Who would have believed it? The path to cheap, fast, and friendly broadband service just might begin on a dirt road. And that’s why many of the small towns in the U.S. are causing some nervous twitches in the already pummeled telecom industry.

Broadband, you recall, was supposed to be the remedy that brought new life and revenue to the communications industry. Simple theory: charge more for rich content and the souped-up broadband access that the content rides on. Broadband has been moderately successful for the industry already. Although the growth rates show signs of slowing, industry watchers, like AeA, a technology group based in Washington D.C., put the current number of U.S. broadband connections at more than 16 million. That marks an increase of 600% from four years ago.

The problem is, the vast majority of broadband users reside in urban and suburban areas. Today’s service providers don’t want to, or can’t, sink time and money into small towns for fear of poor return on their investment.

But while cash-strapped providers reduce the priority of "connecting Small Town, USA" on their to-do lists, the little guy is no longer waiting contently until that provider decides to show up. More municipalities, either by virtue of the natural evolution of their own internal communication systems or by the maddening frustration of the telcos’ apathy at their paltry demographics, have struck out on their own. Of the 2,000 cities and communities surveyed, 511 of the public power systems—or electric utilities—are providing some form of community broadband services, according to the American Public Power Association (APPA).

There is a strong and healthy interest from municipalities in developing such services as consumers increasingly want to have access in technology, says Madalyn Cafruny, spokesperson at APPA. Small towns that either don’t warrant an incumbent service provider, or are forced to wait years before there’s sight of any offering, turn to their electric system as their tech service provider, she says. "If they [the towns] are going to get broadband services, they are going to have to do it themselves."

There are several renowned communities that have done just that. These beacons of community-run services have gotten a lot of ink and praise from their constituents, for offering affordable service with a personal edge—like local content and friendly customer service. It’s enough to make a big, fat service provider go out and buy a fly swatter.

The city of Tacoma, WA, runs the Click! Network, which offers cable TV, high-speed Internet, and business data services to business and residential customers in the city and surrounding areas. The broadband service it spawned was created more from need of self-improvement than to compete with the big cable guns. Back in 1992, when electric deregulation was being discussed, Tacoma Power decided to improve its own internal communications to more efficiently monitor its substations and meters. The telecom infrastructure it designed—a hybrid fiber-coax two-way telecom network—proved a natural method for generating revenue from frustrated, underserved customers. Today, it counts 22,000 cable TV and 7,200 Internet-over-cable customers, at a greater than 30% penetration rate. The tab of completing the network is estimated at $90 million, according to Diane Lachel, government and community relations manager at Click!. But the project has seen returns, not just in customer revenues. Click! credits its own network with nourishing the economy in Tacoma. According to Click!, more than 100 new businesses have emigrated to the city since March 1999, in part because of the new telecom services offered by the innovative service.

Many experts involved in the municipality movement cite fierce opposition by the incumbent providers from the beginning.

"Consumers love choice," says Lachel. In its original business plan, the venture expected a 25% penetration rate of passable homes opting for Click. Today, that actual penetration rate is 32%, she says. "According to the City of Tacoma’s franchise authority, Click! has grown the cable TV market overall by 10%," Lachel says.

Like Tacoma, Glasgow, KY, stumbled into the broadband business. Similar to Tacoma, when the utility upgraded its network in order to more conveniently read electric meters in town back in 1988, it unknowingly created the beginnings of an innovative communication network. The electric network was paired with telecommunications to form a new network that reached every home in town.

"It was pretty easy to see how we could add cable TV to the network to help provide a revenue stream and improve the product for our customers," remembers Billy Ray, a pioneer of the service. Ray says his daily role in the business is "acting as a leader of a small band of revolutionaries who intend to democratize new technologies for the people of Glasgow, KY." In many cases, the technical challenges aren’t what thwart the municipality. "The technology is fairly straightforward," says Ray. "The politics are treacherous."

It’s taken revolutionaries to get these services up and running, and more importantly, to keep them going. That’s because the billion-dollar telecommunications industry doesn’t take such competition lightly. And it might become increasingly difficult for the little guy to set up shop. Many states are considering legislation to make it impossible for their cities to provide these networks for themselves, Ray says.

"Incumbent telco and cable operators oppose this issue," says Ron Lunt, director of broadband services at APPA. "They may not have immediate plans to expand to these communities, but they don’t want anyone else there either until they get ready."

It’s true that the significant number of municipalities offering some communication service don’t really add up dollar-wise to a threat to an incumbent’s bottom line. Experts say of the 9,700 cable systems in the U.S., only 105 of them are publicly run. But this technical grassroots movement is on the service providers’ radar screens.

"Apparently fearing that these systems could lead to a proliferation of others like them, incumbents have poured vast resources into derailing localities from providing or facilitating the provision of competitive communication services," says Jim Baller, municipal broadband attorney and founder and senior principal of Washington D.C.-based Baller Herbst Law Group. Providers are lobbying the support of the FCC and the courts to eliminate local competition, he says. In fact, Baller says his firm is working on opposing action by incumbents seeking the review of a U.S. Supreme Court decision of the U.S. Court of Appeals for the Eighth Circuit. The decision calls state laws that bar municipal entry into telecommunications unlawful under the Telecommunications Act of 1996.

Many experts involved in the municipality movement cite fierce opposition by the incumbent providers from the beginning. When public hearings were held to debate the merits of the utilities offering service, the telecom industry hollered. Reports charged the industry’s attacks used questionable data, or made false claims in an effort to curtail the movement. Lachel says TCI tried to derail Tacoma’s efforts to launch service when it petitioned in 1997 and since then has contributed to smear campaigns maligning the service.

"The local cable company (TCI/AT&T/Comcast) then and now continues to perpetuate falsehoods about Click!, insisting that taxes have been used to build the network," says Lachel. "In fact no tax dollars have ever been used to build or operate the network."

But sometimes, even the big guy knows when to put down his gloves. "Comcast came to us in 2001 after we had taken about 70% the market, and asked us to buy them out," says Ray. "We did that and they have left Glascow." Ray says the win came even though Glasgow charged $2 more per month for a similar package than Comcast was charging.

As service providers chug along, trying to ride out and survive the telecom downturn, more products that straddle voice and data services are becoming available, while more announcements of technical advances are proclaimed. Verizon, BellSouth, and SBC announced a common standard that promises a new, high-speed data network that could reach into the 100 million homes the companies serve. Whether it comes to pass is questionable, but the telcos have to do something while the cable companies furiously upgrade their own networks. But the costly advancements are barely economically feasible for SUV-lined suburban streets, never mind that dirt road.

And while there are instances of partnerships with private sector telecom companies and the publicly run services, some ISPs are keeping their noses to the grindstones. A spokesman for Earthlink says while the company has ramped up its broadband offering, and is including telephony bundled with its DSL or cable broadband service, municipalities offering broadband services is not a hot topic internally right now. It has no plans to pair up with municipalities to offer the Earthlink flavor of Internet service.

A lovey-dovey relationship between private and public companies would be a nice by-product of the municipalities movement. But even if this ideal pairing doesn’t occur, there are plenty of other benefits the movement produces. For one, citizens talk about the overall improvement of the product of all providers where there is healthy competition between incumbent and locally run businesses. Another? Local service means there’s no hiding behind a fast-busy customer service phone number when you must encounter your angered customer at the nearby grocery store. Finally, it means rural areas, once locked out of reliable, affordable Internet access, can get connected.

It’s these benefits, and the idea of leveraging technology and all that it can do to help improve the current economy, that are making small towns seek advice on how to get their power companies to turn on to broadband.

"In the four years that I have been at APPA, we have seen a continual increase in the number of members providing external services to the members of their community, oftentimes because of frustration with the lack of broadband services," says Lunt. Ray says Glasgow has served as a consultant, catalyst, and proponent for nearly every municipal broadband network being contemplated today and says more than 550 cities have sent representatives to study their venture. Lachel estimates receiving one or two phone calls each week from interested municipalities looking for advice on how to get started.

Some analysts, like Jeff Kagan, predict that if the trend continues, sticky issues will arise, such as how to impartially govern the competition between service provider and a government-run entity. Once competitors come into a market that hadn’t been served, there is no need for a government-run service to be in business, he reasons. At that point, the government entity should sell off its broadband business to the competitors, Kagan suggests.

I don’t even want to ask Ray, Lachel, or Baller what they think about that idea.

Five years from now, it may be the case that locally run rural power plants are providing the best communication service to the people. It might be that broadband-starved, price-gouged subscribers of the behemoths salivate at the thought of access from down that dirt road. It will probably remain that only the revolutionaries who fight aggressively against the incumbent make it happen. In the end, approximately the same percentage of municipalities that run electric companies—20%—will take on broadband services, predict the experts. That may not be enough to kill a service provider, but it’s enough to cause concern for the service providers. And there are plenty of folks who want to see that percentage go up.

"There should be no barriers to entry for communities that decide to install infrastructure to provide broadband services to themselves," says Lunt. "After all, who knows the needs of the community better than the residents?"

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