Municipal Broadband Is Economically Unsound

Jim Wilkerson/Opinion

Ruston is voting this fall on whether the city will provide its residents broadband internet service. This form of government-provided broadband is commonly referred to as “municipal broadband.” Nowhere in Ruston have I seen a debate over this issue, other than a poll of thirty-eight people posted by the Ruston Daily Leader. I hope to start a dialogue here by arguing against municipal broadband, as it is economically unsound.

“At the core of the issue,” T. Randolph Beard, et al., wrote in this year’s first issue of the Federal Communications Law Journal, “is the uneconomic nature of municipal broadband.”

One of the central failures of municipal broadband is that it offers an expensive service to customers at an absurdly low price that does not generate enough revenue to cover initial and maintenance costs. In short, municipal broadband loses money, unless heavily subsidized by taxpayers and electric customers. When municipal broadband does achieve a yearly profit, the profit is so minimal that it cannot pay back the initial debt within the system’s expected lifespan (roughly thirty to forty years). Ultimately, municipal broadband burdens its residents with increased debt and higher taxes. While one may argue that higher taxes are worth it if it means poorer citizens receive broadband, municipal systems inevitably become too burdensome for the rest of the population to justify keeping them around.

Why, exactly, do municipalities offer broadband at such a low price? The primary reason private broadband is not provided in certain areas is that those potential customers are not willing to pay prices that will cover the costs to build and maintain broadband infrastructure. Some local governments ambitiously believe they can do what private providers cannot and offer broadband to areas private companies avoid. However, if those local governments were to offer the service at a price that would cover the initial and maintenance costs, most of the potential customer base would not buy the product because the price would be too high. In other words, municipal broadband would fail before it ever began. So, local governments offer the service at an illogically low price that, by itself, will not cover the costs. This means that municipal broadband is invariably dependent on subsidies and will ultimately fail.

Thus, for every “positive” example proponents of municipal broadband give, there is an underlying financial disaster. The poster child for municipal broadband changes from city to city – from one failed network to another that has not yet failed. Right now, the poster child for municipal broadband is Chattanooga, Tennessee, a.k.a., “Gig City.” Yesterday it was Tacoma, Washington that was “America’s first 10 gigabit city.” And before that the media hailed Salisbury, North Carolina as “America’s most wired city.” Both Tacoma and Salisbury, among many other examples, hemorrhaged tens of millions. So will Chattanooga. And so will Ruston if municipal broadband is voted in.

The challenge for municipal broadband advocates is the same as the challenge for socialists: Find one system that is self-sustainable. None have been presented thus far.

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6 thoughts on “Municipal Broadband Is Economically Unsound

  1. Hi Adam. Thanks for your comment.

    Concerning your first point about option A (doing nothing) and option B (having the government provide “reliable access” to internet), I have three counterpoints. First, almost every example, if not every example, of cities taking on the responsibility of providing broadband to its citizens lose money (Yoo and Pfenninger, “Municipal Fiber in the United States: An Empirical Assessment of Financial Performance,” 2017). Second, the economic benefits of municipal broadband have been convincingly disputed by economists George S. Ford and R. Alan Seals, Jr. – “Phoenix Policy Paper No. 54 – The Rewards of Municipal Broadband.” Third, there is an option C, as I mentioned to Ms. Katherine above, of appealing to private ISPs to come to Ruston by means of petition, lowering taxes, etc.

    Concerning your second point about not mentioning LUS Fiber, I only had 300-500 words to make my argument, so I could not address every city or go into much detail. With that said, LUS Fiber’s verdict is still pending, as it is unclear why the PSC ended its investigation into the audit that revealed LUS (separate entity) misspent millions on LUS Fiber. Keep in mind that some systems, like Tacoma’s (1997-2014), last almost twenty years before its citizens get fed up with it. Lafayette’s ground has been shaking for some time, though the tremors have died down, temporarily at least.

    Finally, I have not seen any serious, peer-reviewed papers concerning the economic benefits LUS Fiber has had on Lafayette’s economy. But if you could point me to that, I would be much appreciated.

    Most outlets focus on Chattanooga, which is why I mentioned that city. However, they rely on a study of which the author, Bento J. Lobo, was funded by the municipal broadband provider, meaning there was incentive to publish favorable results. Other independently funded authors looked at Chattanooga and determined that 1) Chattanooga’s economic success story is exaggerated and 2) increased employment is the result of an auto plant being built there before broadband was introduced. I know, this is not Lafayette, but Chattanooga appears to be the most studied city at the moment.

    Thanks, again, for your comment. Have a blessed day!

    – Jim

  2. From a financial standpoint sure municipal broadband is expensive. The Federal Government even offers grants to companies under various grant programs (i.e. CAF2) to help with network buildouts. The core issue is that the internet is essential for day to day functions for many and what we have is ever growing in cost with very little increase in function and value. Network access allows people to apply for jobs, start their own business, and learn just about anything. So when our options are A.) change nothing and hope the current situation improves or B.) Offer up a solution that might cost a lot up front but allows more citizens more reliable access then we should choose B every time. Strange that you wouldn’t even mention successful fiber roll outs like LUS-Fiber in Lafayette. One of the most successful fiber networks in America and it’s in our own state. Expensive and wasteful is different from expensive and beneficial.

  3. Hi Katherine. I 100% agree. I do not like that Suddenlink is the only true competitor in town. Unfortunately, from the articles, reports, etc., I’ve read, municipal broadband has been called “predatory” and “anti-competitive” because it drives away other private internet service providers due to the artificially lower prices offered by municipal broadband. To put it more clearly, citizens are attracted by the city’s lower prices, and so they switch to municipal broadband and leave the private providers customer-less. Those private providers then move out of town because there is no business for them here, and the government essentially gains a monopoly on broadband, leaving us in a worse position than before. The summary I just gave is simplified, and it takes time for this process to happen. But that is the trend.

    I think a better solution for Rustonians would be to petition other private ISPs to come into Ruston. There certainly seems to be a demand for another internet provider, and it would be better for us to appeal to a private one that does not have the authority to put a burden on our bank accounts without our consent (like the government can with taxes and higher electric bills). One way we can appeal to private providers is to vote to lower taxes, giving ISPs incentive to move here and compete for our money – meaning lower prices and better service for Ruston citizens.

    Thank you for your comment.

  4. You make some very good points. As a customer of the current provider, my wish is for better service from installation to repair.
    Not saying we need a municipal owned broadband, just think we need options and competition.

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