Indiana Telco Regulation Explained

Rich Tehrani : Communications and Technology Blog -
Rich Tehrani
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Indiana Telco Regulation Explained

I came across Wetmachine today and read just one article about the dire legislation situation in Indiana and wanted to cry. To sum it up the incumbents are doing their best to keep the state from providing any service such as broadband or telecom to their constituents. Here is a link to a digest of the Indiana Bill. Here is an excerpt. This is a great piece and worth reading if not for entertainment value alone:Lets peel this rotten onion back section by section.

Sec. 1-3 are definitional. Sec. 3 provides as broad a possible sweep for any services a municipality might wish to offer by referencing every relevant definitial section of the Communications Act so no offering broadband as an information service if the statute only prohibits telecom service!

Sec. 4 starts to get nasty. First, Sec. 4(a) provides a grandfather clause to protect pre-existing systems. Under this guise, it freezes systems in place as they exist today. No expansion to any unserved area within the municipality after June 30, 2005. And no system upgrades to provide new services after June 30, 2005. Hope you're in the right neighborhood to be covered...

Sec. 4(b) prohibits any municipality from providing any cable, telco or other vaguely internet-like service after June 30, 2005 unless the municipality jumps through a number of hoops vaguely reminiscent of the quest for a shrubbery and cutting down the tallest tree in the forest with a herring. Sadly, munies don't get to say we'll do no such thing. They must:

1- Send certified mail to anyone who either provides the service in the municipal area or might be able to do so in the next 9 months. If anyone responds that they (a) provide service in that area, or (b) intends to provide service in the next 9 months, the municipality is prohibitted from providing the service. (Sec. 4(b), Sec. 6).

Please note that the statute makes no comparisons regarding price, quality or speed the way the PA law does. It merely requires that the services be of the same type. So if a municipality wants to provide internet service at 45 mbps (both ways) for free to a poor inner city neighborhood or to a business district to keep jobs, and the local telco or cable co offers 1.5 mbps (downstream) for $49.95, the municipality is out of luck.

Also note that this pretends not to give a private actor a veto over a municipality. It is merely an investigation by the city to make sure that it only provides municipal systems where needed, and does not rob already existing private businesses of potential customers by competing with the private sector. The nasty details get overlooked and the bill is spun by its supporters as a reasonable protection of private enterprise rather than a transfer of rights from citizens of a locality to a private company.

We'll skip over for a moment that this is only reasonable if you buy the basic premise that municipal systems should only offer service if there is no possibility of a private entrant. But even if you like that rule, the fact that a company can say they intend to provide service of some sort to the designated area in 9 months has the same effect as a right of first refusal in PA. Worse, because the right of first refusal actually required the private company to offer a comparable service on a reasonable time table.

Happily for telcos, cable cos, and their wholly owned subsidiaries in the legislature, few people read through a statute.

But lets say a municipality gets past that hurdle and no one wants to provide even lousy service at inflated prices. The municipality must still:

2- Compile an incredibly detailed report projecting costs and benefits over three years. (Sec. 4(b)) The bill's drafters clearly anticipate the cost of compiling the report will be prohibitively expensive. What makes me say that? Sec. 4(c) requires the municipality to use the first revenues from the muni system to pay for the report. So not only is this viewed as expensive, it guarantees that the system is born in debt.

3- After compiling the report, the municipality has to hold a public hearing on the proposal.

Again, note the ability to spin and defend against PA-style attacks. The Shmooicide Squad will defend the requirement for a cost benefit analysis and a public hearing, without mentioning the unusually high cost of the analysis required in the bill. If this is about local citizens controlling their own resources (an argument that resonated well in PA), how can anyone object to a public hearing and the prudence of a cost benefit analysis? Again, since few folks will read the actual bill, and the mechanism of muni intimidation is devious, it provides splendid spinable political cover.

As if this were not enough, the bill drafters want to insure that any surviving shmoon are starved at birth. The statute prohibits financing the system in any way except by subscriber revenue or by bonds (Sec. 5(b)) (cable cos and telcos, it should be noted, subsidize their system expansions with rate increases on video and voice subscribers respectively as well as accessing private capital in the form of stock sales or private debt instruments, but watch how this gets defended as creating a level playing field and preventing municipalities from unfairly subsidizing their own systems at the tax payers expense). Note that this effectively kills any sort of free service to stimulate job growth or bridge the digital divide. (Another difference from the PA law, which had an exemption for any free service. Under this bill, a city can't even provide a public hot spot in the park.)

But a city can still fund with bonds, right? Sure, but the Shmooicide Squad have gutted the cities ability to raise bond revenue for the new system. Sec. 7(b) requires that financing the bonds can only come from revenues raised from subscriptions to the muni system, and if the city doesn't bring in enough revenue the bonds are void. How many of the financially conservative institutions that are among the biggest investors in municipal bonds are likely to invest at that level of risk?

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