[wordup] Broadband Reports: Interview with Jim Baller

[Adam Shand]

Via:  http://slashdot.org/articles/03/05/22/1233229.shtml
From: http://www.broadbandreports.com/shownews/28553
More: http://www.ta.doc.gov/reports/TechPolicy/Broadband_020921.pdf

Broadband Reports: Interview
Jim Baller, municipal broadband attorney
Written by Karl Bode

We recently had a chance to sit down with Jim Baller, one of the 
nation's leading experts on municipal broadband projects, and pick his 
brain for details on the growing number of communities looking toward 
municipal broadband for technical (and sometimes economic) salvation. We 
asked the members of our broadband politics forum to contribute some 
questions, as well as blending in some questions of our own.

BBR: Please explain who you are and what it is exactly that you do.

Jim Baller: I am the founder and senior principal of the Baller Herbst 
Law Group, P.C., a national law practice based in Washington, DC, and 
Minneapolis, MN. The Firm represents the American Public Power 
Association, the National Association of Telecommunications Officers and 
Advisors, regional and state municipal electric associations, state 
municipal leagues, local governments, and public power systems across 
the United States on a broad range of regulatory, administrative, 
legislative and judicial matters involving telecommunications, cable 
services, Internet access, and other communications and information 
services. In short, we represent public entities in just about 
everything that affects them in the communications area, including 
municipal broadband matters, franchising, right-of-way management, pole 
and conduit attachments, tower siting, strategic planning, etc...

Before answering your questions, I'd like to give you some personal 
background information that may help put my answers into perspective. 
For the first two decades of my legal career, my practice consisted 
almost entirely of representing major corporations in matters in which a 
federal agency was involved. I was an ardent supporter of private 
enterprise (and still am), and this experience gave me a strong and 
enduring negative opinion of the federal government. I had an even lower 
opinion of local governments as a result of living in DC during the 
Marion Barry years.

In 1992, I began to work with the American Public Power Association and 
its members on cable and telecommunications matters. Early on, I had the 
opportunity to research and write an extensive historical paper that 
compared the early days of the electric power industry with the current 
period in the communications industry (link). What an eye-opener that 
was! Not only were the parallels remarkable, but I was surprised to 
learn that my views of government in general simply did not apply to 
municipalities that operate their own electric utilities.

Specifically, I learned that, at the turn of the last century, when 
electricity was the great new technology of the age, the private sector 
focused first on electrifying the major population centers and literally 
left most of America in the dark. Recognizing that electrification was 
critical to their economic development and survival, thousands of 
communities that were not large enough or profitable enough to attract 
private power companies created their own electric utilities. Municipal 
electric utilities also emerged in several large cities, in which 
residents believed that competition was necessary to lower prices, raise 
the quality of service, or both. Most of these communities found that 
they could provide for their own needs better and at far lower cost than 
the private sector could or was willing to do. Eventually, hundreds of 
these communities sold their systems to private power companies, having 
fulfilled their purpose of avoiding being left behind in obtaining the 
benefits of electrification. Most communities, however, retained their 
systems. Today, approximately 2000 public power systems continue to 
exist and thrive, providing their communities significantly better 
service at substantially lower prices than investor-owned utilities provide.

Now, the history of the electric power industry is repeating itself in 
the communications area. Indeed, for many of the communities that were 
left behind by the private electric companies, its "deja vu all over 
again." This time, however, there's an important difference -- 
communities with their own electric utilities are now in an excellent 
position to provide for their own current and future communications 
needs. Because municipal electric utilities, government facilities and 
schools are significant users of advanced telecommunications services, 
these communities have built-in "anchor tenants" that can ensure a 
sizable revenue stream and lower project risks. They have decades of 
experience in providing high technology products; dealing with 
residential, industrial and commercial customers of all kinds; and 
furnishing technical support and customer service. They have access to 
essential rights of way, poles, ducts and conduits. They also have a 
century old ethic of universal service.

Over the last decade, my respect for local officials in public power 
communities has continued to grow. These folks are smart, technically 
proficient, highly dedicated and scrupulously honest. Perhaps most 
impressive is their can-do spirit and deep sense of individual 
responsibility for the well-being of their communities. Like school 
teachers, their value to society far exceeds their compensation or 
recognition. I've also come to have high regard for local government 
officials in general; the Barry Administration in D.C. was clearly an 
aberration.

There's another important lesson that I learned from my research into 
the history of the electric power industry -- the anti-government 
activities of large corporations has hardly changed at all over the last 
century. To be sure, the terminology is different -- municipal officials 
aren't vilified as "Bolsheviks" or communists today -- but the 
sentiments and tactics are virtually identical. For example, in October 
and November of 1906, Moody's Magazine published a series of articles on 
the pros and cons of municipal ownership of electric utilities. The 
titles that opponents of municipal ownership gave to their articles 
included: "Municipal Ownership a Delusion," "Municipal Ownership a 
Business Problem," "Municipal Ownership Uneconomic," Municipal Ownership 
Always a Failure," and "Municipal Ownership Costly and Dangerous." Sound 
familiar?

With the benefit of hindsight, we know that the opponents of municipal 
ownership largely failed and that, for the last century, municipal 
utilities have greatly benefitted their communities and the Nation as a 
whole. I hope that, a hundred years from now, our successors will be 
able to say the same thing about municipal communications utilities.

BBR: Is interest in municipal broadband growing? If so, why?

Jim Baller: Interest in municipal broadband is indeed growing, both in 
communities that operate their own electric utilities and in communities 
that do not. While communities that operate electric utilities tend to 
focus on FTTH networks, other communities are generally looking into 
wireless networks. Furthermore, communities are exploring all kinds of 
involvement models, running the gamut from wholesale-only to strategic 
public/private partnerships to full-service retail.

Some of the reasons for this growth of interest are the following: (1) 
the meltdown of private-sector CLECs and overbuilders; (2) the Bells' 
slow rollout of DSL due to the economic downturn and their own 
legislative strategy of "playing chicken" with Congress and the FCC on 
UNEs, Tauzin-Dingell, the FCC's Wireline DSL rulemaking, etc. (this 
factor may now decrease in some areas, but will not probably decrease 
substantially in the more rural areas in the near future); (3) the 
relentless consolidation of giant cable companies, accompanied by 
continuously rising rates, deteriorating customer service, and 
diminished responsiveness to local needs; (4) the realization that cable 
modem service and DSL are limited technologies that are insufficient to 
support economic development (more on this later); (5) the steady 
increase in the number of projects that communities can study as models 
of success; (6) the emergence of relatively simple and inexpensive new 
technologies, such as WiFi, that communities that do not operate 
electric utilities can obtain even if wireline broadband networks are 
beyond their means or capabilities; (7) major victories in 
barrier-to-entry litigation (e.g., the Missouri case before the 8th 
Circuit and the Lincoln Electric case before the Nebraska Supreme 
Court); and (8) generally sympathetic media coverage.

Tschmidt asks: As momentum builds, and more and more municipalities 
build FTTH networks I expect incumbents to mount a rear guard action to 
get the FCC and State PUCs to prohibit them, as they already are in 
several states. How likely is this threat and what can municipalities do 
to protect themselves?

Jim Baller: It is a very real threat. To protect themselves, 
municipalities can support and work with APPA, NATOA, state and regional 
municipal and utility associations, grass roots organizations and other 
individuals and entities that are fighting these battles. We are also 
working to build bridges to organizations, such as the FTTH Council, 
that are seeking to develop truly robust broadband capabilities nationwide.

On an individual basis, if a municipality is considering establishing an 
FTTH network, it should take advantage of the wealth of knowledge that 
municipalities across the US have obtained, and are obtaining, about the 
technical, economic, financial, legal, political and other implications 
of such networks. Most important, a municipality should be clear about 
its needs and objectives, and it should assume that its every 
assumption, fact and figure, and vision of the future will be 
scrutinized carefully in an open process in which the incumbents are 
active participants.

BBR: Can you explain what exactly is so attractive about FTTH (fiber to 
the home)?

Jim Baller: As the U.S. Department of Commerce said in its report 
entitled "Understanding Broadband Demand: A Review of Critical Issues 
(September 23, 2002), "the current generation of broadband technologies 
(cable and DSL) may prove woefully insufficient to carry many of the 
advanced applications driving future demand. Today’s broadband will be 
tomorrow’s traffic jam, and the need for speed will persist as new 
applications and services gobble up existing bandwidth." The report went 
on to list the many ways in which the country would benefit greatly if 
we had affordable access to vastly more bandwidth capacity than the 
cable and telephone companies are generally making available today. The 
report should be required reading for anyone who cares deeply about 
FTTH. (This report is available on-line here)

In addition, the growing size and closed-access philosophies of the 
giant cable and telephone companies pose significant threats to our core 
freedoms. Communities see FTTH networks as a way of keeping access open 
to a diversity of providers of information, programming and other content.

BBR: Can't we rely on the private sector to get us to FTTH in the 
foreseeable future?

Jim Baller: I don't believe so. The main reason is simple economics. 
Firms in the private sector must cover costs and produce an acceptable 
level of profits over a relatively short period of time. There is 
absolutely nothing wrong with this. That's how the private enterprise 
system works. That's how we want it to work. For some services, however, 
the private enterprise system does not work particularly well, at least 
in the short term.

FTTH networks are a good case in point. At present, cable can make more 
money selling relatively modest cable modem services over their Hybrid 
Fiber Coaxial (HFC) networks, and telephone companies can make more 
money selling DSL over their copper-based networks, than they can make 
by investing huge sums in FTTH networks that would allow them to offer 
substantially more robust broadband services. To wring every last dollar 
out of their existing systems, the cable and telephone companies are 
also working hard to persuade Congress, state legislatures and the FCC 
to allow them to close their systems to Internet Service Providers, 
CLECs and other potential competitors. Until these conditions change, 
the cable and telephone companies will simply not invest in FTTH 
networks. Instead, they will continue to try to convince us that we 
really don't need more bandwidth than they're offering. At the same 
time, they will try to block municipalities from building FTTH systems 
that could disprove these claims.

Let me give you an example. In December of 2001, the cable industry's 
trade association, the National Cable & Telecommunications Association, 
told the National Information and Technology Administration that “Cable 
systems have determined, based upon their analysis of usage requirements 
and bandwidth availability, that 128 kbps upstream is the optimum speed 
to meet the needs of subscribers. Upstream capacity of 128 kbps is fully 
adequate to accommodate current and foreseeable needs of broadband users 
under most circumstances.” Comments of the National Cable 
Telecommunications Association, In the Matter of: Deployment of 
Broadband Networks and Advanced Telecommunications, Docket No. 
011109273-1273-01 (Dec. 2001).

How can anyone seriously believe that upstream capacity of 128 kbps is 
adequate even to meet the current needs of residential consumers, let 
alone to support economic development? Of course it isn't. In fact, in 
ultra-rural Grant County, WA, where users of the County's FTTH system 
have affordable access to speeds of 100 Mbps in both directions, 
bandwidth usage has jumped more than 600 percent and upstream usage 
actually exceeds downstream usage. Why? The County believes that small 
businesses are sending substantially more information to the Internet 
than they are downloading, and gamers are vastly increasing their 
real-time usage. That's good news for rural communities that are looking 
for ways to keep their kids from leaving.

BBR: If the private sector can't afford to build FTTH networks, why do 
municipalities believe that they can do so?

Jim Baller: Local governments have different goals and are not tied to 
the same performance criteria as firms in the private sector. Local 
governments that are building or exploring FTTH networks are not doing 
so to make profits. Nor do they simply want to provide competition to 
the private sector -- although that would be a perfectly legitimate 
goal. Rather, they see FTTH networks as engines of economic development 
(i.e., attracting and holding on to businesses of all kinds and sizes) 
and as critical platforms that will support rich educational and 
occupational opportunities, affordable modern health care, regional 
competitiveness, urban revitalization, and the host of other benefits 
that contribute to a high qualify of life. In short, they view FTTH 
networks as critical infrastructure for the 21st Century, as essential 
as road, power, water and sewer systems. As a result, they can justify 
FTTH projects under traditional infrastructure development criteria: 
they need only contribute significantly to the community's well-being 
and pay for themselves over a reasonable period of time. That time will 
undoubtedly be longer than stockholders in private corporations would like.

This is not to say, of course, that a FTTH system is right for every 
community. For some communities, however, FTTH systems already make 
sense today, and as costs decrease over time, the number of such 
communities will increase.

Tschmidt asks: One of the arguments incumbents used to attack the 
TriCities plan was taxpayer risk. It was funded with General Obligation 
rather then Revenue Bonds. This was not an unreasonable attack - any 
words of wisdom in dealing with this issue? Revenue Bonds are safer 
politically but increase cost. Risk is small but that doesn’t count for 
much getting it approved by voters.

Jim Baller: The public's perception of risk is, and rightly should be, a 
critical factor in any FTTH project. Thus, it is essential, but not in 
itself sufficient, for proponents of these projects to begin with a 
conservative business plan that leaves significant room for revenues and 
cost savings to fall short of reasonable projections and for costs and 
other downside factors to exceed reasonable projections. The TriCities 
had a very solid business plan that withstood several waves of 
microscopic analysis. A substantial segment of the voters understood 
this and were willing to accept the risks involved. But, as we saw, SBC 
and Comcast mounted a massive and disgraceful campaign of disinformation 
that brushed the facts aside and appealed to the public's gut fears. 
With more time and money, the proponents of the project might well have 
been able to obtain a winning margin. They still might in the future. 
For now, however, a majority said "No."

I sympathize with those who believe that SBC and Comcast distorted the 
democratic process to such an extent that the TriCities vote was not a 
true reflection of what a majority of voters would want if they really 
understood the issues and facts. As the fabulous TriCities citizens 
support group showed on their website, www.tricitybroadband.com, and as 
the local politicians and the media came to realize, the arguments that 
SBC and Comcast were making were fundamentally flawed and contrary to 
the facts. Even so, the public spoke at the ballot box, and that's what 
democracy is all about. In the future, proponents of FTTH projects will 
have to communicate the facts to the public more effectively -- from the 
very outset, and over and over again. The TriCities experience was one 
from which all concerned learned a great deal.

BBR: How do you answer the charge that municipalities should not compete 
with the private entities that they regulate?

Jim Baller: The premise underlying this question is incorrect. Local 
governments do not regulate telecommunications providers -- that is done 
by the federal government and the states. Internet access providers are 
generally not regulated by any level of government. Local governments do 
manage public rights of way, but this is subject to federal and state 
non-discrimination and competitive neutrality requirements. Besides, 
incumbent cable and telephone companies are already in the public rights 
of way, so they can hardly claim to be adversely affected by local right 
of way management practices. Local governments do typically regulate 
cable service providers, but this is done through cable franchises that 
implement well-defined federal policies and standards. Local governments 
rarely, if ever, impose more onerous conditions on a private cable 
provider than they impose on their own cable utility. For one thing, 
local governments typically have master cable ordinances that apply 
equally to all cable operators in the community. For another, to head 
off potential claims of bias, local governments today typically subject 
themselves to substantially the same terms and conditions as the 
incumbent cable company.

BBR: What about the charge that municipalities do not pay taxes and have 
access to tax-advantaged financing?

Jim Baller: Municipal utilities typically make payments to the local 
government that are equal to or higher than the local taxes that private 
communications providers pay. Municipal utilities do not pay income 
taxes because they do not make profits. On the other hand, they also do 
not have access to the billions of dollars of tax credits, accelerated 
depreciation and other tax benefits that are available to private sector 
providers.

The supposed benefits of tax-advantaged are often illusory, especially 
in today's fianancial markets. It often turns out that the very 
significant restrictions and burdens associated with tax-advantaged 
financing are simply not worth the potential savings of a few basis 
points in costs. As a result, local governments are increasingly 
financing broadband projects through taxable instruments. For example, 
the FTTH system in Kutztown, PA, was financed through taxable bonds. By 
contrast, the major cable and telephone companies have access to the 
best commercial rates.

BBR: How about the assertion that municipalities can cross subsidize 
communications services with revenues from other sources.

Jim Baller: Municipalities today are careful to avoid 
cross-subsidization. The private sector, by contrast, engages in cross 
subsidization on a massive scale. At a recent conference, I asked a 
fellow speaker who was representing the industry's point of view whether 
private sector providers would be willing to comply with the "level 
playing field" requirements that he was espousing for municipal 
broadband providers. His answer was, "Why should we? We are and should 
be free to do anything to maximize revenues for our shareholders." Fine. 
But then let's get off our high horses about the need to impose level 
the playing field requirements on municipal broadband providers. More on 
this later.

BBR: Comcast and SBC claimed in the TriCities, and they continue to 
claim elsewhere, that many municipal communications systems have failed. 
What's your answer?

Jim Baller: This is absolutely false. For starters, I urge readers to 
visit www.tricitybroadband.com, where the flaws of Comcast's and SBC's 
claims are laid bare point by point, system by system. Special thanks to 
Annie Collins for pulling this information together.

Let me also add a few other points. In 1998, Professors Ronald Rizzuto 
and Michael Wirth of the University of Denver studied the case histories 
of four municipal cable systems and concluded that such systems are 
generally unsuccessful and unsustainable. The professors qualified their 
conclusions in three important respects: (1) they were examining only 
revenues from cable services, and not other potentially significant 
revenue sources such as telephone and broadband services; (2) the study 
used performance criteria applicable to private sector projects, even 
though municipal objectives are fundamentally different; and (3) some of 
the municipal systems studied were at an early stage, before they were 
fully operational. The cable industry loves to quote the conclusions of 
the Denver study but somehow always forgets to mention these qualifications.

Let's take a closer look. One of the systems studied was the municipal 
cable system of Glasgow, KY. The residents of Glasgow love their system 
because it has given them low-cost, high-quality cable service, and, 
since the mid-1990s, bargain-basement access to the Internet at 4 Mbps. 
Yet, according to cable industry, however, the Glasgow system should be 
considered a failure because it has never made a profit. It is quite 
true that Glasgow has never shown a profit, but that is because it sets 
its rates at the lowest possible level that will enable it to recover 
its costs. This policy has saved the citizens of Glasgow more than $30 
million over the relevant period. For a town of 14,000 in rural 
Kentucky, that's not a failure -- its a grand success.

Another system included in the Denver study was the municipal 
communications utility of Cedar Falls, IA. To their credit, the 
professors acknowedged in their report that the system had not been 
operating long enough to generate any meaningful data. Since then, the 
Cedar Falls system has been a rousing success, particularly when 
compared to its next-door neighbor, Waterloo, IA, which shied away from 
establishing a communications utility of its own. The two cities are 
comparable in every way except that Cedar Falls has a municipal 
communications system and Waterloo does not. The result -- economic 
development in Cedar Falls has surged since the system was completed, 
even in the face of the economic downturn, while Waterloo's economy has 
languished. Hardly the profile of a failed system.

I could respond system by system, but the result would be the same. In 
short, SBC and Comcast have not supported, and cannot support, their 
claim that municipal communications systems have often failed.

lml2000 asks: How much of the municipal infrastructure buildout and/or 
operation is a local agency willing to subcontract out to a private 
party? i.e. network design, construction, operation, customer service, 
home installs)...and How does this impact the opportunity to receive 
either tax-exempt or taxable financing, and the ability to establish 
public/private joint venture partnerships?

Jim Baller: There is no single answer to your question because 
circumstances differ widely from community to community. For any 
particular community, a fact-specific analysis would be necessary. Among 
the many case-specific issues that would have to addressed are: What are 
the community's goals, needs, facilities, experience, expertise, risk 
philosophy, legal infrastructure, demographics, etc.? What kinds of 
businesses, educational institutions, health care facilities, etc., does 
the community have? What are the strengths, weaknesses and interests of 
potential partners? What technologies are going to be used and why? What 
opportunities exist for regional operations? How would a public/private 
partnership work? How would the project be financed? What are the tax 
consequences of the different methods of structuring the project?

lml2000 asks: What type of bond financing structures have you come 
across? (i.e. user fees, taxes, G.O.) What is the typical size of such 
financing? $5MM? $10MM? $20MM? Has there been any interest by the bond 
insurers, rating agencies in studying these deals and adopting some 
format for establishing underwriting risk?

Jim Baller: I've run across all of the methods of financing mentioned as 
well as numerous others. My expertise does not lie in project finance -- 
we bring in specialists for that -- so I would prefer not to offer any 
rules of thumb. I can say, however, that the financial community seems 
eager to finance municipal deals that are solidly put together.

ronpin asks: Maryland's challenge to the FCC franchise exemption for 
"Information Services" seem destined to be upheld this month. What 
exactly should a FTTH data-only (information svc. only) expect from a 
municipality when overbuilding? A franchise with no fees? no franchise? 
-- just a ROW permit?

Jim Baller: I'm not sure that I fully understand the question, but let 
me take a stab at it. In March 1992, the FCC issued a declaratory ruling 
in which it classified Internet access service over cable modems as an 
"information service" rather than a "cable service" or a 
"telecommunications service." The FCC did not exempt Internet access 
service from all franchise fees, as the cable industry would have you 
believe. The FCC said only that a local franchising authority that bases 
cable franchise fees solely on gross revenues defined in terms of the 
Cable Act's definition the "cable service" cannot logically charge 
franchise fees on Internet access service. The declaratory ruling is now 
on appeal before the federal court of appeals in California, and at oral 
argument a week ago, it appeared to many observers that the court might 
overturn the ruling. In any event, the FCC went on to say in the 
declaratory ruling that some state laws may allow local franchising 
authorities to charge fees on Internet access service based on the 
provider's use of the public rights of way rather than to the Cable 
Act's definition of "cable service." The FCC is now considering whether 
to preempt such state laws, and it has not yet made a decision on that 
issue. Also, the FCC has not yet determined how to classify Internet 
access service over wireline facilities -- e.g., DSL.

To make matters more complicated, there are two proceedings now before 
the FCC in which providers of Voice over Internet Protocol (VoIP) are 
arguing that, to encourage growth of the Internet, the FCC should 
classify VoIP as an "information service," even though, to users, the 
service looks just like telephone service over the Public Switched 
Telephone Network. The Bells have vigorously fought treating VoIP as an 
"information service," arguing that a phone call is a phone call, no 
matter what facilities are used to provide it. Stay tuned.

What should an overbuilder that uses the public rights of way expect 
from a municipality? That will depend, in part, on the state involved 
and on the outcome of various FCC and court cases. As counsel to 
municipalities, I will certainly try to help them ensure that 
overbuilders pay fair, reasonable and non-discriminatory compensation 
for use of the rights of way.

dyoo78 asks: Some argue that telecommunications service, in particular, 
broadband service, is a natural monopoly. If that is the case, why then 
should municipalities duplicate telecommunications service providers' 
efforts? Should municipalities deliver local telecommunications service too?

Jim Baller: I don't agree with the argument that telecommunications 
service is a natural monopoly. Broadband is certainly not. I also 
believe that municipalities should be able to provide any service that 
the community wants them to provide.

JakCrow asks: Why aren't the phone and cable companies addressing the 
reasons for the municipal push? Municipal broadband is developing 
because people are tired of the bad service, high prices, and lousy 
coverage, yet the phone and cablecos would rather spend money using 
propaganda to fight municipal projects than fix their own problems.

Jim Baller: I believe that there are many good people working for cable 
and telephone companies who would like to deliver good products at 
reasonable prices and also offer good service. Consider, for example, an 
article in the Tacoma News Tribune on May 19, 2003, in which Comcast 
spokesman Steve Kipp said that competition with Tacoma's Click! Network 
was a good thing for all concerned, including Comcast. Specifically, Mr. 
Kipp was quoted as saying that: "It's that competition that has really 
spurred the additional investment in cable and customer service." 
(link). Think of where we would be if Comcast, as a whole company, acted 
as though it really believes this. Unfortunately, as a company, it does not.

As I noted earlier, cable and telephone companies have invested vast 
sums in their HFC and copper infrastructures, and they have powerful 
incentives to maximize returns on these investments. Municipal broadband 
projects are very scary to them, even in small markets that they would 
otherwise ignore, because once the public sees what's really possible, 
the cable and telephone companies will find it difficult to defend their 
inferior products and services. In my opinion, that's good for the U.S.

Tschmidt asks: Wholesale vs retail biz model. Internet connectivity can 
be deployed as either wholesale service where various ISPs compete to 
deliver services over the Municipal network, or the municipality 
provides retail service directly. CATV service does not lend itself to 
multiple service providers. The same wholesale vs retail biz model 
applies but there can only be one retail provider. Opinions as to the 
best way to deploy service?

Jim Baller: I've just participated in a month-long debate on this very 
issue with some of the leading experts in the field. The whole debate 
will be published in the current issue of The Cook Report. There were 
lots of interesting ideas, but no firm consensus was reached .

In my opinion, wholesale and retail are not necessarily inconsistent 
models, particularly for FTTH systems that can accomodate multiple 
providers. For example, the City of Bristol, VA, expected that several 
private-sector providers would come forward to offer a range 
communications services on the City's open-access FTTH system, with the 
City just operating the system and filling service gaps. As it turned 
out, the CLEC that was going to offer telephone service went bankrupt, 
and no cable provider was willing to compete with the incumbent cable 
operator. Thus, the City had a choice -- either abandon its system and 
forgo the economic development and other benefits that the system was 
intended to provide, or expand its own retail offerings. Although the 
City chose the latter course, the system is still open to any private 
provider that wants to ride on it.

Also, we know that municipal retail can work -- it has for a century in 
the electric power area. We don't yet have proof that a wholesale model 
works in practice. The UTOPIA wholesale-only project has just gotten a 
"thumb's up" on its feasibility study. But even if UTOPIA succeeds, that 
does not guarantee that wholesale-only projects elsewhere, operating 
under different conditions, will also succeed. In my opinion, 
municipalities should have the right to choose for themselves whatever 
model they believe to be in the community's best interest.

Dyoo78 asks: Robert Crandall and crew keep insisting that asymmetric 
regulation has alot to do with U.S. broadband woes? How credible are 
those arguments and where do you stand on regulating cable companies and 
ILECs differently?

Jim Baller: With all respect to Robert Crandall, et al., I doubt that 
asymmetric regulation has had much, if anything, to do with our Nation's 
"bandwidth woes." Furthermore, I think that putting everyone on the same 
regulatory track without accounting for the historical and other 
differences between providers is a formula for trouble.

As Robert Pepper, Chief of the Office of Planning and Policy of the FCC, 
has succinctly observed, "[W]e hear all the time, the argument by 
incumbents, that ... ‘Well, we are regulated, but these new entrants, 
providing new services, are not regulated, and we need to have a level 
playing field. We need to make sure that everybody is treated the same.’ 
There are two kinds of asymmetric regulation. One is where you have 
firms that are similarly situated and treated differently. That is a bad 
thing; it leads to all kinds of distortions. Likewise, if you have two 
firms that are not similarly situated and are radically different in 
their circumstances, but you treat them the same, that also leads to all 
kinds of distortions." R. Pepper, Policy Changes Necessary to Meet 
Internet Development, 2001 L. Rev. M.S.U.-D.C.L. 255, 257 (2001) 
(emphasis added).

While we're on the topic of asymmetric regulation, I have great concerns 
about the laws that a number of states have enacted, or are considering 
enacting, to create a "level playing field" between public and private 
communications providers. Tom Hazlett, a former chief economist of the 
FCC, has shown that such laws weigh heavily in favor of incumbent and 
make meaningful competition very difficult, if not impossible, to 
achieve. T. W. Hazlett and G.S. Ford, The Fallacy of Regulatory 
Symmetry: An Economic Analysis of ‘the Level Playing Field’ in Cable TV 
Franchising Statutes, 3 Business and Politics 21, 43 (2001), pdf link. 
In my opinion, laws such as these are unnecessary and counterproductive.
Posted 05-21 18:45 See: exclusive