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EPB in the News

27 October 2016 · 25 min. read
Vice Tech:

The City That Was Saved by the Internet

Job opportunities are drying up in towns without broadband. Chattanooga, Tennessee turned around its fortunes by building the fastest internet in the United States.

The "Chattanooga Choo Choo" sign over the old terminal station is purely decorative, a throwback. Since the Southern Railroad left town in the early 1970s, the southeastern Tennessee city has been looking for an identity that has nothing to do with a bygone big band song or an abandoned train. It's finally found one in another huge infrastructure project: The Gig.

The first thing you see at the Chattanooga airport is a giant sign that says "Welcome to Gig City." There are advertisements and flyers and billboards for the Gig in the city's public parks. The city's largest building is dedicated to the Gig. Years before Google Fiber, Chattanooga was the first city in the United States to have a citywide gigabit-per-second fiber internet network. And the city's government built it itself.

At a time when small cities, towns, and rural areas are seeing an exodus of young people to large cities and a precipitous decline in solidly middle class jobs, the Gig has helped Chattanooga thrive and create a new identity for itself.

It's an internet boomtown, and Chattanooga has turned itself from what could have been another failing mid-sized city into a startup hub that's filling up with exiles from Manhattan, San Francisco, and Austin.

Chattanooga and many of the other 82 other cities and towns in the United States that have thus far built their own government-owned, fiber-based internet are held up as examples for the rest of the country to follow. Like the presence of well-paved roads, good internet access doesn't guarantee that a city will be successful. But the lack of it guarantees that a community will get left behind as the economy increasingly demands that companies compete not just with their neighbors next door, but with the entire world.

(Full disclosure: The City of Chattanooga invited me down to check out the city's "startup week." I have long wanted to visit to learn more about the city's fiber network, so it seemed like a good opportunity. Motherboard paid for my travel and hotel.)

But not every rural community can just lay its own fiber. Cities and towns that build their own internet have found themselves squarely in the crosshairs of telecom lobbyists and lawyers, who have managed to enact laws making it difficult or illegal to build government-owned networks.

But the success of these networks is beginning to open eyes around the country: If we start treating the internet not as a product sold by a company but as a necessary utility, can the economic prospects of rural America be saved?

Stacked outside of the Electric Power Board of Chattanooga's operations center are dozens of thick red spools of fiber optic cables. They're roughly ten feet in diameter and are ready to be deployed on large white trucks to wire new customers or repair broken connections. EPB hopes one day they might be used to expand the network's footprint to neighboring counties.

Inside the operations center are two glass-enclosed command centers—one for EPB's power business and one for its internet business—that are not unlike the ones I've seen in NASA office buildings. Over in the internet command center, a couple engineers tap away at their keyboards as charts and graphs with labels like "Network Events Dashboard," "Aggregate Inbound with Caching," and "Electric Outages" update in real time. Next door, electrical engineers monitor CNN, the Weather Channel, and the local news. Bad weather, of course, is the most common cause of power outages.

Fiber and power are inextricably linked in Chattanooga. EPB, the city's government-owned electrical utility, was uniquely positioned to build out the network, and the power grid is much better off for it. In late 2009, EPB began to modernize the city's electrical grid in hopes of limiting outages. The utility also wanted to install "smart meters" on individual residents' homes, which would require a communications link as well.

"The first thing our engineers determined was that in order to automate anything, you need a communications infrastructure," EPB spokesperson Danna Bailey told me. "We didn't want something that would have been obsolete in five years, so fiber optics were the way to go."

EPB and the city realized that with fiber running through much of the city, it would be relatively trivial for EPB to become an internet service provider.

Downtown Chattanooga already had Comcast internet service, but the outskirts of town and more rural areas in the surrounding counties had little or no access to broadband—most were stuck on ADSL or satellite connections. Comcast had shown little interest in expanding out its cable networks or upgrading speeds within the city, and the speeds offered by fiber would be a revolutionary step forward.

"We didn't rate with Comcast because we were a small market," Ron Littlefield, Chattanooga's mayor at the time, told me. "By virtue of that, we had little say over what service we were receiving."

When the fiber plan became public, Comcast and AT&T, which also had a small presence in parts of the county, were furious. Representatives for the companies scheduled meetings with Littlefield to try to persuade him to reconsider, and then turned to more drastic measures.

"Comcast and AT&T came separately, and they both said the same thing: 'First of all, no one needs the service you're talking about here.' They also said it's not fair for government to be in the business of competing with private industry," Littlefield said.

"I said 'Here's the deal—you install the fiber.' I'm 70 years old. I remember when we had a Commodore 64 at our house and they said, 'That's all the computing power you'll ever need.' Every time someone says that's enough, it's not the case," he added. "I said, 'I can foresee a need for this fiber, so if you will install fiber, we will piggyback on that under contract and do what we need to do with our smart meters.' They said 'we can't afford to.' I said we can't afford not to."

"Chattanooga didn't have a bad image, it just had no image. The Gig has restored our luster."

The plan moved forward, and, as it often does, telecom defended the status quo with public relations campaigns. Television ads paid for by the Tennessee Cable Telecommunications Association (Comcast and AT&T are members) took a grim look at the worst-case-scenario.

"EPB is building a network to be used for cable and internet, at the expense of EPB customers," the narrator of one of the ads says. The ads (and an online petition) warned that EPB's electricity utility would be left to subsidize the fiber network, increasing costs for customers: "That's just wrong." Another ad pointed to a failed government telecom project in Memphis and announced that "EPB is pushing a similar plan, with your money. Let's not repeat the Memphis Mistake."

Then, Big Telecom's lawyers came.

"They sued us four times," Littlefield said. "We finally won."

EPB pushed forward, and the Chattanooga city council allowed EPB to take out a $169 million loan to begin building the network; no taxpayer funds were used. As the project was being built out, the city earned a $111 million stimulus grant from the federal government. In 2010, the city turned on the fiber network and officially became the first city in the United States to offer gigabit internet speeds to all of its residents.

"It felt like I was the mayor of the first city to have fire," Littlefield said.

Today, EPB offers service to 180,000 homes and businesses in southeast Tennessee and northwest Georgia. As of July, EPB had 83,000 internet customers, far above its break-even line of 42,000.

EPB has signed up more than 8,000 customers for its $69.99 per month gigabit service. Its most popular offering is still the 100 Mbps option at $57.99 per month. Earlier this year, EPB also started offering a 10 Gbps internet option, which is $299.99 per month and is the fastest internet option available in the country (several other municipal networks around the country also offer this speed, but no higher).

"Without fiber in the 21st century, our towns are going to disappear one obituary at a time because the young people can't stay"

The profit is used to pay down the initial loan and to prevent rate hikes for EPB's electric utility—which is the exact opposite of what the telecom industry warned would happen. EPB is now the largest taxpayer in Chattanooga.

An independent study published by University of Tennessee last year noted that EPB's network could be directly tied to the creation of between 2,800 and 5,200 new jobs and said that the economic benefits for the city have been roughly $1 billion over the course of the last five years.

Manufacturing has come back to the city in a big way, because the promise of both incredibly reliable power and fast internet has lured in big multinational companies like Volkswagen.

Chattanooga's unemployment rate peaked at over 10 percent during the aftermath of the 2008 economic downturn; it now hovers just less than 5 percent. In 2014, the city had the third highest wage growth in the country among mid-sized cities. Surely some of that turnaround can be attributed to general economic improvement in the US, but Chattanooga's current mayor Andy Berke says he believes the network has helped "insulate" the city from future downturns.

"The true economic value of the fiber infrastructure is much greater than the cost of installing and maintaining the infrastructure," the University of Tennessee study concluded.

In 1969, the Environmental Protection Agency declared that Chattanooga had the "dirtiest air of any city in the United States." Through the 1970s and 1980s, the downtown population emptied out as manufacturing began to collapse in the United States and pollution drove people to the suburbs.

"The air was so polluted that people drove with their headlights on during the day," a Brookings report noted. "Walking to work left clothes covered in soot, and it was difficult to see the mountains from the city." The railroad left town, and the city was in decline. Left in its wake were rotting shells of old buildings.

An urban renewal program in the 90s—including a minor league baseball stadium and Tennessee's largest aquarium—started to turn downtown around, but there's still a surplus of old hollowed-out buildings and largely empty surface-level parking lots that take up entire blocks of the city.

It's clear those buildings won't remain empty for long. Construction crews are renovating the shells of mid-century buildings in the city's new "Innovation District." For instance: An abandoned hotel in the heart of the Innovation District will become the "Tomorrow Building," a "startup hostel" that I swear isn't an idea cribbed from the TV show Silicon Valley. Save for the exposed brick walls, the inside of the Tomorrow Building doesn't look like much now—the floors are still concrete and there's sawdust everywhere. But in a couple months, there'll be startup types living and working in a space designed to "increase collision" among young people in hopes that they'll found successful companies.

"It's forcing very conservative elected officials to have a real heartfelt conversation about what they do with this issue"

Tomorrow Building apartments are available in 3-, 6-, and 12-month leases, and are all-in propositions. They come furnished, with gigabit internet connections, access to "intimate fireside chats with startup champions," potluck dinners, and pub crawls, and commendably do not have a "no sex" rule. Such buildings are common in San Francisco, Williamsburg, and college campuses; they're not really the first thing you think of when you think of smaller Southeastern cities. The Tomorrow Building is the crown jewel of the Lamp Post Group, a venture capital startup incubator based in the city that owns six buildings in the innovation district, because many of the startups it's invested in are beginning to outgrow their office spaces.

In New York, at least, startup culture sort of blends in with everything else. It's there, but it doesn't dominate. In downtown Chattanooga, it's in your face everywhere you look. The plywood, exterior-facing walls of under-construction coworking spaces are painted with pithy quotes about innovation, while a startup accelerator owned by Lamp Post Group called Dynamo advertises its demo day on the marquee of the local theater.

Granted, I was in town during the city's "Startup Week," but watching a normcore guitarist and a man dressed in traditional African garb play bongo-and-bass covers of classic rock songs in a public park gazebo with free gigabit wifi felt very much like the city is trying to nail whatever it is San Francisco pretends to be. Chattanooga has taken its internet network, sold it as its image, and has pitched it as the reason why startups and young people should move to town.

"I don't know how many times we had efforts to try and determine what Chattanooga's personality or the face we show to the public should actually be," Littlefield told me about the time after the railroad shut down. "We hired consultants and they came back and told us: Chattanooga didn't have a bad image, it just had no image. The Gig has restored our luster and given us a new lever to pull that has tied us to the next century, rather than the steam and smoke of the old century."

I repeatedly spoke to people who had tried the startup thing in San Francisco or Manhattan, gotten burned out by the culture, and decided to move to Chattanooga. Lots of them were 20-something native Chattanoogans who finally saw a reason to come home.

"There's a lot of appeal to being in a good-looking city that's known for a great outdoors scene that happens to be eight times more affordable than other major tech markets," Weston Wamp, a VC at Lamp Post Group, told me.

Living/working hostels aside, the startup community in Chattanooga seems hell bent on creating a different type of vibe than the ones you see on the coasts. I repeatedly talked to people who moved to Chattanooga because San Francisco and New York are too stressful, too crazy, too focused on success and not on family. If there were a stated ideal for the folks I spoke to in Chattanooga, it'd probably be Silicon Valley, without the psychos.

Mike Bradshaw, outgoing director of the CO.LAB startup accelerator, told me the goal in Chattanooga "isn't to produce unicorns and billionaires," it's to make sustainable businesses.

Dynamo's startups are focused on improving warehouse inventory tracking, convenience store stocking, and airplane maintenance. Bellhops, Chattanooga's most successful homegrown startup, is an on-demand moving service that uses college students as its employees.

"We're creating a different option for startup culture, which, let's face it, is just going to become culture," Jack Studer, who is taking over for Bradshaw at CO.LAB, told me. "You look at the startup havens and typically you see those in blue states, very liberal, very young. That's typically what you see. This is a southern city. The people at Bellhops, they all hunt, they all fish, they all watch SEC football. You don't see that at Facebook. It's just different."

With gigabit fiber internet slowly proliferating around the country because of municipal fiber projects, Google Fiber, startup ISPs, and new investment from incumbents spurred by competition, America is quickly dividing into two segments: Those who have fast internet and those who do not. Jobs—in any meaningful number, at least—will not continue to exist in towns and rural areas that lack fast, accessible internet access.

Earlier this week, Google Fiber announced that it would be significantly scaling back its activities and wouldn't expand to new cities for the time being. This announcement has led some to suggest that fiber isn't a necessary technology. More important than overall speed, however, is the reliability, accessibility, and cost of broadband networks. On that front, small towns and rural America has been utterly failed by incumbent providers who have little incentive to upgrade their networks without the pressure of competition from another business or from a municipality itself.

"For smaller towns, building a network becomes a question of economic survival—they're emptying out because kids grow up and there's no jobs for them," Masha Zager, editor in chief of Broadband Communities magazine, a trade publication that covers cities that have build their own networks, told me. "Sometimes, it's a question of keeping businesses and allowing them to grow, sometimes it's about enabling teleworking, sometimes it's about attracting businesses to come to town."

The stats suggest that rural American communities are indeed getting lapped by larger cities where economic opportunities are better. An analysis by the Daily Yonder, a nonprofit publication of the Center for Rural Strategies, found that the economic recovery has almost entirely benefitted America's most populous cities. The Department of Agriculture notes that between 2010 and 2014, rural counties lost a total of 346,000 people to migration, leading to a population decline of 33,000 annually once birth rates were taken into account. This is the first four-year stretch in American history in which that has ever been the case.

"Some of the most painful stresses running through the labor market have to do with technology-driven skills requirement change and technology-driven employment opportunity change," Mark Muro, policy director of the Metropolitan Policy Program at Brookings, told me. "I think that these are pervasive effects sweeping through the entire economy. Most growth in job categories are happening either at the very bottom where there can be a physical service provision or it's occurring at the higher levels where there's much more of a need for more complex or creative skills."

What's happening, then, is that young people are leaving behind rural communities as early as possible toward places with better economies, while older folks are getting automated out of jobs that don't exist anymore and won't exist ever again. In part because we have utterly failed at providing broadband to rural communities, there's a built-up dearth of technical skill and job retraining opportunities for older workers.

"I think [technology-related economic change] is arguably one of the most under-discussed topics on the campaign trail," Muro said. "Broadband access is certainly important, as are the skills training and routine exposure to digital skills broadband can offer."

Chattanooga's success at creating new jobs and spurring new investment in the city has created a bit of a conundrum: Other communities in the state want what it's got. EPB has the capability, the will, and a business plan that would let it expand out to several other towns and counties in Southeastern Tennessee, but it's running into the same legal roadblocks it did six years ago.

"Our neighbors are looking over the fence saying, 'Why don't we have that?'" Charles Wood, vice president of the Chattanooga Chamber of Commerce, told me. "It's forcing very conservative elected officials to have a real heartfelt conversation about what they do with this issue. It's a strange dynamic to have the government offer this in a conservative area, but if you ask constituents, they're happy about what they get."

A 1999 law that allows EPB to sell telecommunications and video services to its power customers also prevents the city from expanding its internet service beyond the bounds of its electric utility service. That law was originally about offering cable television in areas AT&T, Comcast, and Charter wouldn't expand to, but has since become a major roadblock to the expansion of various municipal networks in Tennessee.

"In order to pass that legislation at all, AT&T would not allow it to pass unless there was a restriction that municipalities could only provide it within their electric footprint," Janice Bowling, a Republican Tennessee state senator (who represents a district on the other side of the state), told me.

EPB petitioned the Federal Communications Commission, asking the federal government to preempt Tennessee's law. The FCC ruled that Chattanooga could ignore Tennessee's law, but Tennessee sued. The FCC lost its case in front of the Sixth Circuit of Appeals this summer. The new strategy, Bowling says, is to repeal the 1999 law altogether, a move she is sure will be met with fierce lobbying.

Tennessee's law isn't rare: 23 states have laws restricting local governments from building their own internet services. Nearly all of these laws are carbon copies of one written by telecom lobbyists through the American Legislative Exchange Counsel, and most of them were championed by conservative lawmakers who have bought into the idea that government should not compete with private companies.

The common refrain is that municipal broadband is a bad deal for taxpayers, which is always pinned on several failed municipal broadband networks. Earlier this year, a telecom-backed think tank used this line of attack in a report aimed at helping states "craft economically sound laws that protect taxpayers from undesired consequences of government-run broadband."

Zager, editor of Broadband Communities, says there's no reason to take an all-or-nothing view toward municipal networks.

"There have been a couple municipal networks that are not very successful and there's a variety of different reasons," she said. "Sometimes it's predatory tactics by incumbent providers, sometimes it's a lack of expertise or marketing effectiveness. Some cities don't realize that even though the bulk of the expense is putting the fiber in, there's ongoing equipment and maintenance costs to keep it going."

A Federal Communications Commission report from this year found that 39 percent of rural Americans (about 23 million people) lack access to internet speeds of at least 25 Mbps. Telecom companies say that it doesn't make financial sense to upgrade infrastructure or expand into these communities, but throw fits if a community decides to build something better.

Broadband access activists are quick to point out that a municipal network doesn't make sense for every community, and indeed there are many models that work, including public-private partnerships and incentives for new broadband investment by private companies. Critics say that upcoming wireless technologies like 5G and software-based infrastructure upgrades make fiber an unnecessary cost, but it's still too early to say whether these technologies will be sufficient as primary connections for businesses, which is where much of fiber's economic benefits come from.

"What we have right now is not the free market, it's regulations protecting giant corporations, which is the exact definition of crony capitalism"

"No white horse from Comcast or AT&T or Charter is coming in to help our communities," Bowling said.

Time and time again, however, telecom has shown a willingness to compete on both price and service if a better municipal network pops up. Many cities with fiber networks are suddenly seeing massive investment from incumbent telecom providers—often, telecom will increase speeds and drop prices below cost. After Wilson, North Carolina built a fiber network, Time Warner Cable dropped rates within city limits and then, to subsidize the loss, it jacked up prices in neighboring communities, where it still had a monopoly. In Chattanooga, Comcast now offers 2 Gbps connections, which is faster internet than it offers anywhere else in the country.

"I was in Washington, DC after we started installing the Gig, at one of those functions where a lot of shrimp and cheese was eaten," Littlefield said. "Comcast was one of the sponsors, and they came up to me and said 'We're going to be doing new things in Chattanooga soon, and Chattanooga is the smallest market where we're doing it.' It was never happening without our network—their service was so abysmally poor. They're much better now. God bless America, isn't competition a wonderful thing?"

The success of municipal networks around the country—and the fact that the mere threat of them often inspires incumbent service providers to suddenly upgrade their networks—has caused a bit of a populist uprising among people living in states where roadblock laws exist. The economic success of cities and towns with fiber is also causing many conservative politicians, many of whom have helped enact laws that help incumbent telecom, to rethink the idea that "big government" projects are automatically bad.

"I have some very conservative friends in the Senate and House in Tennessee and I was giving them a ribbing—you have Tea Party types fighting to allow a government utility to extend into other areas in defiance of a private company's wishes," Littlefield said. "I can't name names, but I talked to one and he told me cable has 42 lobbyists here, and that was just for AT&T."

Lobbying efforts like that are suddenly getting rebuked all around the country. In Kansas, for instance, a Cox Communications-led effort to enact an anti-municipal broadband law was defeated.

"After it was defeated, frankly, the chairperson who called the hearing got an earful and regretted ever scheduling it," Tom Sloan, a conservative state representative in Kansas, told me. "Lobbyists for the large broadband providers know that some conservative lawmakers are naturally sympathetic to the argument that it's anticompetitive. But when the communities demonstrate their needs are not being met, that changes."

So the lines about municipal networks being tyrannical, anti-capitalist, and "unnecessary and risky government liabilities" being pitched in Washington by free-market conservatives including Tennessee Congresswoman Marsha Blackburn, Senators Ted Cruz and Marco Rubio, and dozens of other Republicans ring hollow to Bowling and others who have seen the transformative power of municipal networks up close.

"What we have right now is not the free market, it's regulations protecting giant corporations, which is the exact definition of crony capitalism," she said. "Without fiber in the 21st century, our towns are going to disappear one obituary at a time because the young people can't stay. The people are suffering because AT&T's business model prevents them from wiring these communities and still meeting their profit margins."

The rallying cry of net neutrality activists in recent years has been that the internet should be treated like a utility. It became a quippy talking point, a way to boil down what was an inherently complicated and multifaceted regulatory battle and explain it to the masses.

But what does it mean for the internet to truly become a "utility?" Despite its idealism, Chattanooga's internet, like the internet in the rest of the country, is not actually a utility. When we think of utilities, we think of things like water and electricity that ostensibly everyone should have access to and that are priced through a process called ratemaking. Nothing of the sort has happened for internet in Chattanooga or anywhere else in the United States—the result is that even though the government offers internet service in Chattanooga, it is still a luxury good.

There is still a vast digital divide in the city: In its poorer neighborhoods, just 20 percent of people have subscribed to broadband. Ironically, many of Chattanooga's poorer residents who do have access to broadband have signed up with Comcast, not EPB.

"When you have a fiber network that's only limited by the electronics on each end. You don't have to worry about net neutrality—there's plenty of room for all the traffic."

This, too, is at least partially the result of telecom lobbying. The 1999 law prevents government-owned broadband companies like EPB from offering internet to customers at rates that are less than the actual cost of providing the service, meaning that a new program that subsidizes internet for families that have students enrolled in free- or reduced-price school lunch programs is required to cost at least $27 per month.

Comcast has no such restriction, and recently began offering a barebones internet connection package for an introductory rate of $19.99 per month. This package offers speeds of just 10 Mbps, which is 10 times slower than EPB's slowest package and 100 times slower than gig service. Comcast also has a data cap of 1 terabyte in Chattanooga, which it recently raised from 300 gb after many of its customers complained.

Whether ratemaking for broadband really makes sense is another question altogether. Power and water are both consumables that can be charged based on how much you use. Fiber internet is essentially an unlimited resource once it's installed. EPB's Bailey says the organization has no trouble with network management, and the main complaints of telecom companies during the net neutrality debate—that certain types of data should be throttled, metered, or charged at different rates—make no sense whatsoever for a fiber network.

"When you have a fiber network that's only limited by the electronics on each end, you don't have to cap off the traffic that can run back and forth," she said. "You don't have to worry about net neutrality—there's plenty of room for all the traffic. We have no intentions of having data caps."

And so Chattanooga's poorest residents live in a city with a burgeoning tech scene, a bustling economy, and the fastest internet in the country, offered by an economically successful government entity. And yet they've found themselves both disconnected and, in many cases (as detailed in the excellent Slate Placemakers podcast), without basic computer skills that would allow them to take advantage of the network even if they were able to get connected.

Kelly McCarthy, who runs a technological literacy program in Chattanooga called "Tech Goes Home," told Slate that many of the people in her class don't even know how to send an email.

"We're talking about so many generational issues and factors of living situations and poverty," she said. "You can't possibly expect people to improve their lives, or to be even anywhere near their potential for themselves or their families if they're sort of stuck, kind of in the Dark Ages, without the ability to do these things.

There are no easy solutions here, but one place to start would be to make it easier for city and local politicians—not state and national ones—to decide whether an internet-as-utility model might work for their community. To do that, laws that have been systematically placed there by telecom companies and their lobbyists will need to be repealed. Their power is ingrained at every level of government. What Chattanooga—and other cities around the country—have done is begin to look at next-generation internet access as an absolute requirement to have a competitive city in the 21st century.

Communities that don't find a way to get incumbent telecom providers to upgrade their networks or build one themselves will wake up one day and find that the status quo has led to the death of their community.

"I've always said, 'It's one thing to lose your industry or your identity,'" Littlefield said. "The more damaging thing is to lose your young people. It's not a platitude, it's a fact. I was always thinking —how can I make it so they want to stay or come back here? Now, we are not just keeping our young people, we're attracting other communities' young people. It's unfortunate for those communities, but it's good for us."

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