Month: January 2006

Both the Advertiser and the Advocate have pieces up on the City/LUS loss in the court of appeals on the issue of cross subsidization.

From the Advocate:

The 3rd Circuit Court of Appeal in Lake Charles issued a ruling Thursday morning that blocks the Lafayette Utilities System from issuing bonds to build its planned telecommunications business.

The point:

Lafayette officials have said, that without the payback mechanism used in the bonds ordinance, interest rates on the bonds would likely be higher, which will affect the cost of running the communications system.

That’s the point. BellSouth wants to raise the cost to the consumer of LUS’s services. This has the effect of forcing LUS to make a profit enough in years when it is building the system to pay back the costs of a long term loan intended to build out the whole city. That is absurd. That is why you borrow money–so that you can purchase the tools to make money in the long run. If ANY “private” business were so limited they’d never get started and BellSouth could never have “cross-subsidized” its portion of Cingular with money Louisiana rate-payers sent it.

This could NOT have been what the legislature meant for it makes a mockery of allowing the city a half-rational plan. The legislators and officials who attended the meetings have openly said that this was not what they were talking about.

BellSouth is acting in Bad Faith. (Note that Cox has not joined them.)

Write your legislators. Ask your friends to. Repeal of the law which allows BellSouth to misuse the courts to betray their word is the proper solution.

Let’s get working on it. Have an idea? Wanna join in on good ideas from others? Write: standingup@lafayetteprofiber.com

Would you like to read the decision yourself? You can, courtesy of the internet and PDF: http://www.la3circuit.org/opinions/2006/01/010506/05-1478-1505opi.pdf I’ll be interested in reader insights.

The City-Parish Council last night passed on an opportunity to raise the rates it charges Cox communications by 1%. That’s real money folks, from a corporation that is getting off light in a city where it had played real ugly for a while.

The news was reported in an Advocate story on the Council meeting:

Under the franchise agreement, the council had the right this year to raise the fee from 3 percent to 4 percent of gross annual revenue.

The administration recommended — and the council accepted — to maintain the 3 percent level.

Councilman Dale Bourgeois said Baton Rouge charges Cox 5 percent of gross revenue.

The feds set the limit at 5% and typically the reason given by municipalities for not charging the full amount is to save its citizens money. That rationale wasn’t mentioned today but another was:

But raising the franchise fee on Cox would result in higher rates for eventual LUS telecommunication customers, as a state law passed last year requires LUS to charge its customers an equivalent of the fees and taxes paid by competitors.

Wassthat? It’s a complicated tale and the outcome for Lafayette citizens is not as simple as that seems to indicate.

It all goes back to the misbegotten “Local Government (un)Fair Competition Act” One of the (un)Fair aspects of the bill is to place LUS’ cable rates and only LUS’ rates under the control of a state body: the PSC. This isn’t like regular price regulation, where the regulatory body is charged with taking a fair look at the costs of provisioning a service and making sure that consumers aren’t overcharged. This is a decidedly irregular form of price regulation. It is designed to makes sure the consumer pays more than they would without the regulation. The (un)Fair Competition Act (passed by “your” legislature) directs the PSC to ignore the real costs of provision and force LUS and the city of Lafayette to charge the public as if it did not own its owns rights of way, as if it did not already pay to maintain those rights of ways, and to charge the public as if LUS had to pay any tax or charge that its corporate competition might have to. This is most decidedly not based on how much LUS returns to the general fund…there is no suggestion that any real tax equality is to be considered. That is because LUS’ “in lieu of taxes” payment is already more, much more, as a percentage than Cox pays to all levels of government. (I hear Cox hasn’t paid federal income taxes in years.)

So this law is structured to make the user pay more than LUS would otherwise charge even if it has already returned more value to the local community than Cox returns to all levels of government. You can see why I call it (un)Fair. The language of the law’s title is profoundly Orwellian.

The consequence of all this convoluted messing with LUS’ rates (and, I repeat, only LUS’) is that any charge against Cox raises the rates the state will tell LUS that it has to charge its customers.

That’s what the remark in the article was about.

Apparently that was the end of the matter. I like the outcome, so I’ll not kick too hard. But I do think that there should have been more conversation.

One of the virtues of the in lieu of tax system is that it has the effect of adding to the city-parish general fund using fees for service instead of taxes. Any additional money that LUS gains as an indirect result of the city charging Cox a bit more will go into the general coffers. As does the money we charge Cox for using our property. That’s good for potholes and social services.

This is the last time we can raise the price we’ve charged Cox without raising the price the state will force on LUS. To the extent that a benefit of a local utility is to lower the tax burden we are missing the last chance to do that without additional controversy. The city surely fears that Cox will respond by raising rates in Lafayette and blame the city. Maybe. But not as surely as it once would have. Cox and the cable companies can raise their rates anytime they want only because they don’t have any real competition. But with lower prices in the offing from LUS maybe Cox would decide it couldn’t afford to risk raising those prices to recover 1% if its local revenues. …After all it didn’t raise rates recently in Lafayette when it did in Baton Rouge and that seemed solely due to the specter of competition. Maybe Cox is not so invulnerable as it has seemed in the past. Worth thinking about.

Then again, we’ve already a seen a more temperate Cox. They’re not opposing the LUS project in ways that are quite as ugly as they once did. They argued their point at the PSC and we’ve not heard much from them since. Quid pro quo? Not to my knowledge.

At any rate, that little blip in city-parish council report was clearly important; just how is less clear.

The New York Times story about the recent spike in shareholder activism might offer an alternate route to telecommunications reform: through the corporate boardroom.

Here’s a paragraph that identifies the opportunity:

Unlike the 1980’s, when such challenges might be resisted at all costs, today corporate boards are adjusting to a new reality: the activist investor, armed with a handful of shares and a megaphone, is changing corporate America and the deal-making landscape.

I think the most glaring aspect of corporate behavior that needs changing in the telephone and cable industries is the knee-jerk habit of trying to block municipalities from deploying broadband infrastructure and delivering services over that infrastructure.

There is a business case to be made that telecom/cable companies don’t have the means to deploy modern infrastructure everywhere. Seen in this light, the insistence of these companies on legal prohibitions on public-sector network buildouts has significant economic implications for those communities not deemed suitable for corporate network investments.

The fact that the United States continues to lag behind other nations in access to fiber infrastructure, then, can be viewed as the result of short-sighted corporate policy as writ large through a system populated by a bought-off Congress and an FCC that is held hostage to ideological myths about markets and competition.

A not-so-funny thing happened on the way to deregulation after passage of the Telecommunications Act of 1996: the phone and cable companies recommitted themselves to the old, anti-competitive, vertically-integrated business model that existed prior to the dawn of what was supposed to be the brave new world of telecommunications.

There was a brief moment in the late 1990s in Pennsylvania when that almost changed. The Public Utilities Commission there came very close to ordering a breakup of the dominant phone carrier there (I think it was BellAtlantic) into a service company and a network company.

The fact remains that the real money to be made in the broadband world is on the service delivery level of the network. The financial drag on phone and cable companies comes from the huge costs associated with building out these new networks. As a result, they insist on policies that undercut the long-term promise of the very networks they seek to build and impede economic opportunities in communities across the country.

It requires an act of willed ignorance to fail to grasp that it was the open nature of access to the Internet unleashed the information, business and creative explosions that have taken place over the past ten years. Anyone can build a site. Anyone with Internet access can go to it. That ability of providers and customers to freely associate is what has made the Internet the economic and creative powerhouse that it has become. It is what gives it so much more potential.

Blinded by the dollar signs, the phone and cable companies believe they can capture significantly larger shares of those dollars by imposing network tariffs (taxes?!?) which they say they have a right to because they own the networks (or, at least want to own the networks).

The walled-garden approach that they seek to recreate (think AOL as imagined by bureaucrats) is precisely the model that the Internet itself shattered. The phone and cable companies have seen the future and it is (at least in their estimation) the failed past!

Let’s face it; for the time being the regulatory and legislative systems are hopelessly rigged! Confronted by the corporate-dominated legislative and regulatory environments, changing the behavior of the corporations might well offer a viable path to opening the door to open, public sector-financed network buildouts that would unleash the power of real broadband across the country. It might also save these companies from their own short-sightedness.

What would it take? “Activist investors, armed with a handful of shares and a megaphone.” My guess is that there are a number of such potential investors scattered in bandwidth-hungry communities across the country. They should each buy a share or a few shares in the phone and cable companies that operate in their respective communities. Then, commit themselves to changing the behavior of those corporations.

What should the agenda be?

Priority #1: Getting fellow shareholders to understand that it is in their best interest for there to be open, public-sector financed networks that are open to all providers to deliver their spanking new services to a bandwidth hungry customers. That would mean withdrawing opposition to municipal network buildouts in exchange for those networks being open to all providers.

The megaphone? You’re using it now!

A couple of decades ago a similarly unlikely approach captured the imagination of U.S. citizens who were outraged by apartheid in South Africa. They set out to get U.S. and other corporations to change their behavior, to divest their interests in South Africa as a means of putting pressure for social change there.

The challenge of getting bandwidth delivered economic opportunity delivered to every community in this country is not the moral equivalent of that effort, but neither are the obstacles.

Is this approach really a longer shot than trying to reason with members of Congress and regulators?

According to a story in Cable Digital News competition from fiber has lead to dramatic increases in service from the cable company. Speeds are jumping to “up to” 15 or 30 mps with no increase in price. However, read the story closely: there is huge caveat…even a cable company trade magazine feels obligated to tell its readers that 30 megs just isn’t really possible considering cableco network architecture. Nonetheless, opening up the pipes to the maximum that is available instead of throttling it down is a very nice improvement; one I wouldn’t mind seeing myself. Cablevison is preparing, as well, to make sure its similar bandwidth products are more cheaply available than Verizion’s — this is a reversal of the usual pattern where the Bells, offer the cheaper price.

The story is set New York City and involves Cablevision and Verizon but this could be replayed in Lafayette with Cox and LUS in the not so distant future. Look for dramatically better service from Cox as soon LUS trucks begin rolling. –Better service and cheaper prices from the incumbents will be one of the nicer side-effects of building our own system.

Lagniappe: the story notes that Cox recently posted a free upgrade of its 5 meg tier to 9 megs in six of its large markets. I wonder if we’ll see that here?

Here’s an editorial in the Advocate that is revealing of how folks-in-the-know (in this case reporters) understand the workings of our Public Service Commission. The issue in the editorial concerns a recent fracas that erupted when the head of Entergy Louisiana, currently in bankruptcy as a consequence of Katrina and Rita, tried to reassure investors that he had “three very solid votes” on the PSC for relief–meaning rate increases.

The PSC commissioners did not care for they way that sounded, especially in the wake of historically high energy prices, and rushed to reassure the public that:

“We don’t want anybody in this room or around this country or around this state to think that just because Entergy wants it, Entergy gets it,” said Commissioner Jay Blossman of Mandeville, in a typical comment.

The editorial staff responsible for the essay have taken an unusual step here: they’ve chastised public officials for engaging in business as usual and then pretending to be outraged at what are common practices. It’s great. But it is also unusual; frankly the press is weak in holding public officials to a high standard in relationship to the influence of good-ole-boy networks of all kinds. The press’ congenital cynicism and its insider knowledge of how the sausage is made conspire to make “understanding” of or at least toleration of “necessary” relationships that “get things done” part of the culture of reporting. (Note that even this chiding editorial the press is not chastising the PSC for its cavalier “business as usual” practices, only for pretending that it isn’t business as usual.)

Speaking out on this now is an index of how much the hurricanes have changed things–pretending that business as usual isn’t usual is no longer tolerable to the press. My guess is that the people aren’t willing to tolerate business as usual at all, never mind the pretence that it isn’t normal.

We in Lafayette, with an independent public utility system, are not effected by the sorts of angst that publicly traded companies get into concerning rates of return and satisfying shareholders that has driven Entergy’s regional branch into the protection of bankruptcy. But we are interested in the picture that is revealed of how things are done in the PSC — a domain that is crucial to the success of our fiber-optic project.

Some very interesting bits:

Shocking, isn’t it, how shocked politicians can be when they are caught behaving like politicians. We hope, though, that members of the Public Service Commission spare us the outrage when the curtain is pulled away from how the commission routinely does business: in casual, private meetings, one-on-one with the officials of the companies the commission regulates.

The same company officials, we might note, who approve the campaign contributions for PSC members when they run for office…

What’s the reality of this situation? Routinely, PSC members meet individually for briefings — at one time, fancy lunches — from regulated companies and others interested in the decisions of the regulators. Nowadays, the lunches or other benefits are required to be accounted for and reported. But the briefings are from one side of an argument — what the lawyers would call ex parte, without other parties to the dispute being present…

Given the influence wielded by utilities over the PSC, and a tradition of back-scratching among PSC members, its staff and regulated companies, few people ought to doubt that that Leonard’s initial assessment was correct — at least before he talked about it in public.

In this instance the glare of publicity let a little “sunshine” into this buddy-buddy relationship that will surely mean that the consumers of the state are better taken care of than they would have been without the attention. It’s apparent that given a choice between pleasing the voters and pleasing the corporations the PSC will run to the side of voters. What is also apparent is that this is not necessarily the case when less attention is given to deals cut at chummy lunches with officials or staff. (incidentally, notice how similar this story of the Louisiana PSC is to the recent story of the BellSouth in Washington. BellSouth, incidentally, is surely the single largest lobbyist at the PSC…as it is in the state legislature.)

The take-away lesson for Lafayette: What is needed to ensure long-term support for LUS and our new public telecom utility will be a consistent dose of sunlight, real attention to the way that sausage is made. We’ll need our own good-ole-boys, yes; but we’ll never be able to match the force that BellSouth can afford to keep in Baton Rouge. Publicity, or the realistic threat thereof, is what would best serve our cause.

Read the article, think about the implications, and make a little new year’s resolution to watch the PSC. (And while we’re about it, the rest of those guys up in Baton Rouge, as well.)

An article in the Washington Post makes BellSouth the poster child for lobbyist schmoozing in Washington. Worth reading, the story is a peek into the cozy world of lobbying and “friendships” that control the nation’s legislation. Snips from the story:

More than 80 lawmakers and Capitol Hill aides are listed as having accepted entertainment from lobbyists for BellSouth Corp. at levels that appear to exceed congressional gift limits, according to a document produced by the company’s Washington office…

A regional phone company, BellSouth maintains a large permanent lobbying presence in Washington:

BellSouth, a substantial player on K Street with a 32-person office, said in a statement that it was not culpable if lawmakers or their aides accepted more from its lobbyists than the rules allow. Gift regulations “govern the conduct of Members and staff and do not apply to companies such as BellSouth,” it said. Still, the company said, the document was created “to assist our employees’ understanding of congressional gift rules and to increase their awareness of expenditures associated with members and staff that may fall under those rules.

“The document was produced after a draft internal audit prepared in June 2004 warned: “BellSouth D.C. employee expenses related to lobbying activities are not always adequately controlled. Exceeding allowable gift and gratuity limits set forth in federal laws and regulations could lead to unfavorable publicity related to BellSouth D.C.’s lobbying efforts.”

One theme in the story is that this is all pretty much business as usual and that ways of evading the law on lobbyist gifts were well-established. Washington appears to be awash with different conventions on friendship. In our part of the country friends who meet for lunch pay their own tab or trade off. In Washington apparently the “friend” who is a lobbyist almost always pays.

All of this schmoozing has real consequences, of course. Most will be to subtle to see without knowing what was discussed during those lobbyist-paid lunches but some connections are clear even from a distance. Something that goes unvoiced in the story is tht Ensign’s telecom aide has to be a central player in the ongoing rewrite of the telecom laws. Ensign, a member of the Commerce Committee and chair of the subcommittee on Technology, Innovation and Competitiveness, is the author of the “Ensign Bill” which is being offered as a basis for that comprehensive rewrite. That bill while understood from the start as a Bell-favorable bill has recently been altered to remove the Bell’s last remaining objections.

It’s hard not to assume that “tweaking” the Ensign bill was what Ensign’s telecom aide and BellSouth lobbyists were talking about as the gift laws were being broken.

Michael Sullivan, senior adviser to Sen. John Ensign (R-Nev.) on technology issues, makes many visits with lobbyists for high-tech firms. According to the BellSouth document, he was entertained by the firm’s lobbyists 19 times between March and November for a total tab of $629.

Passage of the Ensign Bill in its present form would have local consequences–eliminating entirely local franchise agreements that provide substantial municipal income and support AOC. No local (or state) control of the city and parish owned rights of way would remain. Currently contracts to use city property include provisions that in effect require cable companies to serve the entire community–not just the most profitable neighborhoods. Those requirements would vanish just as BellSouth proposes to begin offering cable-like services leaving the Bells to cherry-pick the most profitable areas for their “competition.”

It’s pretty discouraging to realize that this cozy, friendly, paid-for, network of lunch buddies is substituting for actually going out and doing the work in the field and in the home districts that would allow legislators and their aides to understand the real needs of their constituents. One response is to say we need more lobbyists, but what we need is more responsible legislators.

It’s been a good year for Lafayette, her people, and for municipal fiber. Together we overcame a series of obstacles that would have stymied many communities. Last year this time the path looked relatively clear ahead of us. The council had fulfilled its duties under the charter and had approved the sale of bonds. Their sales only awaited the formulation of PSC rules governing the project. Lawsuits and opposition seemed certain but a referendum still seemed unlikely. It seemed that the battle, if not yet entirely won, was now in the hands of lawyers and regulators who would act on our behalf.

The year that followed demonstrated how wrong we were in thinking someone else could finish the job. The battle that occurred instead brought Lafayette together and drew people into active political commitments who had never been active before. On July 16th the people of Lafayette told BellSouth and Cox made their position on the issue of a municipal telecommunications utility, approving the proposal 62 to 38%. The process left a new group of citizens who had discovered that they could have a hand in shaping the future of their community.

The battle, I think we all realize, is not over and we now understand that we cannot expect lawyers and officials to realize our dreams for us. We’ll have to keep up the fight. What is different this year is that we know that we can be successful.

Lafayette has done amazing things this year. Things that will assure that Lafayette will be at the forefront of technology as the century blossoms. Add that to the list of things you are grateful for as you say blessing over New Year’s dinner.

And don’t forget your black-eyed peas and cabbage. We could still use the luck….