The mounting concern over the dismal U.S. position in global broadband deployment is helping fuel support for municipal broadband networks, even as incumbent carriers continue to warn of their dangers.

Verizon Chairman and CEO Ivan Seidenberg last week was outspoken in his opposition to cities and towns building their own Wi-Fi networks for broadband Internet access, telling the San Francisco Chronicle that city plans to build networks “could be one of the dumbest ideas I've ever heard.”

But backers of municipal networks are fighting hard against such claims and are increasingly winning the support of a high-tech community worried that Asia and now much of Western Europe is pulling ahead of the U.S. not only in broadband penetration rates but also in quality and cost of service.

“We're a joke compared to Europe and most of Asia,” said economist John Rutledge, the author of last summer's U.S. Chamber of Commerce report on the need for telecom regulatory reform. “In the U.S., most people think of broadband as a cable modem — that's like turtle mail in Japan and Korea,” where broadband services typically run at 20 Mb/s and higher at costs similar to what U.S. consumers pay for 3 Mb/s service, he added.

“And this isn't just about the telecom business,” Rutledge said. “Telecom is the central nervous system for non-telecom business. Going forward, 100% of growth in the American economy will be service businesses — all driven by information flows. It is very important to get the U.S. up to number one in the world in the speed and quality of our telecom network.”

Companies such as Intel and members of the High Tech Broadband Coalition — an alliance of industry associations representing hardware and software vendors — are now speaking out in favor of municipally owned broadband networks and encouraging states not to pass provisions that restrict or prevent cities and towns from building networks when incumbent service providers will not.

The momentum against such measures, like the one passed in Pennsylvania in late 2004 and others on track in Florida and Texas, may now be shifting in favor of cities and towns that say they need broadband networks to survive economically. While a number of states have considered bills this year to restrict or prohibit municipally owned communications networks, none have been passed yet this year (see chart).

“We're turning the corner on this,” said James Baller, attorney with The Baller-Herbst Group, which represents municipal interests nationally. “We've got a lot of support. A good part of it is a wave of revulsion that spread across the country after the events in Pennsylvania.”

In Florida, for example, the state senate engineered a compromise — after weeks of negotiations with municipalities, incumbents and other parties — that allows cities and towns to go forward with building their own networks only after they have given incumbents a chance to meet their stated needs. The compromise also requires that a municipal network show a profit after four years to begin paying off network costs and that any project requiring more than 15 years to finance be approved in a voter referendum.

“I think, overall, it's good public policy,” said Barry Moline, executive director of the Florida Municipal Electric Association, which represents many smaller towns and cities wishing to build telecom networks.

It's a more reasonable provision for cities than the Pennsylvania law, Baller said.

“In Pennsylvania, the only criterion is data speed,” he said. A service provider has two months to commit to providing — and 14 months to actually providing — a service at the data speed specified by a municipality, Baller said. “But nothing is said about quality of service or price. A service provider could, cynically, claim its T-1 service meets the data speed requirement.”

Verizon has come under fire for pushing the Pennsylvania law through, but that is an unfair characterization, said Eric Rabe, Verizon's vice president of media relations.

“Under this law, [municipalities] can come to us and either force us to [build them a broadband network] or force us out of the business,” he said. “It gives them a lever over us.”

Verizon has responded to such requests, he adds, pointing to Grundy, Va., a small town in the southern part of the state that asked for, and got, a wireless broadband network, and Fort Wayne, Ind., that asked to be added to Verizon's FiOS buildout and was. In general, municipalities would be better off working with the incumbents, Rabe said.

“We think certainly a community has a right to do this if they wish, but they ought to explore other alternatives first,” he said. “Communications technology changes about every three years. Any community going into this business is confronted not just by one building project, but one that keeps going and going. It needs maintenance and upgrading, to say nothing of customer service on a 24-hour-a-day basis.”

Even Rutledge, the economist who believes the U.S. is starving for broadband, hesitates to endorse municipally built and owned networks.

He cites one small Memphis, Tenn.-based firm, purchased by his private equity company, that found it was easier to get a broadband connection to India and China than to get one to its factory 70 miles away in Batesville, Miss.

“I believe so strongly that we need to have universal broadband that I would be leaning toward letting anyone do this,” he said. “But the probability that municipalities will do a good job at this approaches zero.”

Such thinking ignores the track record of U.S. municipal networks today, according to a coalition of consumer groups, media organizations and municipal broadband advocates who claim a campaign of disinformation by incumbent carriers had created the false perception that municipal networks drive out competition and that they often become financial disasters, causing massive losses to taxpayers.

“They are consistently saying things that are untrue,” said Moline, at a Washington press conference in early April. “They are making stuff up. The principal reason why local governments are offering broadband is to do economic development, pure and simple.”

Many municipalities that start out to build their own networks ultimately do conclude “that they don't want to get into this business,” Baller said. “Local government officials are a lot wiser than people give them credit for being. They have to live in these communities. And they conduct an open process — everyone participates, including the incumbents.”

Some cities are mitigating technology risks by turning to companies such as Dynamic City, which designs, builds and operates fiber-optic networks for cities, including the UTOPIA project under construction in multiple locations in Utah.

“We are building open service provider networks as a public/private partnership,” says Ben Gould, chief marketing officer for Dynamic City, “and we have built into that the ability to upgrade the technology every three years as needed.”

“There's no perfect world where a decision is so completely obviously correct and without downsides,” Baller said. “There are issues, but on balance, the main question is, is it in the interest of our country to offer the opportunity for more people to have access to broadband? We know the answer is yes.”

Muni legislation outcomes

Ivan Seidenberg, Verizon CEO