The Mayor of San José, Sam Liccardo, recently quit a Federal Communications Commission advisory committee on broadband deployment after opposing the Committee’s effort to lower excessive and discriminatory fees that cities impose on broadband providers. The reasons for Mayor Liccardo’s resignation serve to highlight the importance of big cities’ revenue-raising strategies in widening the digital divide. Broadband deployment suffers in rural and other underserved areas on a nationwide basis when big cities use their monopoly power to charge excessive prices for access to their rights-of-way (e.g., for running fiber optic cable alongside a public road).

The Mayor voiced his concerns at the FCC while objecting to the Committee’s recommendations for “accelerating broadband deployment across the nation.” He candidly admitted that his “focus” was on the fees that cities charge for allowing broadband providers to install and maintain their network facilities in local rights-of-way (ROW).

The report that prompted the Mayor’s resignation addressed an on-going conflict between local governments and industry regarding these fees. Many localities seek to charge as much as any particular broadband provider can be convinced to pay, which they call the “market rate,” while the communications industry seeks “at cost” or otherwise predictable, standardized pricing for access to ROW.

The report recommended that the FCC “clarify that ‘fair and reasonable’ compensation for right-of-way access and use implies some relation to the burden of new equipment placed in the ROW.” It also recommended that the FCC “should encourage greater transparency regarding the way fees are calculated by requiring localities to make fee schedules [and the methods of their calculation] publicly available.”

This recommendation is consistent with the Committee’s stated purpose, which is to “make recommendations to the [FCC] on how to accelerate the deployment of high-speed Internet access, or ‘broadband,’ by reducing and/or removing regulatory barriers to infrastructure investment.”

There is ample empirical evidence that local regulatory barriers are a major impediment to broadband infrastructure projects. Google started its experimental broadband network, Google Fiber, to “learn how to bring faster and better broadband access to more people.” After its experience building a broadband network in Kansas City, Google testified to Congress that local government regulation of “rights-of-way often results in unreasonable fees, anti-investment terms and conditions, and long and unpredictable build-out timeframes.” The resulting “expense and complexity of obtaining access to public rights-of-way in many jurisdictions increase the cost and slow the pace of broadband network investment and deployment.”

Major cities are in a position to charge excessive fees because local governments have a pure monopoly over access to their rights-of-way: a broadband provider who wants to build a network in San José has no competitive alternative to whatever the city demands. It’s a fundamental principle of conventional economics that a monopoly can charge excess prices (i.e., higher prices than there would be in a competitive market) and that excess prices lower output. With respect to cities’ excessive ROW fees, lower output means less broadband deployment overall.

At the Committee meeting, Mayor Liccardo said that reducing costs and fees is “good,” and he appeared to acknowledge that such reductions would accelerate broadband deployment in “high demand” areas. Yet he said there is no “correlation between low fees and broad [rather than fast] deployment” in “cities with higher fees,” which enjoy “broad deployment” because big cities are “where [higher] consumer demand exists.”

The Mayor’s point has some validity to the extent the lack of correlation is limited to the boundaries of big cities. It’s true that broadband providers are often willing to pay excessive fees to deploy broadband networks that serve all residents in big cities because it’s often more profitable to serve big cities than other localities. But when a broadband provider is forced to spend excessive capital to serve urbanites, that provider has less capital available to deploy network infrastructure in smaller communities and rural areas.

Mayor Liccardo admitted that cities are seeking to take advantage of their higher demand, stating “where there is higher demand, cities tend to charge higher fees.” He also acknowledged that areas with low-population density might not be in a position to charge broadband providers much, if anything at all, for access to their ROW — “I know that is not universally true, but I would be surprised to … see that suddenly a rural community that dropped its fee to near zero would see a race of competition among providers.” It appears the Mayor’s point was that next-generation broadband will be broadly deployed in the biggest cities even if they charge excessive prices for ROW and that smaller communities and rural areas will be cut out of the deal either way.

In an apparent attempt to blunt the bleakness of his viewpoint, the Mayor attempted to redefine the committee’s stated goal of “reducing and/or removing regulatory barriers to infrastructure investment” to something that would deflect attention from his admitted focus on big city revenue raising. “It seems to me,” he said, “that a primary goal” of the committee “is bridging the digital divide.”

After reframing the committee’s purpose, Mayor Liccardo reframed the debate over excessive fees to fit the new framework: “So if we’re going to focus on actual burden [i.e., the committee’s recommendation that fees be related to the city’s costs of furnishing ROW access], let’s describe and define actual burden appropriately in a way that’s consistent with [the Mayor’s redefined goal of bridging the digital divide].” He implied that the burden of providing access to a city’s ROW should include the burden of bridging the digital divide, which then becomes his justification for charging excess fees: “I’m certainly happy to reduce fees if in fact there’s a mandate on industry to provide universal service.”

The Mayor’s attempt to tie the parochial issue of cities’ excessive ROW fees to much broader statewide and national concerns over the digital divide appears disingenuous. If, as the Mayor suggested, the digital divide is largely a rural problem, allowing cities to charge excessive fees will serve to widen the divide by diverting capital from rural deployment to big cities’ treasuries.

In addition to being disingenuous, the mayor’s attempt to recast a committee tasked with lowering regulatory barriers as a means of addressing the digital divide is inconsistent with federal and state universal service policies. The federal government and the states already have  extensive universal service programs that fund rural broadband deployment, low income and Tribal consumers, schools and libraries, and rural health care. In 2016, FCC-administered programs authorized $712 million in universal service support for California alone, the highest of any state, and California has received a total of $11.2 billion in such funding from 1998 through 2016. If universal service was truly Mayor Liccardo’s motivation for defending the Californian City of San José’s ability to charge excessive ROW fees, he should have offered to send the cities’ excessive fees to California’s state and federal universal service programs.

The federal and state governments are best positioned to solve universal service problems, because the most difficult places to serve typically lie outside cities’ jurisdictional boundaries. Congressed charged the FCC with a duty to make communications services available “to all the people of the United States,” not just those who live in big cities. And the principles of universal service established by Congress state, “There should be specific, predictable and sufficient Federal and State mechanisms to preserve and advance universal service,” not unpredictable and insufficient negotiations with cities of limited jurisdiction.

The role of municipalities in bridging the digital divide is necessarily limited by the fact that they govern only a portion of the public. A mayor’s duty to serve the public interest stops at the city limits. Promoting universal service, however, requires a broader and more holistic view of the public interest by the state and federal governments.