Government-owned broadband is costly — try these alternatives

Across the country, small cities are getting the same pitch: If you want faster internet, build and operate a network yourself. The advice comes from big-government activists, companies getting paid to plan the operation, and misguided others who believe in these promises.

Some cities used federal funds to jump-start their projects. Others fund it out of the municipal budget. More have gone the route of having taxpayers pass a bond issue. But the results have been mostly the same: dismal.

{mosads}Armed with an infusion of federal stimulus money, Lake County, Minnesota, ran a network costing $80 million. By the time the project officially failed, the county was paying $22,000 per subscriber in subsidies and recently had to sell the network.

Also in Minnesota, 10 cities and 17 townships joined a cooperative that financed $13.7 million in taxpayer bonds to construct a $55 million fiber optic network. After only two-thirds of the needed subscribers actually signed up, a $1 million revenue shortfall developed. This resulted in a tax increase on much of the community to cover the bond payments.

Another example is the recent Kentucky Wired debacle. State officials used tax-exempt bonds to back a “middle mile” network and ignored written warnings about the problems with the project. The end result was a broadband project that still hasn’t gotten off the ground but put taxpayers on the hook for a whopping $1.5 billion.  

These recent results aren’t aberrations; they align with what research suggests about government-owned networks.

A 2014 paper from the Mercatus Center found little economic benefit from the 80 municipal broadband projects analyzed, especially when it came to private-sector job growth. And a 2017 report from the University of Pennsylvania found that, of the 20 municipal broadband projects in the United States it studied, only two “earned enough to expect to cover their project costs during the useful life of the networks, one of which is an outlier that serves an industrial city with few residents.” The rest were clear financial failures.

It’s understandable that people want better, faster and cheaper internet. But government does not do a good job operating these networks. Public entities are slow to change and adapt to what people want. Even economist Lawrence Summers, the former Treasury secretary to President Barack Obama, wrote that expanding broadband internet networks is “clearly the responsibility of the private sector.”

If we want more efficient internet, better alternatives exist. The Mercatus Center has three recommendations for broadband deployment as alternatives to the government.

First, rely on private industry, which is expanding access at no cost or risk to taxpayers. The internet is getting faster and cheaper every year because there is a demand for it and private companies are looking to fill it. I live in a small town in a rural county in Michigan and just last month my internet provider announced a tripling of my speed at no extra cost (up to 100 Mbps). So when you get frustrated with your service, think back to the “good ol’ days” when you were forced to wait patiently for a single video to buffer — as long as nobody else in the household needed to make a phone call.  

This doesn’t mean government should always do nothing — it has a role to play. The second recommendation is for governments to make broadband deployment cheaper and faster by streamlining state and local rules. Summers agrees with this, writing that “policy frameworks that streamline regulatory decision-making and reduce uncertainty could help spur investment in [this sector.]” The Federal Communications Commission and several states, such as Michigan, are pursuing this route, chiefly by limiting local regulations and permitting fees.  

Finally, for the sparsely populated areas where there really is very limited demand, public entities could consider issuing vouchers for rural and senior citizens. Instead of trying to get in the business of something public officials are likely to know little about, municipalities would do better to simply subsidize the service for some populations.

Government-owned networks don’t pass the “Yellow Pages test,” which says that if you can find a service in the Yellow Pages Directory, the government probably shouldn’t be doing it. (Maybe a Yelp test is more apt these days.)

Citizens shouldn’t get stuck holding the bag when government networks fail. Instead of pursuing that risky scheme, the options described above would do a better job encouraging private investment and expanding access to high-speed internet for more people.

Jarrett Skorup is the director of marketing and communications at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Michigan.