Municipally Owned Broadband Networks: A Critical Evaluation

Published October 22, 2004

Widespread availability of broadband technology, cutting-edge innovation in the industry, stiff competition among providers, and falling prices all mean the case for municipal ownership of broadband networks is weak and growing weaker, according to a report forthcoming from The Heartland Institute.

“Threatening to build a municipal broadband network may have been a good strategy two years ago, to prompt incumbent cable and telephone companies to make good on past promises,” writes Joseph L. Bast, president of The Heartland Institute and the study’s author. “Following through with municipalization, however, is not a good idea.”

The new report, “Municipally Owned Broadband Networks: A Critical Evaluation,” updates work Bast did on the subject in 2002. Since then, he notes, “Broadband services that were scarce two years ago are now plentiful and reasonably priced.”

Bast also finds:

  • Virtually everyone who wants broadband services can get Digital Subscriber Line (DSL) service from their telephone company or cable modem service from their cable company. Cable, telephone, and wireless broadband providers have spent billions of dollars rolling out service in areas that were previously underserved.
  • Most broadband platforms operate at speeds dramatically faster than two years ago, making superfluous the “fiber to the home” (FTTH) networks envisioned by advocates of municipalization. And while speeds have increased, prices have fallen. SBC, for example, offers DSL service for between $26.95 and $36.99/month, and T-1 service for around $250.00 per month. When new WiMax technology arrives, it is likely to cost $25 a month for broadband and $40 to $50 for a package that includes unlimited telephone service.
  • Consultants often try to sell the idea of building municipal broadband networks by claiming they are essential to economic development efforts, but they invariably present no evidence of a link between broadband and economic growth. Econometric research consistently finds subsidies to business are an unreliable and often counterproductive strategy for economic development.
  • Cities that have attempted to build and operate broadband networks often report large losses borne by taxpayers or ratepayers. Of some 55,000 towns and municipalities in the U.S., only about 200, or 0.5 percent, operate municipal broadband networks. Many communities that have taken the plunge have experienced multi-million-dollar losses that must be paid for by taxpayers or ratepayers.
  • In an effort to reassure voters that tax dollars would not be at risk in the event the broadband network begins to lose money or is forced into bankruptcy, advocates of municipalization have suggested the use of certificates of participation, rather than general revenue bonds, to finance construction. But taxpayers and ratepayers likely will still find themselves “on the hook” to pay for operating costs and upgrades to the system.

“Very few cities attempt to build and own broadband networks because the costs and financial risks are too great,” Bast concludes. “Cities that have taken the leap simply illustrate the riskiness of the venture, costing their taxpayers and ratepayers millions of dollars in subsidies with no end in sight.”

For more information …

contact Ralph Conner, The Heartland Institute’s public affairs director, at [email protected], or call 312/377-4000. You may also contact the study’s author, Heartland President Joseph Bast, at 312/377-4000, email [email protected].

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