I’m pleased to be able to share the following from Brent Christensen from MTA (Minnesota Telecom Alliance). It’s view of President Obama’s broadband announcement from the industry perspective…

Last week the President spoke in Cedar Falls, Iowa about Broadband and his administration’s ideas on how to get it to rural America connected and by whom. The President’s (and many in DC) solution is for local units of government to build competitive networks.

There are three problems with this concept. First, how does a municipality overbuilding a community where there are already one or more private providers help solve the problem of getting broadband to the areas without it? The remaining unserved areas, in Minnesota and other states, are in the most rural parts of the state. In most cases, municipal networks do nothing to get broadband outside city limits which means these networks do nothing to get broadband to rural farmers and telecommuters. Municipal networks do nothing to get advanced broadband services to these difficult to serve areas where it is the most expensive to build.

Second, telecommunications is not like other utilities. Unlike electricity, water, wastewater, and gas, telecommunications is a competitive utility. Until 1996, the telecommunications marketplace was considered a monopoly, especially in the rural markets due to the demographics, geography and economics of serving rural areas. With the passage of the Telecommunications Act of 1996 (TA96) and introduction of local competition, all markets – even rural ones – began to experience competition. Prior to the TA96 and more recently the 2011 FCC Transformation Order, telecom providers, especially in rural areas, were generally the only providers in their areas. They were required to build and maintain their networks and provide telephone service to anyone that requested it. While competition is generally good for consumers, it also puts pressure on the companies to operate more efficiently and it can act to limit the amount of capital resources that a company can reinvest in its network to provide services, including broadband. Companies must balance re-investing in their networks with finding new ways to pay for it and growing their customer base. In today’s world, you cannot just overbuild a neighborhood and hope the residents will purchase your services. You have to market to them in advance and clearly identify who is going to sign up for your service, not just who may be interested.

Municipal entry creates further uncertainty in the market place, which leads to decreased investment by the private sector.   Units of local, state, and even federal government are not designed to compete in competitive markets. Sure the argument can be made that government competes against other units of government for economic development projects or attracting businesses, but that is a far cry from competing with the private sector and impeding private providers’ ability to invest in rural networks to bring services to unserved areas. Competition is not always the answer, but it is the way of the world today. Competition is great is urban areas, but not always in rural areas. If it were, you would see more Mom and Pop stores in small towns. Madelia, with its population of 2,340 once had 4 implement dealers, 3 car dealerships, 5 gas stations, 2 grocery stores and 3 hardware stores. Today, there is 1 grocery store, 1 hardware store, 1 car dealership, 0 implement dealers, and 3 gas stations.

Third, there is no transparency of process for taxpayers. Right now in Minnesota any local unit of government can spend millions of dollars on overbuilding broadband networks. They usually issue Revenue Bonds for the project, and when they can’t pay the bonds back, they default on the bonds, like the City of Monticello did. Ultimately, this affects the City’s bond rating and makes borrowing money more expensive in the future, which means taxpayers have to pay more. The other option is to take money from other enterprise funds, like electricity or water which translates to higher rates for consumers who have no other choice for their service. In other words, a city’s monopoly utility is subsidizing their competitive utility.

Today in Minnesota, the only consumer protection in place from municipalities making bad business decisions is a section in State law that requires communities to hold a referendum before it can begin providing landline telephone service. There is no requirement for communities who wish to compete in the private sector to show a business plan, hold community meetings, or anything that would provide transparency in the process. Traditional telephone companies have become broadband providers. This means telephone service is no longer their core business. At the same time municipalities think their business plans must have landline telephone service to be successful, where does that makes sense?

Today’s telecommunications environment is complex, so what is the answer? First of all, local government needs to do what it does best, economic development. And if it makes sense, explore true partnerships with existing providers to expand broadband networks to rural areas. Figure out a partnership arrangement that allows all parties to benefit. There are several examples around Minnesota where local units of government have gone to existing providers and said “what can we do to help you deliver your services to truly rural areas?” Not one of them has involved building their own network or put taxpayer or consumer money at risk. Not one of them has involved a local unit of government “telling” the expert what to build or how. Every one of them has resulted from conversations where the experts get the job done and government assisting with resources the private sector does not have.

In those rare cases when there is no other viable alternative, there has to be transparency in the process for local units of government to complete against the private sector. Why should there be any difference between a local school district going after an override levy and a city who wants to get into the telecom business? School districts are required to hold a specific number of public meetings, follow a pre-described time line and process to ensure taxpayers are properly informed before they vote. Municipalities should have to do the same thing before they risk taxpayer money. The better question is who could possibly be against transparency of government process and why?

We are all on the same page when it comes to concept that all Minnesotans deserve access to quality broadband. The question is what is the best way to overcome the high cost of delivering services to the most rural parts of our state. Government can either use their resources to help overcome that high cost to extend existing services or duplicate a network that serves only the easiest ones to serve.