What's the future of 'government' carriers?

Telecommunications Americas, Nov, 2004 by Tom Nolle

How "big" should "big government" be? If you think that's a civics question, think again. As we're moving to deregulate telecom at the federal level, at least some levels of local government are promoting themselves as carriers. The notion that a state or local government could install telecom gear and become a carrier is a decade or more old. It's hard to determine exactly how many have done so at this point, but there appears to be nearly 1,000 active projects in the United States. The technologies used by these government carriers vary from standard copper or CATV through broadband-over-power-line, fiber and even wireless. Most of the projects are aimed at providing broadband access to the Internet, but some are also providing cable TV, voice and business services.

The goals of these programs seem as varied as the technologies. For most of the current projects, municipal public utility organizations are seeking to broaden their revenue base and leverage their rights of way and service personnel. Some government carriers have also cited a desire to improve the economic conditions in their area through improved public communications facilities. The common thread, both in goal and technology terms, is that government network interest is at the access level.

Local competition was a goal of the Telecom Act, and one that hasn't shown much progress. There's little question that having local governments enter the access market would create competition on paper. Would it be real competition, though, and at what price? There are some significant questions.

The first question is whether anyone would want to compete with a local government as a carrier. Who sets local rights-of-way rules? Who can draw on tax revenue to subsidize communications? Doesn't sound like a level playing field, and there seems little doubt that a serious effort by local government to offer access services would reduce investment by traditional carriers and cable companies. This could be of particular concern to enterprise users, who might find fewer services offered by traditional carriers and who might find their own rates higher because they're expected to subsidize consumer services.

The second question is who regulates such a network? Does a local government answer to the state PUC or even the FCC? Could they impose rules on content, peering or any other topic based on local standards? How would the interests of the entire population be protected in such a situation?

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The third question is whether the local government could be an effective carrier should it take on the role. Some of the notions already being tried are proven but capital intensive, like FTTH. Some are not only unproven, but also clearly risky. Philadelphia proposes to join Spokane and a half-dozen other cities in providing Wi-Fi access. Wi-Fi is unlicensed spectrum, with no protection from interference. Suppose that the decision of the city to offer access causes local phone and cable companies to under-invest, and then the whole Wi-Fi thing fails to work satisfactorily? Do the phone customers or cable customers elsewhere then pay to help fund a modernization to replace a failed local-government carrier venture?

Here's what I think. First, the FCC needs to open proceedings on the regulation of municipal, county or state telecom networks if those networks are offered to the public. It may require legislation to set this up, since the FCC's jurisdiction is generally limited by Congress. Second, there needs to be citizen scrutiny of any local initiatives in offering access services to insure that the taxpayer, the utility ratepayer and the user of the network are all protected. The FCC can't be involved in everything.

The final issue is technology. Fiber's great. Wi-Fi's great. Neither is likely the optimum approach for providing local-government-sponsored telecom access. The right answer is probably fixed wireless (WiMAX) using licensed spectrum. If the FCC ensured that local government could acquire this spectrum to support the public interest, and if local government was then accountable to use the spectrum as any other licensee would be accountable--to deliver service when promised and at the target levels of reliability and performance--this could work.

But there's still the matter of national policy. Why is a regulated monopoly bad and government-owned networking OK? I'm not saying that we need to roll back the clock and re-regulate, or that we need to forbid local governments from offering access services. I'm saying that networking is a national issue, and we need to have a national policy that's consistent at the least, and hopefully effective at meeting agreed-upon national goals.

Tom Nolle is president and founder of CIMI Corporation (tnolle@cimicorp.com).