In Lafayette, La., earlier this summer, municipal network advocates won a major victory at the polls, but those fortunes were seemingly reversed recently when Sen. John Ensign (R-Nev.) introduced the first major telecom reform legislation, with provisions that would severely restrict the ability of local governments to build their own broadband networks.

There is little doubt that the issue of publicly owned broadband networks will only get more controversial, now that both cable companies — and within the next year, telephone companies — can choose not to sell access to their broadband networks.

“There is the law of unintended consequences,” said Andy Lipman, an attorney with Swidler Berlin. “This could foster more attention on the third wire, whether that's broadband over power line or WiMAX or something else.”

The vote on the Lafayette Utility Systems' planned fiber-optic network garnered national attention last month, when voters turned out in unexpectedly high numbers to approve the LUS network by a two-thirds majority. BellSouth is still fighting the LUS network, this time at the state level, where it is backing potential Public Service Commission rules that would prohibit LUS from using its electric, water or gas revenues to guarantee bonds used to fund the fiber network and require the municipally owned utility to pay “in lieu of” taxes to the local government.

All the local squabbling could be laid to rest by definitive national legislation, but even at the federal level, division remains. Ensign's bill (see story on page 16) doesn't prohibit municipally owned networks — an earlier measure introduced by Rep. Pete Sessions (D-Texas) does. But Ensign's bill requires that cities and towns allow private entities to bid on any network they wish to build and to share in the benefits of related municipal bonds and tax benefits. The measure also would require cities that build their own networks to allow other service providers access to that infrastructure to install their own facilities.

Such a requirement essentially dooms any city's chance of financing a network buildout, said attorney Jim Baller of The Baller Herbst Law Group, who has represented many municipalities fighting against incumbent service providers. Baller also questions the legality of transferring the tax breaks and bond-issuing rights of a public entity to a private company.

One co-sponsor to the Ensign bill, Sen. John McCain (R-Ariz.), has promised to continue backing the rights of municipalities to own and operate broadband networks, as set forth in a measure he co-sponsored with Sen. Frank Lautenberg (D-N.J.) in June.

The lobbying has clearly just begun. The National League of Cities has vowed to fight the Ensign provisions.