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Broadband Battles
[March 19, 2011]

Broadband Battles

Mar 19, 2011 (The Wilson Daily Times - McClatchy-Tribune Information Services via COMTEX) -- The city of Wilson's launch of the state's first citywide broadband network set it in the center of a legislative battle unlike any other in the competitive market.

The battle started before the city started selling high-speed, fiber-optic Internet, cable and phone service through Greenlight in the summer of 2008. Cable industry leaders contend government owned and operated systems undercut private competition because the city doesn't pay taxes and has the ability to secure bonds to build the system.

City leaders, as well as other supporting municipalities across the state, say local government should be able to have the latest technology to compete in a global economy, lure and retain business and industry, and improve the quality of life for residents.

"Dating back to the late 1990s and up through their decision in 2006 to build the network, the city council realized that it would be a very competitive world to attract and retain the best jobs in the future," said Grant Goings, Wilson city manager. "Well, you can't talk about jobs without talking about the infrastructure that brings them and keeps them. Short and simple - advanced broadband is critical infrastructure." The city of Wilson invested an initial $28 million to build its fiber-to-the-home broadband system and owed a debt principal of about $32 million as of late 2010, according to city officials.

City officials say they've built a model system and have been a trailblazer for other municipalities in the state and nation.

Still, the city's battle started in the Legislature in 2007, close to a year before Greenlight went online in Wilson. Several pieces of legislation - none of which have passed - were introduced from 2007 through 2010. In February, another bill was introduced and is currently under review by the House Finance Committee. As of Thursday, the Finance Committee voted to cut Wilson and other cities with existing communication networks out of the bill.

The legislation hasn't been reviewed by the House and Wilson leaders are uncertain of its final outcome.

If the bill passes and Wilson is exempt, Wilson leaders still expect to see more legislation that would target Wilson and its Greenlight network that services close to 5,600 customers in the city.

"All you're doing is resting up because you're going back to fight the same fight next year," said Jim Cauley, city attorney with Rose Rand Wallace Attorneys in Wilson.

Wilson and the city of Salisbury have the highest-speed Internet networks in the state that were built with fiber-optic technology. This year, Wilson signed on its first 100 megabits per second residential customers and is the first to have residents using the highest speeds available in North Carolina, said Brian Bowman, Wilson public affairs manager.

To date, five residential customers are using that service. Greenlight Internet speeds start at 10 Mbps and top out at 100 Mbps.

Time Warner Cable offers several Internet speeds, starting with Road Runner Lite at 768 kilobits per second to Road Runner Turbo at 15 megabits.

In January, Time Warner Cable announced its plan to start offering Wideband Internet service with Internet download speeds of 50 megabits per second and upload speeds of 5 Mbps in the spring to customers in Wilson, Raleigh, Cary, Durham and Chapel Hill.

Competition Since 2007, four bills have been introduced in the Legislature in an effort to have state law define how and if government should provide broadband service and compete against private companies. The N.C. Cable Telecommunications Association, which represents companies like Time Warner Cable, Suddenlink and Piedmont Communication Services, wants the state law to address how government and private business can compete equally.

"I am confident, at some point, that the state law will address this," said Marcus Trathen, an attorney with the N.C. Cable Telecommunications Association. "We have never said that cities should be prohibited. If they compete, they should be subject to the same rules as private companies." Twenty six states have laws that regulate or prohibit government providing telecommunications services, including cable and broadband, Trathen said.

"It's a big concern to private companies to be faced with competition by the government," Trathen said. "They don't pay taxes and they cross-subsidize. Our economy is built around the free enterprise system. Government shouldn't be competing with private companies." The newest piece of legislation, House Bill 129, addresses private industry concerns about taxation and prohibits cities from subsidizing the cost of broadband networks.

In 2007, the first bill - the Local Government Fair Competition Act - would have required voter approval before a city could start its own broadband network, the system would have to be self-supporting without the use of other city funds and it would have been regulated by the N.C. Utilities Commission. The bill was studied in several committees in 2007 but never passed.

"The primary thing for me that the Legislature I don't think, at first, considered was if we couldn't use any of our existing resources, then you can't get started because our state law does not allow local governments to borrow for operating costs," Goings said.

"Our state law only allows local governments to borrow for capital projects so you could borrow money to build the system, but you couldn't borrow money to have any employees to operate the system." Two years later, in 2009, a second bill - Level Playing Field/Cities/Service Providers - was introduced in an effort to regulate competition between local government providers and private companies.

The bill would have required government-operated broadband systems to comply with local, state and federal laws and regulations that apply to private service providers. A separate enterprise fund would have to be created to account for the revenues and expenses of the communication system. The bill also moved through several committees and never passed.

In 2010, a third bill was introduced - No Non Voted Local Debt for Competing Systems - that would have required a vote of the public before cities build or repair broadband networks. The legislation, again, raised concerns in Wilson because it would have limited the city's ability to make repairs to Greenlight without a public vote.

"Hypothetically, if we had a tornado come through town and damage the system, we couldn't go fix it," Goings said. "We'd have to wait for a bond referendum and in the meantime, the fiber's on the ground or twisted or whatever and the system is down while we wait three months to have a bond referendum. Now, obviously that's ludicrous but that's the way the bill was written." The bill would have required the Revenue Laws Study Committee to explore the tax and economic development impacts of government-owned communication services. The bill never passed and the requirement of committee study turned into a suggestion within a study authorization bill.

Former sponsor Former Sen. David Hoyle, D-Gaston, the primary sponsor of the 2009 and 2010 bills, has supported the telecommunications industry for years and doesn't believe the competition is fair between government and private corporations.

The rules are different, he says, including many of the taxes private companies have to pay. Private companies have to pay state corporate taxes, corporate franchise taxes, sales tax on equipment, property taxes and fees for the use of city-owned utility poles. Hoyle is also concerned about whether city-operated broadband systems can be self-sustaining and not a drain on the taxpayer due to the use of city funds.

"I'm a free enterprise man and I'm certainly involved in anything that threatens free enterprise," Hoyle said.

Hoyle expects other legislators to continue supporting the cable industry's interest in getting a state law passed.

Hoyle, who worked 18 years in the Legislature, was appointed as the N.C. Secretary of Revenue in October. His appointment places him on the N.C. Local Government Commission, along with the state treasurer, state auditor, the secretary of state and five others by appointment. The LGC is tasked with reviewing local government applications to borrow money and issue bonds. Before the city of Wilson built its broadband network, the LGC had to approve its bond financing application.

Hoyle said he plans to keep a watchful eye when LGC approval is sought for broadband financing.

"I'm going to be asking a lot of questions," Hoyle said. "I will not use this position to do anything to punitively hurt anyone. I am charged with the responsibility of (determining) whether or not local government can handle the debt. If they need any more debt, they're going to have to prove to me they can pay it back." The role of the Local Government Commission is mentioned in the 2011 bill - House Bill 129, Level Playing Field/Local Government Competition. The LGC will be involved by evaluating the competitive environment before approving loans cities intend to take on to build a system.

The bill would require cities with broadband networks to pay the same taxes and fees and follow the same laws that apply to private companies. Cities wouldn't be able to discriminate against private competitors in access to rights-of-way and television advertisements of the service would be prohibited.

Cities interested in building communication networks would be required to hold public hearings and a public vote would be needed before a city can take on debt to build the system. The law would not apply to cities that build networks for government operations. The same bill was introduced in the Senate this year and is slated for review by the Judiciary Committee.

Common ground N.C. Rep. Joe Tolson, D-Pinetops, has worked in the Legislature on behalf of Wilson's interest and tried to find a common ground between the cable industry and the government. He has also sided with the city of Wilson in regard to legislation that has been proposed since 2007.

"I've opposed anything that would threaten what Wilson has done," said Tolson, who represents Wilson and Edgecombe counties.

Earlier this month, Tolson voted against H.B. 129 as a member of the Public Utilities Committee. At the time, the bill did not exempt Wilson and Tolson thought the committee didn't spend enough time discussing it before it was sent to the Finance Committee. Tolson was told that Wilson would be cut out of the bill but he was uncertain of the outcome and concerned that he will not be a part of legislative discussions until, and if, it reaches the House floor for a vote.

Tolson is a supporter of advancing technology in the state and has been involved in committee discussions about broadband. He has also chaired a public-private subcommittee as part of the Broadband Connectivity Committee.

He's interested in a public-private partnership between the cable companies and government that would provide broadband to residents in all areas of the state.

"What I had proposed is a public-private partnership," Tolson said. "I'd like to see that explored. I think the general feeling is that people don't care who provides the service as long as it's available. I think both sides need to give and take. All the providers I've talked with seem to be open to sitting around the table and talking about it. " Tolson's idea involves cities and counties providing incentive funding to private companies interested in supplying broadband to unserved areas of the state. He also views Wilson's fiber-optic network and the ability of rural residents having access to the latest technology as important to the state's future.

"For the state to progress, we need to have broadband in all these areas," Tolson said. "I want to have broadband out there for anyone who wants it and at an affordable price." A first for N.C.

The city of Wilson's step into broadband technology was the first of its kind in North Carolina and is being followed by Salisbury. The city of Salisbury's Fibrant fiber-optic network, a $30 million initial investment, offers Internet, cable and phone service to the city's 32,000 residents.

"This brings Salisbury into the 21st Century," said Doug Paris, assistant city manager. "Salisbury is unique, we have large holes in our city where there was no high-speed broadband access. They were in the most unusual places, like large parts of our downtown and industrial areas. It was holding back small business development." Paris has also spent the past four years in Raleigh and is part of a larger coalition of nearly 80 supporters of government-operated systems. The support includes nearly 40 cities, several counties, businesses, corporations, associations and other groups involved in telecommunications.

"We're part of a coalition that's fighting to preserve broadband for North Carolina," Paris said. "We've been there every year and every successive year we've been more active. "We've seen these bills for four years. They haven't passed and we've been successful in that. The bills are designed to cripple existing systems and set the bar so high on new systems that they wouldn't come about." When the first bill was presented to the legislature four years ago, Wilson was the only city in North Carolina preparing to launch a citywide system. Today, many more municipalities are viewing broadband as valuable infrastructure to meet the needs and demands of residents and businesses. Many communities also use broadband as a tool for economic development.

Growing interest The growing interest of North Carolina cities is part of a larger picture as the interest of improving technology is more of a national trend. That alone causes city leaders to view its battle as having more implications beyond Wilson.

"We have never believed Time Warner's fierce battle was about Wilson," Goings said. "Frankly, they have 15 million customers or something in that range. They're not concerned about the 5,000 customers Greenlight has but there is a growing national precedent. There will be two cities in North Carolina and within a couple years, there will be a half a dozen.

"There are a lot of days that I wish we were second or third but we, I think, have to be the example. They would like us to be an example of a failed attempt because of the national implications." As the battle continues in the Legislature into the future, Goings said his role in Raleigh will decrease since Wilson isn't the only city interested in building broadband systems. He believes, so far, that the battle has been successful for the city.

"We believe when the Legislature has the time and the opportunity to look at the merits of the arguments that we will always prevail," Goings said. "When you actually get into discussing the broader concepts and the applications of these bills and the needs that the state has, it eventually becomes apparent that instead of talking about how to limit broadband rollouts in our state that our state needs to be talking about how to encourage more rollouts regardless of who the provider is.

"Even if this battle is continued, my role with be diminishing because other cities are doing these projects and other community groups are taking up this battle." [email protected] -- 265-7818 To see more of The Wilson Daily Times or to subscribe to the newspaper, go to Copyright (c) 2011, The Wilson Daily Times, N.C.

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