The state legislature is considering a bill that would severely restrict the ability of local governments to provide broadband Internet access. It would affect everything from Chapel Hill’s evolving plan for downtown wi-fi access to city partnerships with private industry to some rural communities’ efforts to provide access to citizens stuck with nothing but dial-up.

House Bill 1587, “The Local Government Fair Competition Act,” is supported by the telecommunications and cable industries, which say cities have unfair advantagesthey don’t pay taxes and can subsidize a money-losing Internet business with revenue from the city budget. The bill sets out a long list of strict financial and political requirements should a government get into the broadband business. But the N.C. League of Municipalities and a growing number of cities oppose the measure, saying it would effectively make it impossible for local governments to provide Internet service in rural and low-income areas where private industry has decided not to.

Largely ignored by the media, this tug of war between local governments and private industry is part of a trend in which state legislatures are carving out the nation’s digital future by enacting laws that will govern the next generation of communications technology. Like the fight over net neutrality, these local laws will have tremendous impact on Americans’ access to the Internet in years to come. But unlike that widely publicized congressional battle, these state-level regulations are struggled over in obscurity.

But if the average citizen doesn’t know much about this fight, city leaders certainly do. Durham, Chapel Hill, Fayetteville, Greensboro and a growing number of other cities have announced their opposition.

For Chapel Hill, the bill could mean an end to long-running plans. “Chapel Hill does oppose any law that would impede its ability to provide high speed broadband Internet service to the community, so we are in opposition to this bill,” says a town spokesperson.

Cary has not taken an official position, but leaders there wrote members of the House committee saying the town “is very concerned about the negative impacts” of the bill, which “could severely limit a local government’s ability to foster economic development and bridge the digital divide.”

Among the cities most affected is Wilson, which decided last year to undertake its own fiber-optic broadband network. Wilson passed a resolution in opposition last month.

Under this bill, a municipality interested in providing Internet service:

  • Would have to hold at least two public hearings and a special election
  • Must include only revenues generated by the service in any bond funding
  • plan—in other words, it could not put up any money to get the service started
  • Cannot subsidize the service with any other revenue source
  • Must calculate the cost of taxes and fees it does not pay into the fee it charges citizens for the service, and must pay the equivalent of those taxes into the general fund each year
  • Must keep separate books for and publish an annual independent audit of the Internet service business
  • Must turn a profit on the service within four years

At the May 30 hearing of the House Public Utilities Committee, committee chair and bill sponsor Rep. Drew Saunders (D-Mecklenburg) said, “If local government’s going to do this, they ought to have the same standards that a private business would have.”

Robert Wells of the Alliance of North Carolina Independent Telephone Companies told the committee: “This bill is about fairness.”

But as Rep. Lorene Coates (D-Rowan) quickly pointed out, the industry itself is not subject to these stringent requirements. “I don’t know of any business that goes into business expecting to turn a profit in four years,” she said.

Andrew Romanet, general counsel for the N.C. League of Municipalities, stated his group’s strong opposition. “I look at this as the ‘No Competition Act,’” he said. “It’s designed to make it difficult, if not impossible, for local governments to get into this business.”

Cities and counties have been in the public enterprise business for many years, he saysproviding services such as water, garbage collection and even communications in areas that private industry has passed by. “We believe that if this is a utility, then all of our citizens ought to be served. And if they’re not going to be served, then we ought to have the right to step in,” he said. “The information highway should not be controlled solely by the private sector.”

Mooresville Mayor Bill Thunburg agreed. “Folks, this bill is a pig with lipstick on,” he said. “The whole notion of this being a Fair Competition Act is really absurd.”

Mooresville entered the broadband Internet business after years of struggle with private industry. Town leaders haven’t been able to convince Time Warner to launch cable modem Internet servicethe company couldn’t make enough profit, they were told.

“This is why we get into that business,” Thunburg said. “Private sector’s not going to build out into rural communities or poor neighborhoods because there’s no money in it for them. Municipalities serve those folks, and we can serve them better than private industry can because we can be sure that they’ve got fiber to the home.” He urged the legislators to consider the need for economic development.

“You don’t do that by slamming the door in the face of the poor people or rural people, and that’s what this bill does,” he said. “One thing’s for sure: If municipalities are in the broadband business, big businesses have competition. Right now, in Mooresville, they don’t have any competition.”

For legislators representing rural areas, Mooresville’s dilemma has a familiar ring. Rep. Angela Bryant (D-Halifax, Nash), who sits on the public utilities committee, says Nash County has had a similar experience.

“Technology’s moving so fast, some of my cities and counties say that as far as they’re concerned, broadband service is almost like electricity, water and natural gas in terms of how essential it would be for citizens to have it and how much of a deprivation it would be not to, just because private industry won’t do it,” she says. She’d like to find some balance between the concerns of the industry and needs of local communities. As it stands, she says, the bill “is putting us too much at the mercy of the private businesses.”

Committee members have been hearing lots of opposition, says Rep. Pricey Harrison (D-Guilford). “I don’t think it creates competition at all, I think it kills competition. All of us want to be fair to business, but this is going a little bit too far,” she says.

Despite her opposition, Harrison expects an amended version of the bill will pass the committee on June 6, and move on to the finance committee. She anticipates that the four-year profit requirement might be removed, and a number of communities that have already pursued or launched broadband service might be grandfathered in.

The bill has strong backing on the committeefour of its members are co-sponsors, including committee chair Saunders and Vice Chair Rep. Harold Brubaker (R-Randolph). Its other sponsor, Rep. Hugh Holliman (D-Davidson), is on the finance committee. Campaign finance records show that all five of the bill’s sponsors accepted $4,000 or more in contributions from industry PACs (view chart, “The money connection”). In fact, Wells, who spoke on behalf of the industry at the hearing, personally gave $400 to Brubaker’s campaign last year.