A year after state officials created a nationally recognized public-private partnership to build America’s best statewide broadband network, opponents are trying to kill it.
Some telecom and cable companies that now provide Internet service around the state, along with several right-wing advocacy groups, are pushing legislators and Gov. Matt Bevin to rethink the project, called KentuckyWired.
KentuckyWired was created as part of the Shaping Our Appalachian Region initiative organized by former Gov. Steve Beshear, a Democrat, and U.S. Rep. Hal Rogers, a Republican from Somerset and chairman of the House Appropriations committee.
The high-speed, fiber-optic network is to be managed and ultimately paid for by private industry. But it will be owned by the public and offer open access to any Internet service provider.
KentuckyWired officials say this network and its innovative structure could be a boon for economic development, giving businesses and homes better service, more choice and more competitive prices.
Independent studies have given Kentucky low rankings nationally for broadband availability, service and cost.
But AT&T has filed a protest over the state’s process for awarding school Internet service contracts, many of which it now has. The Kentucky Telecom Association, which represents 15 rural Internet providers, thinks KentuckyWired should be reconsidered, claiming it would duplicate existing infrastructure and undermine existing businesses that need their state and school service contracts.
The telecoms are getting backup from libertarian advocacy groups that object on principle to government-owned broadband networks. A common thread among these groups is that they have received money from billionaire brothers Charles and David Koch, who have given hundreds of millions of dollars to politicians and advocacy groups to try to limit government’s power to regulate, tax and provide public services.
The Koch brothers were recently in the news for partnering with Louisville’s richest man, Papa John’s Pizza founder John Schnatter, and the University of Kentucky to create a $10 million John H. Schnatter Institute for the Study of Free Enterprise in the Gatton College of Business and Economics.
Among the groups fighting KentuckyWired are the Indiana-based Coalition for the New Economy, which opposes public broadband efforts; and the Taxpayer Protection Alliance in Washington, D.C.; and the Bluegrass Institute for Public Policy Solutions. KentuckyWired also has received critical coverage from a Koch-supported news website, Watchdog.org.
How KentuckyWired works
KentuckyWired is a partnership between the state and several companies that are building and would operate the 3,200-mile “middle-mile” network linking all 120 counties. From each county, any Internet provider could lease network space, build “last-mile” lines and compete to offer services to homes and businesses.
The state has invested $30 million and issued $232 million in tax-exempt bonds and $57 million in taxable bonds for the project. Australia-based Macquarie Capital and its partners will build and operate the network for 30 years. The federal government, mostly through the Appalachian Regional Commission, has contributed $23.5 million.
Macquarie Capital will wholesale network space to other service providers, promoting competition and giving the state a 75 percent cut of the revenue.
The arrangement won The Bond Buyer newspaper’s 2015 Deal of the Year award for the nation’s most innovative public infrastructure financing project.
Macquarie will pay off the bonds and earn a return on investment over 30 years, mainly by providing 1,100 state offices and schools with what it claims will be faster, less-expensive Internet service than what most of them now get from telecom and cable companies using proprietary networks.
Macquarie will wholesale network space to other service providers, promoting competition and giving the state a 75 percent cut of the revenue. Nicholas Hann, Macquarie’s senior managing director, said that could amount to “tens of millions” of dollars a year.
The Kentucky Telecom Association thinks KentuckyWired needs more legislative scrutiny, because the Beshear administration withdrew a request for proposals for providing broadband service to public schools after questions were raised at a legislative committee meeting in October.
The KTA claims taxpayers could face financial liability if the network doesn’t meet financial goals. Macquarie’s Hann disputes that.
Tyler Campbell, the KTA’s executive director, also said KentuckyWired isn’t necessary because most parts of the state already have adequate broadband speeds and service through private networks, which companies are continually improving.
There are small pockets of Kentucky, including several in the mountains, that have excellent fiber-optic broadband. But that is more the result of federal grants than private investment. Several systems — such as People’s Rural Telephone Cooperative in Jackson and Owsley counties — took advantage of economic stimulus money early in President Obama’s tenure to build modern fiber-optic networks.
Independent studies have given Kentucky low rankings nationally for broadband availability, service and cost. Complaining about slow, expensive Internet has become almost as popular a topic of statewide conversation as UK basketball.
Hann said KentuckyWired is working to negotiate partnerships with already-modern local broadband systems, but Campbell said he doesn’t know of any deals that have been reached. Such deals could have a big effect on KentuckyWired’s support among legislators.
Importance of broadband
Throughout the 1800s, Kentucky replaced a patchwork of private, tolled turnpikes with state-owned roads. Could you imagine relying on privately owned highways now? Toyota might build roads only for Toyotas — Fords and Chevys charged extra, or not allowed. Broadband is often called the highway of modern commerce, so having a publicly owned middle-mile network open to all competitors just makes sense.
Of all the things I’ve been involved with, this is the best for the future of the Commonwealth.
Jim Host, Republican entrepreneur who helped put together the KentuckyWired partnership
No other piece of physical infrastructure could be more important to economic success in the 21st century and beyond than broadband. More widespread availability of affordable, truly high-speed Internet offers the promise that companies and entrepreneurs could set up shop in rural Kentucky and be as electronically connected to the rest of the world as any of their competitors.
“Of all the things I’ve been involved with, this is the best for the future of the Commonwealth,” said Jim Host, one of the state’s most prominent Republican entrepreneurs who helped put together the KentuckyWired partnership.
It is unclear what opponents can do to derail KentuckyWired at this point, other than nixing Macquarie’s contract to provide state government and school services that are needed to make the financial package work. That would likely result in litigation that could be very costly to taxpayers. Construction on the network has already begun, and plans call for it to be completed statewide by the end of 2018.
The politics of this could get ugly. Will our new Republican governor side with the libertarian radicals of his Tea Party base or the second most-powerful Kentucky Republican in Congress?
But the stakes are much higher than that. Will Bevin and legislators choose to protect the turf of Kentucky’s telecoms and cable companies, or proceed with a bipartisan plan for giving Kentucky companies and entrepreneurs an important tool to succeed in the modern economy? Opportunities like KentuckyWired don’t come around often. Let’s not blow it.