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4:44pm August 22, 2013

The False Promise of Municipal Broadband

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This op-ed on the dangers of government owned broadband networks, by Senator Catherine Pugh, president of the National Caucus of Black State Legislators, originally appeared in the Baltimore Sun.  

 

For many local governments, the promise is seductive. A cottage industry of consultants and network builders — who stand to profit handsomely — sell the idea to misty-eyed government officials that building a municipal broadband network will spawn a local Silicon Valley microcosm that will be a monument to their incumbency. But what they don’t see is that the economics of the grand venture doom it to likely failure.

For the most part, municipally-built broadband networks have the economic chips stacked against them and, where tried, have saddled local taxpayers with a mountain of debt and half-built networks that are then sold at fire-sale prices to vulture investors. Taxpayers in Provo, Utah, for instance, spent $40 million to build a relatively small and modest network only to sell it for $1 a few years later because they underestimated the massive costs of operating, upgrading and maintaining it.

But Provo is just the latest exhibit in a long pantheon of such failed initiatives that include Groton, Conn., ($38 million taxpayer loss) and Marietta, Ga., ($35 million taxpayer loss). Cities as large as Philadelphia, New York and Chicago and as small as Lompoc, Calif., and Acworth, Ga., have also tried and failed to launch their own broadband networks — or simply gave up.

It’s as destructive as it is unnecessary. Here in Maryland we’ve so far chartered a wiser course, targeting scarce public funds at truly under-served areas using less risky and far more appropriate methods. For example, the One Maryland broadband initiative is leveraging over $100 million federal dollars to link more than 1,000 government agencies and community “anchor” institutions to high speed communications networks. The non-profit Maryland Broadband Collective is working through private sector members to affordably reach the most difficult to connect portions in the state, without leaving taxpayers holding the bag.

Yet local governments continue to flirt with an idea that should have been discarded years ago. Typically, any local wired or wireless broadband network will cost, conservatively, tens of millions of dollars in up-front construction and equipment costs. On top of that, broadband networks require huge annual operating expenditures to pay for administrative staff, customer service, repairs, security and all of the other services needed to have a credible chance at attracting consumers. And, as Provo residents learned, even their recently built network — barely a decade old — requires $20 million in upgrades before its new owner — Google — deems it fully operational.

To pay-down these massive costs and to break even year-to-year, municipal networks need to sign up tens, if not hundreds, of thousands of customers. But picking off customers from other broadband providers isn’t just difficult — it’s unlikely.

Broadband is an extremely competitive market — more so than it ever has been. Over 80 percent of the public can get super-high speeds of over 100 Mbps, and nearly all Americans can (or will soon) get four different wireless 4G technologies with speeds up to 20 Mbps. Prices per megabit are dropping quickly. Even advocates of government-owned networks like US Broadband Coalition founder Jim Baller have grown skeptical that government-owned networks can win enough customers, arguing that community broadband projects “are more challenging now than they’ve ever been.”

To beat these odds, some seek to build networks that rival those of existing broadband providers. Chattanooga, Tenn., asked taxpayers to float a $220 million bond to build a fiber-optic broadband network. But the experiment was a golden fleece, signing up just 34 customers (eight residential!) to its $350 per month 1 Gbps offering. Chattanooga residents saw little use for a 1 Gbps connection, particularly at such a premium cost.

Of course, 6 percent of the country still lacks access to a wired broadband network, and in those communities, there could be a case for these highly speculative, risky ventures. But for the rest of country, the economics make little sense for taxpayers who already face a nearly $4 trillion deficit of investment in modernizing our water and sewer infrastructure, roads, railways, bridges and schools.

Those who want to win the argument about whether government can stimulate a struggling economy would be well advised to stick with what we know works and stay away from fanciful boondoggles.

 

Sen. Catherine Pugh, a Democrat, represents Baltimore City. Her email iscatherine.pugh@senate.state.md.us.



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3 Comments


  1. Craig Settles
    Craig Settles

    The argument that muni networks are failures is completely and totally false!! Quite a few of the comments posing as facts in this column are either false, half-truths, the one or two quoted-out-of-context statements, or the b.s. telecom industry talking points often parroted by politicians who get sizable campaign contributions from said telecom industry (visit one of the Web sites that document the money trails between elected officials and corporations).

    Over 160 public-owned citywide fiber or cable networks in business and are doing well. Another 180 public-owned nets cover parts of communities. Over 40 communities own 1 gig nets. Find them here – http://www.muninetworks.org/communitymap. Call ‘em up, read their stories.

    Some muni nets have run successfully for over 14 years. Cedar Falls, IA is one. Thomasville, GA’s 14-yr old public network is so successful, it helped eliminate city taxes. Danville, VA’s public network was built to attack that city’s problem of 19% unemployment. Their network is successful and the businesses it has drawn to town have helped reduce unemployment to 9%.

    Santa Monica’s public net started in 2007 and reduced city data & voice communication expenses by $750,000 in the 1st year. They went on to sell services to businesses and created a $2 + million fund. Cambria County, PA owns its wireless network that has run successfully for years.
    On and on goes the list of muni network success. Community-owned dark fiber networks bringing new businesses to town is a growing list. Steuben County, IN is just one example.

    Some muni nets have struggled, but the charge that these are “false promises” comes from the misinformed or the astro-turf telco front groups. Don’t fall for the lie! Listen to the success stories http://www.blogtalkradio.com/gigabitnation. Better still, do the research this author should have done and call the communities that have built broadband success stories in spite of telecom companies’ determined efforts to put muni nets out of business.


  2. Lord Koos

    “Broadband is an extremely competitive market”

    An interesting statement, seeing as how Comcast and their ilk to everything possible to ensure they have no real competition. While it is true that most Americans have access to decent speeds, their internet connections remain slower and far more expensive than those in other countries.

    This piece is a shill for cable companies that have a vested interest in their respective monopolies.


  3. […] list of articles that could be charitably described as friendly to industry objectives. This op-ed on the Politic365 website attacks municipal broadband—which cities have used to provide fiber […]



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