News

Forum: Municipal Networks: An Interesting Option

8/23/1998 8:00 PM Eastern

Local governments, like every other entity in our economy,
are challenged by living in the telecommunications revolution. Some, either de facto or by
choice, are the owners of various kinds of telecom resources.

An interesting question arises: What is the appropriate
role for a municipal government regarding ownership of telecom resources? The question is
posed in the singular because there clearly is no universal answer covering all municipal
governments.

Many pundits have argued that information is our new
essential service, with telecom technologies serving as the essential infrastructure. As
roads drove a developing agricultural economy, and electrification powered an
industrial/manufacturing economy, telecommunications connects the information economy.

Few would argue that municipal governments should not
invest to improve the quality of their essential services and, like other major service
organizations, municipal governments are upgrading their basic information systems to do
just that.

In a similar vein, governments are investing in systems to
decrease the cost of providing services. And some technologies allow services that would
otherwise be unaffordable: through cable franchises, cities can afford a government access
channel, where the acquisition of a broadcast station would have been both spectrum- and
cost-prohibitive. And these franchises have enabled many cities to operate
"I-Nets" connecting public facilities -- such as schools, libraries, and
government facilities -- offering improved government services and reduced costs.

Finally, governments are upgrading their internal support
systems to improve operations, meet expanding administrative and legal requirements and to
lower costs wherever possible. Integrated human resources and payroll systems, emergency
response systems, and computer aided dispatch are but a few examples.

Clearly, the business of government requires
telecommunications. The bandwidth requirements of advanced applications require robust,
wide-area networks for connectivity.

Government's need for technological access to locations
throughout a community has led to the growth of typically fiber-rich, municipal area
networks or "MAN's."

As increased bandwidth need is coupled with the dissolution
of monopoly providers, local governments have a responsibility to explore all options to
best plan for the most affordable and most useful network that will meet present and
future needs and budgets.

For a city, these options can include buying network
services from retail or wholesale providers; or building and operating its own network.

Or cities can combine these two options by entering into
either joint public/private ventures, or by offering services on their network for sale to
the public -- becoming a service competitor.

Some cities are stepping boldly onto the field of
competitive battle, wrestling for consumer's cash, and, at times, even seeking publicly
supported financing for capitalization and operation of phone, cable, data transport, and
internet services. Are these appropriate government functions? That answer depends not
only on the needs of the community, but on the character of the governmental entity.

As an economic development strategy, it is clearly within a
local government's interest to assure that the community enjoys the best possible telecom
services at competitive prices, both to meet the growing information needs of its
residents and to serve as an attraction for new knowledge-based businesses. To economic
development strategists, telecom networks today offer urban and rural locales the
advantages offered yesterday by the railroad, an airport, a stadium, or a redeveloped
downtown theatre district.

Why would a city seek to compete with private enterprise in
telecom services? After all, the industry is very dynamic, both technologically and
financially. As organizations, municipal governments are not known as "lean and
mean" service providers. What can they possibly offer to the telecommunications
consumer that private enterprise cannot?

The simple answer to that question is: Probably nothing.

However, the question should be framed somewhat
differently: What can municipalities possibly offer to the telecommunications consumer
that private enterprise will not offer?

The answer to that question is not simple. For one thing,
it depends on the consumer. If the consumer is poor and the service is Internet access,
the need may not be met by the market place -- period. If the consumer is a small business
and the service is a very high-speed data line, the need may not be met by the market
place at a price the consumer can afford. The overall community well-being can suffer in
the absence of service, or of affordable service.

The decades-old concern about information "haves vs.
have-nots" is now a measurable trend. A 1997 study found that higher percentages of
ethnic minorities were unfamiliar with the internet than whites. A study released in 1998
reported clear, and not surprising, delineations of computer penetration based on
household income: those with money had access to the information infrastructure; those
without, don't or can't get online. It would appear that the makeup of our communities is
becoming more stratified, not more unified. And local governments deal first, and
first-hand, with the deleterious effects of such stratification.

To prevent damaging social consequences, a city may
incorporate telecom services into its solutions. Some provide computer access, e-mail
addresses, and Internet access through libraries and community centers.

The debate over the appropriateness of a government-owned
network should focus on a few key issues. The first: What is the nature of the municipal
authority? Does it have the experience, the culture and the human resources to operate an
advanced telecommunications network? The second issue: What is the constituency being
served and can its needs be met best by the private markets? The third issue: Is it fair
to have the authority that manages the rights-of-way compete with users of the
rights-of-way?

Addressing the last issue first, it seems clear that a
municipality that coordinates its regulatory role with its competitive role for the
purpose of aiding its own success in the market place to the detriment of private
competitors could face antitrust liability. While this is a legitimate issue for debate,
most municipalities and their attorneys are very cognizant of their exposure and will not
venture forth into the competitive environment until appropriate safeguards are in place.

As for the nature of the municipal authority, if the
municipality operates its own utility enterprises, it may well have the culture and the
human resources to construct and manage a MAN.

In contrast, if the municipal authority has no experience
in providing utility services directly to paying customers, then it may be difficult for
the organization to manage a competitive telecom network. However, since many cities that
do not operate utilities do lease real property to private entities, it may be deemed an
acceptable risk for such a city to build infrastructure, like conduit in the
rights-of-way, for the purpose of leasing it to competitive telephone and cable companies.
The unique character of each city must be considered.

If information is truly an essential service, then
governments have a traditional role to fulfill -- making certain that this essential
service is available to everyone, at prices that will enable all but the most
disadvantaged to partake without subsidy.

Some providers have responded to the perceived threat of
municipal competition by seeking legislative relief in the form of state laws prohibiting
the construction of municipal networks. The irony of this approach is apparent. Carriers
and operators that should have an overwhelming competitive advantage in terms of human
resources, organizational structure, market experience, motivation and existing market
share have eschewed competition for protection from a higher governmental authority.

Whether or not a city chooses to enter into the competitive
market, either at the wholesale or retail market -- through public/private ventures, or
through direct sales to businesses and residents -- is a serious question requiring
thorough and thoughtful analysis. This is not a decision that should dictated to cities
from another distant authority, or an industry seeking competitive protections. It is an
appropriate debate for any community.

Governments are often criticized for being slow-moving,
costly, bureaucratic behemoths. Clearly, we should applaud the innovators who seek to do
the business of local government better. Can these innovators succeed in a competitive
telecommunications world? Some may, some may not. The burden of choice -- to enter a
market or not -- is great for local government, worthy of extensive local debate and
careful review of market conditions, community needs, and business factors that will
determine long term success. Opportunities need to be explored: consider options for
infrastructure and services: why not privatize some public services, and expand public
provision of traditionally "private" services?

In an idealized world, the availability of adequate
infrastructure, advanced telecom services and affordable prices will be provided in a
timely manner by private companies engaged in vigorous competition. However, until
consumers see that idealized world, it is most clearly in the public interest for local
governments to exercise freely their right to debate, discuss, analyze, and make difficult
choices about telecommunications infrastructures. Cities must have the option to explore
all techology and service innovations, to do the business of government better, to
preserve the economic vitality of their tax base, and to enhance the quality of life that
is unique to, and uniquely defines, each community.

Brenda J. Trainor is vice president of Media Connections
Group, a San Francisco-based consulting firm. She also serves on the board of the National
Association of Telecommunications Officers and Advisors as PR chair and co-chair of the
Advocacy and Policy committee.

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