Telecom revolution in the heartland

With a population of just 2,500, the town has built a fiber optic network that will give its citizens communications services as modern as anything in the heart of Silicon Valley.

In the process, Hawarden officials have earned the political enmity of state telecommunications giants like GTE and US West, who have sought to limit the town's ability to offer telephone and Internet services over the new system.

But last week--on the same day that federal regulators approved AT&T's merger with Tele-Communications Incorporated--the town won a state Supreme Court battle that finally will allow it to turn on its own telephone and high-speed Net services.

The decision also sets the stage for nearly 50 other Iowa towns that have built their own communications infrastructure or are making moves to do so, according to a state utility trade association.

Meanwhile, Hawarden citizens are moving quickly to take advantage of their town's new telephone system, which is likely to start operating by the end of next month.

"We started taking orders Wednesday, and the response has been overwhelming," said Tom Kane, Hawarden's superintendent of public works. "People are so sick of waiting."

A do-it-yourself effort
Hawarden is on the leading edge of a movement that is spreading across Iowa, and has already taken root in other states such as Indiana and Kentucky. Larger cities such as Tacoma, Washington, Glasgow, Kentucky, and Ashland, Oregon, have already set up their own telecommunications services and are successfully competing with companies like TCI and US West.

Rural communities, in particular, have been driven by the slow pace of upgrades to cable TV systems, and the telephone companies' reluctance to invest in sparsely populated areas. In Iowa alone, GTE has announced it is selling all of its local access lines, while US West plans to sell about 50,000 of its 1 million lines.

"These are communities that want to survive and grow," said Bob Haug, executive director of the Iowa Association of Municipal Utilities. "We're just not getting the kind of competitive services that are developing in other areas."

Haug said that 38 towns and cities across the state have voted to approve entering the telecommunications business. Another dozen or so are making plans to follow suit.

This doesn't necessarily mean that all will go as far as Hawarden in building a new high-speed network, however.

"In some cases, after one of the towns has approved these referendums, the incumbent provider suddenly becomes interested in upgrading their own system," Haug said. "Some areas are moving forward to ensure their citizens get good service, whether or not the city does it itself."

Iowa cities so far are ahead of the telecom curve, but the trend is spreading across the country, said Madalyn Cafruny, communications director for the American Public Power Association, a Washington trade group for municipal utilities.

"It's becoming a trend as communities look at telecommunications becoming one of their infrastructure lifelines," Cafruny said. The utilities serve both as a revenue source and a means to attract other tax-generating businesses to town, she and other observers noted.

Hawarden spent close to $4.5 million building its own municipal fiber loop system, which is designed to handle cable TV, voice, and high-speed Internet services.

The cable system has been operating a little more than a year, and already has attracted about 850 of the town's roughly 1,000 subscribers away from TCI. Local telephone service was stalled after the big telephone companies challenged it in court, but last week's court ruling will allow the town to start offering dial tone as soon as connection agreements with outside providers are signed.

High-speed Internet service is the last piece in the puzzle, and will be offered in conjunction with the town's existing dial-up provider.

"People in town really support the new municipal utility," said Tom Kane, Hawarden's superintendent of public works. "They see it in the new library and swimming pool."

The level of civic support seen in Hawarden is typical in other parts of the state. In Lorenz, another tiny town that turned on its own cable TV system just last December, 515 people have already switched to the city-owned system. That leaves barely 150 subscribers left with TCI, and that number is still on its way down.

Lorenz, population 1,550, also plans to offer telephone and high-speed Internet service though its cable infrastructure.

"We were not being offered the services we thought were needed to the town to continue to prosper," said Chad Cleveland, the town's communications manager. "Neither one of our incumbent telephone or cable TV companies were willing to make improvements in this town."

The wrong kind of competition?
The Iowa Telecommunications Association, a trade group that represents large companies such as GTE and US West as well as the state's 150-plus smaller local phone companies, has been the staunchest opponent of the municipal movement.

"We're opposed to government getting into competition with the private sector in any business," said Kent Jerome, the group's executive vice president.

The city groups, no matter how small, are starting with advantages over even the largest companies, Jerome said. As municipal groups, they do not have to pay income or investment taxes, he noted. The cities also are using their established electric power utilities to help pay for the bonds that funded the telecommunications startup costs, he added.

"As an industry we're not afraid of competition. But without making sure that everyone is operating from the same perspective with regards to taxes and cross-subsidization, how can we compete equally?" he asked.

With the legal fight nearly over--the Iowa Telecommunications Association says it is still looking at other legal options--the fight is now spilling over into the state legislature.

Both sides are pushing lawmakers to support their position. The municipal utility association is backing a bill supporting cities' rights to offer telephone service. The telephone companies are lobbying for a bill that would force the towns' utilities to pay new taxes and would bar them from using electric power revenue to help guarantee the bonds that finance the telecommunications projects.

Those measures--which could dramatically cut into the towns' ability to offer communications services--will likely be voted on by the Iowa legislature later this year.

Meanwhile, the large companies have at last started to make improvements in some of the rural towns' infrastructure--though not in Harwarden, Kane said.

In Lorenz, TCI began upgrading its cable TV system shortly after the citizens voted to start their own service. And if the plan for the AT&T merger goes as planned, the town may have two separate high-speed cable Internet access options by the end of 2000 or 2001.

"Our neighboring communities are not seeing these benefits yet," said Cleveland. "But this is what competition is supposed to be."