A bill in the Michigan State Legislature would prohibit local governments from building and managing networks that provide internet access to the public.

So-called “municipal networks,” which are built or managed with local government involvement, are seen as a way to create competition and jumpstart broadband access in areas where commercial telecommunications companies have not stepped in to provide adequate service.

The three-sentence bill (H.B. 5099) prevents local governments from using any public money to pay for the cost of providing internet service. Borrowing money for such purposes is also prohibited under the bill.

The bill was introduced by Republican State Representative Michele Hoitenga of the rural 102nd district. The district lies in the central and northwest region of the state’s Lower Peninsula and is composed of Wexford and Mecosta counties and part of Osceola County. Hoitenga is the former mayor of Manton, pop. 1,300.

A law already exists mandating safeguards against bad municipal financial decision-making.

“There are statutory restrictions, competitive bidding with an industry bias built in, mildly onerous separate accounting and projection requirements, industry-biased geographic limitations and artificial time delays,” says Michael J. Watza, head of the governmental litigation and affairs practice at the Kitch Drutchas Wagner Valitutti & Sherbrook law firm.

The bill does allow local governments to contract with private companies to provide internet access.

A blog post by Community Networks, a project of the Institute for Local Self Reliance, says private companies won’t be as interested in partnerships if governments can’t get the project going with infrastructure or other investment. “Typically, the infrastructure attracts a private sector partner,” the post says. “If a community in Michigan wants to pursue a partnership that suits the exception of HB 5099, they will first have to grapple with the chicken and the egg dilemma.”

Community Networks also noted that the bill defines broadband as 10 megs down/1 up, less than half the federal definition of 25 down and 1 up.

The Current Law

Michigan is one of 21 states that limit or ban publicly owned networks. Michigan’s existing law dates to 2001. It requires cities to get council approval, issue a request for proposals to the private sector, and wait 61 days for responses. If fewer than three “qualified” internet service providers respond, the city can take on the project—but only after it prepares and presents to council a cost-benefit analysis that predicts costs and number of subscribers, and posts this publicly for 30 days.

Assuming cities decide to move forward and no ISP responds, there must be a public hearing to authorize construction, and then a CPA must review the document. Cities must pay for all of these tasks.

“And if there are responses, the key is determining whether they are qualified to do the work,” Watza said. “A decision the community may make, but one potentially subject to challenge by industry.”

If an RFP respondent wins the bid, it does not have a set amount of time in which it must build the network. The statute is silent other than the “qualified” term.

Examples of Michigan ‘Munies’

The village of Sebewaing was the first community to complete the requirements of Michigan’s municipal network law. The network is a project of Sebewaing Light and Water (SLW).

“Developing an RFP that was subject to so much public scrutiny forced us to be thorough in designing the network, and also enabled us to get plenty of feedback from constituents to fine-tune our design to meet their needs,” said Melanie McCoy, superintendent of SLW.

“We issued the RFP in April of 2013, and immediately began developing the cost-benefit analysis after the 61 days so we could publish it in August and hold the hearing in September. Spectrum Engineering started the design the day after the public hearing. We issued bid in October and finalized the contract with Earthcom, the outside plant contractor, by December so we’d be ready to begin construction by March of 2014.” said McCoy. Eight months later, SLW began offering broadband service over the network.

McCoy stated at the time, “If we can get 500 of our 1,800 residents to subscribe to the network, revenue would pay off the $1.7 million investment in the network buildout in eight years.” SLW installed its 528th customer this past May, less than three years after launch date.

The City of Niles, Michigan built its own backend infrastructure in 2012. “Our purpose was to hook up all of our city buildings to the network,” says Jeff Dunlap, the city utilities manager. Niles has a population of 11,000 and has 20 industrial-park customers. “After doing a needs assessment, we determined it was too costly for us to build fiber to the doorstep of the park.”

So they looked to Midwest Energy Cooperative.

“We gave Midwest some property in one of our substations and they agreed to light up the industrial park. We don’t charge them pole attachment fees and they in turn provide the connections to the businesses in the industrial park that we couldn’t afford to do.” Because of Midwest, Niles was able to keep the businesses in town.

In addition to the fiber loop, Niles has its own electric distribution system. The combined infrastructure was more reliable than the incumbents’ original T1 communications infrastructure. Later the City decided to rid of its POTs (plain old telephone) lines and use Midwest Voice over IP (VoIP) services.

Nationwide, more than 400 local governments have their own public broadband networks.

Craig Settles is a broadband industry analyst, consultant to local governments, and author of Building the Gigabit City. He also wrote “How to Navigate, Mitigate or Eliminate the Impacts of State Restrictions on Broadband.” 

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