A HISTORICAL, ECONOMIC, AND LEGAL ANALYSIS OF MUNICIPAL OWNERSHIP OF THE INFORMATION HIGHWAY

Abstract

I. INTRODUCTION Years before people spoke of the information superhighway, a small town in Appalachia created a communications system that is now the envy of today's Silicon Valley. Residents receive cable television, telephone service, and fast Internet service over a single wire. The fiber optic network is not a pilot project for a major telecommunications venture, but an effort by a municipally owned electric utility designed to implement an energy conservation program. Municipalities across the country are now following the model of Glasgow, Kentucky.(1) Local governments commonly pave streets, supply water and gas, haul trash, and provide electricity. Local governments have now begun providing the next utility: the efficient provision of information through fiber optic networks.(2) These initiatives, undertaken by local governments, have provoked legislative, administrative, and judicial disputes at the state and federal levels. These disputes question the authority of local governments to include communications among the other utilities provided to their citizenry. This article will attempt to explain why, in an era of privatization, local governments have begun municipalizing communications services. First, municipalization is a trend arising as a response to monopoly in the cable television and local exchange telephony markets. Milton Friedman remarked that natural monopolies produced three evils among which we must choose: private monopoly, public regulation, or public monopoly.(3) Unregulated and regulated private monopolies in the communications industry have been found unpalatable. Municipal utilities are a viable alternative. History shows that municipal utilities have provided electric service with a level of efficiency on par with that of regulated private utilities.(4) Second, municipal utilities are the best entities to provide broadband services because the Internet is a public good.(5) Private cable operators stand to gain little from upgrading their systems to interactive platforms, as the benefits they gain from Internet provision are limited to access fees.(6) High access fees, however, reduce the utility of the Internet. The Internet is a true public good and its benefits are maximized through fast access and low fees. Publicly owned utilities offer the lowest possible service rates, and so are the best providers of Internet access. Third, municipally owned utilities may be less prone to shirk than private firms.(7) Federal law has weakened the franchising authority of municipalities, leaving private firms unbeholden to the demands of local communities.(8) Municipalization has emerged first in smaller towns where forces of social coercion render public officials more responsive than absentee private managers.(9) This article will then address current political and legal conflicts regarding municipal communications utilities. Federal law generally permits and encourages provision of communications services by all prospective market participants.(10) State law, however, increasingly prohibits municipalities from providing communications services.(11) The political process behind the passage of these state laws will be discussed and it will then be argued that the strong preemption language of the Telecommunications Act of 1996(12) does protect municipally owned telecommunications systems from anti-competitive state laws.(13) Additionally, a recent decision by the Federal Communications Commission (FCC), which refused preemption of an anti-competitive state law will be rebutted.(14) The article will conclude that local governments should provide advanced communications services in the same manner that they provide water, gas, electricity, and sanitation services.(15) Electricity, at the opening of the twentieth century, granted citizens access to new services that reshaped their lives. Now, on the eve of the millennium, fiber optic technology is offering vast new services that, like electricity, will transform local economies and personal lifestyles. …