The lack of broadband in Appalachia can be attributed to various causes. First, an area’s rural or urban geography and income level can impact residents’ rates of subscription to the Internet. Appalachian poverty rates range from 6.5 percent to 41.0 percent. In counties with median incomes of less than $50,000, the average broadband subscription is merely 65 percent. Additionally, local markets for broadband access tend to be natural monopolies; the fixed costs of developing broadband infrastructure are very high, and these new networks in rural areas would have few subscribers. Few incentives exist for private Internet service providers (ISPs) to expand their networks, leaving the companies that are there with a monopoly over the area.
With private ISPs unwilling to invest in infrastructure, state and local governments have the responsibility to support municipal broadband networks to provide adequate Internet service to their citizens. However, many states in Appalachia have restrictive state laws that obstruct or expressly prohibit municipality-owned broadband networks.
A municipality-owned broadband network is “any high-speed Internet system that is built and operated by a municipality, [or] a consortium of municipalities . . . that is offered on a commercial basis to residents.” (Charles M. Davidson & Michael J. Santorelli, Advanced Comm’ns Law & Pol’y Inst. at N.Y. L. Sch, Understanding the Debate over Government-Owned Broadband Networks: Context, Lessons Learned, and a Way Forward for Policy Makers, 3 (June 2014).) In such networks, the state or local government constructs, funds, and controls the local Internet network. Restrictive state laws not only hinder public entities from creating these networks but also effectively create a monopoly for private ISPs in the area.
In the late 1990s, Congress passed the Telecommunications Act of 1996 to encourage all entities involved in the telecommunications industry to expand within the market to promote competition. As a result, many state and local governments took the initiative and began creating public networks to provide affordable Internet access for their residents. Almost immediately, private Internet service providers realized municipal networks threatened to erode their autonomy in the industry. Private ISPs began a vast lobbying effort to encourage states to restrict or ban municipal networks. These campaigns successfully convinced many states to protect private ISPs and restrict the usage of municipal broadband networks.
However, because of the high costs associated with network development, private companies are unlikely to expand into rural areas, regardless of any municipal network in place. If they do decide to expand in these areas, they are likely to increase the price to break even at a quicker pace. Thus, in the areas where municipal broadband is restricted, one of two things is likely occurring: (1) there is essentially a monopoly with only one or a few private ISPs offering limited services charging more than most of the residents can afford, or (2) there are no broadband providers at all.
Once state and local governments are no longer subject to overly restrictive municipal broadband laws, opportunities will expand for states in Appalachia to focus on bringing broadband to the more rural areas of the region. State and local governments should utilize different forms of municipal broadband networks to remedy the digital divide in Appalachia. Two specific types of municipal networks that use a form of government contracting to build broadband infrastructure are (1) public-private partnerships and (2) public utility networks.
A public-private partnership is a contractual arrangement between a governmental entity and a private corporation. The private company and governmental entity collaborate in the financing, building, and managing of a project. In the case of municipal broadband, specifically, a state or local government will contract with an ISP to provide Internet services to its residents.
In public-entity-led partnerships, the public entity retains a majority of the project’s responsibilities while leasing infrastructure access to a private partner so it can handle the network’s operations. The government agrees to do most of the heavy lifting by “financing, constructing, and owning the network,” while the private ISP takes on more of the technical duties by providing Internet service to customers. (Patrick Lucey & Christopher Mitchell, Inst. for Loc. Self-Reliance, Successful Strategies for Broadband Public-Private Partnerships 6 (July 2016).)
A public-private partnership allows the government to utilize the private sector’s strengths by using its advanced competencies and capital when building broadband infrastructure. The model balances positive incentives for both sides by allowing the municipality to control and own the network while giving the private ISP profits in an area it normally would not invest in because of the excessive costs of building broadband infrastructure. One of the biggest barriers that prevent private ISPs from offering services in rural Appalachia is the large start-up costs associated with broadband deployment. Thus, a public-private partnership takes away that concern and allows private ISPs to make profits in these areas without having to pay for the infrastructure itself.
Additionally, public-private partnerships could help alleviate the apparent monopoly on broadband in Appalachia. When a state or local government uses a public-private partnership, it allows the government to organize the network and determine how it will be managed. The municipality functions as the “owner and operator” of the infrastructure while the contract is being negotiated. To preserve competition, the municipality could include an “open access” clause in the contract that would allow the municipality to resell access to the network to other providers if it finds it necessary to do so.
Another form of a municipality-owned broadband network that could be implemented is the repurposing of public utility networks that are already in place. These utility networks are “generally operated by the municipal electric company” that sells “broadband and/or telecommunications services to their own customers using the same model as their electric or other utility service.” (Sherry Lichtenberg, Nat’l Regul. Rsch. Inst., Rep. No. 14-11, Municipal Broadband: A Review of Rules, Requirements, and Options 7 (Nov. 2014).) This method would require the state and local governments to enter into agreements with the public utility companies in the area to develop broadband networks using the infrastructure already in place.
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This article is an abridged and edited version of one that originally appeared on page 133 of Public Contract Law Journal, Fall 2022 (52:1).
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