Why Is Multi-Billion Dollar Telecom Time Warner Fretting About a Small City in North Carolina?
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When Real Competition Comes to Town
When a public network opens for business, a town finally experiences effective competition, and it shows.
After Monticello, Minnesota began financing its citywide fiber network, incumbent telco TDS began building its own despite having maintained for years that Monticello did not need more telecom investment. Monticello is now the only city in the country with two competing fiber-to-the-home networks. After Lafayette began building its network, incumbent cable company Cox, which had previously dismissed customer demands for better service as pure conjecture scrambled to upgrade conceding “the people in this area have made it very clear they want faster speeds”.
A Tacoma, Washington, resident who benefits from Click!, its municipal cable network writes, “I have Comcast in Tacoma and all I know is since there is competition down here Comcast is about half the cost as it is in Seattle…A friend in Seattle once called Comcast with both of our bills with similar service and mentioned my price and they said I must live in Tacoma and they wouldn’t match the price. Such is the power of competition.”
A Level Playing Field?
If forced to, private companies will compete, but they much prefer to spend tens of millions of dollars buying the votes of state legislators to enact laws that thwart competition rather than spend hundreds of millions to improve their networks.
Today four states have outright prohibitions on municipal networks. Fifteen others impose significant roadblocks.
For example, Alabama requires each communications service (phone, Internet access, and television) offered by a public network to be self-sustaining in isolation from the others. Similarly, in Utah, if the public network wants to offer retail services it must conduct feasibility studies to show the network will cash flow in the first year and that separate services will each cash flow separately. Making a network –a hugely capital intensive investment — cash flow in the first year is all but impossible.
Sometimes the juxtaposition of the public sector’s success in the marketplace and the private sector’s success in rewriting the rules of the marketplace is breathtaking. The small city of Kutztown, Pennsylvania, built one of the first muni fiber-to-the-home networks and Verizon just about broke its neck rushing to the legislature to outlaw the practice before others could duplicate it. Kutztown’s Hometown Utilicom has produced $2 million in savings, a result both of its lower rates and the lower prices charged by the incumbent cable company in response to competitive pressure. This is real money in a small borough.
In 2004 Governor Rendell gave Kutztown an award for its network. Shortly thereafter he signed Verizon’s bill ensuring no other community would be able to duplicate it.
One would think the private sector, which repeatedly insists the public sector is inept, would have no trouble competing with public networks, especially with all the enormous built-in advantages incumbents have. Incumbent telephone and cable companies long ago amortized the costs of building their network. When a new competitor enters the market, it must build an entirely new network, passing the costs onto subscribers or investors in the form of higher prices or reduced margins. Large incumbents have much more power in negotiating channel contracts because channel owners need massive companies like Comcast to carry their channels. A new network serving a single community might pay 25- 50 percent more for their channels.
Despite the odds, cities have proven quite capable of competing. Rather than recognize that success, the telecom companies have spent years trying to get rid of the competition, most recently in North Carolina.
Time Warner had been trying for years to prevent competition in North Carolina. Its failure to do so has allowed six communities to build public systems, most recently Wilson with its Greenlight network and Salisbury with its Fibrant network. The Institute for Local Self-Reliance compared the rates and speeds offered by Wilson and Salisbury to those offered by large telecom companies like Time Warner Cable and AT&T in North Carolina. The public sector wins hands down.