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Carriers throw their weight around towns

Cities tired of waiting for broadband buildouts find it ain't so easy to go around the phone and cable giants.

Jim Hu Staff Writer, CNET News.com
Jim Hu
covers home broadband services and the Net's portal giants.
Jim Hu
6 min read
When Annie Collins walked into a meeting with her local paper's editorial board, she didn't expect to see four executives from her local phone and cable companies waiting for her.

Collins, a housewife from Geneva, Ill., was heading a grassroots effort to have municipalities install and run a high-speed fiber optic Internet network across the Tri-Cities region just west of Chicago. Her group, Fiber For Our Future, collected enough signatures to put a referendum on the November ballot, prompting the region's top executives, including the president of SBC Communications in Illinois, to show up for the meeting.

Fiber For Our Future didn't stand a chance. Against a tidal wave of attack ads and mailings funded by SBC and its local cable provider Comcast, the group lost its referendum vote by about 10 percentage points.

"We simply got steamrolled by SBC and Comcast," she said. "It was a huge marketing blitz against a local citizen's group."


What's new:
Baby Bells and cable companies are teaming up to block cities from building their own broadband Internet services.

Bottom line:
Cities with broadband ambitions should expect a no-holds battle from incumbent providers trying to protect their turf.

The fact that industry giants are flexing their muscles in this community, known for its annual Swedish Festival and its kitschy French stores, illustrates a new wrinkle in the nation's ambitions to embrace broadband. As competition between cable and phone companies becomes increasingly cutthroat, these arch-rivals are shelving their differences, teaming up to derail community broadband projects such as the one in the Tri-Cities.

"The trend is definitely that they're working together and pooling resources," said Mike DiMauro, who heads the industry group Fiber to the Home Council.

This alliance of odd couples is making a multipronged attack, from lobbying state legislators to ban government-run broadband networks, to flooding airwaves and mailboxes with messages against these projects. As evidence of their success, the incumbents won a huge victory in the spring when the U.S. Supreme Court ruled that states can pass laws barring municipalities from building broadband networks that could compete with private companies.

Just weeks ago, Verizon Communications successfully lobbied for a state bill to bar local governments from offering their own broadband services. The bill, which was signed into law late Tuesday, was considered a blow to an ambitious effort by Philadelphia to offer wireless broadband service to its residents. Though city and carrier reached an agreement that will let Philadelphia's plan go forward, the law demonstrates the political power major providers can wield.

Protecting their investments
Cable companies and the Baby Bell phone companies have their reasons for resisting municipal plans. In the 1990s, the cable industry invested an estimated $75 billion to upgrade its networks, allowing providers to sell broadband Internet access, phone and digital TV to their customers.

The Bells are planning their own ambitious upgrades as a competitive response to cable. SBC will spend $4 billion to upgrade its aging copper network with fiber optic lines that will stretch to neighborhood "nodes." Verizon this year is expected to spend $800 million to bring fiber into customers' homes, and plans to reach 3 million homes by the end of next year.

With so much money being invested for better services and more bandwidth into homes, cable and the Bells consider government efforts unfair to private businesses.

"The issue is (that the municipalities) control rights of way, and to regulate us at same time they're competing with us is a recipe for trouble," said Dave Pacholczyk, an SBC spokesman.

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The firms also point out that many projects across the country are awash in red ink, warning that residents will eventually foot the bill for government missteps.

Efforts by cities to create their own broadband networks are not new. But most municipal broadband projects can be found outside major cities, particularly in smaller, rural areas beyond the Bells and cable's immediate expansion plans.

Most of these smaller cities are choosing fiber optic lines, which can deliver up to 100mbps of bandwidth into each household. Many of these small cities feel their providers are too slow--or too leery of the return on investment--to bring them the broadband service they want. They've chosen to take matters into their own hands, hoping their broadband projects will attract more businesses or empower their local utilities.

Whether or not these initiatives can reach their goal of at least paying for themselves, residents in underserved areas are sending a signal. They're tired of waiting for their only broadband providers to get around

to them--tired enough that they're willing to look at complex and potentially risky do-it-yourself solutions.

"Based on what we've seen so far, it's not a good financial idea for these towns, but they are making a point that they're tired of being ignored," said Mike Paxton, an analyst at In-Stat/MDR.

Incomplete Utopia
As deeper-pocketed cities continue to explore their options, smaller communities in rural America are also taking matters into their own hands.

In sparsely populated Utah, a coalition of 14 small cities are building their own fiber network to bring broadband into their homes. Planners of the Utah Telecommunications Open Infrastructure Agency, or Utopia, are trying propel their communities into a technologically advanced region.

The plan entails selling government bonds backed by taxpayers to fund construction of the project to create an infrastructure of high-speed fiber lines reaching into peoples' homes. Utopia would then license access to third parties, such as AT&T, to sell service to residents.

But when the group tried to entice Salt Lake City to join, they learned that the Bells and cable incumbents know how to navigate the corridors of power. Qwest Communications, the region's Bell operator, led Comcast and smaller phone operators in lobbying the area's largest city to stay out of Utopia.

"We think it's improper for governments to gamble with taxpayers' dollars to compete with private industries, especially when this is being provided by the private sector," said Qwest spokesman Vince Hancock. "Under this model, local governments are competing directly against private businesses, duplicating services and negatively impacting the viability of private industries."

Salt Lake City decided not to back the project with tax dollars, raising doubts that the project can reach its revenue goals. That hasn't stopped Utopia from going ahead with construction throughout its collection of smaller cities.

A squeaky wheel
In the case of Philadelphia, Tuesday's agreement with Verizon is a victory for cities wanting to explore their options. The city hopes to offer wireless broadband nodes using the Wi-Fi standard to all residents, especially ones still underserved by Verizon. Forty percent of Philadelphia's neighborhoods cannot get broadband Internet access, most of them low-income areas or business-heavy regions where residences are sparse, according to a city spokeswoman.

"Our real goal for this was to provide low-cost access to breach the digital divide and be sure all citizens and businesses to compete in this economy," said Dianah Neff, the city's chief information officer.

However, the mayor's office has yet to issue a plan detailing critical issues such as funding and feasibility.

In the Chicago area, the Tri-Cities debate stayed out of the legislative arena. It was settled--for now, at least--in the voting booth. Collins' group hoped the region's public utilities department would manage the network instead of leasing it out to third parties, claiming no tax dollars would be at risk. Instead, the group would try to lure private financiers to help fund the construction.

While Fiber For Our Future failed for the second year in a row, it margin of loss narrowed. Even if the Tri-Cities eventually approve self-funded fiber network, all the publicity may be scaring the incumbents enough to prod them into speeding the process of bringing broadband into more homes.

"We only got cable modems last spring after the cities began making noise about building our own utility," said Peter Collins, Annie Collins' husband and the director of information technology for the city of Geneva. "The big part of what that proved to us is we scared the hell out of them and all of a sudden proved we don't have to rely on them for our telecom future."