Municipal Networks Are Not the Future of Broadband

There are over 900 municipal broadband networks across the U.S.  The justification for these government-owned networks is to offer lower prices than private-sector competition and to offer widespread coverage across a given municipality. However, while municipal broadband might sound like a better alternative to privately provided broadband, these networks will not enhance consumer welfare and are financially unsustainable.

The evidence that municipal broadband delivers better results than privately-run plans is lacking. Sarah Oh at the Technology Policy Institute found that municipal broadband has virtually zero impact on broadband adoption rates. The lack of adoption has been attributed to the fact that most houses that were not connected before the creation of a municipal network and did not subscribe to the new alternative. Oh’s study indicates, despite its proponents’ claims, municipal broadband does not increase subscribership rates.

Also, municipal networks are not incentivized to provide efficient networks at low costs. The discrepancy in incentives is derived from the fact that municipal broadband networks are publicly owned, leading managers to prioritize maximizing their workforce while spending their budgets instead of finding cost-effective methods.

 In turn, the public nature of municipal broadband makes them prone to inefficiencies such as spending too much on labor, which will, in turn, either drive up the cost for new consumers to subscribe to the broadband plan or higher costs to taxpayers. Similarly, the reliance on public spending means that failings in municipal broadband’s business models are not internalized by their administration, leading to repeated mistakes and a cycle of unprofitability.

Many municipal broadband networks end up running deficits year after year to stay in business or are sold off to a private provider. Take the example of Lake County, Minnesota’s municipal broadband network, which was built in 2010. After taking five years to complete, the network could not turn a profit for two years and became dependent on loans and grants from the federal government. As a result, Lake County sold the network to Pinpoint Holdings in 2017. Taxpayers were left with a bill of over $45 million in uncovered spending that needed to be paid back.

Similarly, the town of Dunnellon, Florida, created its fiber-optic broadband network in 2012. However, the very next year, the city council realized that the long-term cost of maintaining it would be too great and voted to sell it off to a private company for $1 million. In the end, the municipal broadband network left the city $7 million in debt that would have to be paid off through local taxes and spending cuts.

In both of these situations, consumers were not only left with increased taxes and poor service, but municipal projects like these crowd out of private sector investment and innovation. Studies have shown that when governments announce public sector broadband networks, private options allocate less funding towards expanding their existing networks in that region. As a result of the lost investments, consumers in these regions are left with slower speeds than those without a public sector broadband network.

Private companies are steadily becoming more affordable while improving their services, indicating that municipal broadband is not needed to provide better outcomes for consumers. The Broadband Pricing Index reveals that basic privately-operated broadband plans have reduced their prices by an average of 20.2% while offering 15.7% faster speeds since 2015. More advanced plans offer 37.7% lower prices while offering 27.7% faster speeds. These price declines mean high-quality broadband is becoming more affordable, particularly for lower-income Americans.

Private networks have also expanded significantly over the past several years, covering more rural communities than ever. 63% of rural households now have broadband access, as opposed to only 35% of rural households in 2007. These results show that private companies are better placed to enhance rural subscribership when compared to municipal broadband. For instance, 5G services, TV white spaces, and multi-gigabit satellite services with SpaceX’s Starlink or Amazon’s Kuiper Project – any of which would offer a better way to reach customers without running costly fiber through rural countryside. Some of these services will be ubiquitously available to consumers, which means that GONs are completely unnecessary.

Instead of further subsidizing costly municipal broadband, governments should look at ways to continue the success of private telecommunications companies. Municipal broadband cannot innovate as effectively as private broadband and instead crowds out the private competition. They are also almost always unprofitable and do not help bring affordable broadband to consumers. Considering the high cost of establishing and maintaining a network, taxpayers will not get a good deal with more municipal broadband.

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