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level playing field
Content tagged with "level playing field"
Stimulus - Private Companies Won
With time and resources scarce and applications to review from nearly 2,200 entities, favoring vendors was less complicated because they wrote savvier proposals and required less follow-up, in Winogradoff's view.Private companies were able to submit savvier proposals and generally swamp the system with far more proposals, slowing the entire process because the federal agencies did not expect the volume. NTIA claimed they wanted to make the funds more widely available and instead shut out much of the public sector. NTIA, along with most federal agencies, simply does not understand that a "level playing field" between private companies and the public sector is simply not possible. The public sector has different interests - maximizing social benefits whereas the private sector is interested in generating profits. Public and private entities are different creatures, operating in different regulatory environments, with divergent motivations. You can no more create an objectively level playing field between the two than one could in designing a contest between basketball and soccer teams. The rules are simply going to favor one or the other. The question becomes, who should the rules favor? When it comes to infrastructure and tax dollars, the rules should favor those who put the public interest first. This was the lesson of the Rural Electrification Administration, which was horrified at the idea of lavishing grants on profitable companies in the hopes they would temporarily invest in rural areas. Instead, they offered loans to cooperatives and extended electricity to farms across the country during the worst Depression in our history. What have we learned from that? Nothing. We contort our policies while offering more and more money to companies that time and time again show they have no interest in serving rural America. This is ludicrous - not only have we already built a wire out to almost every home in America, we still have the polls!
Municipalities Compete with the Private Sector
Proactive Broadband Communities and NATOA Awards
Time Warner tried to get a bill passed in the state legislature this year to prevent cities from offering broadband service. They claimed community networks create an un-fair playing field. Personally, if I ran a bezillion dollar company and a small town of 48,000 with no prior technology business expertise built a network 10 times faster than my best offering, I’d be embarrassed to be associated with the bill. If incumbents want to level the playing field, maybe they should outsource their engineering operations to Wilson.He revealed an upcoming list of ten smart broadband communities that has since been published here. This is a mixture of communities that have taken action to improve broadband - a variety of models and community types. Without detracting from this list, I want to note that some networks are missing important context. For instance, Wilson NC, lists an unimpressive number of subscribers currently, but the network is still being built and many who want to subscribe are not yet able to subscribe. Additionally, it would be nice to see the prices offered for each speed tier -- many of these networks keep higher speed tiers much more affordable than do traditional carriers. That said, many kudos to Craig for putting this list out there (he will be putting similar lists up in the near future). While on the subject of impressive community networks, NATOA has announced its community broadband awards.
What Can States do?
Level Playing Field
Many private, often incumbent and monopolistic, providers use the term "level playing field" as code for ensuring communities are unable to build their own networks. They do not actually want a "level playing field," they want more advantages for their businesses.
Consider the fight in 2009 over this issue in North Carolina:
HB 1252 would create extraordinary financial accounting and administrative burdens on municipal broadband providers that would render their existence fiscally difficult, if not impossible. The bill also subjects municipalities to the new jurisdiction of the North Carolina Utilities Commission, while not requiring the same of private providers. Also troubling is the injunctive relief provision, which could encourage litigation for purposes of gaining competitive advantage. Furthermore, the legislation appears to prevent municipalities from pursuing alternative funding sources, such as broadband grant programs included in the Federal stimulus bill, the American Recovery and Reinvestment Act of 2009. Source: Save NC Broadband Blog
Additionally, the process in North Carolina reveals the extent to which private providers like Time Warner buy legislation in some states.
While big companies like Time Warner Cable pretend to be the underdog compared to community networks, the reality is that big national corporations have far more advantages than any local government. We created this video to illustrate the point:
Cross-Subsidizing
Cable and telephone companies are able to cross-subsidize their networks - they can charge more in the areas they serve where there are no competitors in order to charge less in a competitive community. Numerous state and federal laws prohibit public entities from cross subsidizing across services. Further, when private companies are forced to have open meetings and disclose their business plans like their public sector counterparts, we will be closer to a "level playing field."
Who Has the Advantage?
In 2005, the Florida Municipal Electric Association rebutted many of the common charges levied against publicly owned networks. The following charts are from "The Case for Municipal Broadband in Florida." It must be noted that different states have different laws, but in general, claims that the public sector has overwhelming advantages over the private sector are absolutely false.
Taxes and revenues | Public | Private | Gross Receipts Taxes | Yes | Yes |
---|---|---|
Sales Tax | Yes | Yes |
Communications Services Tax | Yes | Yes |
Documentary Stamps | Yes | Yes |
Intangibles Tax | Yes | Yes |
Property Tax | Yes* | Yes |
Payment in lieu of taxes | Yes | No |
Corporate Income Tax | No | Yes |
* Under dispute at the Florida Supreme Court | ||
Regulatory Requirements | Public | Private |
Public purpose requirement | Yes | No |
Public records law | Yes | No |
Open meeting law | Yes | No |
Competitive bidding | Yes | No |
Civil Service | Yes | No |
Public hearings on budget/financing | Yes | No |
Public election or recall of CEO (Mayor) | Yes | No |
Conflict of interest standards | Yes | No |
Intra-fund transfer restrictions | Yes | No |
Investment restrictions | Yes | No |
Local regulation via referendum and initiative | Yes | No |
"Private sector companies have completely different goals, driven by shareholders’ and the financial community’s demand for high, near-term profits from user revenues. In the face of this reality, it is completely inappropriate to use of conventional Wall Street metrics to judge whether a municipal project is successful. The metric for success certainly should not be: “If this were a private firm, would Wall Street like it?”
Source: Jim Baller and Casey Lide - "The Case for Public Fiber-to-the-User Systems"
The very idea that one could somehow balance the advantages and disadvantages of different providers is suspect, as explained by the Georgia Public Service Commission (cited by Baller and Stokes):
Preventing anticompetitive practices, unfair competition, and abuse of market position does not mean that the Commission must impose conditions on every applicant which has some advantage not shared by every other applicant. The Commission is required to treat all LEC's [Local Exchange Providers – i.e. phone companies] equally, not make all LEC's equal. BellSouth and the large cable companies certainly enjoy better capital costs than a typical small business owner. Does this put the small company at a competitive disadvantage? Of course. Should the Commission determine which LEC has the highest capital costs and require that all other companies impute that amount into their rates to level the playing field"? Certainly not. If Marietta has to comply with expensive open records requirements or expensive municipal bidding requirements, should those costs be imputed into the rates of all private companies? Again, no. Similarly, if BellSouth has a large tax write-off one year, it would be ridiculous to require that they impute into their tax rates the taxes they did not have to pay merely because some other company may not have had a tax write-off that year.
What is undeniable is that the public sector and the private sector serve different ends. In general, the private sector excels at maximizing returns for investors and focuses on the short term. The public sector primarily invests for the long term and in order to maximize social benefits. Therefore, the public sector and private sector use different balance sheets.
How public balance sheets differ from private
If a broadband network encourages economic development because it offers fast speeds, reliability, and affordable prices, a public balance sheet benefits tremendously as the community prospers. However, private balance sheets would not reflect many of the social benefits because they cannot be monetized for shareholders. |
If a broadband network discourages economic development by foregoing costly upgrades that would improve service, the private balance sheet may benefit but the public balance sheet would suffer due to a decrease in social benefits. |
When subscribers make their monthly payments, it shows up once on the private balance sheet (assuming the owner is located outside the community). Some of that money returns to the community in the form of taxes and salaries for technicians. However, on a public balance sheet, the revenue has a larger multiplier effect because that money stays in the community.
Another significant difference between the balance sheets is how much profit is necessary. On a private balance sheet, there is a pressure to profit quickly and increase profits year after year. On the public balance sheet, if it takes ten years to break even, that is acceptable (when was the last time a road "broke even?"). The pressure to profit on the private side results in off-shoring or cutting back on local support that degrades service. On the public side, if a network takes an extra year to generate net income because it has hired another local technician to ensure prompt service, the community benefits.
We are not opposed to profit -- in fact, we work regularly with small businesses to create an environment that encourages them to succeed. In order to succeed, they need access to fast, affordable, and reliable broadband connections. But networks that prioritize profit first tend not to deliver the connections on which all other businesses depend.