Testimony of Keith Montgomery

My name is Keith Montgomery. I am the Chief Executive Officer of a new company, iTown Communications. We recently began pursuing business in Wisconsin. iTown is in business to design, implement and operate very high capacity broadband networks in partnership with cities located outside of major urban areas. This cooperative approach benefits the local community by creating a state-of-the-art fiber optic network that is available on an open access basis to multiple providers of voice, video and data services who will compete for the business of local residents. SB 272 should not become law. Behind the guise of protecting "leveling the playing field", it would seriously hamper new investment, thwart private sector competition, and protect existing providers of outmoded services using their proprietary networks.

The development of broadband networks in our economy and society is no less significant than street, water and electrical networks were in the past. Numerous studies show that ubiquitous broadband deployment is an engine for economic development and impacts how we carry out our daily lives. It is a source of competitive advantage for nations, states, and communities. But the United States is behind. Wisconsin is behind. And Wisconsin communities are behind. This bill only exacerbates that condition by hamstringing one of the important forces for positive change: local government involvement in deployment of what has now become an essential infrastructure --- the high capacity broadband access network.

A recent international study demonstrated that the United States is lagging behind Asian and European countries as well as Canada, and losing ground. In June 2002, the US was sixth among OECD countries in broadband subscribers per 100 inhabitants. One year later we are tenth. Yet the Brookings Institute estimates that national deployment of broadband access could create $500 Billion annually in GDP. Wisconsin lags behind the east and west coasts in Internet use. You only have to look to your neighbor to the East to understand how other states see the importance of broadband development to economic development. Michigan has an organized statewide strategy for broadband. Analysis by the Gartner Group shows that Michigan’s economic benefits include nearly 500,000 new jobs and $440 Billion in increased economic output over 10 years. In contrast, Wisconsin’s strategy as expressed in SB272 is "leave it to the monopolies."

Government, especially local government, has an important and legitimate role to play in establishing conditions for economic and community development. We all know the Internet is changing the way we work and play. But the Internet’s real potential is in front of us and requires a more robust broadband access infrastructure than DSL or cable modems can provide. New communications technology has drastically altered how business transactions within and between companies occur, freeing workers from the historical need for proximity to one another. Broadband access encourages job creation and retention by allowing small businesses access to wider markets and ensuring small manufacturing sites remain in the supply chain. It permits information businesses to locate anywhere they want. It increases productivity of research and development through increased information sharing and easy transfer of massive data files. It allows for an educational transformation, enabling anywhere, anytime, student-appropriate learning. But these benefits cannot accrue without the underlying infrastructure of a high capacity broadband network.

It is critical that you understand that with recent technology deployment advances, for the very first time a single fiber-to-the-premise network can connect all end users, support all video, Internet, data and voice bandwidth needs of today and for decades to come, and be used by a wide variety of service providers. For example, one such network in Washington, still not completed but in operation for about a year, has over 20 different providers offering service on it. With over 9,000 homes passed, over 40% are already using the network.

Networks like this are in effect a utility providing an essential infrastructure that enables economic growth. The network is a transport platform that serves the entire community, much like a local electricity network. It is available to any retail service provider. The open access network neutralizes the historic access bottleneck as a source of customer control and market power. By spreading the cost of network construction over all of the service providers who use the network to reach the customers, it lowers the cost of entry for each provider and encourages the competition that benefits the consumer.

This approach -- one network, all services, with multiple retail service providers -- is a paradigm shift from the current industry structure which now operates under the rule: if you want to play in the broadband services game, bring your own network. It makes perfect sense for small markets.

The recently deployed DSL and hybrid coax networks are closed to other service providers, and they are not capable of providing sufficient capacity to meet even today’s bandwidth demands. Just last month, the Vice Chairman of Verizon stated, "Our customers are telling us they want faster speeds and more data-transfer capacity…[fiber optic] technology will have widespread benefits throughout the economy of our nation by stimulating products that can only be delivered over this platform." The demand for more advanced service capability is increasing, but the cable and telephone companies are in a difficult position. They are under great pressure to harvest the financial results of their recent, large investments in network upgrades in major population centers. That creates a major financial hurdle for their deployment any time soon to smaller cities what they admit is the best technology for broadband applications. And when they do begin making such investments, it will take hundreds of billions of dollars nationally and decades to complete the job.

Before explaining why this bill should not become law, I believe you should ask yourselves why it is before you in the first place. Why are small municipalities trying to directly serve their own needs? And why do advocates for the bill feel sufficiently concerned that they are pressing for erection of barriers to keep cities out?

The answer to the first question is that thus far in the communications revolution, the market failed them. Smaller markets didn’t get the benefits of more competition in communications they saw major cities receiving. They were too small to attract the investment. Without new competitors, they had to wait in the queue for their incumbent providers to get around to them. Some small markets waited nearly a decade. Others are still waiting. And those with improved services face monopoly prices. Now some communities see a superior broadband capability, fiber-to-the-premise, being deployed in cities and towns like theirs around the county and ask, "Why do we deserve to be last again? Why can’t we be among the first?" The answer is they can, but not if this bill becomes law.

In response to the second question, I do not believe this bill’s premise, that the public needs to be protected from a city council acting rashly and spending public funds to enable the municipality to compete with privately owned business, is its real reason for being. This bill’s beneficiaries are well aware of the potential the paradigm shift has to undermine their current market position. The best defense being a good offense, their solution is to find a way to keep a potential neutral player like local government from deploying public-use broadband networks by putting as many roadblocks as possible in the way.

With 70 communities around the country building or already operating fiber-to-the-premise networks and many more involved in the planning process, advocates for this bill know fiber-to-the-premise technology is ready for prime time. They know it is robust and that for the very first time a single open network can serve many retail service providers and an entire community. They know their current copper-based networks are capacity constrained and, under their current debt burden, they cannot move quickly to replace them. They know that a network available to all service providers undermines current single owner network control over broadband services in any particular city. In short, they see a municipal involvement in underlying infrastructure in a way that opens up competitive entry as a threat to business as usual, even though it may be an excellent solution for the customers.

This bill is not benign. It does not just define a neutral process for local government. It effectively discourages their participation in broadband infrastructure development.

A local government’s direct involvement in broadband infrastructure deployment is a complicated and lengthy process. In today’s fiscal environment no community would pursue broadband if it were not seen as both an essential infrastructure and an unmet need. They have too many other issues to deal with. Current law sets out rules for municipal investment in any public infrastructure. This bill is just a "piling on" of other special but unnecessary requirements that make the process too burdensome to pursue.

Specific issues with the bill are not its main problem. It simply reflects the wrong policy approach. It says to municipalities, "You are a problem that needs to be managed." What is needed is a policy that encourages the proper participation of local government to help spur true broadband infrastructure deployment to promote competition, economic growth and community development.

There are at least three key reasons this bill should not become law.

First, this bill reflects the wrong policy because it encourages inefficient deployment of capital and discourages retail service competition in small cities. It impedes the deployment of a single network used by multiple service providers in favor of costly multiple networks each used by a single service provider.

Second, it places Wisconsin’s smaller cities and perhaps the state at a disadvantage. Both will be placed in the incumbents’ capital investment allocation queues behind the largest population centers. Corporations allocate their capital to its most efficient use. That is as it should be. Larger, denser urban areas provide a higher potential return. Take a lesson from the deployment of long distance fiber networks in the 80’s, competitive local telephone networks in the 90’s, and most recently DSL and hybrid cable networks. Where did the investment go first? The NFL cities -- the most dense urban areas. The history of electrification of the United States is also instructive. In many less dense parts of the country it took two generations longer than in urban areas because private electric companies wouldn't bring electricity to those areas and opposed any effort to provide public power. Do you believe small cities in Wisconsin will be first in line for capital investment this time? And how long will that line be? Are you prepared to tell communities that see this infrastructure as essential now to go to the end of the line? And what of Wisconsin? As a less densely populated state, do you believe it will have advantages in obtaining the investment capital over other states that are more lucrative commercial markets? This bill has implications for the Wisconsin’s overall competitiveness.

And third, Wisconsin is already behind in the new broadband race. This bill will put it further behind. There are fiber-to-the-premise networks in small communities in 20 states. Other more progressive states understand that private capital is scarce for broadband infrastructure, and it will be slow to come to small cities. Look at Michigan, Washington, Utah, and even Alabama. Their laws are constructed to allow a self-help role for local government as part of an overall development strategy for this essential infrastructure.

Given the increasingly essential nature and substantial benefits of broadband communications infrastructure, the enormity of the financial and physical task of putting that infrastructure in place, and your desire to make Wisconsin grow, I urge you to think very carefully before you vote in favor of this bill. As a recent report by the U.S. Department of Commerce warns, "Today’s broadband will be tomorrow’s traffic jam, and the need for speed will persist as new applications and services gobble up existing bandwidth." Involvement by local governments is not a panacea for solving Wisconsin’s broadband infrastructure needs, but there is an important role local government to play as part of an overall state broadband strategy. Your vote on this bill will determine whether they are part of the solution, or relegated to take a ticket, get a number and wait years in line for their turn.