Community Networks

Christopher MitchellDirector, Telecommunications as Commons InitiativeInstitute for Local Self-RelianceMarch 4, 2013@communitynetswww.MuniNetworks.orgCommunity Owned Networks1I hope this is not the golden age of the Internet. I hope that the Internets best days are ahead of it.

I hope to look back and laugh at the idea of buffering or try to remember what it was like have a home that had no options for access.Im going to explore one of the threats to our vision of the Internet a few massive cable and telephone corporations.I need to start by saying I'm not mad at Comcast or any of the other mega corporations. These companies behave in predictable ways.

flickr.com/photos/furryscalymanIf you climb into the tiger cage to pet the pretty cat, you have to take responsibility for the results. If we depend on massive corporations to connect us, we deserve what we get.So lets take a step back to set some context.2

The Internet has become essential infrastructure for communities. Along with electricity, waste water services, roads, and bridges. As individuals, we dont die without them, but communities actually do. We could and would pay far more for essential infrastructure than we do. If I had no choice, I would pay 10x more to have a light at night.Electricity is priced below our maximum willingness to pay because we decided, long ago as a society, that the public should have some level of control over essential infrastructure.3Power ShiftLocal CommunitiesState GovernmentFederal GovernmentNational CorporationsBut as the Internet has become more essential, communities have lost tools to ensure universal access, affordable prices, and other safeguards.

Our communication is limited and the entire economy is hindered because of it. Im not going to get into international statistics or why DSL cant cut it anymore if you are in this room, you know this.

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What concerns me is that big cable and telephone companies have become gatekeepers to the Internet.

And because of what Larry Lessig accurately calls the corruption of our republic, Washington DC does not appear overly concerned at this development.

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The share prices of our new gatekeepers reflect what is termed a "monopoly premium." A Wall Street investor site recently said this of Comcasts cable and Internet services:both are either monopolies or duopolies in their respective markets. both services have become so sticky and important to consumers that Comcast will be able to effectively raise prices year after year ...So the answer is yes, there are people who like seeing cable price hikes.

For the rest of us, essential infrastructure coupled with monopoly is a dangerous combination. Big cable and telephone corporations will do everything possible to preserve their market power.6MuniNetworks.org/communitymap

We see this in their reaction to the successful efforts of cities to build their own Internet networks. 19 states so far have enacted barriers to discourage communities from building their own networks.

Georgia is on the verge of becoming #20. Im going to get back to community owned networks shortly. First, lets look at the other options for improving Internet access.7

RegulationDemocratic Administration or Republican, big corporations write the rules in DC. Sometimes, after they write them, they actually file lawsuits to kill the regulations they just wrote.We have more than one hundred years of experience with regulation of privately owned infrastructure it creates a revolving door. Regulators move into business and then back to government again. Regulation wont build the networks we want.8

So we turn to competition?David Isenberg does a great job finding examples of small companies that have thrived in this sector. I would love to take service from Sonic, HBC, or CityLink. Unsurprisingly, I would be very shocked to hear any of THEIR communities talk about building a network to compete with them. They are wonderful companies.The problem is that when small businesses succeed, big corporations buy them. I cant imagine those in this room selling out, but this is a numbers game. Most communities cannot pin their hopes on a single local firm fighting the good fight.Wall Street sees too much value in consolidating telecommunications to a few firms. Neither competition nor regulation will build the networks we want.9

We should heed some lessons from electrification.The electric companies started competitively, but then consolidated. Then they embraced toothless regulation.

They were always at war against public ownership. They actually created the talking points that are handed to Georgia Legislators today.Nonetheless, it was rural electric coops and municipalities that brought electricity to rural areas on a cost-effective basis. Thousands of towns built their own grid. Hundreds of rural coops were formed.10

Community owned Internet networks follow this model. They are not simply another competitor in the market they are different. This difference is why we, at ILSR, focus on them.Chattanooga was the first US city to have universal access to a gigabit connection. The network offers one of the fastest basic tiers of Internet service in the country. What was their motivation for build their own network?

Electric Power Board CEO Harold DePriest, offered this explanation to the WSJ The issue is, does our community control our own fate, or does someone else control it?11MuniNetworks.org/communitymap

Community owned networks work. Our latest map is tracking 342 communities with publicly owned networks.Most of you know about the big ones. But the smaller ones are important too.

LaGrange, Georgia only offers services to businesses and has helped create thousands of jobs. So did Springfield, Missouri, where the law makes it hard to expand to residential services. Thousands of jobs.12

It isnt just that these towns invested in fiber optics or wireless. This is NOT about technology.

A community owned network is a non profit network that is owned by its customer or citizens, often as a cooperative or part of a local government.

It operates under a different decision-making calculus than Verizon. 13

If Verizon had swooped into Chattanooga 5 years ago and built its all fiber optic FiOS network, Chattanooga today would not be the gig city.

A Verizon FiOS network may have helped create new jobs, but not the many thousands that EPB Fiber has. And they would have had a rate increase by now, probably several.

The difference is local control. Self-determination.The technology is a piece. But the rules around technology are more important. It is about what the technology enables or disables.14

Some have said that communities should only build their own networks when the private sector will not. But the most celebrated community owned networks had widespread cable and DSL access to the Internet.

Later today, I expect to hear Lafayette Mayor Durel say, We wanted something better. They got something better. If BellSouth had decided to accept Lafayettes challenge and build a FTTH network, the community would be worse off than it is today. When you hear their story later today, remember that it is not just about the technology.

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Now, Im not saying a private company cannot build a disruptive business model. We know that they have.Google's network in Kansas City is pretty awesome. But over the next 5 or 10 years, Googles business model or priorities may change.Some already object on privacy grounds.

I sincerely hope Seattle, Chicago, and others succeed with their Gig.U and Gigabit Squared initiatives.

What concerns me is how little control those communities have over the future of those networks.

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This was illustrated for me in a conversation with a friend building a rural fiber network, envisioned originally as owned by the community.

Arranging the financing has been a challenge. He noted that they considered going with private equity route, which would mean the community would not own the network.

I asked how he will react in 2 years when the owners get spooked by something and stop, or switch to a slower, cheaper technology. His answer shocked me, Oh they wouldnt do that, weve worked so hard on this project.

But when the network is privately owned, their effort doesnt even enter into the equation.

The private sector invests in projects for a return on investment, as it should. But the return on THESE investments is not all revenue. Better networks spur job growth, more educational opportunities, better health care, higher home values, and more. The network owner cannot capture the value of these indirect benefits. This is very well known problem with some markets.17

Notice that I am not saying Google and Gigabit Squared are evil. Or that Seattle is stupid. Each of these approaches is certainly better than the status quo.I am saying that communities need to understand the tradeoffs they are making.Community ownership provides insurance, not a guarantee, that the network will meet community needs over time. If it fails to do so, its customer-owners can change the leadership or if all else fails, sell the network to the private sector. But very few of these networks have been privatized or dismantled. Just the opposite. They are constantly beseeched by nearby communities to expand. 18

There are many models.

More than one hundred communities provide telephone, television, and Internet access themselves.In Iowa, Indianola owns the fiber but an independent ISP offers services.Some are building networks incrementally, like Chanute in Kansas, or Danville, Virginia. They started by serving community anchor institutions and then expanded at the request of local businesses. At least 35 communities in 10 states have access to a gig. Santa Monica has been offering 10 Gigs to businesses for years.19

This is our opportunity.The big cable and telephone companies are doing the bare minimum. They have created a vacuum we can fill with better networks.We are not calling on every local government to build a network. We are demanding that they retain the authority to decide for themselves. We need to stop new barriers to community investment. We need to remove the barriers already created.

Cable lobbyists frequently claim that city owned networks unfairly use tax dollars to build networks. The fact of the matter is that very few have done so. Networks are almost always financed by bonds.

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Thank You, JamesesContrary to this slide, networks have overwhelmingly been financed by private investors purchasing revenue bonds. The majority of these are not back by tax dollars in any way, the bond documents are public and very boring if you want to read them.

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Municipal networks have actually reduced the taxes businesses and households would have to pay.

Last year we published a case study of Martin County, Florida. They were leasing connections from Comcast to connect schools and county facilities. Comcast announced it would raise the price 800% over 5 years.Martin County did some calculations and then it built its own network that is projected to save $30 million over 20 years. In Tennessee, Morristown Utility Services pays more in taxes than any other entity in the county.

For most communities, that is the real story on taxes.22

Leverett, MassachusettsBut in some cases, a community has decided to use tax dollars.Leverett is a small rural community in Massachusetts with slow DSL and dialup from Verizon. And it is taxing itself to help finance a FTTH network it will own. The financing includes a 6% increase in the property tax with the rest to be repaid with revenues from services. I dont have a problem with that.We should trust communities to make these decisions for themselves, based on their local circumstances. What works for Leverett may not be appropriate in Lafayette, and vice versa. 23

Way back in the 1890s Lafayette financed its original electrical system when local property owners voted to tax themselves.

When the community committed to the fiber network in the 2000s, they chose not to use tax dollars.Frankly, our research suggests that vast majority of communities dont want to increase taxes to build a network. While distant cable companies can get away with regular price hikes, local leaders actually pay a price for increasing taxes.

Local elected officials have a peculiar kind of accountability. Their actions are scrutinized in ways that distant state and federal officials are not. These leaders will be held accountable for their decisions.

24UserRestOf InternetCommunity Owned NetworkNational ProvidersConnection CapacityLets take a look at how community owned networks operate.Many offer symmetrical connections, unlike the national carriers where sending information is much slower than receiving it. If you have a problem, the customer service is far superior. Youll talk to someone with the same accent you have, who will be far more helpful than anyone in a national or international call center. Some have called this the strangle effect: when something goes wrong with a community owned network, you can find someone to strangle.

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When you pay your bill to a community owned network, more of the money stays in the community. In North Carolina, the municipal network in Wilson keeps more than $1 million dollars in the local economy. Thats real money that leads to more visits to local businesses.

The prices you do pay are not inflated to pay the massive salaries of distant executives.

Community owned networks have an excellent track record on prices. My Comcast cable modem rental was once $2 a month, then $5, and is now $7 a month. This is just one of several hidden fees they use. 26

Community owned networks use simple pricing. The price you get on the monthly bill is generally what you expect.

In Virginia, Bristol was among the first FTTH communities on the planet. They havent raised telephone or Internet rates since launch, over 10 years ago.

Then there is Time Warner Cable. If you move into a Time Warner Cable area, they will not tell you what the non promotional price of their service is. They act as though you are the crazy one for wanting to know what you will be paying when the promo ends.

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We Dont Got ThisWe Got ThisOn Protecting the Open InternetWhen a community owns its network, it can ensure universal access and affordable prices. If the Federal Communications Commission fumbles its obligation to protect the open Internet, communities can protect their access locally. Community ownership is the opportunity to get it right, despite the many challenges in this business.28

Communities are often competing against corporations that are much larger than them. Many of these towns have fewer people than their competitors have employees.

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The national companies use their profits from one city to undercut the prices of the newly built community network in another.

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VsIn Minnesota, the city of Monticello FiberNet lost customers when Charter offered an insane deal. They took a bundle of all their channels and the fastest Internet tier and offered it for $60 per month guaranteed for 2 years. Included HBO and other premium channels.This package cost $145 everywhere else in the state. They must have been losing at least $20-$30 each month for every single household that took that offer. Hundreds of dollars a year for each household. No problem for Charter profits from Rochester and Duluth made up the losses.

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(Economies of)The national companies saturate community networks with low cost promotional deals that wont expire as long as the community network operates. They send salespeople door to door and offer to beat any rate, losing money month after month to kill the competition.The big companies pay less for content, for equipment, for advertising, for just about everything. They have already amortized the cost of building their networks. In the face of all this, the vast majority of community owned networks have succeeded. We have examined the networks that struggled and published the lessons learned.

But keep some perspective. When the Federal Communications Commission fails to properly regulate telecommunications, the entire nation falls behind. When a community network struggles, that community may suffer.

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As an illustration, the UTOPIA network in Utah is often held up as a failed network.

Everyone admits it has made seriously mistakes resulting in high debt for the member cities.

But I would rather live in a city that has slightly higher taxes than a city that cannot attract jobs because of poor access to the Internet.

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I wish I could remember who it was who first asked me, "If Verizon built FTTH to everyone tomorrow, would our broadband problems be over, or just beginning?" The answer is that we would have different problems. We cannot trust a privately owned corporation with that kind of power.We aren't picking a solution for just this year or next. The solutions we pick we will be with us for many years, decades.Municipal electrics and rural coops have stood the test of time. 34

We have recent empirical evidence of the different economic calculus that guides private compared to public utilities.

After hurricane Irene tore up New England, the New York Times looked into why the municipal utilities had fewer outages and restored them more quickly. The public power providers spent considerably more on maintenance, which kept them more reliable.The large, investor owned utilities had cutmaintenancebudgets to boost profits. Different incentives result in different outcomes.

We have the means to build the networks we want, what we need is the will.

35Thank youChristopher Mitchellchristopher@newrules.orgMuniNetworks.org@communitynets

Sign up for a once-per-week e-mail digest of Community Network News at MuniNetworks.org36These massive corporations will not be reformed. Our regulatory system cannot tame them. What we can do is route around them with smart local investments. The best way to ensure our freedom to connect is with networks that are owned by the community, one way or another. This is not a last resort, it is a golden opportunity.