Research Notes

The Mayor From Hell: San Jose, California’s Sam Liccardo. How greedy politicians prevent good mobile coverage

After reading San Jose Mayor Sam Liccardo’s op-ed in the New York Times last week, I added another mayor to my long list of greedy politicians who want to abuse a city monopoly to boost their popularity. In his effort to climb the California political hierarchy, Liccardo will sacrifice vital mobile coverage and next generation networks in the name of helping the people and innovators of this important Silicon Valley city of 1 million people. His idea: charge mobile carriers sky-high lease rates for access to street poles, then use that money to pay down the city’s mismanaged budget. His earlier gambit was to tax mobile carriers pay for the replacement of the municipality’s 40,000 streetlights to LED lamps. This is how the mayor rolls, taxing the goods and services consumed by people of San Jose without telling them.

Jill North, San Jose’s Innovation Program Manager in its Department of Transportation, calls the approach the smart way to enable technology deployment with access to rights of way and pole attachments. But in San Jose, some companies get to innovate for free, while others have to pay.

Indeed San Jose has set up a deal with Facebook to deploy its Terragraph network across the city’s poles for free. Facebook is an unregulated internet provider providing messaging services, voice, and video over its own communication infrastructure. In practice San Jose has a discriminatory telecommunications policy when it comes to infrastructure. Companies such as Facebook get access to the city’s infrastructure for free while mobile providers pay exorbitant rates. In many countries, the practice is illegal and amounts to a form of state aid.

Strand Consult has worked on these challenges in various countries for years and has encountered politicians like Sam Liccardo–and the media and citizens who fall for their populist propaganda. These politicians deploy tactics to shift focus away from managing the city’s resources responsibly to dubious projects designed to propel their careers. Here are the consequences of Sam Liccardo’s action for the people of San Jose:

1. The mayor exploits the city’s monopoly on street poles and city property by charging an exorbitant fee to access the infrastructure. In practice the fee could be greater than the value of the land or the pole itself. This is an abuse of property. If the Mayor can inflate property values at will, what’s to stop him for doing it other locations?

2. The city manager’s office hired PwC for $315,000 to create a “digital inclusion and broadband strategy” which in part attempts to justify the city’s high pole-attachment rates. PwC has a minimal practice in telecommunications and does not have a practice in the area of mobile infrastructure. In justifying the high rates, PwC applied data from cities such as New York and Los Angeles, rather than making assessments in San Jose. If the City can use data from other cities to justify its predetermined outcome, what will stop it from deploying the same tactic with another policy?

3. The mayor’s policy will make San Jose less attractive for private investment, particularly in low-income areas. As the city forces extra high pole attachment rates in downtown San Jose, resources are reduced for other parts of the city, particularly the low-income areas in East San Jose. Today the mayor singles out mobile operators, but his shakedown strategy will be applied to other industries, particularly those which have a more difficult time to exit, for example brick and mortar retail.

4. As mobile operators restrict their investments, San Jose’s residents and businesses will not be able to access the infrastructure they need in future. They will suffer slower speed and higher cost.

5. The broader network economics can have a negative impact for mobile networks in San Jose. While the market for broadband is increasingly competitive with different access technologies and falling prices, mobile operators will have less flexibility to cover costs, particularly as the level of internet traffic and the price for pole attachments are increasing. While there may be multiple mobile providers in the USA, perhaps only one will be able to afford to deploy new mobile networks in San Jose.

6. San Jose’s mobile network deployment policy translates to the city falling further behind in the global Smart Cities race. Presently San Jose, CA does not even rank in the world’s top 180 Smart Cities. Even San Jose, Costa Rica at #112 beats San Jose, CA.

7. San Jose’s mobile network deployment policy makes the city becomes less attractive for 5G and the Internet of Things (IoT), the technologies that enable innovation, sustainability, connectivity, autonomous vehicles, and smart government.

8. By singling out mobile carriers to finance the city’s pet projects and help pay off its bad debt, the mayor unfairly taxes the poor people and immigrants of his city, the very people he purports to protect. This is because mobile communications is a must-have good; any increase in price falls harder on poor people because they have smaller incomes. Economists call taxes on telecommunications “regressive” because they hurt poor people the most. In the short run, carriers decrease investments in marginal areas. In the long run, prices become less efficient, again hurting poor people.

9. The so-called digital inclusion and broadband strategy of San Jose is not transparent. Mayor Liccardo is not being forthright about what things cost and how they are to be paid. The Mayor also suggested that he would overcharge mobile operators so that City of San Jose could provide wireless services, yet another city project doomed to fail. While the Mayor moves on to his next political role, San Jose taxpayers are left on the hook for even more debt to the already financially distressed city.

10. Having opened the door to opaque financing, Liccardo will find other projects in which to pass the buck. Mayor Sam Liccardo presides over a city in financial distress from drastic declines in fiscal reserves and significant debt increases. It has overspent revenue by $300 million annually for more than a decade. It borrowed $2 billion to finance redevelopment projects that did not work out. It doubled retirement payouts to city employees, equally some $250 million annually. It has about $1 billion in unfunded liabilities for maintenance on roads. San Jose doesn’t have the resources or expertise to build its own wireless networks, yet at the same time, it’s playing favorites and making it nearly impossible for mobile carriers to build and upgrade their networks – investments that could benefit San Jose’s residents and businesses at no cost to the city.

While the city is in distress, many of its residents are rich. The median home price is $1 million, and the average annual salary exceeds $77,000. However San Jose is also home to Silicon Valley’s underclass, the “invisible workforce” of low income African-Americans, Latinos, and immigrants working as maids, janitors, landscapers, delivery drivers, and dog walkers serving the tech elite. As multiple research sources have shown, these same at-risk people are often completely reliant on wireless service for communications. So while Sam Liccardo builds his personal political brand on helping the poor, his city’s tendency to play favorites does nothing to help them. When the prices of mobile communications increase, the mobile carriers will simply invest elsewhere, leaving San Jose’s wireless networks to fall into disrepair as cities around them enjoy the benefits of advanced 4G and upcoming 5G networks.

The question is how to put an end to the greed of Sam Liccardo. Strand Consult recommends that mobile operators create transparency so that the people of San Jose gain insight into what their mayor is doing and how it affects them. Here are some ideas:

1. Mobile operators should stop investments in San Jose until a rational agreement can be made. Until that time, money allocated for San Jose can be directed for other deserving parts of California.

2. Remove the five most expensive mobile sites in municipal areas in San Jose. Explain to customers that the mayor’s policy is at odds with providing quality coverage for San Jose residents.

3. Send a text message to all mobile customers upon entering San Jose that poor coverage is the result of Sam Liccardo’s discriminatory policy toward mobile networks.

4. Inform San Jose customers on monthly bills that the mayor is to blame for increasing cost. Offer a means for citizens to complain to the mayor.

5. Make the FCC aware that the mayor’s greed negatively impacts people’s ability to call 911, 311, and other public safety services.

6. Investigate a lawsuit against the City of San Jose for abusing its monopoly. Strand Consult has repeatedly documented that there is no “market” for pole attachments, as Sam Liccardo claims. Each street pole and other city-owned property suitable for wireless facilities is a market unto itself and is a de facto monopoly. Each location has a unique role for a specific network to deliver coverage and capacity in a particular geographic area. A site typically has only one owner; there are not multiple sellers for the locations which mobile operators need to access to deploy networks, and hence there is no “market.”

These recommendations may seem harsh, but on the other hand, the people of San Jose should know the truth. Mobile operators invest tens of billions of dollars annually in networks, an amount that doubles what Europe’s operators have spent for the last 12 years. Mobile, cable, and telecom providers probably invest more in San Jose and greater Santa Clara County than any other industry. It is grotesque that the greedy mayor of San Jose and his political machine are trying to shake down the very companies that provide the vital infrastructure that the people and business of San Jose need.

Is San Jose’s Sam Liccardo the only mayor from hell?

Denmark is one country which overcame a culture of corrupt mayors who abused city monopolies to shake down mobile wireless providers. It took Strand Consult research and insight to expose municipal corruption. As a result, leaders in Denmark today have an evolved view about how mobile operators and the government should work together to realize the benefits of a digital society, a trust and cooperation that made Denmark the world’s leading digital nation in 2014.

Some years ago, Strand Consult started a project in Denmark to examine the terms for mobile masts and other telecommunications infrastructure. We have met many of Sam Liccardo’s kind and have been successful to expose their greed and irresponsible policies. We discovered that 15 municipalities made a cartel to create extraordinarily high rental prices; our work was used by authorities to prosecute the municipalities for racketeering. In Norway, we revealed how the former mayor of Oslo, Fabian Stang, promised a mobile operator, which had a mast on the mayor’s condominium complex, that he could quell residents’ fear of wireless radiation if the operator would pay a higher rent. The story appeared on the front page of Norway’s leading newspaper.

The list of our revelations is long. When we bring the corruption to light, residents are outraged, and federal officials take action. Strand Consult’s report How to lower the cost of mobile masts and improve regulation describes how to fast-track deployment of mobile infrastructure and facilitate the framework for operators, regulators, and serious politicians to cooperate. Strand Consult works with these actors to ensure that people get better mobile coverage.

Sam Liccardo may well be a greedy mayor, but he is not unique. Strand Consult’s expert team makes reports on this issue and conducts workshops with the private and public sector to find solutions to these challenges. See our results in Denmark. We are working in a number of countries so that greedy mayors like Sam Liccardo don’t get away with cheating the people.

To learn more about network neutrality and Strand Consult’s expertise in workshops, presentations, and reports, please contact us.

Best regards,

John Strand

Contact us to get a copy of the report

Request the report