Evidence Shows Government Has No Place in the Broadband Market

Mar 27, 2014 by AFP

By Kuper Jones

In today’s information age, constant connection to the internet is becoming a cultural necessity.  With the increased use of data and demand for better networks across the country, it’s not surprising that some would like to see governments infiltrate this market by offering their own internet services, often referred to as “municipal broadband.”  Yet despite the huge debts incurred by taxpayers and the widespread failure of municipal broadband projects, the public sector continues to risk taxpayer dollars meddling in a highly competitive market that they would be best served to stay out of.

Many proponents of municipal broadband mistakenly view internet service as a utility that should be provided by government and funded by taxpayers –like water or trash services. But In reality, operating a broadband network is far different and more expensive than these services. Cities assume they can put up a large amount of money that will cover infrastructure construction and general maintenance then reel in profits and make their money back.  But providing broadband services is much more complex than building infrastructure and counting money.

In addition to the high maintenance costs associated with providing broadband services, broadband networks entail other significant, long-term costs as well.  As technology continues to advance, so does the amount of data consumers use which means networks will need to be upgraded to deal with higher stress levels. These kinds of upgrades are very expensive and are usually required every few years.  Many cities and municipal broadband proponents have overlooked this fact and end up with greater costs than they imagined. Municipalities usually realize this later than sooner, and so they continue to dump more tax dollars into an already failing project.

Proponents claim that the broadband market lacks competition and that prices can be set to whatever providers choose. They claim municipal broadband creates competition and gives citizens access to cheaper, more affordable internet access than what is available from the private sector. However, evidence has indicated this is not the case. When government offers a service like broadband, they are not competing in the same way that other market entrants do.  For starters, government makes the rules and regulations that their competitors must abide by.  Moreover, municipal broadband providers draw on the public treasury to pay their bills – often leading to higher costs for taxpayers. According to a study conducted by the Phoenix Center, municipal broadband actually costs consumers more than comparable packages offered by private companies.   For example, a service in Bristol, VA often championed as a municipal broadband success story, was found to cost consumers $40 more a month than a comparable private sector option.

While government supplied broadband means bigger bills for consumers, it also means more tax dollars out of their pockets. The broadband business is high risk and often leaves cities owing substantial amounts of money instead of getting a return on their investment.  Provo, Utah spent $39 million building a broadband network that failed miserably. It was so bad that it was bought by Google for only $1.  Worse is that Provo taxpayers must still pay off the $39 million bill. The list of municipal broadband failures is a long one and every attempt seems to be nothing less than a boondoggle.

Another recent example of troubled municipal broadband is the fiber-to-the-home project in Lafayette, Louisiana. Launched in 2007, the Lafayette project has been proclaimed a major success by the mainstream media and supporters of big government. In reality, the Lafayette Utilities Service (LUS) broadband project has failed to deliver on its goals. The Reason Foundation conducted an extensive study on the LUS broadband service. According to the results of their analysis, after six years of operation, the LUS project left the city with more than $160 million in debt. Not only was the project losing $45,000 a day, but it was 30 percent short of the revenue projections from its business plan. Suddenly Provo’s $1 sale to Google doesn’t look like such a bad deal.

The case for municipal broadband continues to grow weaker with every project that is added to the long list of failures. With every claim proponents have made for government owned internet services, they have been met with real life examples that prove them wrong.

Broadband, like the telephone networks that preceded it, are better off left to private sector, where market competition yields lower costs and unprecedented innovation for consumers.  That’s a far superior outcome to that of municipal broadband schemes, which have left taxpayers on the hook for multi-million dollar failures.