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.

Leave a Reply

Your email address will not be published. Required fields are marked *