In a recent report, the Phoenix Center for Advanced Legal and Economic Public Policy Studies supports a long-standing argument made by the American Consumer Institute (ACI). Government-Owned Networks (GONs) are often inefficient and ineffective at bridging the digital divide, costing consumers and taxpayers more than other private sector alternatives. Decision-makers should discard them from their policy toolkits.
In theory, GONs sound great. By offering city-wide access to Wi-Fi, cities aim to connect all families to the internet for free or at ultra-low prices. According to a survey by the National Telecom and Information Association (NTIA), around 19 percent of offline Americans stay unconnected for financial reasons. When households are unconnected, families and consumers suffer.
Research shows that children from offline families “score lower on college entrance exams, are less likely to complete a postsecondary program, and are less likely to gain scholarships.” Meanwhile, for parents, the internet “can facilitate searching and applying for jobs, equalize access to professional development opportunities to enhance the workforce, and increase employment opportunities through remote positions.” If simply providing internet service means better opportunities for both kids and adults, government-provided, city-wide access to the internet seems like a quick and easy way to help bridge that digital divide.
Unfortunately, GONs are seldom effective in practice and repeatedly fail to beat the competition on cost. Although they boast low or even free price tags for subscribers, GONs are financed through taxes, and expensive broadband networks must be set up before service can begin, requiring large up-front costs. An estimated 75-80 percent of GONs fail to make a return on investment, leaving many cities to sell them at a loss and risking low-income families’ internet access.
The Phoenix Center’s report documents several notable cases where taxpayers were left to pay off the debt of a failed GON, with one in San Bruno, California, accruing “$21.5 million in debt, or a sizable $3,600 per subscriber.” In Bardstown, Kentucky, for example, the Phoenix Center’s report finds the local GON was profitable for a time but eventually began to crumble against private sector competition. With subscribers leaving their public service model for private alternatives, the GON needed bailouts from the government. As the Phoenix Center aptly put it: “The GON had turned into a financial drain.”
ACI’s analysis finds that many GONs fail due to their poor incentive structure. As ACI has argued, government-run programs prioritize maximizing their workforce and spending their budgets, leaving them prone to wastefulness and effectively dooming government-operated broadband from the get-go. Conversely, businesses motivated to generate returns on shareholders’ investments compete with one another to innovate better services at lower costs in a dual attempt to attract more customers. Since GONs are not beholden to customers and investors in the same way, they often end up lasting far beyond when they would have otherwise failed, crowding out businesses that could provide better service at a lower cost and creating market barriers citizens from switching to better options.
Closing the digital divide is a top priority, but GONs are an ineffective solution. Instead of disappearing tax dollars into projects that the private sector can better supply, municipalities should focus on specific and targeted demand-side solutions. Programs like the Affordable Connectivity Program offer far better returns and are more effective in helping low-income families stay connected at an affordable price.
Instead of allocating tax money to try and compete with private businesses, the ACP provides eligible households with a small, monthly subsidy they can use on an internet service subscription. This empowers families to choose what service works best for them without the government trying to out-compete far more nimble private sector businesses. After just over a year since it began, the ACP benefited over 16 million users, with ACI supporting its renewal. Sadly, this effective program ended in June 2024, but GONs persist nationwide.
In the end, GONs fall short. To better help connect low-income families, cities should redirect time and resources away from experimenting with GONs and towards more effective adoption programs. By backing out of the broadband competition and allowing families the flexibility to pick the service that suits them best, cities can make real strides in closing the digital divide.
Nate Karren is a policy analyst with the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, follow us on X @ConsumerPal.