Their facilities reach into every home and business in town. Their technicians know how to maintain complex equipment. They own extensive rights of way, in which they may already have installed miles of fiber-optic cable.

It makes perfect sense, many say, for public utilities to offer broadband data services to business and residential customers.

Some already do. Approximately 450 public power organizations have set up shop as telecom providers, according to the American Public Power Association (APPA); their businesses include wholesaling fiber-optic capacity to delivering high-speed Internet, cable TV and telephone service and users.

Most public utilities that have jumped on the (broad)bandwagon serve small communities, where they're often the only game in town.

A market of 10,000 or fewer people is not attractive to bigger players, such as cable TV and telephone companies, said Ron Lunt, the APPA's director of telecommunications services.

"The only way they're going to get it is if they provide it themselves," Lunt said of small towns that want high-speed Internet and data services.

Now the bigger public utilities are entering the arena. The Los Angeles Department of Water and Power (LADWP), the nation's largest public utility, wholesales fiber-optic capacity to service providers.

JEA, the largest community-owned utility in Florida and the nation's eighth-largest public power utility, could provide much of the infrastructure for a countywide high-speed network under discussion in Jacksonville, Fla.

Click Network, an operating section of Washington's Tacoma Power, delivers cable TV service; wholesales cable capacity to four Internet service providers (ISPs); and sells high-speed, fiber-optic Internet connections to businesses.

Unfair Competition?

When larger public utilities enter the broadband business, they may vie directly with established telephone and cable TV firms. This competition is a boon to a community, according to some public officials.

The arrival of Click Network spurred Tacoma's existing cable TV and telephone carriers - AT&T and Qwest - to upgrade their services, said Mayor Bill Baarsama.

"We have cutting-edge technology in this market that's really something to behold, and a highly competitive market where the consumer has choice," Baarsama said.

Established carriers argue that government and quasi-government entities enter the fray armed with unfair advantages. Some in the cable industry note that municipalities regulate cable TV franchises, and many cable carriers offer high-speed Internet service. If utilities owned by municipalities compete against those cable carriers, that's a conflict of interest, according to critics.

Municipal utilities also have an edge, private carriers argue, because they can tap public funds or issue bonds to build their infrastructures.

"They don't have to go to the capital markets," said Link Hoewing, vice president of technology of Verizon Communications, which, in addition to its cellular phone offerings to consumers, provides DSL service to residential customers. "They're doing it on a tax-supported basis and with a fairly high guarantee that they're going to get some customers, because the taxpayers are the ones that are going to be subsidizing the service. We are concerned that it's basically unfair competition, and we're facing a lot of competition in the marketplace already."

Arguments like these have persuaded some state legislatures to bar public utilities from entering the telecom market or restricting services utilities can provide. The APPA challenged some of these laws in court, arguing that the federal Telecommunications Act of 1996 specifies "any entity" - including a local government entity - may provide telecom services.

Extra Income in Los Angeles

Public utilities enter the broadband business for several reasons. One is to subsidize the fiber-optic networks they develop for internal use, which is what originally spurred the LADWP to lease unused strands of its own fiber-optic cable to telecom carriers, universities, government entities and others.

Merrill Douglas  |  Contributing Writer