Introduction

States that restrict municipalities from offering Internet service to residents could see their laws overturned if they based the bills on a model offered by a conservative legislative group.

Many of the provisions in the model legislation promoted by the American Legislative Exchange Council (ALEC) were incorporated into a North Carolina law that was knocked down by the Federal Communications Commission in February, according to a Center for Public Integrity analysis.

ALEC, a self-described free-market think tank made up of mostly Republican state lawmakers and funded by corporations and trade groups, created a model municipal broadband law in 2002 that makes it difficult, if not impossible, for cities to build their own networks. The goal of the legislation is to keep cities from what the group views as unfairly competing with large Internet providers such as Comcast Corp., Time Warner Cable Inc., Verizon Communications Inc. and AT&T Inc. All four companies have donated to ALEC and some executives have served in leadership positions on committees and boards.

About 20 states have passed laws that either outright ban cities from building networks or places requirements that make it almost financially impossible to develop one. Many of the laws have provisions that are similar to ALEC’s model bill.

Now they risk the same fate as North Carolina. In February, the FCC voted to preempt that state’s law and another in Tennessee that restrict cities from building or expanding broadband networks. The Tennessee attorney general is suing the FCC to overturn the decision.

In its order, the FCC cited numerous provisions in North Carolina’s law that violate the Telecommunications Act of 1996. Six of those provisions are nearly identical to ALEC’s model legislation, according to a Center for Public Integrity analysis of the FCC order.

By citing those six provisions, the FCC has by extension struck down much of ALEC’s model law, said Jim Baller, an attorney who represented Chattanooga, Tennessee, and Wilson, North Carolina, when they asked the FCC to preempt their states’ broadband laws.

“Because the North Carolina law uses similar language to that found in the ALEC model legislation, it would seem to follow that any other state that has relied heavily on the ALEC model has also effectively banned municipal broadband investments,” Baller wrote in an email.

ALEC has cited the North Carolina law as a good prototype for other states.

Bartlett Cleland, an ALEC member and policy counsel for the Institute for Policy Innovation, a Texas-based think tank that promotes limited-government and free-market policies, said in an email that the ALEC model legislation doesn’t ban or create obstacles to city-run Internet networks, but gives citizens more say in municipal decisions.

He referred to a provision in the model law that requires a city to hold a referendum on whether it can build a network. Cleland called such requirements “good government, working to include constituents as much as possible in decisions. In the same way, ALEC’s model legislation does the same for municipal broadband – protecting citizens and given them a say in outcomes that effect them.”

The FCC disagreed. It said North Carolina’s law requiring a referendum, along with other related restrictions, “conflict with Congress’s mandate to encourage the deployment of broadband and infrastructure investment. The Commission must, as directed by Congress, take action to remove these barriers.”

Below are the six provisions in North Carolina’s municipal broadband law that are similar to ALEC’s model legislation, and what the FCC had to say about them.

1. Geographical limitation

N.C. law – HB 129

160A-340.1 (3) “A city-owned communications provider shall … Limit the provision of communications service to within the corporate limits of the city providing the communications service.”

ALEC model legislation

“A municipality may not offer to provide or provide cable television services or public or advanced telecommunications services to a subscriber that does not reside within the geographic boundaries of the municipality.”

FCC Order

“On its face, there is no doubt that the territorial restriction contained in [N.C. HB 129] is a barrier to deployment and competition.

2. Pricing restrictions

N.C. law – HB 129

160A-340.1 (8) “A city-owned communications provider shall … not price any communications service below the cost of providing the service, including any direct or indirect subsidies received by city-owned communications service provider … The city shall in calculating the costs of providing the communications service, impute … an amount equal to all taxes, including property taxes, licenses, fees, and other assessments that would apply to a private communications service provider, including federal, State, and local taxes; rights-of-way’ franchise, consent, or administrative fees; and pole attachment fees.”

ALEC model legislation

“In calculating the rates charged by a municipality for a cable television service or a telecommunications or advanced service, the municipality … may not price any … service at a level less than the sum of the actual direct costs of providing the service; the actual indirect costs of providing the service; and” an equal amount private providers pay in “federal, state, and local taxes; franchise fees; permit fees; pole attachment fees” and similar fees.

FCC Order

“Reading the provisions together, it is apparent that North Carolina has singled out communications services supplied by municipalities for more restrictive treatment and has done so to promote its preferred competitive arrangement in the interstate communications market…. We therefore view these restrictions as within our authority to preempt.”

3. Legal compliance

N.C. law – HB 129

340.1(a)(1) “A city-owned communications provider shall … Comply … with all local, State, and federal laws, regulations, or other requirements applicable to the provision of the communications service if provided by a private communications service provider.”

ALEC model legislation

“A municipality that provides a cable television service shall comply with: the Cable Communications Policy Act of 1984 …; and the regulations issued by the Federal Communications Commission under the Cable Communications Policy Act of 1984 …. A municipality that provides a telecommunications or advanced service shall comply with the Telecommunications Act of 1996 …; the regulations issued by the Federal Communications Commission under the Telecommunications Act of 1996 …; applicable state statutes …; applicable rules of the state Public Service Commission.”

FCC Order

North Carolina, while requiring municipal providers to comply with requirements “that would apply to a private-sector provider, [it] does not relieve the municipal provider of any requirements that apply to all municipal operations, such as ‘open records requirements, civil service rules, Buy American provisions, and much more…. The result is a double burden for municipal providers,” and therefore impedes broadband deployment and competition.

4. Subsidies

N.C. law – HB 129

340.1(a)(7) “A city-owned communications provider shall … not subsidize the provision of communications service with funds from any other noncommunications service, operation, or other revenue source, including any funds or revenue generated from electric, gas, water, sewer, or garbage services.”

ALEC model legislation

“A municipality may not cross subsidize its cable television services or its public or advanced telecommunications services with tax dollars; income from other municipal or utility services; below-market rate loans from the municipality; or any other means.”

FCC Order

“The statute imposes no parallel limitation on private-sector providers, which often have multiple lines of business. As with other provisions, if anything, the restriction makes the city’s service more risky by limiting the city’s ability to compete for customers.”

5. Public hearings

N.C. law – HB 129

340.3 “A city or joint agency that proposes to provide communications service shall hold not fewer than two public hearings, which shall be held not less than 30 days apart, for the purpose of gathering information and comment” and disclose in advance any “feasibility study, business plan or public survey conducted or prepared by the city in conjunction with the proposed communications service.”

“Notice of the hearings shall be published at least once a week for four consecutive weeks in the predominant newspaper of general circulation in the area in which the city is located.”

ALEC model legislation

“… the legislative body … shall schedule at least two public hearings to be held … at least seven days apart; and for the purpose of allowing the feasibility consultant to present the results of the feasibility study; and the public to become informed ….”

“… the municipality shall publish notice of the hearings … at least once a week for three consecutive weeks in a newspaper of general circulation in the municipality.”

FCC Order

“… subjecting municipalities to these requirements may give private communications providers a competitive advantage such as access to sensitive business information that could be used to undercut municipal broadband networks.”

6. Referendums

N.C. law – HB 129

340.4 A city must hold an election “on the question of whether the city may provide communications service.”

ALEC model legislation

“A legislative body by a majority vote may call an election whether or not the municipality shall provide the proposed cable television services; or telecommunications or advanced services.”

FCC Order

This and other restrictions North Carolina law imposes “conflict with Congress’s mandate to encourage the deployment of broadband and infrastructure investment. The Commission must, as directed by Congress, take action to remove these barriers.”