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Tired of Slow Speeds, Some Cities Build Their Own Net, Cable Firms

Public networks are a boon to some consumers but raise legal and policy questions and the ire of private competitors.

January 11, 2004|Jube Shiver Jr. | Times Staff Writer

NEWNAN, Ga. — For years, Harry Belcastro bought Internet and cable TV access from Earthlink Inc., Comcast Corp. and other telecommunications companies.

Then, when Belcastro and his family moved to this Atlanta suburb two years ago, he signed up with an unusual service provider: the city of Newnan, population 16,000.

For $25 a month, Newnan residents can hook up to a high-speed Internet connection. For $30 more, they can subscribe to a 74-channel cable TV package. They also can buy $30-a-month local phone service with caller ID, voicemail and 13 other add-ons most carriers charge extra for.

The big selling point for Belcastro, though, was a super-fast commercial-grade Internet connection for his home-based businesses.

"We couldn't afford this anywhere else," said Belcastro, noting that the bundle of services offered through Newnan's $40-million network would set him back more than $1,000 a month if he bought it all from the private sector.

He pays less than half that.

Frustrated by a slow or spotty rollout of high-tech communications services, 357 municipalities have dug up streets to build their own networks and compete against companies that they in some cases also regulate.

The number of cities with their own services has grown 54% in the last two years, according to a report by the Progress and Freedom Foundation, a Washington think tank. The trend is fueling welcome investment in networking equipment two years after the epic collapse of the $400-billion-a-year telecommunications industry drove thousands of independent Internet service providers and telecom companies out of business.

But at the same time, the municipal ventures are raising ethical, legal and financial questions about the wisdom of using taxpayer money to wire communities.

Critics say the current spending spree on government-run networks recalls the billions that cities spent building professional sports facilities in the 1990s in largely unsuccessful efforts to stimulate economic development.

Privacy Concerns

Government-run networks also raise free speech and privacy concerns because government ownership of telecom facilities raises the specter of politicians' influencing programming on local cable TV systems or even spying on citizens' e-mail. And private-sector rivals complain that cities don't have to pay income taxes and have easier access to both capital and the public rights of way needed to string communications cable.

"This is not about us being against competition; we just want competition to take place on a level playing field," said Phil S. Jacobs, president of Georgia operations for BellSouth Corp. With cities building their own telecom networks, Jacobs predicted, "the second telecom bubble is about to burst. But this time, instead of shareholders, who know they are taking the risk, it is going to be taxpayers who get hurt."

The issue will come to a head next month, when the Supreme Court is scheduled to hear oral arguments from SBC Communications Inc. and other local phone giants that contend the Telecommunications Act of 1996 allows states to bar cities from building telecom networks.

The landmark law, aimed at prodding the nation into the digital age by deregulating the telecom industry, allows "any entity" to provide telecom services. Congress didn't define "entity," and the phone companies contend that cities don't qualify.

"Our basic position is that we don't believe it is in the public interest for the government to use public funds to build telecommunications facilities," said Paul K. Mancini, SBC's assistant general counsel, who helped write the company's Supreme Court brief.

"Our biggest concern is that, in the absence of an identifiable market failure, it is really not good to have government entities in a competitive market when they regulate that market [and] set franchise fees and the terms and conditions of service -- that's just a classic conflict of interest."

Supporters counter that the growth of city-run networks has been a boon to consumers, particularly in smaller towns and communities where advanced services are either costly or unavailable.

"There are many people in this country that are left in the slow lane with regard to 21st-century communications," said Rep. Rick Boucher (D-Va.), who represents a largely rural district in southwestern Virginia where he said broadband Internet access can cost as much as $1,200 a month. "Local governments should be free to address that problem just as they did a century ago by providing essential electric and water utility service to citizens."

Beyond that, the municipal move into telecommunications is viewed by some as providing powerful encouragement for telecom companies to improve their service and reduce prices.

'History All Over Again'

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