The fall of net neutrality: Cable's plot to destroy the internet

Higher costs and worse service loom on the horizon

Throughout Europe and East Asia, broadband providers are forced to lease their lines to all comers. That's led to dramatic gains in coverage, pushing America toward the middle of the global pack in terms of usage (we're 24th), average speed (10th) and broadband penetration (15th).

"We should actually turn the car around," insists Franken. "Other countries that turned the car around and went in another direction wound up with a lot more choices for people and much more wired than we are."

The feds took a similar approach in the 1980s, when they forced the Baby Bell companies to do same thing. All were required to license access to their lines, opening the door to all kinds of innovation.

With colleagues slathered in money, Al Franken is among the few to make a fuss
With colleagues slathered in money, Al Franken is among the few to make a fuss

"It accelerated the spread of wireless and the internet by allowing small, independent ISPs to use the wires in a non-discriminatory way," says University of Minnesota professor Andrew Odlyzko, a mathematician who worked at Bell Labs prior to the breakup. "They tried to discriminate and get permission to charge extra for internet but they were refused — otherwise it would've probably strangled the internet."

No fiber for you

Of course, a corporation's existence is based on exploiting advantages, not working for the public good. So when some cities began to lay their own lines and offer broadband and pay-TV, cable moved aggressively to protect its turf.

In more than 20 states, the industry has promoted laws restricting cities from creating their own fiber networks. Minnesota requires towns to pass a referendum with an unusually high 65 percent of the vote.

And in cities like Longmont, Colorado, and Chattanooga, Tennessee, cable spent millions on lobbying and lawsuits to subvert competition.

Chattanooga fought back. Its municipal power company, the Electric Power Board (EPB), wanted to improve its grid, since electricity disruptions cost the local economy $100 million annually. By connecting high-speed fiber to every home, it could improve the resiliency of the electrical grid and quickly diagnose problems. Outage times were cut by 60 percent.

The lines had the added advantage of providing the city's power customers with television, phone, and internet connection speeds more than 10 times faster than the national average.

"The cable folks didn't want us to do it," says EPB Vice President Danna Bailey. "They launched a pretty aggressive advertising campaign against it when we first started the process.... It was kind of funny because the campaign encouraged viewers to call the City Council and tell them you don't want EPB to build this network. City Council reported more calls — by a huge margin — saying they do want EPB to build this network."

Today, the city's broadband not only pays for itself, but reimburses the power company with a reasonable licensing fee for using the lines. You can understand why cable feels threatened.

"It's a different model," say Bailey. "We get to wake up every day and think about what we can do to be a better asset to the community.... That's the whole reason municipal power exists in the first place."

Higher-speed internet has helped attract small but growing tech companies like Claris Networks, EDOps, and Lamp Post Group. New start-ups have also flocked to the area, including Mental Health Analytics, run by Dr. Ashish Gupta. The former University of Minnesota professor took a job at the University of Tennessee-Chattanooga so he could start his new company there.

All of which has left Fortune to label Chattanooga "a center for innovation." Wired believes it could be the next Silicon Valley.

Though fiber was a side benefit, for many municipalities it's the only answer to under-responsive telecom franchises, especially for out-state cities without the size to keep internet and pay-TV providers honest.

"That's why communities of a certain size are looking at municipal operations," says Wassenaar. "If you're a city of 50,000 or lower in a rural area, your ability to get 21st-century cable service is pretty low unless you provide it yourself."

Last year, Minnesota established the Office of Broadband Development. In May, the Legislature allocated $20 million to leverage private investment in rural communities.

"I talk to [rural] communities and they say to me the number-one thing people talk about isn't how good are the schools, but how good is the internet access," says state Rep. Matt Schmit (D-Red Wing), an architect of the plan. "The analogy here is rural electrification. You want to make sure everyone has that basic access to 21st-century infrastructure."

Windom installed municipal fiber a dozen years ago. Its first public vote failed after Qwest, the local internet provider, promised to install DSL. But when Qwest reneged, the next vote passed by 87 percent.

Wheeler has signaled a willingness to fight restrictions on cities. In June, citing Chattanooga's example, he wrote: "It is in the best interests of consumers and competition that the FCC exercises its power to preempt state laws that ban or restrict competition from community broadband. Given the opportunity, we will do so."

The quest to tame Netflix

Unfortunately, anti-competitive alarms keep ringing at the FCC. In addition to municipal fiber and the Time Warner merger, Wheeler's investigating complaints by Netflix that its users were kidnapped.

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