In late 2007, the cities of Mooresville and Davidson, North Carolina outbid several private companies to purchase an ailing broadband provider in the area. The newly socialized service required that the city borrow more than $92 million to fund the acquisition. Meanwhile, government officials claimed the plan would bring equality in access and increased revenue to the cities. At the heart of the plan was an effort to bring all North Carolinians to the forefront of the so-called “digital economy.”
Fast-forward 3 years and the same municipal broadband service has fewer subscribers than before the acquisition, the company posted a yearly loss of nearly $6 million, and needs an additional $6 million from taxpayers to stay afloat. Sadly that isn’t the extent of the damage.
While taxpayers have subsidized the purchase and maintenance of the newly public broadband service, they’ve also been pushing out competitors by subsidizing the hidden costs and running end-around typical barriers to entry. For instance, fees levied on typical private broadband services to fund state and federal Universal Service Funds or other public infrastructure programs are often waived for municipal programs. Additionally, putting taxpayers on the hook for the programs debt, especially when taxpayers aren’t given any power to veto funding increases, means infrastructure investment is all too easy–and large debts are all too common.
The cities of Mooresville and Davidson are just one example of the larger plague of broadband socialism. As many as 400 cities now claim to provide municipally-run broadband services, most of which are suffering the same fate as Mooresville. The Reason Foundation highlighted one such effort in Provo, Utah–cleverly named iProvo. iProvo, through 2008, was responsible for over $10 million in losses, which doesn’t include the nearly $40 million borrowed from the city’s coffers to launch the program. After putting up a valiant fight against market forces (setting taxpayers back millions), iProvo was sold in late 2008 back to the private sector where it thrives.
14 states have received the message about municipal broadband programs and have passed legislation banning or restricting municipal broadband. The cities of Mooresville and Davidson have given North Carolina enough reason to become the 15th such law. The newly signed North Carolina law forces cities to separate the business of broadband from the rest of their operations, to require a taxpayer referendum to approve additional expenditures, and to cap the growth of programs already in place.
Sadly, populist ideals like universal access to the Internet and non-profit operation tend to have the opposite affect of its intention. Government-owned broadband networks almost always operate at a loss, see more service interruptions, and generally have fewer satisfied customers than their private counterparts. Recent legislation that forces governments to compete on even footing with private enterprise will force the majority of municipally run networks to fold, leaving room for private enterprise to re-enter the market and provide reliable and cheaper service for consumers, and not saddle taxpayers with an overwhelming debt.
As Reason Foundation’s Steven Titch correctly suggests, cities “should treat the commercial sector as a potential partner, not an antagonistic competitor.” When governments embrace private telecommunications companies, consumers and taxpayers benefit. Examples of working partnerships can be found in Cleveland, Houston, New York and Miami where residents have seen a great boon to service paired with no increase in taxation.
Zack Christenson blogs for the American Consumer Institute on tech policy, and is a digital strategist at The Heartland Institute.