Should cities be ISPs?

Lobbyists are pressuring Congress to resolve whether governments should be selling Net access.

WASHINGTON--When Philadelphia's city government decided to sell wireless access to downtown residents last year, a furious political fight in the state capital erupted.

Verizon stridently opposed the plan, liberal advocacy groups just as emphatically endorsed it, and politicians in Harrisburg ended up approving a compromise bill that effectively let the city of brotherly love do what it wanted.

Now this politechnical dispute is bubbling up from states to Washington, D.C., where lobbyists are pressuring Congress to resolve the question of whether governments or private companies do a better job as Internet service providers.

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What's new:
Lobbyists are pressuring Congress to resolve whether governments or private companies should be selling Net access.

Bottom line:
Municipal governments say they want to reach low-income people who don't have access. Critics say governments would be tempted to impose onerous taxes and regulations on private companies--which would be, after all, their competitors.

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Both sides took their case on Wednesday to the U.S. Chamber of Commerce here on H Street, which hosted a debate over the merits of city-sponsored wireless networks that drew a crowd of about 50 people, largely federal staffers.

"Our focus is that 75 to 85 percent of our population in our low-income and minority areas that don't have access," said Dianah Neff, Philadelphia's chief information officer. "When we talked to them and we did surveys with them, they said 76 percent of the time that cost was the No. 1 reason why they didn't have access to the Internet."

Philadelphia plans to blanket a 135-square-mile area with low-cost wireless access by next summer. Neff said the estimated $10 million project could ultimately save the city's government up to $2 million in telecommunications bills, which it could in theory reroute to other social programs. Municipal governments need to do this because "we want to ensure our families and children have the abilities they need to compete in the 21st century."

But if reaching low-income people is the primary goal, said Jim Speta, an associate professor at the Northwestern University School of Law, then cities could keep costs down by relying on "consumer demand pull"--that is, handing vouchers to poorer consumers, who could use them to pay for private sector broadband.

"The economics are quite clear that the more efficient way is private ownership rather than public ownership," Speta said.

Dueling federal proposals
An opening federal salvo has come from Rep. Pete Sessions, R-Texas, who introduced a bill last month that would effectively prohibit state and local governments from providing Internet, telecommunications or cable hookups if a private company offers a "substantially similar service." Existing municipal services already in place would be permitted to continue.

If enacted, Sessions' proposal would have a dramatic impact. Dozens, and perhaps hundreds, of cities have started to offer municipal broadband services to their residents and more are in the works.

Some, like the efforts of Ashland, Ore., started with high hopes but have become saddled with piles of debt. Others, like Philadelphia, are even more ambitious but have not yet proven whether they'll be a money-losing or profitable venture.

"The economics are quite clear that the more efficient way is private ownership rather than public ownership."
--Jim Speta, associate professor, Northwestern University

Another bill veering in precisely the opposite direction could be introduced as early as this week by Sens. John McCain, R-Ariz., and Frank Lautenberg, D-N.J. Their proposal, the Community Broadband Act of 2005, is expected to permit a town or city to explore the option of deploying its own broadband network. (Neither McCain nor Lautenberg's offices returned phone calls seeking comment on Wednesday.)

The Bell phone companies and local cable companies have spent millions of dollars lobbying local and state officials to pass laws that would prohibit cities and towns from building their own broadband networks. In the last year, 14 bills were introduced in state legislatures to prohibit the build-out of municipal networks. But state legislatures typically only meet for the first six months of the year.

This is one reason why the topic is now being addressed at the federal level, said Ben Scott, a policy analyst at Free Press, a liberal advocacy group in Washington that's trying to rally opposition to Sessions' bill.

"We had to fight this battle in 14 different states this year," said Jim Baller, an attorney in Washington who represents municipal governments. "It's counterproductive to be wasting time having these arguments at a time when we need to get the country moving toward nationwide broadband coverage."

"People saw the outrageous message being sent from the government to try to prohibit local people from deciding their communities' communications needs," Scott said. "It also helped that the only opponents to these networks are the incumbent service providers."

Whether governments or private companies are best-positioned to provide Internet connectivity invokes questions of both economics and politics. Governments and private businesses have long quarreled, for instance, over who should control the build-out of highways, canals, railroads, the postal system and telephone networks.

In the case of broadband, governments that make money from selling Internet service would be tempted to impose onerous taxes and regulations on private companies--which would be, after all, their competitors. "Why would a carrier like Verizon try to offer EV-DO in Philadelphia if the city is trying to undercut them at every turn?" asked Adam Thierer, an analyst at the free-market Progress and Freedom Foundation in Washington. (EV-DO is a high-speed wireless service that works over longer distances than Wi-Fi.)

"It's not surprising that this fight, like so many others, is going to be federalized and turned into a national issue," Thierer said. "It's a bit bizarre, especially because there are so many other issues that deserve the attention of politicians."

Some governments have experimented with municipal connectivity--and then abandoned it. On June 19, the city of Orlando shut down its 18-month-old downtown Orlando Wi-Fi pilot program that once served a sliver of the city's business district.

Meant to boost foot traffic in the area, instead "usage was not what they expected," plus the costs of running it were too high, said a representative for Orlando-based Net provider Pure Connection, which the city hired to provide the hot zones.

Traffic was a disappointing average of 27 users each day, said Brie Turek, Orlando's public information officer. "We're just hoping this is a temporary break," she said. "We're looking at alternate ways to bring this back."

CNET News.com's Marguerite Reardon and Ben Charny contributed to this report.

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