By
Deborah Taylor Tate
Most
Americans probably do not associate anything in particular with the number “706.”
However, Section 706 of the Telecommunications Act has recently taken the national
spotlight after a pointed message from the present Federal Communications
Commission Chairman, Tom Wheeler: “I believe the FCC has the power – and I
intend to exercise that power – to preempt state laws that ban competition from
community broadband.”
Interestingly,
the Electric Power Board of Chattanooga in my home state of Tennessee has filed
a petition before the FCC requesting the agency to do just that: preempt
long-standing Tennessee state law which limits expansion of city services into
another city’s boundaries.
Why?
Because the publicly-owned Electric Power Board (EPB) decided to enter the
broadband/cable TV arena not just in Chattanooga, but in other surrounding municipalities
as well. The EPB isn’t the first “muni” government to venture into the
broadband business, and if the FCC Chairman gets his way, it certainly won’t be
the last.
EPB
first hit the national news when it announced its ultra-high-speed fiber optic
network, capable of providing Internet speeds up to one gigabit per second, along
with a cable TV offering. Adding competition and choice for consumers is typically
a good thing. In the case of EPB, however, electric customers, rather than private
investment, were responsible for financing EPB’s $160 million loan to its new telecom
arm. In addition, EPB received approximately $111 million dollars from President
Obama’s “stimulus” bill – so we, the taxpayers, funded that next chunk of
funding. And the remaining approximately $29 million is to be paid by the new
customers of this broadband/cable offering.
In
essence, if you are an EPB customer, you might be surprised to discover that of
an approximately $300 million dollar cost for your new government broadband
provider, users of the system will be paying only about 10 percent directly, with
another 53 percent financed through loans. Taxpayers will be left to foot the
balance.
While
many blithely tout the benefits of government-owned broadband networks, very
few have seriously analyzed the cost to taxpayers. As Andrew Moylan and Brent
Mead of the National
Taxpayers Union
rightly asked in 2012: “How much debt is associated with these projects? How
high is the risk of a project failing? If it does fail, how much will taxpayers
be on the hook for? Can government officials ever hope to run a business when
many of them can’t even balance a budget or restrain spending?”
EPB
could have easily looked across our state to a similar muni project, Memphis
Networx, to garner some useful economic perspectives – and some lessons learned.
While at one time that muni broadband network actually had a revenue stream of
$5 million, it never once turned a profit, and the entire network was
sold in 2007 for $11.5 million – a loss of more than $28 million.
And
when questioned about how many subscribers were being served by EPB’s
supposedly fabulous new “gig” service, EPB spokeswoman Danna Bailey said, “We
have a handful of residential gigabit-per-second subscribers and nearly two
dozen businesses.” I wonder whether the thousands of other Chattanooga taxpayers would consider that a good use of
their $270 million in taxpayer dollars or whether they have figured out the per
capita cost of this platinum-plated “gig” service.
Whether
in Philadelphia, PA, or Burlington, VT, sadly, local municipal broadband across
the country has often ended up costing the taxpayers – rather than benefitting
them.
Being
both a public entity and a private business at the same time creates an
inherent conflict of interest and potential for abuse of power not allowed with
regard to other types of municipal services. (For a complete review of the
abuse of power issues, see the Free State Foundation’s
comments,
recently filed with the FCC.)
As
compelling as these public policy reasons are for generally eschewing the
promotion of government-owned broadband systems, they are above and beyond the
real crux of the matter, which is that the FCC lacks legal authority to preempt
state bans in the first place. And, that could not be clearer than in the EPB
case.
There
actually is a provision in the Communications Act which does provide narrow and
limited legal authority to preempt some state laws. This provision was
specifically and narrowly crafted and has been upheld by courts. Early on,
proponents of muni broadband attempted to use that same section to override
state laws restricting municipal telecom networks. However, the U.S. Supreme
Court rejected this claim, clearly siding with state legislative authority. Further,
in looking at the legislative history surrounding the specific language of Section
706, while Congress contemplated giving the FCC preemption authority in an
early draft, it expressly chose not to include that language in the final
version.
I
am one of the very few FCC Commissioners who previously served as a “state
official,” and I spoke often about the need to be a “humble regulator,”
especially as such humility relates to unauthorized federal action and
overreach. Preemption is not only wrong from a fiscal and legal perspective, but,
also, more importantly, it is short-sighted public policy. We need to continue to
fuel the incredible innovation and expansion of the Internet and its progeny,
the productive engine of our intellectual economy and the sheer explosion of
consumer tech usage in our daily lives. Section 706 needs to be used as a
carrot and not a stick.
We
all want every American – especially our children – to have access to the vast
opportunities that the Internet and broadband can provide. We want to insure that
the full breadth of educational advantages are available to everyone – along
with the opportunity to participate in this vibrant, multi-sector technological
economy. And we certainly want to keep our nation’s competitiveness strong in what
is a global economy. So, we welcome Chairman Wheeler’s efforts to promote the
expansion and adoption of broadband.
But
Chairman Wheeler, like President Obama, should understand that there are very
real, legal limitations on just how far “a pen and a phone” can go in a
constitutional democracy. As a historian, Chairman Wheeler should appreciate the federalist structure that our forefathers established in the
Constitution. As James Madison put the matter in Federalist Paper 45: “The powers delegated by the proposed Constitution to the
federal government are few and defined. Those which are to remain in the State
governments are numerous and indefinite.”
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