The Supreme Court is going to hear arguments on whether States can bar local municiplaities from entering into the telecommunications business. The question is before the court because the 1996 Telecommunication Act provides that no State regulation may prohibit the ability of any entity to provide any interstate or intrastate telecommunications service. Even so a number of states, including Utah, have passed legislation that restricts local governments from providing these services.
There's a lot of strong feeling on this question. I heard both sides of it while I was CIO. Private companies are scared that government will drive them out of business with unfairly subsidized services. Local government are tired of being caught in the middle with constiuents screaming at them on one hand and telecommunications companies refusing to expend capital on the other. Lots of folks have legitimate concerns over the ability of government to run an efficient service.
In Utah, State law allows local governments to create "wholesale" networks but prohibits them from providing retail services. The many municipal networks springing up around Utah (most of them in Utah County, south of Salt Lake) are trying valiantly to stay within this restriction. These include the Utah Valley Community Network (UVCN), a peering network between half a dozen local governments in Utah County, UTOPIA, an interlocal agency of seventeen Utah cities and towns, Provo City's fiber to the home project, and Springville and American Fork's municipal repurposing of a bankrupt overbuilding project.
UVCN has been included in a friend of the court brief that EDUCAUSE (consortium of 1900 higher-ed institutions) is filing in support of municipal networks. The brief cites UVCN as one of two examples illustrating the importance of municipal networks to higher education.