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March 24, 2005

Texas Two Step - Backwards

After seeing the pro-incumbent, anti-muni wireless, anti-competition language removed from the language proposed by the telecommunications committee in the Texas House, it popped up again as a last minute amendment on the House floor.    The member who reintroduced the language, Robert Puente, happens to serve in a district where an extremely large telecommunications company has its headquarters nearby.

 

While this amendment has some compromises thanks to few enlightened house members, no one has still answered the question why we are wasting taxpayer time and money building protection for companies that are near monopolies already.  You can only assume that these state representatives have no clue how important broadband is to the livelihood of their citizens, their cities, their state, and this nation. 

There are two places where this could hopefully be corrected.  First, in the Texas Senate, and then lastly with the Governor’s line item veto.  And remember, this is only one state.  This battle is being waged in many, many states across the nation. 

Interestingly, here is a new one:  A state Senator in West Virginia  has introduced a bill to "protect" and encourage muni-wireless.  That's a great idea for other states. 

It is shocking that these local reps really don’t care if broadband deployment in America continues to fall further and further behind the rest of the world.  Just shocking.

Posted by Bill Gurley on March 24, 2005 at 10:24 PM | Permalink | Comments (1) | TrackBack

March 21, 2005

The State of Texas Refuses to Block Municipal Broadband

It appears that people are listening to the voices of the cities and their citizens, who are asking state legislators to say "no" to special anti-competitive provisions being asked for by incumbent carriers and MSOs.  Recent language in a Texas bill was  removed, thanks in part to a large grass roots movements in Texas.  Let's hope it doesn't re-emerge as an amendment on the floor. Texas joins Indiana and Illinois as key states that have voted in favor of consumers and broadband.  Let's hope others follow suit.

The battle now moves to Colorado, where the current language is perhaps the harshest ever seen.  This proposed bill, in its original form, would prohibit a city from helping any new carrier whatsoever get started.  It's a pure and blatant anti-competitive move.  It's been modified slightly, but it is still one of the harshest proposals of any state, and once again created only to help the incumbent carriers by removing competition.  Consumers do not benefit from this language.

Let's hope the state legislators in CO have the same sense as those in Texas and Indiana.

Posted by Bill Gurley on March 21, 2005 at 10:36 PM | Permalink | Comments (5) | TrackBack

March 11, 2005

Believe It or Not: Your State Leaders May Be Acting to Slow the Proliferation of Broadband

A very important battle is emerging between the cities and towns of America and the incumbent telecommunications carriers (ILECs) and cable operators (MSOs).  The former are fighting to retain the rights to control the destiny of their own telecommunications services, while the latter want to ensure that these cities do not become a competitive threat to their core monopolies.  In March of 2004, the Supreme Court ruled (Nixon vs. Missouri) that states "can" restrict their cities from offering telecommunications services if they choose.  The Supreme Court did not say that they "should" outlaw this behavior, but simply that they "could."  The ILECs and MSOs jumped at the opportunity, calling into action their massive state-by-state lobbying campaign contribution efforts to push forward legislation that would attempt to stall the rising competitive threat of very low cost, city-wide, wireless networks.  Currently, the most high profile battle is in Texas, where Sec 54.202 of the Texas House Bill 789 seeks to strip the municipalities of such rights.  There is also proposed legislation in 11 other states including Florida and Colorado.

New technologies, such as 802.11, mesh-networking, and eventually WiMax, allow for the quick and easy deployment of high-performance broadband networks.  Consider the town of Chaska, Minnesota.  Last summer, Chaska, through an ISP that is associated with the city-owned utility, deployed a 16 square-mile, 802.11 city-wide network, leveraging Tropos Networks' 5110 mesh routers (Benchmark is an investor in Tropos).  This multi-megabit network, operating at speeds similar to DSL and cable, and much higher than 3G wireless technologies such as EVDO, offers coverage to its citizens throughout the entire town (picture an umbrella of 802.11 coverage).  The city priced its broadband service at a competitive $15.99/month, and the citizens voted with their pocketbooks.  In twelve short weeks, over 25% of its citizens signed up for and installed the service.  Chaska believes it has an asset that differentiates itself relative to other cities. This asset improves quality of life, improves the quality of education, and attracts businesses and jobs.  What's more, due to the low-cost of the infrastructure, Chaska expects to pay for the entire network in less than 18 months.

Some state legislatures, and the above mentioned ILECs and MSOs, feel that the citizens of tens of thousands of towns and cities across America should not be allowed to make a decision like that made in Chaska.  To protect their rights of self-determination, it is imperative that these cities and towns, and their citizens, do everything they can to prevent these state laws from being passed.  Smartly, the states of Indiana and Illinois, and the city of Philadelphia, have already said "no way" to such initiatives.

Here are six key reasons why other states should do the same:

1.  The primary reason these legislators are proposing to "take rights" from these towns and cities is to reduce or eliminate competition for the ILECs and MSOs.  Allowing incumbent carriers with little to no competition to push laws onto the books that blatantly impinge on the rights of the municipalities is unprecedented.  This is equivalent to allowing auto manufacturers to introduce legislation that cities shouldn't be able to fund city buses or other forms of mass transit.  Or imagine a large real estate developer urging state legislators to outlaw cities from building low-income housing, simply because they compete with their apartment projects.  The ILECs and MSOs wouldn't even exist if it wasn't for government cooperation in the form of eminent domain, franchise agreements, etc.  The most restrictive of the proposed anti-muni network legislation (such as that in Colorado) would prevent cities from cooperating in a similar fashion with private entities for wi-fi networks, e.g. banning cities from leasing pole attachment rights.  This is a clear violation of Title 47, 253(a) of the United States Code.  Obviously, this is a direct effort to reduce competition and increase monopoly rents.  The incumbents also argue that the municipalities are ill prepared to deploy the network and provide proper customer service.  Isn't it ironic that they want to protect them from competition that is in their own view inept and uncompetitive?  It is as if the Harlem Globetrotter's found out that their nemesis, the Washington Generals, were actually holding practice and now they are up in arms about it.

2.  An oligopoly does not a marketplace make.  Some conservative legislators argue that cities simply shouldn't be in competition with these private service providers.  However, there is no proof whatsoever that open competition exists in markets were there are only one or two alternatives for service.  In fact, in cases where there are only one or two providers, monopolistic and duopolistic actions tend to work to the detriment of the consumer.  Chaska.net proved wildly popular with consumers because DSL and cable modem services in town cost 2-3 times as much as the wireless network.  Guess what is going to happen to broadband prices in that town now?  The FCC is quite proud of the fact that it was not until a third cellular provider was introduced to most regions (with the auction of the PCS licenses), that competition increased to the point of aiding the consumer.  One proof point that this lack of competition harms customers can be found in the numerous cases around the country where ILECs are being sued for a practice known as "redlining."  Redlining refers to the practice of only pushing new services and technologies in wealthy communities and ignoring the poorer communities.  In Texas, 93 counties have only one service provider and 70% of rural areas have absolutely zero access to broadband.  On top of all this, the US ranks 13th worldwide in terms of broadband penetration per capita, and is falling in the ranking.  Is this really an environment where competition needs to be reduced?

3.  Taking these rights from municipalities will have a negative overall impact on American innovation.  The technology industry at large has a ton to lose if initiatives like these are adopted.  Why?  Because it is the efforts of the more progressive cities and towns that push the envelope forward in terms of technology and innovation, especially when it comes to communications services.  Additionally, more broadband competition leads to faster and cheaper broadband, which will obviously have a huge impact on the demand for technology products and services.  Faster and cheaper broadband will greatly expand the breadth of services that can be offered into the home.  Services such as IP video on demand, VOIP, picture telephony, and streaming online education are all dependent on a massive broadband footprint.  Considering that this is at a time when many Americans are concerned about high-tech job growth and innovation shifting to Asia, why are we considering proposals that will cause America to fall further behind?

4.  Even if a city has no intention of deploying wireless services, it is still in that city's best interest to retain the right to do so.  Consider the example of two cities, City A and City B.  City A has the right to deploy telecommunications services if it so chooses, whereas City B is in a state where the legislators have taken away its rights to do the same.  Now consider what happens when the ILEC that serves each city begins to drag its feet on a new broadband deployment, or it decides it is going to "raise rates" on its DSL service.  Which city is more likely to be able to negotiate a better outcome: the city that retains the leverage or threat of being able to be able to deploy its own services (City A), or the city that has no leverage whatsoever because the state has already stolen its key leverage point for negotiation (City B)?  Anyone that has ever sat down to the negotiation table knows the answer to this one.  Over the next 5-10 years, the states that restrict the rights of their cities will be surprised to find that the ILECs and MSOs moved much faster in deploying services, and deployed them at much lower prices, in the states that allowed their municipalities the right to compete.

5.  In 2005, isn't it reasonable and potentially enlightened for a city to choose to offer broadband as a community service?  It is common practice in America for a municipality to provide services to its citizens in areas where (1) there are economies of scale for the city providing those services, and (2) where it is in the best interest of the community.  As such, local government agencies are the primary provider of schools, libraries, road construction and maintenance, security, fire protection, judicial services, and certain registrations and licenses.  In 3,600 cities across the US, cities currently provide utilities such as power, water and electricity.  Today's 21st century American city finds itself concerned with (1) the quality of education of its children, (2) whether or not those students will be competitive in a global marketplace for jobs, (3) the reduction of employment opportunities in such staple American industries as agriculture, manufacturing, and textiles, (4) the fact that even "new economy" jobs such as call centers, help desks, and even software engineering are increasingly moving overseas.  In such an environment, who is to say that the future citizens of any municipality will not be better served by having subsidized or perhaps even free access to the Internet?  Isn't this the library of tomorrow?  The reason America is 13th in the world in per capita broadband is precisely because government entities in other countries invested in broadband as a community service to the people.  Perhaps Michael Copps, FCC Commissioner, said it best in a recent interview, "I think we do a grave injustice in trying to hobble municipalities.  That's (municipal wireless) an entrepreneurial approach, that's an innovative approach.  Why don't we encourage that instead of having bills introduced?"

6.  A founding American principle - localized government whenever possible.  Perhaps the most insupportable aspect of these efforts to take rights from American cities is that the effort reeks of heavy-handed, centralized government.  One can be certain that these same legislators seethe whenever our national government attempts to impose rules and regulations on the states.  Those states recognize that their local constituency is smart enough to make decisions for themselves.  The effort to restrict the rights of these municipalities from a state level is denying the citizens of these communities the right to make their own decisions.  Moreover, it infers that these citizens, and their elected officials, are not intelligent enough to make these decisions themselves.

In what is ostensibly the cornerstone "democracy" on the planet, one would think that the citizens in each of America's cities could simply "vote" on the services they believe make sense for their city to provide.  Running a wireless network in a city like Topeka, Kansas simply has no overriding impact on the state as a whole.  As Thomas Jefferson aptly wrote in a letter to William Jarvis in 1820, "I know of no safe depository of the ultimate powers of society but the people themselves; and if we think them not enlightened enough to exercise their control with a wholesome discretion, the remedy is not to take it from them, but to inform them."

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If you would like to ensure your town or community has the right to deploy innovative broadband services (and you don't live in Indiana, Illinois, or Minnesota), please send letters, emails, faxes and phone calls to your local legislators to urge them not to pass laws that take broadband service rights away from your city.  In Texas, please let the members of the house and senate telecommunications committees know where you stand on this.  Save Municipal Wireless.

Posted by Bill Gurley on March 11, 2005 at 10:34 AM | Permalink | Comments (7) | TrackBack

DISCLOSURE: The information contained Above the Crowd has been obtained from sources believed to be reliable but is not necessarily complete, and its accuracy cannot be guaranteed. Any opinions expressed herein are subject to change without notice. The author is a general partner of Benchmark Capital, a venture capital firm in Menlo Park, Calif. Benchmark Capital and its affiliated companies and/or individuals may have economic interests in the companies discussed herein. © J. William Gurley 2005-2006. All rights reserved.