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May 21, 2018

Telecom industry books major win in municipal-broadband fight

Photo | Contributed Utility regulators have struck a new blow to cities and towns hoping to build their own internet networks for businesses and residents. However, East Hartford continues to pursue its own network. Here, Mayor Marcia Leclerc holds a fiber cable at town hall.
Photo | HBJ File East Hartford broadband team: Mayor Marcia Leclerc (center) with East Hartford Finance Director Michael Walsh (left) and SiFi Networks President Scott Bradshaw (right).
Photo | HBJ File Consumer Counsel Elin Katz’s office may appeal PURA’s recent decision.

It's been a tough slog for cities and towns that want to build ultra-fast fiber internet networks to benefit residents, businesses and their local economies — so tough, in fact, that virtually none has managed to do it.

This month, a ruling by the Public Utilities Regulatory Authority further diminished their odds.

PURA's May 9 decision, which may end up in state court, blocks municipalities from using their legally reserved space on utility poles to build fiber networks that offer broadband internet service to residents and businesses, including through contracts with third-party developers.

The reserved pole space, called “municipal gain,” has been enshrined in state law since the early 1900s.

PURA's decision limits communities' use of pole space to local governmental activities like building networks for schools and other public buildings.

The ruling takes away what was once seen as the most economical and realistic avenue to forming municipal broadband networks in Connecticut, imperiling the hopes of communities desiring more affordable, gigabit-speed internet to spur economic growth, attract younger workers and close the “digital divide” for lower-income residents.

“We are very disappointed in the decision,” said Consumer Counsel Elin Katz, a chief proponent of municipal broadband efforts. “It ignores the plain language of the statute, and by deciding that [municipal gain] cannot be used by our cities and towns to provide broadband to those affected by the Digital Divide, denies our municipalities a tool provided by the legislature for just that purpose.”

The decision likely delays plans for a multi-town fiber network in northwestern Connecticut, where faster speeds are less accessible. Officials there are soliciting network developers and hoped this year to seek local participation approvals from about 25 area communities.

”This is a complication, a serious complication,” said Kim Maxwell, president of Northwest Connect, the partnership that's been pursuing the estimated $100 million project since 2015. “PURA is denying us access to the future.”

Manchester and West Hartford have also been talking to potential broadband partners for the past few years.

Manchester hopes to build out a network with speeds as high as 10 gigabits-per-second for two key commercial corridors. The town's Chief Information Officer Jack McCoy said he continues to work on a technical plan for the expansion, but acknowledged that PURA has just removed one of few available options.

With above-average affluence and population density, West Hartford has seen telecoms and other competitors build out faster service within its borders, but Mayor Shari Cantor said not all neighborhoods are adequately covered.

The town wants to keep its options open in the coming years, as the needs of residents, businesses and students shift.

“We're open to ideas and maybe having a relationship with companies that might offer affordable broadband to our residents,” said Cantor, who has called telecom opposition to municipal broadband an effort to insulate the industry from competition.

Incumbents rejoice

While broadband advocates are decrying PURA's recent ruling, the telecom industry is heralding it.

Frontier, which owns utility poles across the state, said the final decision was “fully consistent with the law.”

“Frontier Communications continues to support efforts to expand broadband access in Connecticut,” said spokesman Andy Malinowski. “PURA reached the correct result. This decision helps ensure the continuation of robust broadband competition in our state.”

Other petitioners included the New England Cable & Telecommunications Association (NECTA), wireless communications industry group CTIA, and the Communication Workers of America, which represents a large number of Frontier workers.

NECTA CEO Paul Cianelli said, “Our members, who pay millions of dollars annually to rent space on utility poles, offer competitive broadband services with speeds ranging up to 1 gigabit-per-second for residential Connecticut customers, in addition to offering speeds up to 10 gigabits for business customers.”

Unless a court overturns PURA's decision, or the legislature steps in to clarify state law, it could be a death blow for municipal broadband efforts that have been underway for much of the past decade, backed by the state's Office of Consumer Counsel and municipal leaders, but opposed strongly by major internet providers as an unfair, anti-competitive and government-subsidized encroachment.

OCC Principal Attorney Joseph Rosenthal said the agency may appeal PURA's decision in state court.

”We're seriously exploring it,” Rosenthal said.

If that happens, there could be plenty of municipalities willing to join in. The Connecticut Conference of Municipalities, Connecticut Council of Small Towns, and more than two dozen individual municipalities sought to intervene in the PURA proceeding.

Many of them agreed with CCM's attorneys, who wrote that PURA's March draft decision (which reached the same conclusion) “blatantly contorts and violates the plain meaning” of language put into state law in 2013 — namely, that municipalities could use their gain space “for any purpose.”

“We would intend to show in court that the statutory revision in 2013, by plain language, was intended to give the municipalities the opportunity to use the municipal gain for any purpose,” Rosenthal said.

Advocates hope the legislature will further clarify the intent of the state law allowing the use of municipal gain “for any purpose.” That tweak came at the last minute in 2013, slipped into the state budget implementer bill, with no public hearing.

State Sen. Beth Bye (D-West Hartford) wrote to PURA in January that she had played a central role in the revision, and insisted that the language is “direct and clear.”

“I worked to make sure it would allow our towns to pursue economic development efforts, using broadband as a tool,” Bye wrote.

Despite the “any purpose” language, PURA commissioners instead based their final decision this month on a perceived conflict between state and federal laws.

They said municipal-gain broadband network creates “preferential access” for some, and could run afoul of the federal Communications Act, which requires that cable television and telecom providers receive “nondiscriminatory access” to utility poles, and bars local authorities from inhibiting any entity from providing telecom service.

“Providing municipal entities free access to the communications gain for the purpose of offering competitive telecommunications services … appears to be inconsistent with these principals and other aspects of federal law,” the decision reads.

Fewer options

As cities and towns weigh their future broadband options, Northwest Connect is putting the finishing touches on an OCC-funded report that aims to highlight the dwindling number of potential options for getting a municipal network built — all of which come with their own uncertainty and complications, according to Northwest Connect's Maxwell.

One option would be to copy what East Hartford is doing.

The city last year signed an agreement with SiFi Networks, which would invest its own money to bury a fiber network under city-owned rights of way, avoiding utility poles. SiFi CEO Ben Bawtree-Jobson said his company has finished surveying residents and businesses to gauge interest in buying internet service, but he doesn't expect to announce next steps for several months.

“We are evaluating the rulings impact but at this time envisage limited or no impact on the project,” Bawtree-Jobson said.

William Vallee, state broadband policy coordinator at the Connecticut Broadband Office within OCC, called SiFi's private equity, public-private partnership “magnificent,” but noted that the economics wouldn't work in every area of Connecticut, particularly in more rural areas, because expected revenues wouldn't cover capital and operating costs. That includes Northwest Connect.

“There is no revenue stream that allows us out here to pay back the money to build the network,” Maxwell said.

That means taxpayers would almost certainly have to foot the bill.

Other ways to avoid municipal-gain uncertainty, according to Maxwell, would most likely involve paying for space on the pole, which could increase costs.

Municipalities could do that by forming a utility company or a “competitive local exchange carrier” (CLECs) — two types of entities that rent space on Frontier's poles.

Maxwell said either option would likely be complicated and have legal hurdles. All participating towns would have to approve becoming part owner of a new entity, which would also have to win regulatory approvals.

In addition, the municipal-utility pathway may face skepticism due to some relatively recent history that telecoms use as a cautionary tale.

In the mid-2000s, a municipal utility in Groton borrowed $35 million to build an internet and cable network, Thames Valley Communications. But the network lost money and couldn't add enough customers to get out of the red. Groton sold the network, which is still in operation today, for just $150,000 in 2013, losing tens of millions of dollars.

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