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Why Is Multi-Billion Dollar Telecom Time Warner Fretting About a Small City in North Carolina?

A story of how the public sector can vastly outperform the private one.

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The success of Salisbury and Wilson led other North Carolina cities like Chapel Hill to seriously investigate public ownership, instilling panic in Time Warner’s corporate boardrooms. Its full court legislative press, coupled with the legislature’s more conservative makeup after November’s elections, finally proved successful. In May, the North Carolina legislature passed a Time Warner Cable-written bill audaciously entitled An Act to Protect Jobs and Investment by Regulating Local Government Competition with Private Business.

The legislation is popularly known as the Level Playing Field bill, the catchphrase of the cable companies. “The bill is intended to create a level playing field so if local governments want to provide commercial retail services in direct competition with private business, they can’t use their considerable advantages unfairly”, Time Warner announced. “We’re all for competition, as long as people are on a level playing field,” Dan Ballister, director of communications insists.

It’s not surprising that Time Warner would cry foul. That’s what sore losers do when they’re getting whupped. But that legislators echoed this bizarre claim was both surprising and infuriating. For you have to go a far piece to believe that tiny Salisbury, North Carolina has a competitive edge over the mammoth Time Warner.

Time Warner’s annual revenues at $18 billion are more than 500 times Salisbury’s $34 million. Time Warner has 14 million customers. Salisbury’s Fibrant network has 1000. We tried to chart the comparative revenues and customers of Time Warner Cable and Salisbury and as you can see Salisbury is so minuscule it doesn’t show up at all!

Let’s be clear. All publicly owned networks would enthusiastically welcome a genuine level playing field in which both the private and the public sector play by the same rules. They know that in a fair fight they win hands down. Heck even in the current situation in which the incumbents have the vast majority of advantages, public networks are winning more often than not.

The private sector’s definition of a level playing field goes only one way.

The recently passed North Carolina law is a case in point. Time Warner Cable can build networks anywhere in the state but the public sector is limited to its political boundaries or very close to them.

A public network must to price its communication services based on the cost of capital available to private providers. This means that if a city can borrow at a lower rate it cannot use this lower cost to offer a lower price.

Which leads to an obvious question. Would the private sector support a similar law prohibiting Wal Mart, for example, from lowering its price to reflect its lower borrowing costs compared to independent small retailers? To ask the question is to answer it.

North Carolina also requires public networks to charge prices taking into account taxes comparable to those paid by private networks. Florida has had such a law for ten years. A 2003 study found that in fact public networks were paying 2-4 times the taxes paid by the private sector.

Terry Huval, Director of Lafayette’s LUS Fiber describes some of the aspects of the currently unlevel playing field. “While Cox Communications can make rate decisions in a private conference room several states away, Lafayette conducts its business in an open forum, as it should. While Cox can make repeated and periodic requests for documents under the Public Records Law, it is not subject to a corresponding… Louisiana law limits the ability of a governmental enterprise to advertise, but nothing prevents the incumbent providers from spending millions of dollars in advertising campaigns. … To be sure, the ‘playing field is not level,’ but it is the government which is disadvantaged, not the private companies.”

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