TESTIMONY OF DANIEL R. TUNNELL, PRESIDENT BROADBAND CABLE ASSOCIATION OF PENNSYLVANIA
Before the Committee on Communications & Technology
Senate of Pennsylvania
On the Matter of Government Competition with the Private Sector
Monday, November 7, 2005
Good Morning, Chairman Wonderling and members of the Senate Communications & High Technology Committee. I am Dan Tunnell, President of the Broadband Cable Association of Pennsylvania, a trade association representing over 40 companies that provide voice, video and data services to more than 3.6 million households in our Commonwealth.
This committee has before it a very significant issue, which was partially addressed in Act 183, and which is more widely addressed in Senate Bill 930. The issue before you today speaks to a fundamental relationship between the private and public sectors of our economy. The city of Philadelphia has announced that as a matter of public policy, it is seeking to develop a wireless network to serve the citizens of the city, particularly those in low income and distressed sections of Philadelphia who might not otherwise have the opportunity to participate in the broadband world. My purpose today is not to explore the technology behind this initiative, but rather to comment upon the policy implications of this proposal.
Let me say at the outset, that from the standpoint of private employers, and I hope, from the standpoint of government officials, it is important for Pennsylvania to encourage the development and expansion of private business opportunities. It is the foundation of our competitive economic system, and it just makes sense for all of us to foster a robust economy by nurturing private sector employment and investment. Indeed it is in the interest of government to promote this outcome in order to achieve the necessary tax and fee revenues to underwrite government service.
One of the tenets of government is to provide for the public good-the public welfare-which often demands that government provides services that are deemed essential to the citizenry. These include emergency and police services, transportation improvements, and of course, infrastructure improvements. Many Pennsylvania communities provide sewer & water service, electric service, gas service, and even cable service. However, I am unaware of the provision of any of these services by any community or authority in the Commonwealth in which the governmental entity competes with a private provider... except one.
Several years ago the Borough of Kutztown decided to explore the construction and operation of a state of the art fiber optic system to provide voice, video and data services to its citizens. This ill-conceived project was intended to bring an array of as yet unseen services to the public. Armed with a feasibility study that proclaimed the virtues of such a venture, the Borough sought to enhance its municipal services. The rationale was to bring broadband to the community, to offer competitively priced cable and telephony services, to foster economic development, to control its own destiny in the "knowledge based economy," and to provide a complimentary function to the existing electric service. Although the Borough will tell you that it sought to enlist the franchised cable operator as a partner in the project, it was essentially an ultimatum to that company. Let me illustrate what I mean.
If a community approached the local newspaper publisher and stated its intent to spend public money to construct its own local paper-after all, think of all the ad revenue they might obtain-and if the community further stated its desire to have that publisher actually operate the town-owned newspaper, what do you think the newspaper publisher's reaction would be? I suspect he would wonder why the community was interested in operating a service that he already provided, and further he would wonder why the community approached him to run something that directly competed with the very business he already ran. I think you get the picture.
Needless to say, the Kutztown result is ugly. Many millions of dollars later, the public has duplicate voice, video and data systems; one run by a private concern, that incidentally, pays local, state and federal taxes (including income taxes, property taxes, sales taxes, fuel taxes, among others), right of way fees, pole attachment fees, local permit fees, and above all, a 5% franchise fee to the very municipality that chose to build a duplicate system. The other operator (the community) pays none of these taxes and fees, plus it enjoys the right of eminent domain, and above all, the ability to cross-subsidize an uneconomic, duplicative service by utilizing other municipal revenues. If the true costs of retiring the debt incurred to build the network, as well as the costs to operate it, were reflected in rates to subscribers, the monthly charge would be prohibitive. No resident of the Borough would sign up for service. However, this is not what the Borough and its Hometown Utilicom service provider reflect in rates. Instead, they artificially reduce the rate, call it competition, and fund the unfunded liability on the back of electric ratepayers. This is hardly competition!
At a time when communities throughout this Commonwealth are struggling to make ends meet, it is curious, and disturbing, that any community would seek to provide a service that is already provided by a private sector employer. Communities around the country have substantial losses from cable and telecommunications projects, and thus the expenditure of public funds for such purposes is pointless and wasteful. Pennsylvania's public policy should promote private sector services wherever feasible, and encourage public investment only where there is no private investment and where the public safety, security, and health are enhanced.
Judged by this standard, and by the experience of Kutztown, the Philadelphia wireless proposal makes little sense-either from an economic perspective or from a public policy standpoint. This project has a twist, though, not seen in Kutztown. We now understand that the city is engaged in negotiations with Earthlink, a private provider of internet access services. Earthlink proclaims that it will construct the network at no charge to the city, just as cable companies throughout the country have done for decades. In fact, just in the past ten years, Pennsylvania's cable industry has invested over $6 Billion in infrastructure improvements which bring digital voice, video and data to the public, including businesses, schools and government.
If Earthlink or any other provider wishes to construct such a network, they do not require the imprimatur of city government, or a city contract to do it. They may file for the required permits, and commence construction. Our concern with these negotiations is that they may lead to some unwarranted expections on the part of the provider: To wit, is the project being nurtured with the promise of exclusivity. In other words, if Earthlink builds the network, will the city disallow competition for any other wireless provider? Further, has the city agreed to confer no-bid contracts upon this new wireless entrant in return for the company's pledge to construct and operate the network? If these questions are answered in the negative, then no negotiations are required with the city. Earthlink, or any other provider may merely proceed as any other entity would proceed.
The broadband cable industry continues in its commitment to the citizens of our Commonwealth. We have constructed our networks with private capital, expanded the array of services we provide, and today provide state of the art broadband applications. Pennsylvania's citizens have embraced cable broadband as their preferred choice for residential high speed data. I can assure you that this commitment by cable companies throughout the state will endure. What we seek today is not a diminution of healthy competition-indeed, we face competition for every service we offer. We are asking that government at all levels clearly consider the consequences of actions that place them in a competitive posture with the very businesses that they should be encouraging to grow.
Thank you for your time and attention. This matter is of extreme importance to our state as we attempt to attract and retain businesses. Our economic viability rests on the public policy direction you choose. This is one public policy arena in which there is a clear direction, and we look forward to working with you in order to ensure that we make the right public policy decision for our citizens' future.
© 2010 Broadband Cable Association of Pennsylvania