“Subsidizing” Makes a Return Engagement—With a Twist

To begin at the end of today’s LUS Fiber budget hearing: all the old nonsense about “subsidizing” LUS Fiber returned again today. And, surprising no one, it came riding back in with Tim Supple. Supple’s long history of opposition to LUS Fiber has long included this particular falsehood. To give the devil his due Tim was definitely goaded by councilman Keith Patin after Keith and fellow rural member William Theriot failed to come up with a sufficiently news-worthy phrase during the questioning. Tim tried not to answer in the simple affirmative for a couple of rounds while Patin repeatedly pressed him to phrase his characterization of the LUS financials as being a subsidy that had to be being paid for by “somebody.” Supple finally caved and said it was, indeed, just like subsidizing Parks and Recreation as Patin suggested.

That, of course, is utter nonsense. Nonsense that Terry Huval immediately spiked. A loan that must be repaid with interest is nothing like using tax monies to support Parks and Recreations. But  Huval really shouldn’t have had to lay that out. A subsidy would illegal under state law. If LUS were breaking that law both Cox and ATT would make sure we all knew by suing us again. It’s silly to have to treat it as a sensible question.

For those who weren’t following this blog way back when the recurring issue of subsidization first arose way back in 2005 the idea was supposed to be that any publicly owned fiber utility would obviously and necessarily be subsidized by the public. The idea of a publicly-owned competitor being subsidized by taxes was promoted by BS (BellSouth, now ATT) and Cox as “unfair” and an affront to their two monopolies of phone and cable service—which they characterized as “free enterprise.” That was nonsense from the beginning—plenty of utilities are run without subsidies, including LUS’ electrical and water divisions and plenty of private companies are actually subsidized. LUS never, at any point, planned on using Lafayette taxes to subsidize the new utility. But the idea that some municpality might was one of the tools that BS/ATT and Cox used to convince the Louisiana legistlature to pass what would become known as the Municipal Fair Competition Act (or as I prefer: the (Un)Fair act). That state law outlawed any cross-subsidy. But only for LUS–Cox is free to subsidize from its extensive newspaper holdings and ATT from its wireless division.—Hence my preference for (un)Fair. There has been no subsidy, and if there was any half-rational way to characterize anything that has happened as a subsidy Cox and ATT would be happily suing Lafayette—yet again.

Subsidy with a Twist

But as a by-blow to all this an interesting subsidy did emerge. But it runs the other way…LUS Fiber is subsidizing LUS’ other divisions and through that, indirectly, Lafayette city-parish government.

Again it all goes back to the (un)Fair Competion Act. One of the things put in that act during negotiations is a concession that LUS Fiber would be able to borrow from LUS’ other utilities just like any other corporation could set up internal borrowing arrangements. This is not a subsidy, it’s a loan—with real interest. One of the efforts to raise an issue by Messrs Patin and Theriot centered around “imputed” taxes. Those are extra costs that Cox and ATT got the state to require that LUS include in order to force LUS to raise their price to customers (you!) above the actual cost. (Yes, really. See this. And these.) The idea was that LUS should have to pretend to pay taxes that it doesn’t actually pay when setting its pricing—and include those fake costs when competing against Cox or ATT. PSC regulations (not the law) requires LUS Fiber to send those monies to the larger LUS. So LUS utilities is holding money LUS Fiber earned. LUS electricty, water, and sewer loans it back to LUS Fiber—at interest. The net effect of this is to subsidize LUS’ other utilities on the back of the new utility, LUS Fiber.

That’s the only subsidy uncovered today.

You can’t make this stuff up. Only in Louisiana.

Why no Google Fiber for Baton Rouge? (Updated)

The folks in Baton Rouge are probably asking themselves why they didn’t get Google’s gigabit fiber network. After all for a while the Facebook page “Bring Google Fiber to Baton Rouge” had more fans than any in the country and there seemed a pretty large groundswell of support. There was a heavily rewritten AP article in the Advocate that interviewed a BR Chamber officer and recounted the history of local public involvement. (Unfortunately not online check p. B-6 of 3/31/11 paper.) It all seemed so hopeful. The Chamber held out hope that Baton Rouge might get in on the second round.

I don’t think so. At least not until we put our own house in order.

Here’s at least one reason that Google avoided Louisiana:

See Kansas? It’s Green. Texas and Arkansas are Red. Louisiana is a sickly Orange. Google is only going to green states. This map has nothing to do with solar energy or recycling. The green denotes a place where there are no state-wide legal barriers to a community building and owning its own fiber-optic network. Red states absolutely forbid it. Louisiana is among those who are hostile but do not completely outlaw the idea. (Witness Lafayette’s ongoing battle.)

Google wants to strike out and do something truly different. They are frank about thinking the Cox’s and AT&T’s of this nation haven’t done a good job and that local communities can do better and should be helped to do so. Google has no reason in the world to go to a state that tries to make the sort of community involvement they count on illegal.

They aren’t coming to Louisiana until the “(un)fair competition act” is abolished. If Baton Rouge (or New Orleans, or Shreveport or Bossier, or any of the other Louisiana cities that applied) want to have a shot at Google’s second round the first thing they have to do is get their own house in order.

Repeal Louisiana’s (un)fair competition act…

(Check out the great map at muninetworks.com from which I grabbed the above illustration. It chock full of valuable, if depressing, information.)

Update 4/1/11: Stacy Higginbotham, tech journalist extraordinaire over at GigaOm, covers the Texas version of this story. Apparently Austin had a very credible, widely supported effort to get their city picked. The local organizer thinks:

“Austin caught their eye for all the right reasons, and we had support at the highest levels with the involvement of the mayor and the city manager, but given the Texas limitations on municipalities getting involved in network, there was only so far we could go,” Rosenthal said. “So I look at the Texas Legislature, because they really put us in a box with regard to Google, and every response the city gave had to be measured within that box.”

Yup, I expect he’s exactly right. Texas forbids muni networks. Google is doing this to encourage muni networks. The are NOT going to pick a city in a state with lousy laws that forbid what they are trying to get other municipalities to do. That’s only common sense.

Update 4/4/11: Take a look at what the paper in Kansas City, Kansas thinks were the reasons that its city made the cut. The story, understandably, tends to focus on drama and secrecy but there are some very interesting nuggets in there about the underlying factors that might have favored KCK once the first cuts were made.

Update 4/4/11, 8:15 PM: As part of the ongoing discussion in the comments I reviewed the Louisiana law constraining muni networks. There I found what I thought I remembered: The law explicitly includes the sort of public-private partnership that Google is undertaking in Kansas City. So anyone who is murmuring that Google could do a project similar to the KCK one in Louisiana simply has not read the law. You can bet that Google has. See the element of the law which defines a public-private partnership as one that must adhere to all aspects of the law at RS 45:844.47 B(3): “Through a partnership or joint venture.” If Baton Rouge wants Google to consider them in the second round they’ll want to repeal this law first.

City, LUS Fiber marketing to unincorporated areas

Hmmn. According to the Independent blog Lafayette Consolidated Government (LCG) is undertaking a marketing campaign on behalf of the City of Lafayette and LUS Fiber.

That is all sorts of interesting… The implication seems to be that marketing campaign will be used to promote annexations by the city by using LUS Fiber as the focal point for a campaign that touts the advantages of joining Lafayette rather than one of the smaller cities in the parish. That makes sense…and it doesn’t.

It makes sense to regard LUS Fiber as the easiest, most immediate, and most obvious municipal service that Lafayette can offer…and that the smaller cities cannot. LUS water, the last generation’s trump card, has long since been distributed out into the parish via long-term contracts. LUS’ electrical division would almost certainly be an improvement over Entergy…but only in degree. Better fire ratings, property values, and other city services are nice but not the sort of “point of purchase” incentive that move most buyers. The offer of a competing, local, technically superior, cheaper fiber to the home service on the other hand is unique to Lafayette. So promoting LUS Fiber to envious parish residents makes sense.

What makes less sense is the idea that LCG is going to enter into a contract to promote Lafayette against the interests of the other cities. Admittedly the consolidated in LCG only stands for Lafayette and the unincorporated areas since the smaller cities chose not to follow Lafayette into full consolidation, but the residents of the cities are also citizens of LCG in addition to their towns and I’d imagine that they and their representatives will look askance at this new LCG policy. The tension here underlines the question of sovereignty for Lafayette: If LCG cannot act on behalf of Lafayette’s interests then who can?

It’s also not clear that this plan is in the long-term or even middle range interest of LUS Fiber. Contrary to Broussard Mayor Langlinais’ petulant remark recently that LUS “needs” the expansion, LUS is most definitely not particularly best served by expansion into the least densely populated areas of the parish. LUS is doing just fine in the city proper, its take rate, and the average billing per customer are both higher than they need to make the current plan viable. The narrow passage that LUS Fiber is currently navigating is that of the initial years when large upfront investments in plant and in the initial cost of bringing each customer online for the first time vie with the costs of repaying the bond schedule. The first several years are crucial. A misstep now could unfairly trigger elements of the so-called fair competition act and lead to a forced sale of a perfectly viable service. Oddly it is perfectly possible for there to be too early and too sudden a success…putting costs that would be easily managed if taken over the years into the dangerous first years of operation and producing a paper “loss” that the incumbents would use to force closure.

Given LUS Fiber’s current success this may not be an issue but nonetheless the safest way to add new customers would be by taking in the members of the more densely settled inner portions of the smaller cities.

In the long run it would be best if all the citizens of the parish could join LUS Fiber’s network but it’s pretty clear that the annexation issues will need to be settled before that process can begin.

You CAN get there from here! Or, at least you used to be able to.

The story making the trade papers today is that Level 3 Communications is going to apply for some of the broadband stimulus money. That’s a good thing and could also be a good thing for Louisiana.

Here’s why.

Level 3 owns and operates one of the largest fiber networks in the world. You can download their network map here (PDF).

You’ll note on the map that Level 3 has two routes in south Louisiana. The original route runs along I-10. The second route runs a bit north of there along a natural gas pipeline right of way that connects Houston to Atlanta. Going back to the days when I used to map these networks as they rolled out across Louisiana, arguing to the Mike Foster administration that these were the Rivers of Light (PDF) that could produce corridors of opportunity in this state, that second route was built by the Williams Company of Tulsa, OK, and sold when the telecom branch of the firm went bankrupt around the turn of this century.

So, what does this have to do with broadband in Louisiana?

Let’s let Level 3 explain:

Edward Morche, senior vice president of the Federal Markets Group for Level 3 Communications, said last week that his company would partner with cable companies, LECs, wireless providers or state and local governments in seeking to offer broadband access in unserved and underserved areas, building off its national network.

“When we built our national fiber optic network, we had to put in regeneration nodes, to re-amplify the signal, in tier 2, tier 3and tier 4 markets,” Morche said. “If you look at where we have those regeneration nodes – and there are about 500 of them – we are looking at a couple of dozen that we could use [to apply for stimulus funding] for the first round.”

At the time this and other networks were built, these regeneration stations were needed about every 35 miles along the network. As you drive along I-10 now, there are two fiber regeneration stations not far from Lacassine. One on the north side; the other on the south side. The station north of I-10 is Level 3’s. Each serves a different fiber network but serves the same purpose — generating the light that carries communications signals down the network. Neither Google Maps nor Mapquest provides high enough resolution images to definitively identify those stations through their satellite or aerial formats.

Level 3 has their own regeneration station in Lafayette, located in a LEDA industrial park north of I-10, in a lot adjacent to LUS’s cable head end facility. Ironically, Level 3 provides network backbone nationally to Cox Communications.

Qwest Communications owns a lot of fiber in south Louisiana. It’s original route runs along the Southern Pacific Railroad tracks. They have a regeneration station in downtown Lafayette that sits across the tracks and towards Johnston from the train station. The next point is about 35 miles down the track.

All of these fiber networks are the same. All of these regeneration stations are the same. Each offers the opportunity to plug into a regional/national/global fiber network.

Had Lafayette Consolidated Government and the Durel administration not agreed to the colossally short-sighted provisions of the Louisiana Municipal Fair Competition Act back in 2004, many other Louisiana communities would now have the opportunity to follow Lafayette into the business of building the networks that for-profit companies do not find profitable enough. How many cities? Back in 2000 I had compiled a list of those Louisiana cities with the access to fiber and other assets that made them prime candidates for such development.

Instead, Lafayette is getting its fiber network. But it erected a high barrier behind it to impede others from taking a similar course.

The price of that short-sightedness is now becoming apparent as Level 3 makes clear that it is willing to open its network at those regeneration points to non-incumbent providers.

Set Top Box Follies: Cox and LUS

The executive summary: Cox is acting like Cox.

The short version: LUS has asked for an exemption from an FCC rule mandating the use of cable cards in set top boxes. Cox, joined by the Consumer Electronics Association, objects.

The essence: Cox would like to throw a kink, into, to again delay if possible (or to impose additional costs on LUS if it is not) Lafayette’s FTTH project by using the FCC to force LUS to deploy technology that doesn’t exist. It seems, I suppose, like an clever way to try and use the feds to cause trouble for a competitor. The bitter irony is that the technology doesn’t exist largely because Cox and its cable brethren have refused to obey the law and develop the technology to comply with what Congress mandated 14 years ago.

If none of those short versions satisfies you’re going to have to settle in for a long, history-laden tale replete with bureaucratic battles, crippled 3rd party set top boxes, a long, successful rear-guard action by incumbents determined to keep consumers from controlling the boxes attached to their cable network and dueling technologies favored by self-interested players in a three-sided match-up. It’s one of those stories that nakedly reveals “the way things really work” in a way that doesn’t say much good about any of the major players.

Ok, first there is the cast of characters:

  • FCC: the federal communications commissions playing the part of the pitiful big guy all the tougher kids enjoy messing with.
  • The Telephone Companies: playing the confident old-timer with generations of home field advantage; the telcos have traditionally dominated the FCC game, but breaking into the video big time with IPTV-based set top boxes instead of the older cable tech requires all their lawyer’s talents.
  • The Cable Companies: playing the fiesty tough kid from the sticks the cablecos have fought a successful delaying action against federal regulations that try to impose teleco-like requirements that would allow mere consumers to attach their own devices to the tough kids’ network—and rob those tough guys of their traditional set top box charges.
  • The Consumer Electronics Association has wandered in from left field wanting to make sure that the big consumer electronics companies have a big single, unified market for set top boxes that keeps them from having to develop separate toys to control satellite, cable, and telco video set top boxes.

oh and:

  • LUS, the lonely little new kid on the block in the supporting role of the outsider whose seemingly innocuous question sets off a major battle. (This is the character whose fate is so unimportant to the plot that it’s never resolved…and only the friends and family of the actor notice.)

The background story, the setup for the latest battle:
Gather round kiddies, this story goes back to that dim time before the internet, 40 years ago, a time when things were different…Back then the FCC actually had the power and the will to break up huge monopolies like AT&T (really, it was broken up before the modern FCC midwifed in its rebirth). This all starts with the almost mythological Carterphone: a device that was to morph into the analog sound-based “modulate/demodulate” device that in turn became the digital modem of recent history. That’s right sprouts: without the Carterphone there would be no internet for anyone today. And we almost didn’t get the Carterphone. I won’t tell the long version of the story (but it’s a goodun.) What interests us today is that the FCC told the telcos that they had to let any device connect to the telephone network as long as it didn’t damage the network. Ma Bell (what we used to call AT&T) howled. But the FCC stood its ground and soon all manner of phones that hung on the wall or had push buttons, or were wireless, or were pink replaced the phone company’s black table-top rotary-dial ringer that had produced such a nice steady stream of income for Ma Bell. Though nobody knew it then the internet and VOIP and all manner of things that were to humble the once-invincible phone company flowed from that single brave decision to tell the phone company that it was only the owner of the network and had no right to tell legitimate users how they used the connection they bought.

—No, nobody knew back then but the story is oft-retold now… and the fiesty cable guys who’d once been little local municipal video providers but had coelesced into monopolies fully capable of taking on the telcos—and the sadly diminished FCC knew the implications of the Carterphone decision. And they had no intention of losing control of their network to consumers the way that the old AT&T had. Back in 1996, at the dawn of the internet era when the country was flush with enthusiasm for the new communications network, Congress passed a new telecom act which among other things, tried to reproduce the success of Carterphone by requiring that cable companies open their lines as well and specifically that they allow

“other converter boxes, interactive communications equipment, and other equipment used by consumers to access multichannel video programming and other services offered over multichannel video programming systems, from manufacturers, retailers, and other vendors not affiliated with any multichannel video programming distributor.”

In other words, Carterphone for cable. Congress passed the task of enforcement off to the FCC confident that they had done their part to insure a brighter future and turned to confusing other issues. Alas, the FCC of 1996 was not the FCC of their grandfathers and, long story short: this never really happened. The cable companies successfully argued that they had to retain control of “security” and the FCC responded by requiring that the necessary proprietary security be separated from the rest of the box and located in a device that could be used in either the cable company’s or a third party company’s box. The cable card. Delay followed delay. The FCC’s enforcement was pitiful indeed. So pitiful that it tolerated delays that meant that the first generation of cable cards was outdated by the time it was available and cable has still approve a card that is able to give third party producers access to their networks. This dithering about had damaging consequences: it left the producers of products that were clearly superior (in that people were really willing to pay for them); products that had usable interfaces and pioneered Digital Video Recording either bankrupt (Replay) or barely hanging on (TiVo).

Fourteen years later the FCC rule still stands and nobody is expected to actually follow it. Everybody has garnered an exception of one sort or another. All the players have their own version renewed occasionally on ever-varying grounds. The only constant is that the networks have never had to let their customers attach the equivalent of shiny new pink digital phones to their networks.

The consequence is that the much-anticipated digital convergence still hasn’t happened. You can’t surf the internet on your TV (well, there is an exception we’ll get to), you can’t do video telephony using your TV as a monitor, setting up recordings over the net or from your smart phone remains an uber-geek activity….and on. We could have used a cable version of the Carterphone. Instead what we got was a slightly faster version of the same access that the telephone companies had been forced to accept over their lines designed for voice. Faster internet, not access to a whole new communications network designed for video and much larger capacities.

The satellite companies never really had to comply with the law—the cable companies successful defense meant that satellite never really had to come up to bat since big brother cable proved capable of fending off the very idea. So satellite got an exception until cable could figure it all out…and cable wasn’t about to. As workable cable cards finally neared market acceptance cable whirled around and managed to get the day put off a bit longer by instituting a new non-hardware based software standard which would be oh-so-much better. They got an extension of their exception to work on that. When the telephone companies finally started to get into the provision of video over their networks it was built on the back of the new internet (the one that their lose in Carterphone days helped create), implemented a version of IPTV—and taking a leaf from the well-worn book of cable have claimed that their special technology wasn’t compatible with the old cable-card technology either. And (you see where this is going?) they got their version of an exception.

Who does that leave who does have to comply?

Surely you remember the lonely new kid on the block who asked the uncomfortable question? LUS? Apparently the argument is going to be that LUS should be the only guy in the neighborhood that has to follow the rules. This argument comes from none other than Cox Communications whose own exemption to the rule is still in place. Cox doesn’t argue that the technology exists to allow LUS to follow the rule. (And it doesn’t) Cox just argues that LUS should comply with a rule that it has never, ever, over 14 years done anything but fight itself. Citizens of Lafayette will be amused to learn that they are arguing that they only want to provide a “level playing field.” Again. Like the state’s (un)Fair Competition Act, you can be sure that when Cox says it wants a level playing field what they really mean is that they want the government to impose limits on Lafayette that it has never had to abide by itself. What is fair about asking your small local competition to abide by rules you yourself have successfully evaded? Of course this isn’t about fairness. It’s about advantage. In a halfway sane world the FCC would laugh in the face of an effective monopolist like Cox that tried to impose rules on a brand new competitor coming in from the outside any of the major sectors to provide the very high-speed, fiber-to-the-home, low priced competition that the FCC has been sniveling about wanting for the entire 14 years it has failed to enforce the law….but we don’t live in a halfway sane regulatory environment.

To pile on the insult the latest is that the Consumer Electronics Association (CEA) has weighed in. Understandably frustrated after all these years, all the companies that want to make the magical media devices that record all and control all in your living room have demanded that the FCC quit making exceptions and enforce its rules….on a small municipal provider that is actually providing an innovative, powerful, cheap alternative that the FCC says it wants and that is the model of everything the CEA should hope happens to US broadband. Just for the sake of completeness I should note that each of the three-telco, cable, and CEA–have their own candidates for a new technology to enable video network openness. Each of them would dearly love to control that technology and no one can doubt that the one they’d come up with would 1) advantage them, 2) disadvantage their competitors, and 3) enrich the owners of the tech. Nobody’s hands are clean.

LUS, of course, doesn’t have the wherewithal to develop a new technology itself. The set top box family deployed in Lafayette is apparently the only one that is usable with both the Alcatel equipment the community is using and with IPTV. The fact that the network is all IPTV (translation into analog for analog tier users takes place on the wall of the house) opens up vast new areas for innovation. The 100 meg intranet “campus” is a good example of what a really innovative community-oriented network can do. Neither Cox nor any other cable provider is providing free unthrottled in-network bandwidth to its users. Even more on point: LUS offers our community an internet connection through the IPTV set top box. That the box is natively IP is crucial to that very desireable feature. Subscribers that don’t even own a computer are able to surf the net. That’s something that IP enables…and something, again, that I don’t see that Cox or any of the other guys who have set top boxes have done. Really opening up the set top box is something that Congress was right about. There is huge room for innovation. The FCC’s failure to enforce, and Congress’ failure to provide adequate oversight to see that the nation’s laws are enforced have cost the country dearly.

LUS points out that every other IPTV-using network has already received this waiver and that all they are asking for is the same waiver that Verizon and other established IPTV providers have already secured. To ask new entrants who are actually competing and using the new technology to offer a cheaper, faster, more innovative system is to bear a burden the established corporations do would be stunningly counter-productive.

Let’s hope the FCC can find the courage that the FCC forty years ago had, do the right thing here and refuse to reward the bullying of a large corporation who has evaded the very rule that they hope to impose on a cheaper, local, competitor. A competitor who, incidentally, is actually demonstrating the value of innovation on the set top box that the rule is designed to achieve.

Man To Watch: Skrmetta & Pay To Play Politics in LA

Put Public Service Commissioner Eric Skrmetta on your guys to watch closely list—he apparently thinks there’s nothing wrong with letting the companies you regulate help pay for your office and then holding a white tie soiree to retire the debt you run up winning a public office that is supposed to regulate them. All citizens should feel obliged to watch this guy but the charge is especially incumbent upon those of us here in Lafayette who now own a piece of one of those companies the PSC regulates.

Back in the old days, before AT&T (née BellSouth) drafted up the (un)Fair Competition Act a publicly-owned and operated company like LUS was not placed under the the thumb of the guys over in Baton Rouge. In fact the constitution appeared to explicitly forbid it. The assumption back then was that local people didn’t need any help from the state to do right by themselves. The old Idea behind regulation, especially the regulation of what are essentially utilities, was that people who had to rely on large for-profit monopolies to provide services needed the protection of at least a state level protector. It’s been a while since it was obvious to outside observers that the regulators did much to control the behavior of companies they regulated; instead it seems that the regulators too often run the show behind the scene and use the state to raise rates, “deregulate” their monopolies, or keep down any incipient competition.

It’s the latter that Lafayette partisans need to worry about: the PSC is notoriously a creature of the phone company and AT&T is hard at work making sure that doesn’t change. LUS, as the only company regulated under the (un)Fair Act, is sure to be the target of rules rigged up by AT&T. And Skrmetta is gonna have some big time debts to pay off.

According to New Orlean’s City Business the newly elected Republican was the only candidate running in that race that accepted campaign money from the industries he was elected to regulate.

Now that he’s actually elected he is apparently an even better investment. Bill Oliver, president of AT&T Louisiana makes no bones about his sponsoring a $1000 dollar a head soiree to help pay off campaign debts. ($5, 000 dollars for corporate sponsorship) Sez Oliver:

“He’s a new commissioner, he’s got a serious amount of debt and my intent is to help hold an event that would eliminate his debt,” Oliver said. “It’s legal and I’m following the guidelines of state laws.”


Oliver said he doesn’t think fundraisers such as his compromise relationships because they are legal. He said if citizens feel the law should be changed, they should approach the Legislature.

Silly me, here I thought that there was a whole category of things that were legal but flat out wrong. Legal or not the real question should be whether it is the right thing to do to either offer to pay of the personal debt of a man who regulates you (or to accept money from a corporation you are morally obligated to regulate).

Good government types think it stinks; PAR, a pro-business organization generally —indeed Oliver sits on the board—has advocated and continues to advocate a law to make such shenanigans illegal since it is apparent that appealing to honor and a sense of ethics is a waste of effort.

Under heavy pressure from public opinion and those obnoxious editorial writers who think that accepting favors from those you regulate is, uh, questionable the PSC recently wrote rules forbidding its members from accepting lunch favors from those they regulate. AT&T was exhibit A spending nearly 2,000 dollars on lunch for PSC members and staffers in ’08. Maybe, just maybe, lunch is less serious issue than helping pay to gain the office itself….you’d think. And they talk about pay to play in Illinois.

At any rate: watch this guy. Skrmetta, Eric Skremetta. He’s made it clear that he won’t do the right thing unless he’s closely watched. And maybe not even then. Congrats and hearty at-a-boy to City Business who shows that they have retained some sense of what justifies papers and journalism: educating the public. Theirs is a truly incisive article.

Lagniappe: In the category of guys to watch: don’t forget Jindal’s legislative liason: Former BellSouth head lobbyist Tommy Williams. He headed up the Gov’s ethics reform. (Convincingly putting to rest the rumor that it had anything to do with stemming the corporate side of corrruption.) He was a VP at BellSouth…and had a history with Lafayette and LUS’ fiber project that included a role at the PSC you might want to recall.

Update-2/11/09: Mike took a look at the ethics reports and says that AT&T and AT&T’s pac contibuted $15,000 dollars to the campaign before the “soiree.” That soiree was apparently meant to retire a $350,000 dollar personal loan that Skrmetta made to his own campaign. All this brings up pretty significant questions about a system in which only the wealthy can afford to run for public office but can, if they see no ethical conflicts, rely on those whose livelihoods they influence, to “generously” retire the large personal debts they acquire running for office. I cannot believe that anyone, including AT&T and Eric Skrmetta, really thinks there is no quid pro qou, no implicit pay to play in such a scenerio.

Watch these guys.

More Expensive than Hurricanes

Having lavished some ink on Cox today it only seems fair to give a little attention to AT&T, Lafayette’s other incumbent friend in this digtial age.

An article in Multichannel News reports on AT&T’s slowdown in builidng out its “fiber to the node” network. FTTN is the half-measure that was supposed to be the less costly but adequate reply to Verizon’s more capable fiber to the home rebuilding program.

AT&T’s strategy isn’t working and it is scaling back its investment:

AT&T tacked on 264,000 U-verse TV subscribers in the fourth quarter of 2008, but video and other growth areas were more than offset by dropping wireline voice connections, and the telco also said it would scale back capital spending on building out the U-verse network.

That’s really no surprise and the scuttlebut about U-verse pullbacks has been going on all year. But what really caught my eye was the following:

the telco said costs associated with subsidizing sales of the popular iPhones reduced pretax fourth-quarter earnings by approximately $450 million. Costs related to hurricanes, by comparison, reduced pretax earnings by approximately $120 million.

Really!? In a year that boasted major storms Fay, Gustav, and Ike making landfall in its territory the iPhone ate into its (still substantial) profits more than hurricanes? I bet the denizens of Houston, Lake Charles and Baton Rouge are going to be surprised. Especially as the people of the gulf coast states shoulder the burden of making up those “losses” for AT&T. There’s a grim oblique humor in this sort of thing that the residents of Louisiana south of the interstate have grown to savor. (The iPhone has earlier been lauded in these pages a great NAD and digital divide device…)

Still, hasn’t the iPhone been a great thing for AT&T? If my life is any indication it has been…I was at one of those geeky/food/socials for an out of town tech maven that seem to be a Lafayette trademark on Sunday and once people started calling around for early-season crawfish the woman at the end of the table looked around and remarked that 7 of the 8 attendees had pulled out iPhones. Even six months ago there’d have been a healthy mix of Blackberries and CE machines in the mix. No longer. And apparently that’s not far out the ordinary:

AT&T hung its subscriber numbers on the board this morning: 2.1 million Net Gain in Wireless Subscribers in the fourth quarter and…1.9 million Apple iPhone 3G activations.

That’s worth pausing a moment to consider one more time: 1.9 million Apple iPhone 3G activations – in the fourth quarter alone…

The iPhone was a rival killer – About 40 percent of the customers carrying the device that Steve Jobs built (so to speak) are new customers to AT&T. How many used to send their monthly bills to Sprint, Verizon or T-Mobile USA?

Even wth the estimated 325-425 dollar subsidy that AT&T apparently lays out that’s surely a good thing for the company.

In the long term.

And therein lies the irony for this resident of Lousiana’s flood plain who has been primed for a little grim humor by the earlier news about the iPhone being more expensive for AT&T than our hurricanes. You see, what AT&T is doing is smart, modestly daring business: it is spending money upfront on the promise of getting all those high-margin, big-spending iphone customers for the long time. But it is, almost certainly, losing serious money on the front side and cross-subsidizing this venture with revenue from other aspects of its far-flung empire.

AT&T in its earlier guise as BellSouth was responsible for writing the law that denies Lafayette’s local utility, LUS, the ability to make a similar smart decision to bear upfront losses for long-term gains. There was a lot of preening and huffing and puffing about “cross-subsidization” by AT&T lobbyists and regional vice presidents as if that were some sort of bad thing. As if the money that AT&T realized from its monopoly on landline telephones hadn’t cross-subsidized its move into the expensive wireless regime that now is its the engine of its growth.

It’s darkly funny. I guess.

New Orleans’ Wi-Fi Gone

It’sa gone pecan….or less colloquially and jocularly: sic transit gloria.

New Orleans’ Earthlink WiFi network, launched with much fanfare as the leading edge of public-private partnership in muni networking in the days after Katrina is gone–completely. As Earthlink abandons its network of city-wide wireless networks New Orleans will not be left with even the truncated, city-services-only networks of Corpus Christi or Milpitas, Calif. In those cities Earthlink was able to give the networks to the city and cut its loses. But in New Orleans neither the city nor anyone else apparently was willing to take it. Earthlink will remove its networking equipment as it folds shop in the Big Easy.

This is the last whimper of a story that started out bravely. One of the shining moments of New Orleans municipal government after the storm (and there were shining moments) was the way it hacked together a working telecommunications system in the hours after the storm passed through by quickly repurposing a network of wifi connected cameras to serve basic police, fire, and emergency communications—long before BellSouth (now AT&T) began to get itself back together.

As the city stumbled to its feet it announced that it would use that network, expanded by volunteer workers and donated equipment, to provide basic voice and data communications for its citizens who BellSouth and Cox admitted would be without phone and data service for many months. (At right a Washington Post graphic from a story showing the core of the city unserved three months after Katrina.) For several months battered New Orleans could proudly claim to own North America’s only big-city wifi cloud. BellSouth and Cox ignobly objected, using as a basis Louisiana’s (un)Fair Competition Act; a law that BellSouth had recently pushed through the state legislature in an attempt to first prevent and then to at least cripple Lafayette’s plan to build a fiber optic network. (A plan which has since come to fruition.) The incumbents demanded that the city jump through a series of legal hoops meant to make it all but impossible to build community-owned telecommunications networks and, in any case, to delay ones progress indefinitely. New Orleans, lead by a former Cox executive, bravely refused to be cowed, cited emergency exemptions, and—backed by Governor Blanco—continued to provide the basic services private corporations were unable to quickly restore to the community.

BellSouth and Cox eventually, of course, got their way when emergency regulations expired and the Louisiana legislature refused to reform the law in light of post-Katrina realities. New Orleans turned its community-owned network over to Earthlink who had entered the municipal market aggressively. But then the public-private muni network bubble burst when the limitations of wireless networks in general and WiFi networks in particular became obvious.

The only large muni network still standing is, as far as I know, Minneapolis’. There the city owns the network and provides substantial anchor tenant fees to the locally-based operator and builder who, in exchange for a long exclusive lease shouldered the expense of construction. (Interestingly for close watchers of Lafayette’s network, the city started with a substantial fiber ring and factored in an extensive expansion of that fiber network as part of the bid specs for building the wireless network. Minneapolis owns a fiber backhaul backbone for its network–which may well be part of the explanation for its generally acknowledged above-par network performance.) Retaining ownership of the network was not a path open to New Orleans as BellSouth’s law forced an outright sale. For the same reason, New Orleans could not take the network back and run it or and lease it to a private provider as Minneapolis has successfully done. We’ll have to see if the lack of municipal competition will result in the bevy of new services for New Orleans and Cox and AT&T have claimed would result from eliminating “unfair” municipal competition or whether, just perhaps, places like East Ascension parish and Lafayette where small local providers –public and private– are going up against the big boys are the places where good deals and new services are rolled out first. Anyone want to bet on whose populace actually gets the better deal?

The last act for New Orleans brave WiFi experiment has now played out. In substantial part it ran aground on the implacable opposition of Cox/AT&T, the irresponsibility of the state legislature, and the poor business planning of Earthlink. Sic transit gloria

Video franchise bills all take; where’s the give?

The statewide video franchise bills up for consideration in the Louisiana Legislature are, in fact, bad news as John and the LMA (pdf) have made clear. But, based on the 2006 experience where only Governor Blanco’s veto prevented a version of this legislation from becoming law, I also believe it is clear that some form of this legislation is going to pass again this year and Governor Jindal will sign it into law.

First, let’s make clear that while AT&T is the prime mover of this legislation, the cable industry is on board. That’s because this legislation or a subsequent package will ultimately give cable companies the same freedom to cherry-pick and red-line neighborhoods that the phone company is seeking with these bills. They’ll demand a level playing field.

It was no accident that Cox Communications announced its latest rate increase just as the Legislature was heading into its Regular Session. That enabled the various astroturf movements to begin flooding newspaper editorial pages with letters to the editor, condemning the cable companies and singing the praises of competition.

Think of this as a choreographed fight for the benefit of the viewing audience, rather than a brawl. The cable companies and AT&T are partners in this dance. Cox stepped on a lot of consumer toes in order to make them receptive to the competition paeans that the phone company allies would produce.


That ability to selectively deploy new network technology is the heart of the issue.

How do I know this? Because John and I sat in on the 2006 negotiations on that year’s version of these bills when the phone company (still called BellSouth at the time) flatly refused to deal on offers that did not free them from community-wide build-out obligations.

What does this mean for communities? It means, for starters, that the State of Louisiana will become the official enforcer of the digital divide in our state; that is, enforcing that divide will become official state policy codified in the law.

Under current law, local governments have been able to require community-wide build-outs in their negotiations over franchise agreements. Under the three bills being offered in this session to create the statewide franchise, there will be no community-wide build out obligation.

That means that AT&T (but more likely, cable companies) will be able to deploy their new network technologies only in those neighborhoods that they believe will be most receptive to using it. Yes, I think cable companies will be the primary beneficiaries of this legislation because AT&T is not going to be making huge new infrastructure investments in Louisiana. They are carrying a heavy debt burden now and expecting things to slow down as the national economy moves into recession.

But, cable companies are already pretty well deployed across the state. Look for them to work to amend the legislation to allow them to selectively deploy new network technology in the communities where they are already in business under existing local franchise agreements. This will be a particularly attractive path for companies like SuddenLink that bought older networks in slower growth markets from Cox (Lake Charles and Alexandria among them) shortly after the Atlanta-based media company went private.

Consumers As Shields

AT&T and its allies are using the well-being of Louisiana consumers as the poster children for their argument to be relieved of the onerous burden of local franchise agreements. But, those are crocodile tears. In fact, most consumers will be losers as a result of this legislation.

How so?

It flows from the freedom phone and cable companies will have to bypass those neighborhoods that they deem not sufficiently attractive to them to warrant their network investments. When the insurance industry did this, it was called red-lining. When only the best neighborhoods are targeted, it is cherry picking. It is the preferred corporate way.

The fact is that there is no commonality of interest between these companies and most Louisiana citizens — or, for that matter, the best interests of the state. AT&T, Cox and others are focused on return on investments. Which is all fine and good for their stockholders. It is the American way.

But, there is a divergence of interests between the profit motives of those companies and the best interests of communities, particularly when it comes to the issue of access to modern network technologies. Access to those technologies is essential for the economic success of individuals, businesses and communities. With the video franchise legislation, the Legislature will be saying to the phone and cable companies that it is just fine with them if those companies want to exclude certain neighborhoods and communities from access to these technologies.

Combined with the burdens and limitations imposed on communities to act in their own interests on the matter of network technologies via the Municipal Fair Competition Act of 2004, the Legislature (and presumably Governor Jindal) will be handing over control of the economic fates of communities and neighborhoods to companies like AT&T, Cox, SuddenLink and others.

Where on the hierarchy of priorities — for investment, for deployment of new technologies, etc. — of those companies does the fate of those communities rank? With the limits placed by the so-called Fair Competition Act, this is a vital question because communities will have little or no recourse to the decisions that these companies make on matters about access to advanced to technologies.

Where’s the ‘Give’?

The statewide video franchise legislation would give the phone and cable companies everything they want. What are they giving up in exchange for this largess? So, far, nothing.

Recognizing the political reality that a few hundred dollars in campaign finance contributions from the phone company buys a lifetime of loyalty from legislators, I don’t believe there’s much chance to defeat this legislation. Some form of a statewide video franchise will emerge from this session and Governor Jindal will sign it.

Viewed from that perspective, what can communities take away from this battle? As matters stand, there is nothing in this legislation that benefits communities. As the record in North Carolina shows, consumers are not going to get benefits of competition that is, supposedly, at the heart of this stuff.

Legislators need to take their eyes off the corporations for just a few minutes and think about their constituents. The statewide video franchise will consign some number of citizens — primarily in middle and low income neighborhoods, to second class digital citizenship by relieve phone and cable companies of the obligation to include those neighborhoods in their new network build-outs.

This is a public policy disaster in the making that runs against the efforts of the state to upgrade the quality of the workforce here. The network tools needed for workers to fully participate in the connected workplace and the global economy will not be available to every one, only instead of a market failure, it will be the direct result of public policy.

The Fairness Doctrine

There is a way to lessen the negative impact of the statewide video franchise legislation. That would be to restore to communities the right to act in their own self interests in matters of network technology access.

That is, those interested in closing instead of widening the digital divide in Louisiana should move to amend this legislation to include a repeal of the Municipal Fair Competition Act of 2004.

The logic of this is rooted in the points made earlier: the interests of the phone and cable companies are separate and distinct from the interests of communities and, indeed, the state.

The only entities that are obligated to act in the interest of all citizens in communities are local governments.
As Lafayette has demonstrated, local governments have the technological skills and the financial means to act in their own self interests in the arena of network technology. LUS is in the process of deploying its fiber network now. By the end of the year customers will be able to sign up to get levels of network services that no other community in the state — and only a handful in the country — will be able to access.

Other local governments must have the freedom to act in the interests of their own citizens rather than be forced to stand idly by as these network builders shunt aside the interests and aspirations of large segments of their citizens.

The Municipal Fair Competition Act is a relic of a soon-to-be bygone era when phone and cable companies proclaimed that they sought to serve entire communities. Local governments should be freed to act to respond to the needs that these corporations are fighting for the right to ignore.

Repealing the ‘Fair Competition Act’ is a fair trade off for passage of statewide video franchise legislation. Doing so would free local governments to act on the interests of the community that the phone and cable companies do not share.

Amend the statewide video franchise bills to include a repeal of the Municipal Fair Competition Act. It’s in the best interest of Louisiana.

AT&T & Cox should reconsider state video franchising

Tis spring and the legislative season is opening in these United States. Our Louisiana silly season won’t begin ’til April but many state legislatures are already in session. An article in the Jackson, TN newspaper reminds us that phone companies are still up to their old tricks. Last year the telephone companies launched a nation-wide push in state legislatures to take control of local rights-of-way away from the cities and counties that own them and create state-level privileges for phone companies who wanted to get int the cable TV business.

Most important of these privileges was state permission to avoid the build-out requirements of towns and cities-local governments that have, for pretty obvious reasons, consistently insisted that if a business wanted to use local property to make a profit off its citizens then offering service to all the citizens was a non-negotiable starting point. “All of us or none” was the stalwart principle. In various places the phone companies have conceded to every other demand from monetary rewards to PEG channels. But they are not willing to give up the competitive advantage over the cable companies of skimming off the cream of the local market. They want to take the most profitable customers and move on with no assurance that their “competition” will ever reach most of the community.

Our legislature fell for it and only the governor’s veto pen kept the state from writing into law a bill that would have solidified the digital divide between poor and rich as well as between rural and urban for at least a generation. (In fairness to individual legislators, it should be said that there was a truly inspirational confrontation on the floor of the Senate. Friends of the people went down kicking.)

On the evidence of what is going on elsewhere this season in places like Tennesse, Wisconson, and it seems likely that Louisiana will again see an attempt by AT&T to ram through a state-wide video law that favors its interests. While AT&T (then BS) found tough sledding early in last season’s attempt to pass such a law after partnering up with Cox and the cablecos they managed to pass a law fairly easily. The new, cableco-approved version would have allowed cable companies to break their contracts with local communities in order to use the same advantages offered the phone companies. The cable companies apparently thought that, on the balance, the new advantages over communities was a decent trade-off for the benefits the bill gave the phone companies in their competition with cable. (Did that dark alliance clue in the legislative majority? No.)

So I expect the AT&T-BS/Cable coalition to be back at the trough this year. With the FCC rule that gave the phone companies most of what they failed to get from the last congress now in jepordy from a resurgent Congress there is no reason to think that the incumbents won’t continue to try and get what they want from the local yokels they’ve taken before.

But whoa up a moment: is that really wise?
Things change. That article from the Tennessee paper contains a suggestive paragraph:

One advantage of the state legislation, however, is that Jackson Energy Authority [JEA] would be able to expand its cable and Internet services outside of its present designated service area, Farmer said.

JEA is Jackson’s equivalent of LUS–the fiber-laying, incumbent-slaying upstart. Incumbents take heed: Lafayette’s own muni fiber optic network is now assured. EATel, the locally owned rural phone company, is building its own fiber network on line between New Orleans and Baton Rouge and has made clear its ambitions for expansion from the beginning. St. Charles parish is contemplating building its own network and looks to Lafayette. Rumors about New Orleans Fiber In The Sewers (FITS) continues to make the incumbents slumber fitful. It’s beginning to look like a trend.

Any and all of these entities could take advantage of the same (still unfair) privileges that for which AT&T/BS has been angling.

That’s not what BellSouth intended. When that law was originally proposed NOBODY that could compete with BellSouth would have benefited. The late inclusion of the cable companies didn’t really change the competitive landscape much. They are already built out as much as they think profitable, new challenges from them were unlikely.

AT&T/BS might want to rethink its position in Louisiana. They’ll be enabling folks who might (gasp!) actually decide to compete with them–and compete at their own game with superior technologies. If the phone company succeeds legislatively what is to keep EATel from deciding to serve, with real fiber, the new mushroom ring around New Orleans–but only the wealthier new suburbs, the local cream, and doing to AT&T what it plans to do to the cable companies: cherry-pick the most profitable areas and leave the rest for the incumbent providers. What’s to keep St. Charles from doing its own network with support from Lafayette’s backend facilities–right down to using LUS’ billing and branding systems? What’s to keep LUS from aggressively moving into every non-incorporated new subdivision in the parish using its now-pervasive fiber backbone that feeds the schools? What’s to keep LUS from being invited into cities as full competitors in places that like what they see happening in Lafayette? With a state-wide franchise: Nothing, Nothing, Nothing, and Nothing.

No doubt LUS, as a municipal entity itself, will not be willing to move into a city without negotiating with the local authorities and sharing income. But that might be a big advantage in the long run. If AT&T really manages to come in, cherry pick the cream, and stiff the cities on income and services it will be a painful, ugly thing as cities take the hit in franchise income. (The cable franchise is usually 3-5% of gross revenues–a critical component of local discretionary revenues.) LUS (and similar entities its example may spawn) wouldn’t have to extract nearly the profit the incumbent desire and could afford to be generous with services and profit-sharing. That could prove very attractive to places abused by the incumbents inevitable move to squeeze the municipalities once the cities are stripped of bargaining power by state or federal takings.

Maybe AT&T will still think the advantages it gains over cable are worth the competition it courts by promoting a law that will give every small public or private entity in the state a license to compete in every corner of the state on an ad hoc basis. Maybe. But a year later it is clear that the decision is no longer a no-brainer with nothing but upside for the company. As the old saying goes: Be careful what you wish for.

Cox’s (and the other cableco’s) rationale for backing AT&T’s law this time around is even less clear than it was last year. The emerging pattern of AT&T predatory build out policies in other states (predicted here at LPF) is now obvious: they take the best and leave the rest for the cable companies who have already built their networks to serve the entire community and have to carry that extra overhead.

Cox Baton Rouge, which now includes Acadiana, is particularly vulnerable: On the south it faces EATel, a local phone company which makes no bones about it desire to bring its FTTH-based cable competition to rapidly growing–and lucrative arc of outer suburbs developing south and east of Baton Rouge. That ambition was spoken before the storms devastated New Orleans and made those areas the new home to much of the population of that metropolis. Should EATel secure that arc it’d be posed to eat into the densely populated segments of the city–but not with AT&T’s barely capable DSL-based offerings but with full throated fiber to the home. On the Western verge of that territory it is now certain that Cox’s largest profit center in Acadiana, Lafayette, will be a profit center no longer. Inevitably LUS’ expansion will come out of Cox’s established base; with few exceptions every cable customer LUS gets will mean a lost subscriber for Cox. That nightmare is visible on the horizon. In short order Lafayette will be one of the least profitable networks in its system, supported by a subscriber base that is a fraction of what headquarters has grown to expect.

No, Cox does not need to add to its troubles by supporting a law written by its deadliest enemy.

Cox has allied with the wrong side. Here’s what would be much smarter: Ally with the Louisiana Municipal Association and the parishes. Join them in suggesting a pre-emptive law that protects local rights and keeps AT&T/BellSouth from securing unfair competitive advantages.

The outlines of such a law aren’t hard to see and could be based on a law suggested by local governments last year. That law offered to put a 90 day “stop clock” on any negotiation with a new competitor, assuring that no one could be unreasonably delayed in entering a new market. If an agreement couldn’t be reached quickly all the competitor had to do was agree to sign on to the same contract the incumbent cable company already had. Easy, fast, efficient, and transparently fair. It was, of course, rejected out of hand by the phone company. Their interest lay in securing advantage, not a level playing field.

This year’s version could look like this, for starters:

  • It should be based on the current local franchise; preserving local control of local resources.
  • It could lay out a reasonable timeline for a full build-out to match the current cable footprint. Small communities could expect to be served by a full competitor in three years and larger cities in, say, seven. That would remove the most anti-competitive aspect of the law, and the one that puts the established incumbent at a permanent disadvantage.
  • It could include a time clock (the cities are willing to agree to 90 days) after which the default “established contract” goes into effect–that would mean no long delays of the sort the phone companies claim to be worried about.
  • The default contract could include certain standard modifications such as: a “revenue neutral” clause for the city; meaning that the extras, like PEG monies, channels, service networks and the like would only have to be provided once…not twice. This could include a clause allowing the new entrant to pay the current provider for providing their pro-rata-by-subscriber share of these services or allow them to take over a portion of the responsibility directly as they expand and acquire the capacity.
  • Also standard could be clauses that provide real, automatic, penalties for not meeting contract requirements like one mandating buildout. To make sure that both cities and competitors are motivated to insist on contract adherence the default contract could have escalator clauses built into the monies paid the city and the incumbent if they failed to meet their promise to compete fully and fairly.

It would make a lot of sense for Cox and the state cable association to get together with the municipal and parish organizations and promote a bill that protects their rights and competitive interests while giving the phone company the quick and easy route to competition that they claimed they wanted last year.