Chattanooga Broadband: High Speeds at an Even Higher Price

Media outlets nationwide praised Chattanooga, Tennessee for its speedy Internet service. Harold DePriest, president of the Electric Power Board (EPB), the publicly-owned utility responsible for operating Chattanooga’s fiber broadband network, told reporters that opposition to the project was founded on the notion that “government just isn’t smart enough to do anything right.” Yet, the real concern for many is not whether the government—armed with vast taxpayer funds—could build a communications network, but rather whether it should.

According to the Federal Communications Commission, 94.6% of households have access to wired broadband service and, thanks to additional wireless technologies, 98% of Americans are able to access quality Internet connections. It is private industry—not government—that has brought millions of Americans Internet access. Between 2008 and 2010 companies recognized the need for increased broadband coverage, investing $89 billion in wireline capacity, $71 billion in wireless technology, and $40 billion in cable for a grand total of $250 million spent on efforts to expand broadband access.

Despite consistent private sector investment, the past fifteen years also marked unfettered growth in the number of publicly owned and operated broadband networks. As these government-owned broadband systems cropped up across the nation, governments saw their debt load increase. For example, Tennesseans watched the cost of municipal projects jump from $100,289 in 2001 to $12 million in 2010, resulting in a combined debt of $176.5 million by 2010.

Chattanooga’s fiber network added to Tennessee’s already staggering municipal network costs. And, as with all publicly-operated networks, the burden on taxpayers forced to pay for this network went undetected. The EPB launched Chattanooga’s project in 2010 and built the network almost entirely with taxpayer funds; EPB’s electric customers financed a hefty $160 million loan, while federal taxpayers paid for the other $111 million as part of the 2009 stimulus bill. EPB’s Internet and cable television customers will pay for the remaining $29 million.

High-speed Internet service is great, but there is no real demand for the speeds EPB offers, which reach nearly 200 times faster than the average broadband speed in America. EPB offers a one gigabit-per-second service to all homes and businesses in the region, yet only a handful of residents and 20 odd businesses subscribe to the exorbitant $350 per month gigabit option. Ironically, most taxpayers who paid to build the network cannot themselves afford the service fee.

Robert D. Atkinson, president of the Information Technology and Innovation Foundation, concluded that he “can’t imagine a for-profit company doing what they are doing in Chattanooga, because it’s so far ahead of where the market it.” And this has certainly been the case: while EPB charged taxpayers $270 million to build the gigabit facility in Tennessee, Verizon spent billions upgrading systems to speeds of 15, 25, and 50 Mbps. Verizon analyzed usage data and discovered that a majority of consumers actually preferred the $50 dollar per-month, 15 Mbps service option. Rather than invest in ultra high-speed networks, Verizon provides a valuable service at a price consumers can afford.

Municipal broadband proponents believe government-owned networks increase competition, but more often than not we see unfair competition between the government and the private sector. Providers that are unwilling or unable to compete with public entities simply choose to invest resources elsewhere. For example, David Snyder, who operates an Internet Service Provider 35 miles north of Chattanooga, says service providers like him now avoid Chattanooga, rather than compete with a government entity.

When asked why Chattanooga is sinking millions to provide a service that a majority of Americans cannot afford or do not want, DePriest of EPB said, “the simple answer is because we can.” Of course, DePriest is correct that public networks can be built. Yet, more justification is needed when building taxpayer-funded networks that force out those private companies that have historically brought Americans higher quality, faster and cheaper broadband services.