Wilson, N.C. Asks FCC to Override State's Telecom Law

The city’s unusual legal claim was made possible only in the past few months, after FCC Chairman Tom Wheeler announced that the federal agency will consider pre-empting local laws that stifle broadband competition.

by John Murawski, McClatchy News Service / August 28, 2014
Tom Wheeler, FCC Chairman Flickr/ALA Washington Office

Wilson, one of the few towns in the state that offer high-speed Internet service to residents and businesses, has stewed for three years since the North Carolina legislature put restrictions on municipal broadband.

The Eastern North Carolina town’s officials say they can’t expand their data service, called Greenlight, to nearby communities that have requested the high-speed connection. Greenlight offers residential Internet speeds up to 1 gigabit – or 20 times faster than Time Warner Cable’s fastest household Internet speed.

Now the former tobacco center about an hour east of Raleigh is asking the Federal Communications Commission to override North Carolina’s telecommunications law. The city’s unusual legal claim was made possible only in the past few months, after FCC Chairman Tom Wheeler announced, through a blog and at an industry conference, that the federal agency will consider pre-empting local laws that stifle broadband competition. Wheeler is one of three Democrats on the five-member commission.

Wilson and Chattanooga, Tenn., were the only two municipal broadband operators to file petitions this summer, saying laws in the two states harm the public and shield Time Warner and Comcast.

The case is expected to have national repercussions if the FCC adopts broader rules, or if federal courts rule on Wilson’s and Chattanooga’s requests when the FCC’s decision is appealed by the losing parties.

Fordham University law professor Olivier Sylvain said that a one-paragraph section of the 1996 Telecommunications Act, on which Wilson hangs its case, has not been interpreted in the past to give the FCC power over state laws. But recent court decisions have emboldened broadband advocates. The 18-year-old law says federal and state officials “shall encourage” deployment of communications networks through various means to remove barriers to competition.

With a deadline looming Thursday for public comments on Wilson’s request, the FCC has received a mere 53 comments, mostly from private residents. Noticeably missing from the mix are AT&T, Time Warner and the N.C. Cable Telecommunications Association, the powerful state telecom lobby that was instrumental in the 2011 passage of North Carolina’s restrictions on municipal broadband.

These organizations, and a host of others, are expected to file their arguments Thursday; they declined to elaborate on their legal strategy on Wednesday. They will likely attack the crux of Wilson’s contention that Congress and federal courts gave the FCC authority to stamp out state Internet laws.

Wilson’s argument

Meanwhile, Wilson officials complain that the $33 million Greenlight service should have been fully exempted from the broadband restrictions enacted by the North Carolina legislature three years ago. At the time, Wilson’s service was already in the process of being built out on the financial assumption of reaching a defined geographic base of potential customers.

“We sought and gained approval from the State of North Carolina to borrow the funds to build the system,” said Wilson City Manager Grant Goings. “They turned around and changed the laws in a manner to make it more difficult for us to succeed financially and pay off the debt.”

Wilson’s Greenlight service went live in 2009 with high-speed Internet, TV programming and Internet-based phone service. Greenlight initially lost money, as was expected of a startup, but made a small profit of about $723,881 last year. It has nearly 7,000 customers, or about a third of the Wilson County market, but officials are eager to expand Greenlight to portions of five surrounding counties.

By September 2010, in the wake of the economic recession, Greenlight had disconnected 1,000 customers for nonpayment, according to a report by the Institute for Local Self-Reliance, a group in favor of community broadband. At the same time, the report says, Wilson officials found that Time Warner was slashing prices in Wilson while raising them in Raleigh.

The broadband dispute in North Carolina goes back to 2005, when the state’s telecom lobby first attempted to impose broadband restrictions. Broadband boosters said the state was being held back by a politically connected industry intent on protecting its domination of local markets.

The industry, and its backers in the legislature, said they were protecting taxpayers from risky government ventures in intensely competitive industries roiled by takeovers and bankruptcies.

The legislative efforts failed multiple times until Republicans gained control of the state legislature and were sympathetic to arguments that questioned expansion of government-subsidized programs and enterprises.

“The issue with a city going out with fiberglass cable beyond city limits, it’s going to cost money and someone has to pay for it,” Rep. Marilyn Avila, the Wake County Republican who sponsored the 2011 legislation, said Wednesday. “Citizens of these cities should be extremely leery of entering into a competitive market where they don’t have anyone to step up and foot their bills.”

Supporters of the law point to an April decision by Moody’s Investors Service to downgrade the city of Salisbury, which operates a high-speed Internet service called Fibrant, that launched in 2010 and is now at 3,125 customers. Moody’s said Salisbury has diverted $7.6 million from its water and sewer fund to subsidize Fibrant, “which has experienced operational and debt payment shortfalls since its inception.”

Rules in N.C.

North Carolina is one of 19 states that have banned or restricted municipal broadband, according to the Institute for Local Self-Reliance.

North Carolina’s law, called the Level Playing Field legislation, prohibits local governments from subsidizing municipal broadband from other funds, bars pricing the service below the cost of providing it, requires public hearings and referendums to borrow money, and requires municipal broadband operators to make payments equivalent to taxes and fees paid by for-profit competitors.

“It is important to understand that North Carolina’s Level Playing Field law does not prevent cities from providing competitive communications services – it only sets the rules if they choose to compete,” said Marcus Trathen, a Raleigh lawyer who represents the state’s telecom lobby.

Wilson’s Greenlight was grandfathered but won’t be able to expand beyond Wilson County without following the Level Playing Field rules. As a result, Wilson was able to divert $3.2 million from the city’s gas fund to subsidize Greenlight, to be repaid over 15 years.

Greenlight plans to expand to about 7,600 households in Wilson County that currently don’t have access to the service, but it would also like to expand outside its service area to reach about 1,000 potential customers in neighboring counties, said Greenlight General Manager Will Aycock.

“Without the arbitrary barriers posed by state law and at the appropriate market time,” Aycock said, “it would be a natural extension of the city’s next generation broadband infrastructure to provide service to areas already served by our electric service, particularly given that the city already has some of the necessary infrastructure in place.”

©2014 The News & Observer (Raleigh, N.C.)

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