Municipal Broadband Failure

For years now, many city and local governments have gotten into the municipal broadband game—spending taxpayer dollars to create broadband networks that hope to compete with private providers. The goal of these programs was to build an Internet service that replaces the need for private investment, usually with the help municipal tax dollars. The municipal broadband trend has swelled in recent history, despite very few big success stories to point to.

The FCC commissioner, who has referred to municipally-run networks as broadband competition, has decided to look at whether the FCC should preempt states laws that have put restrictions on municipal broadband ventures. To understand why this is a bad idea, it is helpful to review the checkered past of these ventures.

In the past ten years, projects have cropped up in 33 states and have swelled to over 200 programs. The goals of municipal broadband projects—to connect more people with opportunities for education and financial opportunities through broadband Internet—are noble, but most often the projects end up as a major drain of tax dollars and provide very poor Internet services.

There are dozens of stories of failure when it comes to municipal broadband—from North Carolina to Tennessee to Utah to Florida.  These stories often involve sinking millions in tax dollars on ill-fated programs.

It’s become so obvious to so many states that this is a poor use of tax dollars that 22 states have now banned municipalities from engaging in these schemes. Despite poor results, the FCC is now attempting to stop state governments from banning municipalities who want to engage in these municipal broadband networks.

Municipal broadband is nearly always a bad business model. As ACI has detailed in the past, many of these broadband operations bleed money until they are ultimately sold off at an incredible loss—Memphis Networx was sold at a loss of over $27 million and Burlington, Vermont, in a similar situation, lost $17 million in taxpayer dollars. And why municipal broadband is needed is sort of a mystery—95% of Americans already have access to broadband Internet, and 98% when wireless broadband is included.

For some reason, many Federal regulators believe that government-owned networks will create competition for private broadband providers. Nothing could be further from the truth. As we see, government-owned networks are almost always of poorer quality and lesser value than its private market competitors.

For this reason, the FCC should stay out of the states business. The FCC’s move to potentially ban states from policing their own cities is certainly an overreach of its power and it would be wise to check, once again, their executive power. If a state legislature wants to ban the use of taxpayer dollars on municipal broadband, they have every right to do so.

The FCC meddling in state affairs is only a recipe for more bureaucracy, higher costs and, ultimately, less innovation.  That is a bad recipe for consumers to take.

Zack Christenson writes on digital tech issues for the American Consumer Institute Center for Citizen Research, a nonprofit educational and research organization.  For more information about the Institute, visit www.theamericanconsumer.org.

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