The 21 Laws States Use to Crush Broadband Competition
President Obama says he's going to help cities ignore these laws that restrict them from building their own high-speed networks.
Image: White House/Flickr
This week, President Obama said that he would direct the Federal Communications Commission to help cities that want to build their own broadband networks navigate or completely ignore state laws in 21 states that make it difficult or, in some cases, illegal to create networks or sell internet service to their citizens.
Well, he said 19, but there are 21 with restrictions. It's an important move, if not a shift in policy. Last year, the FCC said that it would help cities navigate the process of pre-empting (essentially ignoring) state laws, and two cities—Wilson, North Carolina and Chattanooga, Tennessee—have already filed official petitions, which are still pending. But the president actually going on the record certainly doesn't hurt, and Obama says that he's actually starting a new initiative to create further projects, which is welcome news: Municipally owned networks have proven to be popular, extremely fast, and quite cheap.
But what the heck are these laws he's talking about? And how did they come into play in the first place? The specifics in each state are hard to dig up, but, in many cases, the laws were lobbied for by cable companies (called "incumbents" in broadband circles) to kill local competition.
"The general rhetoric behind these laws, from the incumbents, is that cities are too incompetent to run their own networks, so it's a risk to taxpayers," Craig Settles, a broadband consultant who works with cities to create municipal networks told me. "But then, the other side of it is that cities are so competent that they represent unfair competition."
No one, from what I can tell, has ever actually taken a close look at what the laws in each state says—even if a state does have a law restricting municipally owned broadband, often it's not an outright ban. So, last week, Settles published an analysis of every single law on the book. And there's a lot of them.
The report is a "30,000-foot-view of what in some states are very complicated sets of legal issues" which is intended to give readers a general overview of what cities are dealing with.
There are three different "categories" of state law banning municipal broadband. There are "If-Then" laws, which have some requirements for municipal networks such as a voter referendum or a requirement to give telecom companies the option to build the network themselves, rather than restrictions (some are easier to meet than others). Then there are "Minefield" laws, which are written confusingly so as to invite lawsuits from incumbent ISPs, financial burden on a city starting a network, or other various restrictions. Finally, you've got the outright bans. Some of these are simple, others are worded in a way that make it seem like it'd be possible to jump through the hoops necessary to start a network, but in practice, it's essentially impossible.
"I look at all of these laws as subverting the democratic process. In all cases, they're nullifying or subverting the ability for local communities to make their own decisions," Settles said. "It's also a bastardization of the free market process that incumbents say the laws are in defense of. In reality, if 10,000 people in a community decide their services are crap, then they can decide, as a market, to take their money and find or create another provider."
"I wrote this study to break down these laws for communities, because, in some cases, they can actually be worked with," he added. "In many cases, it's more of a psychological barrier than anything."
So, without further ado, here are the laws, which may soon be history.
The law requires that cities wanting to build their own networks hold a referendum before actually building the network. Further restricts towns from offering voice, internet, and cable, as a "triple play" package. The law also prohibits cities from using taxes or bonds to actually build the network. Settles notes that some cities have worked around this by building networks for "internal city or public utility use" and then going from there to provide fiber to the home.
California has no specific law against a community building its own broadband network, but it does have a statute that states that, if a city builds its own network and then a private company (an ISP, in this case) shows up "ready, willing, and able to acquire, construct, improve, maintain, and operate broadband," the city has to turn it over or lease it to that company. Sneaky, right?
The law took away all cities' rights to own and operate a network unless citizens voted to restore the authority. To establish a new network, a referendum is also necessary. Last year, eight municipalities passed muni broadband referenda, in both heavily liberal and heavily conservative areas.
No specific broadband law, but all public utilities, including broadband, need to be approved by a voter referendum of 51 percent. In order to get bonds to finance the network, that municipality needs to get 60 percent approval in a referendum.
The state has a fairly straightforward referendum process in which 65 percent of voters have to approve of a city's muni broadband plan. Danna MacKenzie, executive director of the office of broadband development for the state, called it a "psychological barrier."
One of the most restrictive "if-then" states, Nevada has two laws that make for a somewhat confusing situation. One that says that only counties with fewer than 50,000 people can start a telephone utility and counties with fewer than 55,000 people can start a cable utility. A separate law says that cities with fewer than 25,000 people can start cable and telephone utilities, which includes broadband. That means big cities are screwed.
There's no referendum rule here. Instead, the law, passed in 2004, says that cities need to approach their current ISP with a detailed broadband plan. The ISP then has 60 days to take that plan and implement it or reject it. If the company agrees to take the plan, it has a year to build it out. If the plan is turned down, the city is free to build its own network. This has happened only once, in 2006, by Cambria County, which is just east of Pittsburgh.
Only so-called "code cities" can offer telecom services. This means that the town or city has to have specific municipal laws and codes, which are common but not ubiquitous in the state.
Passed in 2003, a city must devise a three-year feasibility study before it can build out a network. It has to make this study public for 30 days before it actually passes any resolution that would build the network.
Michael Watza, a government litigator in Michigan, says the law in the state is "being represented by industry to municipal elected officials as absolute bans." He says that it is indeed possible to jump through the hoops the state has created, but that no city has tried.
"There are statutory restrictions, competitive bidding with an industry bias built in, mildly onerous separate accounting and projection requirements, industry-biased geographic limitations and artificial time delays," he added.
There are six laws in Florida relating to municipal broadband. One of them is a Pennsylvania-like law that requires a city to take its plan to its incumbent ISP. Unlike in Pennsylvania, however, the ISP can sit on that proposal indefinitely. Another law requires public networks to become profitable within four years or run the risk of losing the network. It also prohibits cities from using tax money to build the network.
Despite all that nonsense, Palm Coast managed to build a fiber network by taking out loans to connect its municipal buildings with fiber (which is not prohibited), setting up the infrastructure. It then partnered with two smaller ISPs to build that fiber out to its residents.
Creating a fiber network in Louisiana is so legally perilous that it's a wonder Lafayette has managed to create one of the nation's most successfully municipal fiber ISPs. Settles describes the 2004 laws as a "series of daunting hurdles, each with hooks and open-ended wording that invite mischief by muni network opponents." First off, a city must create an entirely different entity to own and manage the network that cannot receive any money from other government coffers. If a city fails to have a referendum, existing ISPs no longer have to pay franchise fees to the city for 10 years.
Public entities also have to pay more taxes than private telcos and there are restrictions on advertising.
Lafayette Utilities System director Terry Huval says that "elected officials in other communities may look at these laws and realize that a broadband project could trigger legal battles that could last the entire time they are in office."
No community besides Lafayette has tried to build a network.
There are 15 specific legal hoops cities need to jump through before building a network, and "each requirement is structured or worded to invite incumbents' challenges no matter what a city does to comply." Cities are restricted from offering services below costs, even for a short intro period, as is common in the business. Cities have to prove that at least 50 percent of its residents don't already have broadband.
The city of Wilson has had a network since 2008—before these laws existed—but wants to expand it, and is one of the cities challenging the FCC to preempt the state's laws. "Most cities in the state don't have enough lawyers—or enough with telecom law expertise—nor the budget to fight the kinds of drawn out battles [needed to build a network]," said Will Aycock, general manager of the network.
South Carolina's law was passed in 2012, modeled on North Carolina's law, and was a direct response to Orangeburg County receiving a grant to build a network to stimulate the economy in an area of the state where 20 percent of the population lives below the poverty line.
Cities can build their own fiber, but are then required to sell it at a cut rate to another ISP, which will repackage it and sell it directly to consumers. Lawmakers there also introduced two separate bills that would have prevented a private firm from saving the Utah Telecommunication Open Infrastructure Agency, a consortium of 16 cities that offer fiber to their residents under one umbrella agency (in accordance with the wholesale law). UTOPIA, however, was popular enough that both of those bills died.
There is a law that states "a government entity may not provide, directly or indirectly, basic local exchange service."
Missouri has one of the first anti-municipal broadband laws in the country. In fact, after a very complex and long legal proceeding, the Supreme Court ruled that the state did, in fact, have the right to ban broadband. That law, passed in 1997, bans public entities from owning and providing telecom services. After the law was upheld by the Supreme Court, a flurry of other states (with ISP lobbying and input) rushed to pass many of the laws you see here.
Despite that fact, several local electric co-ops have managed, without the government, to create fiber networks.
A very short law reads: "An agency or political subdivision may not act as an internet services provider when providing advanced services that are not otherwise available from a private internet services provider within the jurisdiction served by the agency or political subdivision."
The reading of that is quite broad and suggests that any service whatsoever from a private ISP is enough to disqualify local government networks.
Cities are completely prohibited from selling broadband, telecom, or cable services.
Only municipalities that already own an electric utility may offer broadband services. It may not offer services outside of the area where it sells electricity, which is a barrier that Chattanooga's utility has run into—it's currently petitioning the FCC to preempt the law. Eight separate bills were written last year that would wholly or partially repeal these laws in the states, so things seem to be trending in the right direction.
Similar to Tennessee's law, cities without an existing public utility may not offer broadband services. Those that do own utilities may offer services but only with heavy restrictions, which has served as a full ban as no cities (from what I can tell) have tried to start fiber networks. An existing network in Bristol was grandfathered in.
Overall, it's a quite dire picture. But, increasingly, residents are voting in favor of municipal broadband, and, with Obama's announcement, it's looking like these could soon be a thing of the past.