Easy to Build But Prone to Serious Losses

With enough IT engineering talent, equipment, and access to an Internet network access point or other interconnection agreements, any community can build a government broadband network.  With a coherent and stable set of goals, and with the right quality and amount of management and technical staff, anyone can operate a community broadband network.  But that’s where the easy part of community broadband networking ends.

Operating costs are substantial for the right equipment, staffing, and subscriber promotions.   Competition will reduce the subscribership yield and price competition can reduce per-subscriber revenue, and further capital investments may be needed to match competitors’ speed upgrades.  In fact, 95% of Americans already have access to quality broadband (4Mb/sec downstream, 1Mb/sec upstream) services, and the number jumps to 98% when wireless broadband is included.  Because 98% already have quality broadband access, community broadband will almost always face both stiff competition and the chronic losses of a new entrant.

Of the remaining underserved 7 million Americans, 6.3 million are located in sparsely populated rural areas where the per capita cost of broadband construction to their home would be $56,000 per house.  Assuming 100% of those people subscribe that’s about $200/month/house if financed at 4.25%.  The monthly cost increases if less than 100% subscribe.  The 700,000 who are not in rural and sparsely located areas are spread across the US, making design of a cost efficient network difficult.

Voting to start a community broadband project is not a standalone decision.  When a community takes on the risk of a broadband network, it can set itself up for chronic losses that damage existing and truly essential community programs.  Paying for broadband losses might mean deferring scheduled contributions to retiree pensions and health benefit obligations.   Government broadband deficits can mean that property taxes will have to be increased.  In some cases, community broadband losses could halt the hiring of more and better paid teachers.  And most municipalities could productively use every dime available for deferred road and sewer maintenance – instead of covering broadband losses.

Despite a track record of devastating losses by government networks (such as eleven cities in Utah, Memphis TN, Burlington VT, Marietta GA, Lompoc CA, and others), some communities want to bet against the dismal odds of failure.  There are smarter ways to put the community “brand” on broadband, or extend it to all corners of the community, or to boost the speeds available, or subsidize broadband for impoverished households.  Negotiation with incumbent commercial broadband operators can achieve any or all of those goals at less risk and lower cost than duplicative construction.

Some might compliment a community’s bravery in taking on broadband, but not if broadband service is already available to most residents.  Duplicating an existing service is a financial boondoggle that will infuriate state agencies and taxpayers who subsidize necessary services at the local level.

Unsuccessful experience with government networks and financial imprudence are sometimes ignored by bandwidth-crazed local politicians.  They and a handful of local activists often want the fame of inventing a new entitlement – broadband, regardless of who ultimately pays.

To protect taxpayers and those who are dependent on essential community programs, some state legislatures enacted laws to avert broadband projects gone amok.  Many require “local voter approval before their local governments can go into the broadband business.”

Of course, this sane protection does not play well in the entitlement-centric canyons of Washington DC.  The FCC is considering overturning these prudent states – claiming it as authority to quash state laws that curtail local gambles on municipal broadband networks.  The FCC is wrong and will again find itself entangled in lengthy litigation, this time fighting the states.

The Americans for Tax Reform correctly points out “It’s none of the FCC’s business if state governments forbid cities from wasting taxpayer dollars,“ and the National Conference of State Legislatures says it will challenge in court any FCC’s action that meddles with state laws on the subject of government broadband networks.

It is relatively easy to build a community broadband network.  It’s very difficult to operate a broadband network that doesn’t produce crippling loses year after year, and the presence of a competitor increases the depth of losses to expect.

Municipalities are obligated to provide schools, roads, sewers, law enforcement and emergency services, and some also operate utilities.  Adding the costly glitter of a broadband network is an unnecessary risk and distraction.  States were wise to legislate that the issue be put on the community’s public ballot.  The FCC would be arrogant in attempting to overturn those state laws.

Alan Daley is a retired businessman who writes forThe American Consumer Institute Center for Citizen Research