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KUTZTOWN, Pa. - Cities
and towns from San Francisco
to Philadelphia, viewing
access to advanced telecommunications
as pivotal to prosperity,
are aggressively seeking
ways to provide high-speed
Internet connections, wired
or wireless, for citizens
and local businesses.
But telephone and cable
TV companies have responded
by flexing political and
financial muscle at the
state level, arguing that
government has no business
getting into their business.
So far, about a dozen
states have passed measures
either restricting or banning
public-sector efforts to
deliver telecom services,
while similar legislation
has been introduced in about
a half dozen other states.
And in related battles,
Bellsouth Corp. is suing
a North Carolina town that
is leasing space on its
fiber-optic network, while
SBC Communications Inc.
and Comcast Corp. mailed
fliers and ran newspaper
ads in Illinois last year
to help defeat a three-town
referendum on building a
fiber network.
Two years ago, the small
college town of Kutztown
thought it was blazing a
trail for other Pennsylvania
communities when it built
a publicly owned fiber-optic
network to deliver cut-rate
Internet, telephone and
cable TV service.
Then, in late 2004, Pennsylvania
lawmakers bowed to the wishes
of Verizon Communications
Inc. and the state's other
local phone providers, passing
a bill that gives the companies
the power to squelch any
new forays into telecommunications
by municipal governments.
The legislation, prompted
by the companies' worries
that other towns would follow
Kutztown's example, marked
the industry's latest victory
in a series of similar clashes
across the country.
Opponents of Pennsylvania's
new curb on public competition
say they were overwhelmed
by a lobbying effort led
by Verizon, which has spent
millions of dollars in recent
years to sway legislators
and other state officials
and even bolstered its well-connected
lobbying team by hiring
Gov. Ed Rendell's former
campaign manager.
The competition provision
was slipped inside a wider
piece of legislation that
carried other regulatory
concessions for the phone
companies. To help win support
for it, Verizon agreed to
pony up as much as $60 million
for school Internet connections.
Kutztown's technical
services director, Frank
Caruso, says he thought
state legislators would
view publicly provided services
as good for development
in towns like Kutztown,
a community of 5,000 in
eastern Pennsylvania where
the horse-drawn carts of
the Amish are common on
town streets.
"I never thought
that the state Legislature
would sit there and say
'No,'" he said.
The companies argue that
municipalities offering
telecom services have an
unfair advantage because
they can use interest-free
tax dollars and tax-exempt
bonds to finance their networks,
and do not face the same
regulatory burdens.
City officials and consumer
advocates counter that the
goal of municipal telecom
projects is to empower lower-income
residents, attract new employers,
and give existing businesses
a reason to stay.
They say local phone
and cable providers, lacking
adequate competition, have
dragged their heels in rewiring
rural and less-affluent
areas while pricing their
services at rates which
many residents and small
businesses can't afford.
In Utah, tired of waiting
for broadband and frustrated
by high cable bills, a rural
town named Spanish Fork
sold bonds three years ago
for a municipal telecom
project just before a state
law was passed barring bar
such public financing.
"We didn't want
to be a second-class city
and that's what's going
to happen if you don't have
high-speed Internet,"
said John Bowcut, the director
of Spanish Fork Community
Network.
In Nebraska, four-year-old
restrictions have kept the
city-owned electric utility
in Lincoln from leasing
space on its fiber-optic
network so that would-be
rivals to local phone companies
could provide broadband
to residents and businesses.
State Sen. Kermit Brashear,
a Republican who sponsored
legislation this year that
would further restrict public-sector
telecom services, said government
advantages "would place
private providers at a tremendous
disadvantage in an industry
in which competition is
fierce and margins are thin."
Not all efforts to block
public competition have
succeeded.
In Indiana this month,
opponents blocked a bill
that would have barred municipalities
from competing with private
providers and from using
public bonds in cases where
services don't already exist.
Bills approved in Utah and
Louisiana last year were
watered down to regulate
some telecommunications
services, but not ban them.
Kutztown businessman
Dennis Cichelli says his
software and computer network
company was paying about
$1,000 a month for a dedicated
high-speed Internet connection
before the municipal utility
came online.
It now pays less than
$500 for far more bandwidth
- enough spare capacity
that it now sells wireless
broadband service to a dozen
other businesses.
Under Pennsylvania's
new law, municipalities
wanting to sell their own
Internet service will be
required to first give the
local phone provider the
option of providing that
service within 14 months.
Compared with the battles
in other states, there was
no loud and lengthy campaign
against the legislation.
The bill's negotiators,
including the governor's
office, said they barely
heard from opponents.
But controversy sparked
just days before a final
vote when Philadelphia officials
discovered that it could
scuttle the city's ambitious
plans to build a citywide
wireless Internet network.
Before he signed the
bill in November, Gov. Rendell,
a former Philadelphia mayor,
pressured Verizon to relinquish
its right-of-first-refusal
over that city's project.
Other Pennsylvania communities
got no such special treatment,
and Verizon's influence
at the statehouse drowned
out those small towns that
had opposed the legislation,
said Jim Baller, a Washington,
D.C., attorney who represents
municipal power companies.
By far the largest of
Pennsylvania's 37 local
telephone companies, Verizon
operates 6 million of the
state's 8 million land lines.
The New York-based company,
which argues that it is
already losing business
fast to wireless and cable
rivals, has spent millions
of dollars over the years
to build relationships with
lawmakers and public officials.
On the telecommunications
bill, it retained a team
of high-profile lobbyists,
including David Sweet, Rendell's
campaign manager in the
2002 gubernatorial election.
Four years ago, Verizon
reported spending more than
$3 million on lobbyists
in the months before it
routed an attempt by state
regulators to spur local
phone competition by forcing
the company to split its
network operations from
its retail division.
"It's our opinion
that Verizon is the Pennsylvania
Railroad of the 20th century
in terms of political clout,"
said Christopher Craig,
a top lawyer for Senate
Democrats.
In a statement after
the bill passed, Verizon
called it "truly a
win-win situation for communities."
"It empowers them
to press Verizon or other
local phone companies to
deploy advanced telecom
services on their timetable,
not the company's,"
Verizon said.
A state-appointed consumer
advocate, Irwin Popowsky,
also thought the language
fair considering that the
local phone companies have
agreed to expand their broadband
networks statewide by 2015.
Kutztown officials had
hoped to eventually add
wireless Internet services
to their municipal offerings,
but now expect a battle
with Verizon.
"Are we going to
be stopped from doing that?"
Caruso asked. "I think
everything's going to be
a challenge."
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