Overcoming State Laws for Municipal Broadband Networks

As the Longmont case study demonstrated, state government can get in the way of communities that want to establish their own networks. According to consumer-focused group BroadbandNow, 25 states have enacted laws that burden municipalities trying to solve broadband access problems by creating their own networks.¹ The Institute for Local Self-Reliance and communications law firm Baller Stokes & Lide have identified 19 states with substantial barriers to public communications initiatives and public-private broadband partnerships, including explicit prohibitions on public broadband services.²

The difference in the total number of states with laws against municipal broadband networks demonstrates that the types of laws and legal restrictions that target community broadband vary widely from state to state. Some states, like Missouri, Pennsylvania, and Texas, explicitly prohibit municipalities and municipal electric utilities from directly or indirectly selling specified telecommunications services to the public, or selling or leasing telecommunications services to the public or other private communications providers.³ Other jurisdictions impose obstacles rather than bans. For example, Louisiana and Virginia require communities to hold a referendum before providing any services, which can be time-consuming and costly, and which allow incumbent ISPs to outspend proponents of community networks. Additionally, communities in Utah and North and South Carolina face significant bureaucratic barriers in the form of procedural requirements that would be difficult for any ISP, public or private, to meet.⁴

Many communities also face restrictions that may superficially appear to be benign—and were promoted by incumbent carriers as necessary to achieve “fair competition” and “a level playing field”—but are in practice highly discriminatory and prohibitory. For example, in Florida, municipal telecommunications services are taxed even though there are no comparable taxes for other municipal services sold to the public. In addition, some states have enacted laws of general applicability that cover all local government activities in the state, not just communications matters, and impose challenging requirements such as finding alternative sources of funding beyond tax revenues. Further, some state laws allow community broadband initiatives and public-private partnerships but bar or restrict their access to state broadband subsidies. Other approaches that impose obstacles include those in Nevada, which sets caps on the population size of a service area.

These state laws impose serious disadvantages to local economies and communities across the nation, and can stifle the ability of localities to serve their constituents’ telecommunications needs. For instance, by limiting communities' abilities to create their own broadband networks, when incumbent ISPs face troubles with connectivity, there are fewer connectivity solutions available to residents. This is particularly important in times of crisis. The COVID-19 pandemic has demonstrated just how important it is for people to be connected as they stay at home for public health reasons. More than ever, people need internet access to work, receive government services, and continue their education online.⁵

The divergent paths of three municipal broadband networks in Utah, namely UTOPIA, iProvo, and the Spanish Fork Community Network (SFCN), exemplify the harmful effects of such restrictions on municipal broadband and communities’ access to affordable and high-speed internet. Based on its exemptions from restrictive state laws, SFCN, the oldest of the three networks, was able to flourish whereas UTOPIA and iProvo have struggled.

Construction on the SFCN began in 2001 with a $7.5 million revenue bond, which the city paid off in 2015 as planned. This was also the year the municipal network began upgrades to provide 1 gigabit service to residents for $75 per month, including free installation, no contracts, and a free first month.⁶ As of 2012, 80 percent of Spanish Fork residents were customers of SFCN, and the city made a net income of about $1 million per year. The network has its own TV channel and production studios, and a biweekly city news show. It services all municipal buildings and facilities, and was credited with ensuring that updates from the government on road blockages and clean-up efforts were broadcast.⁷

SFCN has succeeded in contrast to its Utah counterparts due to its exemption from the Municipal Cable TV and Public Telecommunications Services Act, which passed the Utah state legislature in 2001. Incumbent ISPs were largely behind drafting the law, which limited future municipal networks in Utah (including UTOPIA and iProvo) to operating as wholesalers only. As a legacy operator, SFCN was allowed to continue using the direct retail model.⁸ A wholesale model is much more challenging to maintain than a direct retail model, as it entails less control of service quality and requires splitting revenues with third parties.⁹ The act, therefore, made it much more difficult for a municipal broadband network to be financially solvent. The director of information systems for Spanish Fork, John Bowcut, noted, “The wholesale model has not proven successful,” and that he does not “envy the position of being millions of dollars in debt and having someone else do your customer service,” referring to the difficulties faced by the two other Utah municipal networks.¹⁰

SFCN services local businesses and residents directly, whereas iProvo and UTOPIA, limited by the law to a wholesale model, can only sell their capacity to other service providers. The legislation also creates restrictions on how to structure debt, in addition to standard requirements of holding a preliminary public hearing about a potential network, hiring a feasibility consultant to conduct a feasibility study, ensuring that average annual revenue would exceed average annual costs by the amount necessary to meet bond obligations based on results from the first year of a feasibility study, as well as a five-year projection of all costs involved in purchasing, leasing, constructing, maintain, or operating the network, as well as revenues.¹¹

In addition to this preliminary work, the law requires that a referendum be held on whether the municipality shall provide telecommunications services. If a municipal broadband network is successful, it is also restricted to offering its services, “within the geographic boundaries of the municipality,” which prevents it from expanding across town lines.¹²

Despite the legislative hurdles, however, UTOPIA and iProvo have continued serving their communities. In recent years, UTOPIA has shown positive improvements. The network has covered its bond payments with revenue since 2018, and the Utah Infrastructure Authority can now issue bonds itself, no longer requiring cities in the network to use their bonding capacity to back costs. Customers also have access to 10 Gbps broadband service with UTOPIA, the first service of that speed in the state.¹³

Beyond Utah, other states like Nebraska have enacted laws that explicitly prohibit municipalities from directly providing telecommunications services or partnering with a private company to offer service.¹⁴ Public utilities in Nebraska are prohibited from offering retail broadband services, and though they may own, sell, or lease dark fiber (optical fiber already laid into the ground, but not used) to a private ISP, they cannot sell or lease dark fiber and broadband infrastructure at rates lower than what incumbents charge.¹⁵

Despite these stringent state-level legal restrictions, Lincoln, Neb. has been building city-owned and operated fiber infrastructure with the help of local communications company ALLO. Private ISPs can pay the city to use the fiber to offer broadband service to customers over the network. The city is also requiring ISPs to make any additional conduit they add to the existing network available to all other ISPs within the system.¹⁶ ALLO itself offers 1 Gbps service at $99 per month, followed by $70 per month for service advertised to reach 300 Mbps and $45 per month for service advertised to reach 20 Mbps. This well exceeds the average speed of broadband service in Lincoln, which the city reported was anywhere between 4 and 12 Mbps.¹⁷

Similarly, in Arkansas, one of the least connected states in the United States with an average broadband speed of only 29.1 Mbps, municipalities are making some progress in overcoming the obstacles imposed by state law. Arkansas’s eight-year-old law blocking municipal broadband was partially overturned in March 2019.¹⁸ Since 2011, the state had explicitly banned municipalities from building their own networks. The 2019 law still requires that any Arkansas municipality must acquire a grant or loan from a second party in order to build a network, and allows for deployment only in unserved areas. However, its passage demonstrates that communities are moving toward creating their own networks that can improve the quality of their internet service and connection.¹⁹

Communities in North Carolina are facing similar challenges from state legislation, and still have much to overcome. North Carolina’s law places serious restrictions on the ability of local governments to create municipal broadband networks. Interested governments must price their services comparably to private providers, and they must also make payments in lieu of taxes that equal the taxes and fees a private ISP has to pay. There are also additional bureaucratic hurdles. Current state legislation requires cities to hold a public hearing process before setting up their network. This process must include a period for private providers to comment on the entry of a municipal competitor, and allow for the solicitation of public-private partnership proposals before a municipality considers building its own network.²⁰

Municipalities in North Carolina may also only offer broadband services to those within municipal boundaries. This requirement alone has frustrated residents in towns and cities near Wilson, N.C., which has provided affordable, high-speed broadband service to its residents through its municipal broadband network, Greenlight, for over a decade. The Greenlight network even offers 1 Gbps internet, but due to state legislation, cannot service residents of surrounding areas who are calling to be served.²¹ Therefore, the North Carolina League of Municipalities is pushing state lawmakers to pass legislation that would authorize local governments to raise money for broadband infrastructure from taxes and borrowed funds, spend money on broadband infrastructure, and lease such infrastructure to private and non-private entities.²²