Federal and local governments are spending billions of taxpayer dollars on government-owned broadband networks to provide Americans with greater Internet access. What few of the governments building these networks seem to be asking is whether taxpayers are getting their money’s worth.
The 2009 American Recovery and Reinvestment Act—also known as the federal stimulus—allocated $7.2 billion for broadband and wireless Internet programs. However, a recently released study commissioned by the National Cable & Telecommunications Association found some funds thought to be providing broadband in rural, underserved areas have actually been used to support duplicative broadband networks.
The study, which examined three multimillion-dollar Broadband Initiatives Program (BIP) awards in Kansas, Minnesota, and Montana, showed more than 85 percent of households were already served by existing broadband providers. In one project area, more than 98 percent of households already were served by at least one provider. Instead of providing broadband Internet access to underserved areas—the stated goal of the Obama administration’s National Broadband Plan—millions in tax dollars have been used to help the government compete against the private sector.
Building duplicative networks not only wastes taxpayer money but also increases the overall costs for taxpayers substantially. According to the Federal Communications Commission, the cost of extending broadband to every underserved U.S. household is about $23.5 billion if duplicative service is not funded. But funding duplicative service—as happened with the BIP awards—increases the cost of a nationwide broadband buildout by $63.7 billion, to $87.2 billion, according to the NCTA study.
Competes With Private Sector
The issues raised by this study have not been addressed yet, and it does not appear as though taxpayers will see action anytime soon. This past April, the Rural Utilities Service adopted interim final rules that will allow the agency to continue subsidizing duplicative broadband networks even in places where the majority of households currently have access to broadband service.
Sadly, wasting money on broadband is not reserved exclusively to the federal government. Across the country, local governments are building or buying second- and third-tier broadband networks, many in direct competition with the private sector.
Residents of the towns of Davidson and Mooresville, North Carolina, for example, have been complaining about the local government’s purchase (through bankruptcy) of the Adelphia cable system. Since the purchase, the towns have committed $92 million in bonds and lost $6.1 million on operations. Mac Herring, a Mooresville commissioner who voted for the purchase, told a local newspaper he now regrets his vote because “there were financial details that I did not know all the ins and outs of.”
Despite the costs illustrated by the experiences of these North Carolina towns and the BIP awards, municipalities 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.
Addressing the Issues
Unlike the federal government, some state governments, including North Carolina, are finally attempting to address the issues raised by these municipal broadband systems. On March 28 the North Carolina House of Representatives passed H129, a bill that would require municipal broadband networks to follow the same rules and regulations as private sector networks, including financial reporting, setting prices at or above costs, and sharing rights of way.
Contrary to hyperbole from the media and on the Internet, this bill would not impose an outright ban on municipalities from building or owning broadband networks. Instead, what the bill does is prevent municipalities from abusing their power to unfairly compete against the private sector in the provision of broadband Internet service.
H129 was ratified on May 9, and sent to Governor Beverly Perdue, who has not indicated whether or not she will sign or veto it. Meanwhile, South Carolina is considering similar legislation. Placing reasonable restrictions on municipal broadband is not new. In fact, 18 states have various restrictions on municipal broadband already in place. H129 and the restrictions in the 18 other states embody principles for oversight and fiscal management that the American Legislative Exchange Council has incorporated into model legislation.
The local and state government experience offers instructive lessons for the federal government as Congress and the Obama administration develop their broadband policies. Rather than continue to spend billions more on duplicative broadband projects, we need better oversight of the money that is being spent. While promoting broadband access in underserved areas is a worthy goal, it should be pursued under sound fiscal management and oversight.
“North Carolina House Bill 129,” February 21, 2011: http://heartland.org/infotech-news.org/article/29622/North_Carolina_House_Bill_129_An_Act_to_Protect_Jobs_and_Investment_by_Reglating_Local_Government_Competition_With_Private_Business.html
“North Carolina Senate Bill 87,” February 21, 2011: http://heartland.org/infotech-news.org/article/29623/North_Carolina_Senate_Bill_87_Level_Playing_FieldLocal_Government_Competiton.html
“Wilson’s Fiber-Optic Cable Boondoggle,” The John Locke Foundation, 2009: http://heartland.org/infotech-news.org/article/29624/Wilsons_FiberOptic_Cable_Boondoggle.html
“Salisbury’s Fiber-Optic Cable System Another Corporate Welfare Project Paid for by Average Taxpayers,” The John Locke Foundation, 2009: http://heartland.org/infotech-news.org/article/29625/Salisburys_FiberOptic_Cable_System_Another_Corporate_Welfare_Project_Paid_for_by_Average_Taxpayers.html
“Our Experiment With Municipal Broadband Has Failed: General Assembly Should Bar Cities From Competing With Private Telecoms,” Columbia Journal Online, March 24, 2011: http://www.carolinajournal.com/opinions/display_story.html?id=7562