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Last December, I wrote about a growing movement by state governments to stop cities and counties from offering their residents cheap or free Wi-Fi access--often at the behest of large telecom and cable providers. The problem has grown to include any type of broadband service, or even cable service: There are already 14 states with laws on the books limiting municipal broadband services.

Late this spring and this summer, the federal government got into the act with two opposing bills--one that would prohibit state and local governments from offering broadband, communications, or cable services, and the other that would encourage it, under certain conditions.

Clearly, private companies gain from the first bill, which would eliminate municipal competition for them. But why shouldn't my city offer such services if it has the means to, and let me decide from whom I want to get those services?

Protection for Whom?

In late May, Representative Pete Sessions (R-Texas) proposed a bill that would prohibit state and local governments from offering telecommunications, Internet, or cable services if there's already a private company offering the equivalent service. Why do we need a federal law prohibiting this kind of offering? Who, exactly, benefits from this? In my opinion, potential consumers certainly don't.

Sessions' bill, known as the Preserving Innovation in Telecom Act of 2005 (H.R. 2726), is quite short and to the point. Its only concessions to cities and states is a grandfather clause that allows existing services to continue, and a provision that allows such services if there is no private company already offering them.

News reports on the bill quote his reasons for introducing it, which include the need to prevent cities and states from wasting valuable government resources by duplicating private efforts and the desire to preserve the financial incentive for private companies to continue introducing new and better technologies.

These are laudable goals, but is a federal law really necessary to ensure they are achieved? Cities and towns should--and do--have the responsibility to determine their residents' needs and offer appropriate services to the extent the public treasury can pay for them. If those services include a cheaper broadband alternative than private companies are offering, more power to the local governments. Our whole free-market system is based on competition, and that's just what cities and towns would offer: a little more competition. As with other goods and services, consumers would be free to judge a city's offerings and take them or leave them. Private companies would still have an incentive to innovate in order to persuade consumers to choose their products instead.

The fact that Sessions is an ex-SBC employee also throws some doubt on the purity of his motives, although one could also argue he knows whereof he speaks.

Go Cities, Go

A competing bill sponsored by senators John McCain (R-Arizona) and Frank Lautenberg (D-New Jersey) would do practically the opposite.

The Community Broadband Act of 2005 (S. 1294) supersedes any state laws and allows local governments to offer telecom services as long as they adhere to the same rules and pay the same fees as private-sector rivals do. That's fair, in my opinion: If you're going in as a competitor in an area where you can set rules for your rivals, you should also abide by those rules. The potential for governments to benefit from their regulatory power has been one of the private companies' ongoing gripes regarding municipal broadband proposals, and this act addresses it neatly.

Some may argue that the fact that this act overwrites state laws means the federal government is overstepping its role and taking choices away from the states. In theory this may be true; but practically speaking, states are taking away choices from the local towns and cities within them. In my book, the local governments, and the residents that they serve, should have the final say.

As I wrote in December, I don't believe the partial-coverage municipal Wi-Fi schemes will really take business away from private companies offering reliable services throughout an area. And it may be that cities and towns will find that upkeep and tech support will be too complex and costly to make the services ultimately viable. (But success stories abound, including one close to my home in California--Alameda's municipal cable service, which has won kudos from some of my coworkers at PC World.) Regardless, there's no reason not to let them try.

More Change Ahead for Telecom and Cable

For well over a year, we've witnessed the convergence of cable, Internet, and telecom services. Cable companies offer television, broadband, and in some cases even phone service via Voice-over-IP technology. Phone companies plan to begin adding television to their lineup of communications services by the end of this year, with more widespread availability expected next year.

The federal government began to formally acknowledge that convergence with the repeal of rules that required telecom companies to open their high-speed lines to smaller rivals wishing to offer ISP or VoIP services. In announcing this decision, the Federal Communications Commission reasoned that the change would make the telecoms' regulatory situation the same as that of cable companies. There are definite drawbacks to the decision--including loss of competition, which could lead to higher prices--but there is certainly justification for treating the industries in the same way.

More recently, Congress has taken firmer action with a sweeping new bill, sponsored by McCain and Senator John Ensign (R-Nevada), that would once again rewrite the rules for the telecom industry and level the playing field between telecommunications and cable industries, which used to be different but now offer an equivalent menu of services.

As a first step and as a reality check, McCain and Ensign's Broadband Investment and Consumer Choice Act (S. 1504) is great. As final legislation, arguably not so terrific. There are real problems in transitioning industries that have never been regulated the same way, and there are safety requirements--namely emergency 911 abilities--which need to carry across to new areas that never before had to meet such requirements.

Like the earlier McCain-Lautenberg bill, the Broadband Investment and Consumer Choice Act calls for federal rules to supersede local regulations in a number of cases. Cities would lose the right to license cable franchises, with a likely accompanying loss of income; and local zoning laws may be affected. In addition, smaller companies are afraid that they might be swallowed up or that they would be unable to compete with national giants. The act also covers municipalities that want to offer these services, and sets up a bidding process by which private companies can also apply to supply the given service, with bids evaluated by a neutral third party. Private companies will be given preference in case of equal bids, and even if the local government wins, private companies can piggy-back on the construction and lay their own lines or set up their own facilities for future use.

These and other valid concerns will continue to surface as the bill moves through Congress, and it's doubtful that it will pass this year, never mind in its current form. But the process of removing outdated regulatory differences that increasingly lose meaning in practice needs to start somewhere.

Got a question or comment? Write to Anush Yegyazarian.