, Ted Cruz, Mike Enzi, Lamar Alexander, Marco Rubio, and six other conservative senators—all of whom receive donations from telecom companies—threw a fit.

"The insinuation that the FCC will force taxpayer-funded competition against private broadband providers—against the wishes of the states—is deeply troubling," the senators wrote in a letter to Wheeler. "Your proposed community broadband experiment presents an unnecessary and risky government liability."

It's great that the FCC is at least trying to fix the issue. Unfortunately many cities have screwed themselves so bad with franchise agreements that there might not be much the government can do.