The government is helping Big Telecom squeeze out city-run broadband

The government is helping Big Telecom squeeze out city-run broadband

Illustration by Hugo Herrera for The Verge

President Joe Biden’s internet access plan will hand $41.6 billion to internet service providers. In many places, that money will get funneled into private hands.

I started fantasizing about moving to Idaho when I heard about the broadband. I knew the state was a gem — I didn’t know a 20,000-person city leads the entire country in equitable internet access.

In Ammon, Idaho, every home has access to a fiber optic connection with 1 gigabit per second download and upload speeds. It costs roughly $30 per month. And it’s not controlled by a single big company. Nine different providers can offer you that connection. If you wanted, each of the four ethernet ports in your home gateway could deliver service from a different ISP.

It’s all thanks to one simple idea picking up steam in pockets of the United States: the internet should be treated like a public street. “We’ve built a road,” Ammon city administrator Micah Austin tells me. “We allow any number of UPS trucks or USPS trucks or Amazon trucks to deliver as many packets as they want to residents. The road we’ve built has unlimited capacity. There’s a million lanes. Really, the biggest limitation is your driveway.”

That means providers have to compete, unlike many parts of the US where people are lucky to have even two real choices of ISP and subsequently pay some of the highest rates in the world.

I tell Austin that he’s just described the waking nightmare of AT&T, Comcast, Charter, Cox, Lumen (CenturyLink), and Frontier. We both laugh. But it’s not really a joke – not when tens of billions of dollars in federal funding are at stake.

The United States is about to deploy $41.6 billion to expand high-speed internet access across all 50 states and every major US territory through a program called Broadband Equity, Access and Deployment (BEAD). It’s the largest public investment in US broadband ever, and the Comcasts of the country will try their damndest to make sure that public money winds up in private hands.

But in many states, the fight will be over before it even begins — because of lobbyists.

Illustration by Grayson Blackmon / The Verge

In 2021, I wrote about the sorry state of internet in the US.

$100 billion was the original plan.

It was March of 2021. President Joe Biden had just taken office, declaring his intent to “bring affordable, reliable, high-speed broadband to every American.” And instead of relying on Big Telecom, as much money as possible would go toward public networks. Biden promised to prioritize support for networks “owned, operated by, or affiliated with local governments, non-profits, and co-operatives.” He even suggested he’d clear the way legally for new municipal networks to exist by “lifting barriers that prevent municipally-owned or affiliated providers and rural electric co-ops from competing on an even playing field with private providers.”

This last promise was a key piece of the puzzle. Over the past three decades, hundreds of US cities and towns have tried to launch municipal broadband services in one form or another. But the deck has always been stacked in favor of incumbents.

Biden’s proposal could have launched a thousand new Ammons. When it passed eight months later, it was barely recognizable.

The American Jobs Plan became the Bipartisan Infrastructure Deal, which was finally signed as the Infrastructure Investment and Jobs Act. The $100 billion shrunk to $65 billion, then to $42.45 billion for last-mile connections to people’s homes — technically $41.6 billion, after a 2 percent cut for feds to administer the program. And surprise, surprise: the final law (pdf) didn’t prioritize local networks at all.

Biden’s proposal could have launched a thousand new Ammons

States can’t outright exclude local networks from grant eligibility under Biden’s infrastructure deal. (It says “may not exclude” right in the law.) But they’re only required to submit a “description” of how they intend to coordinate with local governments and “ascertain…whether” it makes sense to establish co-ops or public-private partnerships… or not. After that, they can hand the grants straight to big corporations. And in nearly one-third of the US, that decision may have already been made.

As of this article’s publication, 16 states have laws aimed blatantly at protecting telecom incumbents from pesky public competition. Did you know the state of Michigan only lets you build a network if enough private companies don’t bid? Florida requires local officials to explain how their network will be profitable within four years, as if profits were the point of fixing the digital divide. Nevada will only let towns and counties with tiny populations erect their own networks. Virginia local networks aren’t allowed to charge less than the incumbents — it’s illegal to make the internet more affordable!

These laws weren’t just supported by Big Telecom, by the way — some were effectively written by telecom lobbyists. They can reportedly be traced back to a model law written in 2002 by ALEC, a right-wing legislative group whose donors previously included AT&T, Comcast, Cox, Lumen, and Verizon, and which would allegedly invite state legislators to meet telecom companies at fancy hotels.

Image: Erik Carter for The Verge

In 2022, The Verge teamed up with Consumer Reports to reveal how much our readers actually pay for internet.

In theory, these laws exist because municipal broadband doesn’t work. Its critics certainly have some ammo on their side — and not just openly partisan fare like 2020’s “The Failed Promise of Government Owned Networks Across America” from the Taxpayers Protection Alliance.

A recently revised study by the University of Pennsylvania Carey Law School is a linchpin in attacks on municipal broadband. It’s cited in reports that are provided to members of Congress, and it broadly suggests that municipal fiber doesn’t pay. Examining 15 municipal networks, it concludes most failed to turn a profit, many put their towns in debt or hurt their bond ratings, and some were eventually sold at a loss. “City leaders should carefully assess all of these costs and risks before permitting a municipal fiber program to go forward,” wrote lead author, professor Christopher Yoo.

But take a close look at the study’s “failures,” and you’ll find something a lot more complicated.

At first, some of the report’s case studies sound like horror stories. “Marietta, Georgia sold its system for $11.2 million at a loss of $24 million,” wrote Yoo. “Provo, Utah sold its system for $1, leaving behind $39 million in debt.”

“He promised he would sell the fiber network to the highest bidder”

But long-time broadband journalist Philip Dampier revisited those debacles for Stop the Cap! in 2012 and 2017, respectively, and he concluded that Marietta and Provo didn’t sell their networks because of financial problems. They did it because pro-telecom politicians forced their hand.

“Marietta’s then-candidate for mayor, Bill [Dunaway], did not want the city competing with private telecommunications companies. If elected, he promised he would sell the fiber network to the highest bidder. He won and he did,” wrote Dampier. Not only did the supposed $24 million “loss” not count the money Marietta FiberNet was earning — the city was reportedly on track to pay off its debt just two years later. And the company that bought Marietta’s network didn’t fire its management and didn’t change its marketing plans.

As for Provo, it appears telecom lobbyists were at least partly to blame. When Provo was starting out, a new Utah law surprised the city with requirements to wholesale its network and finance it with debt. Meanwhile, the neighboring town of Spanish Fork has a thriving community network to this day because the law didn’t exist yet, ILSR director Chris Mitchell pointed out in 2015.

And while Provo made headlines by selling the network for a dollar, it got more than a single dollar for its $39 million investment: Google Fiber promised to offer seven years of free basic service for residents and 15 years of free service to the city. Perhaps more importantly, it created competition. Google still operates there today, offering gigabit speeds and unlimited data for $70 a month, the same price Comcast charges with a 1.2TB data cap. Provo may not be getting the best value for money, but is the result actually a failure for residents?

Image: Penn Law

Christopher Yoo’s study does capture some of the risk cities may face — but may miss the big picture, among other things.

You could ask the same of Monticello, Minnesota, where Yoo correctly points out that the city defaulted on its debt — but only after getting frivolously sued by the local phone company, after that phone company used the distraction to build its own fiber-optic competitor, and finally after Charter cut its prices by more than half to force the city out of business.

Despite all that, FiberNet Monticello still exists today as a public-private partnership that offers 100Mbps symmetrical connections for $30 a month or gigabit speeds for $75. And all those attempts to drive it out of the market meant competition that wound up lowering consumer prices from their $150-a-month highs. The city’s long-time administrator went on the ILSR podcast in 2020 to discuss how much of a success it’s been for the town — and revealed that its municipal network now makes an annual profit of $280,000.

Yoo originally even tried to use Chattanooga, Tennessee’s Electric Power Board (EPB), one of the highest profile success stories in municipal fiber, as a note of caution — since the city saw its bond rating cut from “AA+” to “AA” in March 2012. But he neglected to point out that S&P upgraded its rating to AA+ later that same year on the strength of its network, and the 2022 version of his study simply omits the EPB from the same argument.

When I mention the Yoo study to Ry Marcattilio, senior researcher with the Institute for Local Self Reliance (ILSR), he attempts to discredit it on the spot. “It’s neither credible nor particularly well done, nor sensitive to the actual details of any of the case studies it uses,” he says, adding that Yoo initially got basic details wrong about how local entities were financing and modeling the economics. “Nobody who’s been in this space takes anything he has to say on that seriously.” (The ILSR published a rebuttal to Yoo’s study in 2017, and here’s Yoo’s response.) Yoo did not respond to my requests for comment.

Katie Espeseth, EPB’s VP of new products, suggests I take a look at a study by Dr. Bento Lobo instead — which suggests Chattanooga’s network not only paid for itself in the second year but also contributed $2.2 billion of positive economic impact in its first decade. (Note, though, that it’s not a wholly independent study: Dr. Lobo received a $25,000 grant from the EPB to conduct that research.)

But the best evidence that studies like Yoo’s are flawed, the ILSR claims, are the hundreds of communities across the country that are successfully building their own networks without making national headlines.

Ry Marcattilio joined the ILSR in 2020 specifically to help track the growth of local networks since the covid-19 pandemic, and he says the number has risen by roughly 25 percent to 345 municipal networks during that period. “Altogether, those 345 networks span 89 cities in the United States, of which 269 cities have a citywide physical network serving them,” he says. The American Association of Public Broadband, an advocacy group that just launched this May under Gigi Sohn, puts the number even higher: over 750 community networks in the USA.

Some of that growth is publicly funded. Marcattilio points me to this list of projects using dollars from the American Rescue Plan, and he expects BEAD will make a difference, too. “A good portion of the BEAD money will end up going to the monopoly ISPs. Where it changes the game for municipal networks is where states have set up good rules that favor local voices and where cities have done due diligence in getting this money to take action,” he says. Marcattilio thinks Vermont, Maine, Colorado, and New York are particularly poised to do well with the additional investment.

Image: The Verge

In 2021, The Verge took an interactive county-by-county look at the broadband gap.

But will BEAD funds be pouring into an illegally rigged playing field? That’s the question that’s been bugging me for weeks.

Because no matter how much Biden’s infrastructure bill was weakened, the final federal law still says states “may not exclude” public entities from a chance at the grant money. And yet, the federal agency responsible for BEAD broadband dollars apparently doesn’t agree.

Remember the 2 percent deduction from the infrastructure act? That $849 million helps fund the National Telecommunications and Information Administration (NTIA), which lays out all the requirements for states and their subcontractors to get BEAD funding in this 98-page document (pdf). But the NTIA has seemingly decided not to challenge the states. Even as the agency “strongly encourages” waiving pre-existing laws, it’s simultaneously assuring states it won’t act if they ignore that request.

Screenshot by Sean Hollister / The Verge

The law says “may not exclude.” But the NTIA says preexisting state exclusions don’t count.

While the NTIA does interpret the law as banning new restrictions, the only thing states have to do about pre-existing restrictions is to “disclose each unsuccessful application affected by such laws and describe how those laws impacted the decision to deny the application.” It’s effectively a grandfather clause, where the only penalty is paperwork.

And while the NTIA does reserve the right to “determine whether the use of funds” complies with both the letter and spirit of the law, an NTIA representative has already been telling states (and told FierceTelecom) that BEAD funding won’t be delayed to states with pre-existing laws that restrict municipal broadband. Even in places like Nebraska, where most forms of municipal broadband are straight-up banned, the state’s broadband director said he expects no delay or reduction in federal dollars.

NTIA spokesperson Virginia Bring repeatedly deflected our questions about the legal discrepancy between the federal and state laws. None of the agency’s answers to The Verge addressed it at all. Two telecommunication lawyers confirmed to me that the legal discrepancy is real — but suggested the NTIA could get tangled up in a lawsuit if it tried to use the federal law to preempt state ones.

When I ask veteran tell-it-like-it-is telecom reporter Karl Bode about the whole BEAD situation, he tells me: “This is a historic infusion of broadband subsidies that will absolutely result in a lot of amazing progress. At the same time there’s just endless potential for fraud and misuse of funding, given monopoly telecom’s influence on the legislative process.”

But, he points out, some states may at least try to level the playing field before it’s too late.

Colorado used to be the 17th state with laws keeping local entities from easily erecting their own networks. But on May 1st, the state repealed every one of them. Colorado no longer prioritizes private telecom bids, no longer requires a referendum to build a municipal network, and no longer keeps local governments from creating their own middle-mile infrastructure.

In Washington, there’s even a bill in committee that would require BEAD funding to be spent only on open-access networks, making it less desirable for big business to invest.

Some states are challenging the FCC’s broadband maps, too. That’s important because the law requires that states prioritize unserved and underserved regions to help close the digital divide, but that requires knowing where they are. Historically, the FCC has let the wolves guard the henhouse by relying on ISPs to truthfully say which houses they cover — data that the FCC didn’t even audit.

Lastly, while the NTIA may be grandfathering in old laws restricting municipal broadband, the agency does hint it could step in if states make things even harder than before. Before it approves a state’s “final proposal,” the NTIA says it will “consider” whether any “new laws, regulations, policies, procedures, or any other form of rule or restriction” winds up excluding “any potential providers from eligibility.”

Again, the NTIA will only “consider” those things before granting its approval, but at least that’s a veiled threat instead of nothing at all.

Illustration by Alex Castro / The Verge

In 2018, Karl Bode wrote for The Verge about how the FCC was relying on a false picture of internet access for federal funding. Improvements have been made, but it’s not clear they’re fixed.

Municipal networks can thrive even without these billions in federal funding, and despite restrictive state laws. Tennessee’s law didn’t stop the Chattanooga Electric Power Board from serving 135,000 homes and businesses with 25Gbps symmetrical internet — it mostly just kept the company from expanding beyond its own electrical footprint, restricting its ability to close the digital divide in neighboring cities and towns.

Even then, there are ways to do more. The EPB’s network can touch over a million homes because it offers wholesale services to communities on the edge of its network, Espeseth tells me. Ammon does something similar.

And if you do have the legal authority, Ammon technology director Dan Tracy says justifying a network isn’t as challenging as you might expect. Your city needs water and power anyhow, it uses SCADA systems to control them, and a fiber-optic backbone for those systems can also turn into internet for the residents with a bit more work. “Infrastructure is kind of all the same that way, in that it’s close to where it needs to be,” says Tracy. Ammon hired its own construction crews, bought its own fiber splicer, and built a six-strand network with two fibers just for the city’s backbone connectivity.

But Ammon is a relatively wealthy town, he admits.

So here’s my question: should local entities do without the biggest federal investment in broadband ever? Should they have to do it on their own with these restrictive laws in place, or trust that Comcast and Cox and CenturyLink will fix a problem that they currently benefit from? Should Big Telecom get to own billions of dollars of additional network funded by taxpayers?

Should we really be building toll bridges instead of public roads?