Regulatory Reform

New Report Highlights Hidden Problems of Government-Owned Networks

A new report  highlights the budgetary challenges facing local governments that build government-owned networks (GONs) to provide broadband. The report is a good read and useful for anyone interested in current issues in state and local broadband policy, and budgets and transparency.

The report’s author is Joseph P. Fuhr, a professor of economics at Widener University. In the report, Professor Fuhr recognizes that ensuring access to broadband is an important public policy goal; in fact, he calls President Obama’s goal aimed of providing broadband to 98% of Americans within five years is a “laudable goal.” Unfortunately, Professor Fuhr’s report finds that efforts by municipalities to ensure access to broadband by building GONs are not necessarily the best solution and have failed for several reasons. Moreover, these GONs have put strains on local government budgets by saddling municipalities with debt. Professor Fuhr’s report highlights the following:

  • GONs use taxpayer funds and federal grants to build networks in areas where private providers already make high-speed Internet service available. This network overbuild is counterintuitive in that it requires taxpayers to fund and subsidize a network that duplicates an existing network.
  • Many GONs fail because they lack a sustainable business plan and the long-term resources to invest in maintenance and necessary upgrades as technology evolves. When this has happened, taxpayers have had to fund the failures.
  • Government-owned networks compete unfairly with existing providers. As a government entity, a GON can practice various anticompetitive activities which put private firms at a competitive disadvantage. Thus, municipalities that use taxpayer funds to build a broadband network actually act to forestall market entry and decrease competition. With GONs, consumers lose the benefits of competition and choice. They also lose tax revenue from a private network that might have otherwise entered that market, and taxpayers pay more in taxes as they subsidize the operation and maintenance of a GON.

Professor Fuhr makes his case by examining, in detail, several examples of problematic GONs such as the Ashland Fiber Network, Burlington Telecom, and MI-Connection. Instead of turning to GONs, Professor Fuhr writes, “communities could benefit by examining how to develop a fast and reliable broadband network while protecting taxpayers and maintaining the prices necessary to ensure the achievement of the President’s goal of near-universal broadband service.”

The report makes for good reading and I highly recommend it to anyone interested in recent developments in broadband policy. Professor Fuhr expands and provides examples of several points I have made in op-eds such as this one for the Heartland Institute’s InfoTech and Telecom News. As I mentioned in my column for InfoTech and Telecom News, “[M]unicipalities across the nation continue to build municipal broadband networks. The fact that millions are being wasted to duplicate private sector efforts and directly compete against the private sector, in a time of tight budgets, suggests these are unwise uses of taxpayer money. Before we commit more money to municipal broadband networks, we need to have in place strong oversight, transparency, and rules for fair play.”

In Depth: Regulatory Reform

In his first inaugural address, Thomas Jefferson said that “the sum of good government” was one “which shall restrain men from injuring one another” and “shall leave them otherwise free to regulate their own pursuits of industry.” Sadly, governments – both federal and state – have ignored this axiom and…

+ Regulatory Reform In Depth