Municipalities GON Wild!

Published October 6, 2014

Recently two towns, Chattanooga, Tennessee, and the City of Wilson, North Carolina, have petitioned the federal government, via the FCC, complaining that state laws are constraining them from the municipal provision of broadband services, that is, from building a government owned network (GON). That is, these municipalities want to expend resources to build and operate broadband systems, without following any of regulations that govern private sector providers. To overcome the state’s rightful authority the city governments have proposed that the FCC preempt state law and empower municipalities in ways that upset the political structure of the U.S. 

While models of municipality creation vary widely around the world, in the United States how they are created is fairly clear. The U.S. Constitution empowers states as the primary political entity. The federal government itself is also creation of the states, and of the people, with the Constitution placing restraints on government broadly, at the agreement of the states. States are also empowered to arbitrarily create subdivisions, generically referred to as municipalities. Ultimately then, responsibility for the municipalities generally falls to the states.

FCC intervention into this relationship between states and municipalities would have profound negative effects as was explained in the FCC filing by Madery Bridge. Municipalities, untethered from responsibility to the state, could partake in risky schemes of tax funded adventurism placing the entire state and all its citizens at risk. And government owned networks have proven risky indeed.

For years, 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 list of failures is long and keeps growing but includes Utah’s UTOPIA, Burlington, Vermont , Chicago, Seattle, Tacoma, , Minnesota’s FiberNet, the Northern Florida Broadband Authority, Philadelphia and Orlando. To be clear this is a minimal partial list and does not include the many systems that will not disclose whether they are already being bailed out with taxpayer’s money. The reasons for the failures are numerous, typically resulting in taxpayer funds being wasted. Some would nit-pick the details of the failures, but the fact remains that taxpayer money was put at risk, often without approval of taxpayers, and most often squandered.

Even still, some municipalities want to plow forward, heedless of the lessons, believing that they are somehow different. As mentioned, some have been frustrated by state laws in at least twenty states that were designed to prevent fiscal folly on behalf of the localities, laws that shield all citizens of the state from financial risk. Adopting the failed model of municipal provision of communications services is the wrong idea, as many municipalities across the country can attest.

Municipalities face many risks in building and operating broadband networks. As has been seen in the routine failures, governments chronically underestimate the cost of building out and maintaining networks, and chronically overestimate adoption rates.

Technology infrastructure investment, like most infrastructure investment, is not for the faint of heart or the partially committed. Municipalities and states across the country are constantly challenged by maintaining the relatively static infrastructure that they have already taken on, such as streets, sidewalks, bridges and buildings.

Technology is vastly more challenging. One must jump in with both feet, constantly updating the technology and business models. As online services grow more sophisticated, customers have become accustomed to regular upgrades, challenging the ability of governments to keep up with demand. Those challenges are multiplied a hundred fold when the complications of delivering video and voice are added. Video services alone are in a constant state of upgrade, either in providing more channels, more programming, or providing services to customers to allow them to customize their own video experience, such as video on demand.

Of course as a greater variety of more complicated technology and services is offered, the more expensive the building of the system and overall operations becomes. In turn even more taxpayer money is placed at risk, because when these systems fail it is not private investors who lose money but taxpayers across the state often without any say in the matter, and the vast majority of whom received absolutely no benefit. When local and state coffers are depleted because of these sorts of risky government bets, the cry is for more tax revenue or for an outright bailout.

In general, technological innovation continues to far outpace the speed of government, which simply cannot compete with the market. So, in the case where a municipal system is competing against a private system, about the time the municipal system is up and running, private networks will offer something better, cheaper, and faster. Even in cases where there is no private sector competition, government operated networks will never keep pace with public expectations. Broadband systems are not like a water public utility where the same pipes are used for one hundred years to deliver the same product in the same way.

The challenges of government owned networks and the preservation of free speech is also daunting. The theoretical became real in San Francisco, a city that often brags of its rich tradition of civil liberties. There, a municipal communications system was purposely shut down to prevent people from engaging in specific, legal communications. In a chilling statement, city officials pointedly said, “Cellphone users may not have liked being incommunicado, but BART officials told the SF Appeal, an online paper, that it was well within its rights. After all, since it pays for the cell service underground, it can cut it off.”

Whether San Francisco should be paying for municipal communications systems at all is a question for the city and state. The more pressing concern is the freedom of speech problems that arise when a municipality owns a communications system.

Importantly, rarely is it the case that government is trying to serve someone with no Internet access option. Rather the most common motivation for beginning the government owned network fantasy is economic development groups being swayed by traveling consultants. Their siren song is too hard for some communities to resist, and repeated past failures tend not to be mentioned.

Such localities could better use their time and resources by moving to provide clear and more rapid approval decision making for wireless facilities as wireless rapidly has and continues to be the favored method of accessing broadband. Policymakers should sponsor initiatives to encourage broadband deployment into unserved areas using incentives for private sector companies that risk their own capital.

Where state officials of any sort are calling for FCC action, their arguments are merely an attempt to end run the state’s political process and the will of the people. They seek to create public policy where they were not able to do so within their own state through proper channels. This is policy
making by the ruling class rather than by will of the people. State policies should be determined through state legislation or at least through state rule making.

Allowing the states to continue to experiment with how to broadband will be delivered to the greatest number of their residents is absolutely the right policy to pursue. The FCC should stand on the side of greater creativity and innovation, and the law, and not intervene in state law.