The false promise of ‘municipal broadband’ networks

America’s thirst for better and faster Internet is insatiable. Like a Kardashian seeking publicity, no matter how much we get, the quest for more never really ends.

Some local governments have been tempted to try and meet this demand themselves – by building and operating broadband networks of their own, leveraging existing public infrastructure and rights of way and hoping to generate economies of scale and bring new (government subsidized) competition to broadband.

The problem is – building and operating broadband networks is expensive and complex. They need to be rebuilt and updated almost continually to stay ahead of the breakneck pace of innovation in this space and the constantly spiraling demand for higher and higher speeds online. And cities that come into this space are generally competing with multiple commercial wired and wireless providers – this is a business totally unlike the monopoly utility water or electric systems that municipalities have historically run. 

{mosads}As a result, civic horror stories like the failed iProvo network that cost the city $39 million to build but was ultimately sold to Google for $1 dollar are legion. Indeed, according to new data, over half of these municipal fiber systems fail to bring in enough revenue to cover their ongoing operating costs, bleeding red ink every day they operate and falling further and further into debt. These bad investments crowd out other needs and, in the worst case, can put a city’s financial solvency at risk – Burlington, Vermont’s excessive borrowing to keep the municipal network afloat caused Moody’s to downgrade the city’s credit rating six levels to nearly junk bond status.

And even those systems that nominally turn an operating profit put the sponsoring cities under enormous economic strain. The latest data found that only 20 of the major municipal fiber systems currently operating report their financials separately from electric power. Of those 20, only two bring in enough revenue to recover construction costs before the networks become obsolete in 40 years. The rest won’t be paid off for decades after they become useless – or even centuries!

This should come as no surprise. The cable and telephone companies that have built out the existing private Internet have spent over $1.5 trillion to do so. And by all reports they must keep spending to offer higher and higher speeds and support new technologies including the massive shift to mobile and wireless access that is currently underway. Communities launching networks of their own are biting off a big job and one that is never really “finished.”

San Francisco – a city with more than 8 different providers offering high-speed service including fiber, cable, wireless, and satellite, plus the 4 major mobile carriers – may be about to make the municipal broadband mistake under the leadership of San Francisco Supervisor, Mark Farrell. For any kind of low-income difficulties, there are methods far more connection and cost effective to pursue than building out an entire fiber broadband network with massive future investment costs. Hopefully, they will examine this newly available data that clearly shows the costs outweigh the benefits and rethink their strategy.

We have known for some time that communities trying to decide whether broadband is a good investment face a tough decision – especially in a world of competing demands on limited civic funds where spending on broadband means NOT spending on something else that is likely just as vital. A risk that is magnified given the scope of these projects – the upfront build out costs of these systems are so high that, when they fail, it saddles communities with debt for years, or even decades.

Critics point that this kind of nuts and bolts economic analysis doesn’t account for other benefits cities might receive from running government broadband systems. Some communities have tried to leverage the “buzz” associated with this kind of high tech investment into good PR and hoped to attract new investment and jobs.

But there is little hard evidence of these purported ripple effects. Chattanooga, Tennessee – or “Gig City” as it’s PR team has dubbed it – is often cited as a poster child for municipal broadband networks and has claimed that investing in municipal fiber has helped bring the unemployment rate down from over 7 percent to 4.1 percent. The problem is, unemployment in Tennessee cities that did not spend on costly fiber networks fell even further during the same time. 

And ultimately, even if proponents of government run broadband can identify (or spin) rare success stories, the fact remains that the bulk of these programs have failed to deliver major new development and have put serious economic strain on the sponsoring communities.

At a time when most communities face huge unmet needs for roads, bridges, water, and electric systems, spending scarce taxpayer dollars on government Internet might be good PR, but it seems like risky economics.

Katie McAuliffe is the executive director of Digital Liberty and federal affairs manager at Americans for Tax Reform.

The views expressed by contributors are their own and are not the views of The Hill.