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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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During the early stages of planning and development, public networks often must release their strategies, marketing and product plans to incumbent competitors. Publicly owned networks are unable to surprise their competitors with new products or pricing plans, a significant disadvantage. If incumbents truly desire a level playing field, will they open themselves to the same level of public scrutiny? Of course not.

The North Carolina law, as with many such state laws, prohibit public networks from cross-subsidization, using surpluses from one part of the city to finance the telecommunications system. But the law doesn’t prohibit private networks from doing so. Time Warner Cable can use predatory pricing against competitors because it cross-subsidizes from its vast customer base (largely in uncompetitive areas).

Scottsboro, Alabama overbuilt an incumbent cable company. After Charter bought the incumbent, it cross-subsidized from other markets to finance its predatory pricing against the City. Scottsboro customers were offered a video package with 150 channels for less than $20 per month, even while Charter charged customers in nearby communities over $70 for the same package. Additionally, Charter offered $200 cash for those who made the switch to Charter Cable and another $200 for switching to Charter Internet. In a proceeding at the FCC, experts estimated Charter was losing at least $100-$200 year on these deals and even more when factoring in the cost of six major door-to-door marketing campaigns.

A referendum by the voters is frequently required before a city can issue bonds to finance a public network, a referendum in which the incumbents often outspend those in favor by more than 10 to 1. In Minnesota a supermajority of 65 percent is needed before a public network can offer phone services.

But the North Carolina law specifically exempts cities from any requirement that they obtain voter approval “prior to the sale or discontinuance of the city’s communications network”.

What is to be Done?

What can be done to foster genuine competition in the telecom industry and allow people to decide whether they want to participate directly in establishing the rules governing their digital networks?

1. Speak up. Publicize the successes of the public networks and demand that the choice of whether to build one should be left to the community. Throw the “level playing field argument” back at the Time Warner Cables and Comcasts of the world by fashioning legislation that forces them to play by the same rules as cities. Educate yourself – is a good start.

2. Tell the FCC and Congress to prohibit states from stripping communities of their right to build essential infrastructure. If states rights is justified on the basis of the argument that governments closest to the people should make decisions, the argument is even stronger for local government rights.

3. Demand that federal subsidies allow communities to build their own networks rather than leasing services. For example, federal E-Rate funds aid local schools and libraries in buying broadband. Unfortunately, the rules prohibit communities from using the funds to purchase or build their own network. Federal funds should encourage communities to be locally self-reliant, not increasingly dependent on absentee corporations subsidized by US taxpayers.



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David Morris is co-founder and vice president of the Institute for Local Self Reliance in Minneapolis, Minn., and director of its New Rules project.

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