Broadband Infrastructure Funding Legislation: Almost, but not quite.

This Session, the Maine Legislature is considering no fewer than 20 bills related to broadband access.  Some of these bills focus on applications such as education and telehealth, while others focus on how networks are built and broadband infrastructure funding.

Senator Bellows and Representative Hiddins

Senator Shenna Bellows (D- Manchester) and Rep Norman Higgins (R-Dover-Foxcroft) waiting to announce LD 140 at Broadband Day in the Hall of Flags.

One bill from this latter group is LD 140, An Act To Authorize a General Fund Bond Issue To Support Entrepreneurial Activity, Attract Business and Enhance Demographic In-migration by Investing in High-speed Broadband Infrastructure and To Amend the Law Governing the Municipal Gigabit Broadband Network Access Fund.  The legislation proposes a $10 million bond to fund the Municipal Gigabit Network Act, the municipal broadband infrastructure funding portion of the ConnectME statute.  This bill has bipartisan co-sponsorship by Senator Shenna Bellows and Representative Norm Higgins, not to mention a long list of bipartisan legislators who have also signed on.

If passed, LD 140 would send a $10 million bond referendum to the voters in November.  With voter approval, the ConnectME Authority would administer the funds for municipal broadband infrastructure projects.  Municipalities could receive up to a $200,000 grant with a required 25% municipal match.

We support local control and local investment in broadband infrastructure and we believe that a strong, well-funded, independent State Authority has an important role in supporting these efforts.  However, the Municipal Gigabit Broadband Network Access Act requires open access networks.  While open access networks have their place in the middle-mile and in urban areas, they may not always be the best choice in sparsely populated, rural communities.

LD-140’s Convincing Upsides

While small in comparison to the $40 million Massachusetts earmarked for broadband expansion in its Western Hilltowns, LD 140’s $10 million would be a good start for Maine’s underserved communities. Indeed, the bill offers many positives including:

  • Putting the funds in the hands of the ConnectME Authority is the right decision since the Authority has an excellent grant process and a proven record of success.
  • This legislation has the potential to facilitate high-speed Internet connectivity in at least 50 Maine municipalities
  • The positive economic impact for the design and construction of the networks will be huge for the State. With the required municipal match, as much as $12.5 million will be spent, and numerous jobs will be created.
  • Beyond the initial build, the economic benefit will continue as high-speed Internet connectivity promotes business development and growth.
  • Finally, and in the interest of full disclosure, the legislation will help providers like us deliver services in rural areas where it’s difficult to make a valid business case for large infrastructure investment.

Why Not Open Access?

In theory, an open access network allows multiple providers to deliver services, and compete for subscribers.  However, would they? With a finite number of potential subscribers in a given municipality, a provider needs to estimate how many subscribers will sign up for services and then build pricing based on a reasonable return on its investment. The more the pool of potential revenues is divided, the less opportunity there is for providers to make a return.  The competition we’d like to create might not ever materialize.

It’s important to remember that even when a municipality, with State aid, bears the cost to construct the infrastructure; providers who will use it to deliver services will also have significant costs. These include network design, equipment, bandwidth, labor for installation and support, as well as marketing costs and administrative expenses. A portion of these costs are fixed whether serving 100 or 1,000 and carrying those fixed costs across the population of a small town is a challenge.

The open access requirement could actually undermine service delivery.

Competition Doesn’t have to be House to House Warfare

Recently, we were chosen to serve the town of Leverett, MA as the winner of a competitive bid process.  LeverettNet is a municipally built and owned closed network.  When we answered the Town’s RFP for an Internet Service Provider, we knew how many subscribers we’d have and what the potential for additional subscribers was.  Based on that information we were able to provide an aggressive competitive bid.

The town achieved a $5.00 per month savings for its residents in direct rate reductions vs. the prior provider as a direct result of the bid process.  In addition, we know that we need to provide outstanding service and competitive rates to Leverett customers, or we may lose the business at the end of our contract.  This is a sustainable way to get the benefits of competition without an open access requirement.

What if we could only count on half, or a third of those customers? Since our fixed costs would have remained the same, our pricing would have been higher to compensate for the gamble on projected revenue.  In the worst case, we might have chosen not to take the gamble at all.  Since most providers operate according to the same revenue driven protocol, what happens to that consumer-beneficial competition if most providers choose not to take the gamble?

There is an alternative to ensure that consumers do get the best deal possible:

Consider that municipalities, by nature, operate to give residents the best and most fiscally responsible services.  From paving to plowing, to purchases, to professional services, municipalities routinely issue RFPs and then negotiate in the best interest of the citizenry.  The same process can work for the municipally owned broadband infrastructure.  It did in Leverett, MA. Now, municipalities throughout the state of Massachusetts are using the model.

Passage of a significant broadband funding mechanism and the subsequent support of and associated bond referendum could be a huge boost for Maine’s economy.  We encourage our legislators, as they fine-tune this bill, to bear in mind that open access is not always the best way to foster competition among providers. We hope they will offer a solution that allows municipalities to find the best fit for these public/private partnerships rather than insisting on a competitive model that may not work in every community.

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