Pa. Bill Blocking Municipal Broadband Services Awaits Signature

If the incumbent carrier tells a municipality that it intends to offer high-speed access service within 14 months, the bill would require the locality to abandon its own service plans. Local networks operating Jan. 1, 2006, will be grandfathered so they can continue without change. Rendell has until Nov. 30 to act and has given no indication whether he'll sign or veto this bill.

Philadelphia this summer announced plans to expand its Wi-Fi service from downtown and adjacent neighborhoods to the entire city before 2007. The current service is free but city officials said citywide deployment would probably require charging users a small fee to cover the estimated $1.5 million annual operating cost. Neff said the city found that the private sector didn’t show promise of providing universal, affordable access to close the digital divide. Dianah Neff, Philadelphia’s chief information officer, said the bill would eliminate all 3 fee-based business models under consideration for the citywide Wi-Fi network. She said enactment of HB-30 will make the city’s plans “more difficult, but it will not kill this project.”

The law would allow the city to provide the Internet access free, Neff said, but that would require finding outside funding. She also said the city could provide services to a middleman such as a consortium of private companies that would retail the services. But that probably would mean a price higher than the $15-$25 monthly that the city had planned to charge for 1.5 Mbps access. She said another option would be to accelerate the rollout of citywide service so the system would up everywhere soon enough to be grandfathered.

The city, Neff said, had planned to invest $7-$10 million in the project, intended to spur economic development and provide low-income areas with broadband access. She said about 60% of the city -- mainly low- income and thinly populated areas -- doesn’t have broadband access. Currently, 621 municipalities provide some high-speed Internet access or advanced telecom services, mainly through municipal electric companies. Some states have barred their political subdivisions from providing telecom services, and the U.S. Supreme Court early this year found such restrictions lawful.

The bill would allow incumbent telcos more pricing flexibility for basic services if they agreed to accelerate broadband deployment where it’s lacking. Under the measure, a telco would be allowed to add a broadband deployment factor to its price cap indexing formula, which would allow it larger local rate increases than the unmodified formula. In return, the telco must commit to making broadband available to all customers by 2015.

The bill also would allow individual cities and towns to go to the head of the broadband deployment schedule if they meet certain criteria, such as establishment of local economic development programs, guarantees of a certain minimum number of broadband service customers, or being designated for special attention by the state Dept. of Community & Economic Development. A telco that failed to meet its broadband commitment would have to refund to customers the multiple millions of dollars in rate difference between the modified and original indexing formulas. All Pa. incumbents are under caps.

The bill was strongly criticized by consumer groups. “We have concerns with the bill because there is a provision [in it] that would effectively prevent Philadelphia and other cities from Wi-Fi and other broadband deployment,” said Consumers Union Policy Advocate Kenneth DeGraff. He said under that provision, cities in Pa. would have to let a local telephone company roll out broadband networks before they can do that themselves. “Cities should always have the right to create their own networks,” he said: “A network with the backing of a city could enjoy better penetration, lower costs and wider access for consumers.”

Verizon supported the bill, saying “with its passage, Pennsylvania will have the most aggressive broadband deployment policy in the country.” “Telecom has been a driver in business decisions on whether to remain in the state or relocate,” a spokeswoman said: “If Pennsylvania has the most aggressive deployment policy in the country, that would provide incentives for existing businesses to remain here and for others to move here.” The spokeswoman said “we simply don’t believe” that Philadelphia could do a better job bringing broadband to consumers than Verizon, noting her company had heavily invested in it broadband infrastructure. “We have a schedule of [broadband] deployment by which we abide and we have met or exceeded our objectives,” she said.

“I think the major importance of this legislation is that it brings telecom regulation in Pennsylvania to reflect the real world and that’s really critical for our business,” said Jane Fortin, dir.-regulatory matters for Verizon Pa. She said the previous legislation was drafted in 1993 when there was no Internet and competition present. She said the new legislation “brings the way we are regulated in [balance] with the market in which we operate.” She said the bill would “help Verizon to operate in a more effective way and that means more jobs.”

The Verizon spokeswoman said the bill wouldn’t prevent Philadelphia from implementing its Wi-Fi project. She said there was a grandfather clause in HB-30, stating that if Philadelphia has at least one customer by Jan. 2006, it won’t be governed by the bill’s municipal telecom provision. But DeGraff said the grandfather provision would last only until 2006: “That’s not enough time for Philadelphia to launch the network and it prevents its residents from enjoying the benefits of a municipal network.” Said Fortin: “When you have a legislation that requires a company to make [a big] investment, it’s reasonable that it’s given an assurance that it won’t face competition from the government, which benefits from not having to pay taxes and has a better access to cheap capital.” She said Verizon has committed to provide broadband to 80% of its customers by 2008 and to 100% by 2015.

The CWA also supported the bill. “Our main interest was in the provisions [that would] spur deployment and expansion of broadband throughout the state,” a spokesman said. He said CWA shared many concerns of Verizon and the Pa. legislators: “There are a lot of questions about what Philadelphia is about to do, is it proper to use tax dollars to compete with Verizon, how do they plan to pay for the network and maintain it?”

A Comcast spokeswoman said her company didn’t view the city’s project as something that would impede its service, because “it’s 2 different types of offerings.” But she noted: “It’s important to remember that the city’s project is still in development.” Comcast has invested $39.1 billion since 1996 to provide high-speed Internet service. “Our customers aren’t just coming for connection, but for all the services it enables,” the spokeswoman said.