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Last week the Federal Communications Commission moved to set aside North Carolina law in favor of the City of Wilson’s Greenlight broadband service. My Spotlight this week explains why this was a bad decision.

The report, "The FCC’s Anti-Competitive Greenlight: Commission is wrong to override North Carolina law for municipal broadband," contains the text of my comment to the FCC while it mulled Wilson’s petition to override the Level Playing Field Act, which limits municipal broadband systems and aims to support competition in local broadband services. The City of Wilson wanted to expand its broadband service to customers in counties outside of Wilson.

The Level Playing Field Act did several things:

  • required future municipal broadband systems to comply with the same federal, state, and local laws faced by their private competitors
  • prevented municipal broadband systems from requiring subscribership from individuals or developments
  • limited their sources of revenue to those generated by the service, not from other services’ funds (such as electricity)
  • forbid them from pricing services below cost
  • disallowed municipalities from using non-voter-approved bonds to fund the service
  • required payments in lieu of taxes to counties and the state equivalent to what a private company so situated would be required to pay

Most of the act did not, however, apply to Wilson’s Greenlight, except that Greenlight was limited to the borders of the county of Wilson. The City of Wilson alleged, and the FCC agreed, that the Level Playing Field Act of 2011 limited Greenlight’s ability to compete.

As argued in my report, this has the idea of competition entirely backward:

A private company cannot legally take money from others involuntarily, whether they are customers and especially if they are not. A private company that cannot stop its losses or cease bleeding money soon ceases to be. A government entrant into the market, however, comes with the guarantee of its losses being borne by taxpayers (or, in some instances here, electricity ratepayers). This guarantee conveys a significant competitive advantage, one that can be leveraged even further to offer heavily discounted rates to serve the government’s want for an incentive to offer businesses for economic development purposes.

In reaching its decision, the FCC overlooked several very important details:

  1. Under North Carolina’s constitution, cities are the creations of the General Assembly (Article VII). The legislature’s authority over municipalities is also reinforced over local taxation and debt (Article V). The FCC’s decision creates a federal end-run around this authority, which could create fissures in North Carolina government.
  2. Wilson and a select few other N.C. municipalities that had set up broadband services did so under a form of debt financing known as Certificates of Participation (COP). Unlike General Obligation bonds, COPs are not subject to a vote of the citizens. Subsequent (and demonstrably predictable) financial struggles by those municipalities’ services meant that local taxpayers were on the hook for bailing out a system which they had no say in setting up.
  3. Legislators knew of the problems from municipal broadband in Wilson, Salisbury, Morganton, and Mooresville and Davidson — they are what informed the passage of the Level Playing Field Act.

By the year the Act was passed, 2011, Greenlight’s losses were mounting. As John Locke Foundation researchers had warned in 2009, Wilson had begun borrowing from its electric and gas funds — $11 million already — even though Wilson’s electricity and gas rates were already higher than others’.

As stated in the report:

It was not and is not the case that broadband consumers in Wilson are without options save for Greenlight. As it is, the Level Playing Field law mostly doesn’t apply to Greenlight, as it is specifically exempted in the statute. Where the law does apply, however, only serves to underscore the problems with the municipality getting into the broadband market. As evident by its borrowing from other municipal funds, Greenlight still needs customers, and the system apparently cannot attract enough within the entire county.

The FCC’s intrusion of its solution into a local political problem is going to encourage even more unfortunate decision-making on local levels in North Carolina. These will further disturb competition, harming service consumers and nonconsumers alike through cross-subsidization schemes.

Such negative outcomes were precisely what the General Assembly, acting in its constitutional oversight role, sought to avoid.

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