Free Market Flop – Municipal Madness

Published March 2, 2017

Appropriately, city and local governments try to find ways to improve the municipality for its citizens. Inappropriately, some of these municipalities around the country have tried, and ultimately failed, to either set up their own communications networks or to partner with private companies to get into the business of broadband. The reasons for the failures are numerous, but in all cases taxpayer money was put at risk often without approval of taxpayers and often wasted. The largest failure just might be the damage caused to a free market when government enters it to openly compete with private industry, and exposing the taxpayers to risks they never desired without any chance of reward. Ignoring the dismal track record there are municipalities again this year looking to throw good money after bad.

Often a municipality seeks to own the facilities, such as the fiber or cables in the ground, but sometimes they go further and even create a retail service. While this is too much for government to be doing, insinuating itself into the marketplace, this is the easy part. Harder is the constant demand of maintenance and upgrade of the facilities to deliver the type of experience and service that consumers demand. The cost of such vigilance is huge, assuming there are taxpayers who want the government’s service.

To stack the deck in favor of the government offering, the typical municipal system does not even pretend to reach those with no broadband coverage. Why? Because it is expensive to reach remote locations with few people, and government just cream skims the most likely customers. So, most municipal systems build where there is already a density of potential customers, typically overbuilding, providing services where service is already provided, and merely duplicating what is available in the private sector. This is typically the best case example for a municipal “business plan” – using government authority and taxpayer cash to attempt to compete against the private sector. Taxpayers money is put at risk as there is no guarantee of customers at any price that will actually pay back the huge investment, all while service typically degrades. In the long term taxpayers are forced to shoulder increased taxes or live with lesser quality broadband.

That said, there may very well be some instances where a municipality might provide a system, such as if they truly are attempting to provide service to unserved areas, an area where there is no business case to be made. In those cases the government should follow good government guidelines such as being transparent with their citizens and proving a chance for citizens to vote on this expansion of government power. Independent audits should be required of the municipal system as part of the means to heighten transparency of taxpayer funded functions. Real transparent pricing, not simply as provided through a Freedom of Information Act request, should be the norm. Back room self-dealing must be eliminated with muni broadband services required to asses and collect the same fees and taxes that a private sector provider would have to collect. Such protections are necessary since there is no effective market signal with a government run entity a few checks in the normal course of government outside of these suggestions.

Yet somehow such good government best practices requirements have been deemed “controversial,” but not with voters, only to a small cadre of activists and those with self-interest that want government involved competing with the private sector. Some even call such taxpayer protections “protectionist” as in anti-market, turning the notion of a free market on its head. Such protections are in fact pro-market and protect the taxpayers.

And after all, it should be the citizen’s protection that is of concern, not whether a local government can in an unfettered way compete with the technology private sector. Protecting citizens is one responsibility of government, a responsibility certainly to be balanced against guaranteed freedoms. But that is not just a responsibility to protect them physically. Government must also not expose their citizens to financial risk. Good governments know this, others are just looking to provide goodies to pad their chance at re-election.