The Center for Public Integrity
FIRST OF TWO PARTS
Editor’s note: This story was published by The Center for Public Integrity, a nonprofit, nonpartisan investigative news organization in Washington, D.C.
Janice Bowling, a 67-year-old grandmother and Republican state senator from rural Tennessee, thought it only made sense that the city of Tullahoma be able to offer its local high-speed Internet service to areas beyond the city limits.
After all, many of her rural constituents had slow service or did not have access to commercial providers, like AT&T Inc. and Charter Communications Inc.
But a 1999 Tennessee law prohibits cities that operate their own Internet networks from providing access outside the boundaries where they provide electrical service. Bowling wanted to change that and introduced a bill in February to allow them to expand.
She viewed the network, which offers speeds about 80 times faster than AT&T and 10 times faster than Charter in Tullahoma according to advertised services, as a utility, like electricity, that all Tennesseans need.
“We don’t quarrel with the fact that AT&T has shareholders that it has to answer to,” Bowling said with a drawl while sitting in her log-cabin-style home. “That’s fine, and I believe in capitalism and the free market. But when they won’t come in, then Tennesseans have an obligation to do it themselves.”
At a meeting three weeks after Bowling introduced Senate Bill 2562, the state’s three largest telecommunications companies — AT&T, Charter and Comcast Corp. — tried to convince Republican leaders to relegate the measure to so-called “summer study,” a black hole that effectively kills a bill. Bowling initially beat back the effort and thought she would get a vote.
That’s when Joelle Phillips, president of AT&T’s Tennessee operations, leaned toward her across the table in a conference room next to the House caucus leader’s office and said tersely, “Well, I’d hate for this to end up in litigation,” Bowling recalls.
The threat surprised Bowling, and apparently AT&T’s ominous warning reached her colleagues as well. Days later, support in the Tennessee House for Bowling’s bill dissolved. AT&T had won.
“I had no idea the force that would come against this, because it’s just so reasonable and so necessary,” Bowling said.
AT&T and Phillips didn’t respond to emails asking for comment.
A national fight
Tullahoma is just one battlefront in a nationwide war that telecommunications giants are fighting against the spread of municipal broadband networks. For more than a decade, AT&T, Comcast, Time Warner Cable Inc. and CenturyLink Inc. have spent millions to lobby state legislatures, influence state elections and buy research to try and stop the spread of public Internet services that often offer faster speeds at cheaper rates.
The companies have succeeded in getting laws passed in 20 states that ban or restrict municipalities from offering Internet to residents.
Now the fight has gone national. The Federal Communications Commission in Washington, D.C., is considering requests from Chattanooga and from Wilson, N.C., to pre-empt state laws that block municipalities from building or expanding broadband networks, hindering economic growth, the cities argue.
If the FCC rules in favor of the cities, and the ruling survives legal challenges, municipalities nationwide will be free to offer high-speed Internet to residents when they aren’t satisfied with the service provided by private telecommunications companies.
To better understand the municipal broadband debate, the Center for Public Integrity traveled to two southern cities — Tullahoma, which has a broadband network, and Fayetteville, N.C., which doesn’t.
City-provided broadband widespread
More than 130 cities from Norwood, Mass., to Clallam County, Wash., offer fiber or cable Internet connections to their communities, according to the Institute for Local Self-Reliance, a group that supports municipal broadband. They are mostly small to mid-sized cities that critics say large Internet providers avoid because the return on investment is too low.
Cities build broadband networks to support businesses, improve health care and education and attract jobs, they say. About 89 cities offer gigabit speeds, a rate that can download a 4.5 gigabyte movie in 36 seconds. The same file takes an hour at 10 megabits per second. Slower DSL or dial-up connections, common in rural areas, would take hours longer.
Instead of investing in improving infrastructure in these communities, telecommunications companies have spent millions of dollars lobbying lawmakers in 20 states to pass laws restricting or banning municipal networks, according to research by Jim Baller, of the Baller Herbst Law Group, which is representing Chattanooga and Wilson.
When Tullahoma began planning its fiber-optic network in 2004, “it got unpleasant real fast,” former Mayor Steve Cope said. “When you get into broadband you begin stepping on the toes of some of the big boys, the AT&Ts and Charters of the world. They don’t want the competition, and they’ll do anything to keep it out.”
Most of the telecommunications companies say they support municipal broadband, but only for areas they don’t serve.
“The idea of private capital competing with taxpayer-provided capital just feels inconsistent to us with what a free-market system looks like,” AT&T Chief Executive Officer Randall Stephenson said at a U.S. Senate hearing in June. “But where it’s unserved, it seems like a logical place for government to step in and provide a solution.”
By far, AT&T is the company with the most political influence in states, say statehouse watchers.
“On a scale of 1 to 10 on who is the most powerful lobbying presence in Tennessee, AT&T is a 12,” said a longtime lobbyist in Nashville who asked not to be identified so he could speak candidly. “They are the big horse in the race, and they are unstoppable.”
AT&T spent between $250,000 and $300,000 this year hiring 15 lobbyists, ranking it among the largest spenders, according to the Tennessee Ethics Commission.
AT&T’s political action committee is also the biggest donor among telecommunications companies to state campaigns nationwide. Since 2000, its donations more than tripled to $13.6 million in the 2012 election cycle, according to the National Institute on Money in State Politics, which tracks campaign contributions in the states.
AT&T didn’t respond to requests for comment.
Comcast, the second-largest campaign contributor among telecommunications companies in Tennessee, has upped its PAC giving from about $3,200 in the 2004 election cycle to a record of more than $270,450 in the 2012 cycle, according to the money in state politics institute.
Going to court
Telecommunications companies aren’t hesitant to spend millions of dollars on lawsuits to kill municipal broadband.
Lafayette, La., population 123,000, considered building a network in 2004 when city leaders couldn’t convince BellSouth or Cox Communications Inc. to install a fiber network for residents. For the next three years, Lafayette spent $4 million responding to three lawsuits and subsequent appeals from BellSouth, which AT&T bought in 2006, and Cox. The city eventually borrowed $125 million to build the network.
Terry Huval, director of utilities for the city, told a U.S. Senate committee in 2010 that the companies’ actions were “grossly excessive.”
The companies have also used traditional campaign tactics such as newspaper ads, push polls, direct mail and door-to-door canvassing to block municipal networks. And they’ve tried to undermine the appetite for municipal broadband by paying for research from research institutions and front groups to portray the networks as unreliable and costly.
In a June 19 op-ed in The Wall Street Journal, Thomas Schatz, president of Citizens Against Government Waste, and Royce Van Tassell, vice president of the Utah Taxpayers Association, wrote that an effort by Utah cities to build a municipal broadband network “has caused a spectacular financial failure.”
The authors cited a study by Joseph Fuhr Jr., an economics professor at Widener University in Chester, Pa., who gave examples of municipal broadband networks that were failing.
Schatz and Tassell did not mention that the study was paid for by the Coalition for the New Economy, which says it consists of “businesses, associations, and individuals who are concerned about wasteful duplication of existing or planned Internet service.”
Thad Nation, a former staffer to two Democratic governors who is listed as executive director on the group’s IRS form 990 for 2012, didn’t return calls or emails asking for comment.
Impact on business
The success of these tactics worries Ted Hackney, executive director of the Industrial Board of Coffee County, who’s in charge of attracting businesses to the Coffee County Joint Industrial Park, a 400-acre development outside Tullahoma.
The site is home to just four businesses, including a tool and die shop and a food processor.
Hackney is trying to attract technology companies including a large data center, but the Internet service from Charter won’t support such data-hungry businesses. The only network that can provide robust capacity at an affordable price is LightTUBe, the municipal Internet run by the Tullahoma Utility Board (TUB).
If the park can’t get the service, “it certainly would be disappointing,” Hackney said. “It wouldn’t completely wipe us out, but we need it if we are really going to make a go of this.”
Hackney is partial to LightTUBe because it’s a local business and it’s financially stable. In its first year, LightTUBe reported a positive cash flow, but showed losses due to the depreciation of assets.
Today, it has 3,250 customers, about 35 percent of the market, with Charter claiming about the same, estimates Brian Skelton, TUB’s general manager. The utility has paid off more than $3 million of the $16.9 million in bonds it issued to build the network, and it projects it will report its first profit this year — $200,000 — one year behind schedule.
Its success rebuts one of the arguments telecommunications companies have made against municipal broadband systems — that small cities don’t have the technical expertise to operate complex networks or the financial experience to manage the funding. Tullahoma, population 18,700, is one of the smallest cities in the nation with a gigabit network.
To be sure, several cities have had financial difficulties. They include Ashland, Ore.; Burlington, Vt.; and the 11-city Utah Telecommunications Open Infrastructure Agency. Some, such as Provo, Utah, and Groton, Conn., have sold their networks.
But proponents of municipal broadband say the successes outnumber the failures.
LightTUBe’s Internet packages are lower priced than Charter’s or AT&T’s when speed is accounted for.
“We’re cheaper than anyone, but we can’t compete with the teaser offers,” Skelton said.
Service serves realtor, records, businesses
LightTUBe’s customers include big manufacturers, insurance agents, car dealerships and doctors’ offices, as well as “mom and pop shops,” Skelton said
Lisa Hayes, owner of 1st Choice Realtor, which employs 15 people, said LightTUBe’s reliability has helped her triple her sales this year since she moved to a Web-based listings service. She switched from Charter because her Internet connection would frequently crash and response times were slow.
“We just can’t afford to be down at all, and we can’t wait for two weeks to get something fixed, or we’ll lose customers,” Hayes said.
Agisent Technologies Inc., which provides online records management for police departments and city jails, moved to Tullahoma in 2011 because it needed a fast, reliable broadband network that had a backup if the connection failed, said David Lufty, the company’s president.
Charter and AT&T couldn’t offer redundancy, but LightTUBe could.
“Since we’ve been here, we haven’t had more than five minutes of downtime in almost three years,” Lufty said.
Charter didn’t respond to phone calls and emails seeking comment.
1st Choice and Agisent are examples of what fast and reliable broadband can do to encourage economic growth, according to Robert Litan, a senior fellow at the Brookings Institution who has researched the economics of technology. In a 2007 study, Litan and his colleagues found that for every one-percentage-point increase in the availability of broadband in a state, the number of jobs increased up to three-tenths of a percent per year. Faster broadband speeds likely have the same effect, he said.
“I don’t know what the magnitude would be, but I am convinced you can show there is an incremental benefit,” Litan said.
Employment in Tullahoma lagged statewide job growth before theLightTUBe was turned on. Since the recession ended in 2009, two years after the city began offering broadband, the city has outpaced job growth in Tennessee. The city added 3,598 jobs from April 2009 to April 2014, a 1.63 percent annual growth rate, about double the statewide rate, according to the Bureau of Labor Statistics.
Arnold Air Force Base and its flight simulation development complex, as well as a regional medical center, are the primary engines for employment, officials say, but “if the city of Tullahoma can offer to businesses high-speed Internet at a reasonable price as part of the city’s overall infrastructure, we think that’s a huge advantage for us and one that businesses look for,” said Thom Robinson, executive director of the Tullahoma Area Economic Development Corp.
Coming Wednesday: It’s a different story in Fayetteville, N.C.