Fine Print - August 2010

Modem come of success
By G.D. Gearino

We think of the past as a simpler time, and indeed it was — specifically 2008, when private companies offered cable service and Internet access, cities contented themselves with matters like zoning issues and sign ordinances, and never did those twains meet. Well, they have now. The city of Wilson borrowed $28 million to build its own fiber-optic communications system, other cities have similar plans in development, and the General Assembly has been called upon to sort out the rules. Trouble is, this is one of those bizarre moments when everyone on all sides of the issue is wrong. Or, if you have a sunnier view of the world than I do, everyone is right.

It’s helpful to recall that our modern era isn’t really all that far removed from the time when electricity and indoor plumbing were absent from great chunks of the country. In fact, whenever I feel the need to establish my bona fides as a common man, I point out that childhood weekend visits to my grandparents’ home in rural Georgia involved trips to the outhouse and baths in a galvanized metal tub on the back porch. It’s odd, then, that just a generation or two later the absence of a top-speed Internet connection is considered a societal failing on par with that level of impoverishment — a void so unacceptable that government feels compelled to fill it. (Finland, in fact, has declared broadband access a legal right.) Odder still is the notion that Wilson County, where the state’s first municipally owned cable TV/phone/broadband Internet system became operational two years ago, has a poverty rate 50% higher than the rest of North Carolina. Those two facts, when joined in the same sentence, have a certain Marie Antoinette-ish quality to them: What to do when so many find it hard to meet basic needs? Why, make sure they can download video files quickly!

But the chronic urge among politicians to spend money and time on lesser problems as larger ones go unresolved is a topic for another day. Instead, let’s do this debate-style. I’ll pose the question — should local governments compete with private suppliers of cable TV/Internet access? — and argue both sides myself. (I’m a reflexive contrarian, so taking any opposite position, even simultaneously, is second nature.)

Yes, absolutely. Aside from anarchists — and affected property owners — no one objects when government undertakes big projects that benefit all: roads, dams, water and sewer, etc. A fiber-optic system is just another ambitious betterment of society. Besides, the legality of this was hashed out in the 1930s, when the U.S. Supreme Court ruled that the Tennessee Valley Authority could muscle into the power business, competing directly with private companies. Furthermore, the cable/Internet access business isn’t one that lends itself to vigorous competition, considering that both the up front capital costs to hard-wire a community and the ongoing tech upgrades to the system are discouragingly steep — meaning that consumers rarely have an actual competitive choice. And don’t forget that the company with the most to lose when North Carolina towns get into that business is Time Warner Cable, which many people find easy to hate. (Such is the fate of every near-monopoly; it comes with the territory.) Except for the most committed free-marketer, the prospect of Time Warner facing competition from a publicly owned system would seem like rough justice.

No, of course not. Anyone with the power to levy a tax tends to be a terrible businessman, because he is protected from the laws of supply and demand. Wilson’s two-year-old-fiber-optic system, called Greenlight, demonstrates how an operation that allegedly is entirely subscriber-financed in fact is cushioned by public money. To break even, Greenlight needs at least 30% of the city’s roughly 19,000 households and businesses signed on as customers, or about 5,600. To date, it has 4,900 or so — not enough to cover operations and debt service. To make up that shortfall, the city has dipped into its nest egg and borrowed money from its publicly owned natural-gas utility. Needless to say, a private company has no access to that comforting pool of public money. It has to cover a financial shortfall on its own or pass the cost along to customers. And to underscore the point that the game is rigged in favor of government, the city of Wilson also decided to triple the amount it charges Time Warner to hang cable from city-owned power poles — which would simultaneously saddle its competitor with higher costs and generate more income for a city budget stressed by Greenlight’s financial shortfalls. That’s a move any robber baron would be proud to sport on his résumé.

Having argued both sides, I’ll also award myself the right to cast the tie-breaking vote. But first, one final fact: Wilson built its system without asking voters whether they wanted it. In fact, a move in the General Assembly to require approval from voters before a city launched any such project died when municipal lobbyists pushed back. In the business world, executives pay close attention to the express wishes of their financial backers. In the political world, those financial backers are known as “taxpayers” — and if politicians want to run businesses, they ought to let their investors have a say in the matter. If they’re unwilling to do so, then the Nays have it.