Feds May Give Muni Broadbands Second Look | Eastern North Carolina Now

    Publisher's note: The author of this post is Barry Smith, who is an associate editor for the Carolina Journal, John Hood Publisher.

FCC chairman threatens to rewrite state laws similar to North Carolina's

    RALEIGH     Federal Communications Commission Chairman Tom Wheeler recently said he may revisit state restrictions on municipalities' involvement in the broadband business. Those comments have raised some eyebrows, both in the broadband industry and among public policy analysts.

    A 2011 North Carolina law placed new limits on city-owned communications service providers. The intent of the measure was to prevent municipalities from building and offering broadband service and using taxpayer subsidies to undercut private competitors. It's unclear whether a move by the FCC to overrule state law would survive challenges in the courts, but observers are wary.

    Wheeler based his comments on a dissenting opinion from a D.C. Circuit Court of Appeals decision. The dissent raised the possibility that the FCC could remove legal restrictions imposed by states that limit or prohibit municipalities from offering competitive broadband services.

    David Williams, president of the Alexandria, Va.-based Taxpayers Protection Alliance, compared Wheeler's reasoning to that of a football team that trails by 21 points in the fourth quarter doing a celebratory dance when its defense sacks the opposing team's quarterback.

    "This commissioner and previous commissioners have a fascination with broadband," Williams said. "They will latch onto anything to give the government reason to spend more money on broadband."

    Lawrence Spiwak, president of the Washington, D.C.-based Phoenix Center for Advanced Legal and Economic Public Policy Studies, questions whether such a move by the FCC would be successful. "The legal question is, can the FCC pre-empt [state] law?" Spiwak asked. "The answer, my reading is, no." Spiwak continued, "If the FCC tried to do it, you can be assured of a court challenge."

    The North Carolina law required cities to get a vote of the people before they can borrow money to build municipal broadband ventures. It prohibited municipalities from using revenues from non-communications sources to pay for broadband service expenses, and banned the practice of charging subscribers less than the actual cost of providing the service.

    The legislation, which became law without the signature of then-Gov. Bev Perdue, also required cities operating broadband services to pay counties the amount of money a private broadband provider would have paid in property taxes. The city-owned entity also must pay the state an amount equal to a private provider's obligations in income, franchise, vehicle, motor fuel, and other similar taxes.

    Former state Sen. David Hoyle, D-Gaston, supported similar legislation before he left the Senate in 2010. He said he was concerned about cities running up large debts in the same way several North Carolina municipalities that own their electricity utilities had amassed debt by owning nuclear power plants.

    "If [the cities] didn't pay it back, the state probably would have to," Hoyle said of the debt. The intent was to create a level playing field. "What I didn't want to see happen was, they'd borrow all this money and then five or 10 years from now ask for a bailout," Hoyle said.

    If cities weren't required to pay taxes, they'd have an unfair advantage over private providers, Hoyle said. "They need to pay the same taxes," Hoyle said. "Right's right, and wrong's wrong."

    Paul Meyer, executive director of the N.C. League of Municipalities, said the state's cities and towns haven't discussed whether they might be affected by the comments of the FCC chairman.

    "I think we're just really early in that conversation," Meyer said.

    The League of Municipalities opposed placing restrictions on cities seeking to provide broadband service, noting that several now are in the broadband business. Six North Carolina municipalities — Wilson, Salisbury, Laurinburg, Morganton, Davidson, and Mooresville — established municipal broadband service before the 2011 law was enacted. The current law largely exempts those cities from the new restrictions, but it does limit coverage to areas inside corporate limits.

    "It's in everybody's interest that [cities with broadband] succeed," Meyer said, adding that some areas in the state are not being served by incumbent providers. The law provides cities with a process of providing broadband to areas of the cities that don't receive such service.

    "We wanted to make sure that those opportunities weren't jeopardized," Meyer said.

    John Jones, a CenturyLink vice president, said the North Carolina law protects consumers and taxpayers.

    "It requires a vote of the people before they move forward," Jones said. "Our philosophical view is that it only makes sure that the people who are going to be footing the bill have a vote."

    Jones said that across the nation, many municipalities' entry plans are not based on the viability of the city to support a profitable service. "[The cities] wouldn't do the same thing that a regular provider would do to see if it's viable."

    Williams said he is not opposed to cities going into areas that have no high-speed Internet service. "There is a very, very limited potential for them to provide broadband for places that are not served at all," Williams said.

    Williams added that some major commercial providers of broadband look to buy up failing broadband ventures, including municipally owned ones, for pennies on the dollar, calling it a back-door form of corporate welfare.