The North Carolina legislature is considering legislation to discourage the creation of taxpayer-financed broadband networks pending a government-directed study to determine its worth.
Advocates decry what would amount to a moratorium on municipal broadband projects in North Carolina. But Scott Testa, professor of business administration at Cabrini College in Philadelphia, says it’s best to keep government from crowding out private broadband investment.
“Like anything else, you want to be able to get the private sector involved,” Testa said. “If there is competition, then it costs less to enter markets, stay or make improvements.”
Demand Will Drive Build-Out
Local markets will adjust themselves to the economic conditions, Testa added, saying if there is demand for high-speed Internet, the private market will tend to provide it.
“If the government gets involved and adds high-speed Internet without sufficient demand, the project usually falters,” Testa said. “Broadband projects tend to be more successful in areas where there is already good population or business density.
“When the government looks to control this, it shows a very bad precedent,” he added. “Most of the times the government gets involved in the private sector, it doesn’t make sense. Government building highways makes sense. But in broadband, it should let the private sector and the markets dictate themselves.”
Don’t Mess with Markets
Jeff Kagain, a wireless and telecom analyst based in Atlanta, says he empathizes with city leaders who think broadband has been slow to come to their municipalities.
“But it’s hard to compete with the government,” Kagan said. “So [muni broadband projects] mess with the market and profitability, discouraging private networks from coming in.”
States On the Hook
Steve Titch, telecom policy analyst for the Reason Foundation in Los Angeles, says the North Carolina legislature is taking these steps because state governments are usually “the final backstops for funding of these projects.”
If the projects fail, “as they do more than nine times out of 10,” Titch said, the municipalities don’t have the financial resources to recover from bond issues, and are sometimes they are left with millions of dollars of debt. So, Titch says, they tend to look to the state government to bail them out.
“These projects have shown a historical pattern of coming up short on the funding,” Titch said. “The states don’t want to be harsh or mean, they’re just trying to work within their fiscal restrictions. They’re trying to reign in thousands of dollars of wasted money. The states are tired of throwing this money away.”
Muni Broadband = Slow Speeds
Muni-run broadband projects often don’t provide the speed and support that people want, according to Titch.
“Municipal broadband networks can’t handle things like iPhones,” Titch said. “They’re not a robust as private ventures.”
Some cities have converted their failed “free” wi-fi broadband projects into government-operated projects for city services, such as meter reading and red light camera systems, which can benefit the city. But in such instances, Titch adds, these projects have abandoned trying to compete with unsubsidized private market firms—which is a far cry, and more expensive, than the original promises.
A Loser for Taxpayers
Bartlett Cleland, director of the Institute for Policy Innovation Center for Technology Freedom in Lewisville, Texas, says North Carolina taxpayers should applaud the proposed moratorium on municipal broadband.
“Moving in the direction of the provision of municipal communications services is the wrong idea, as most all experience has demonstrated,” Cleland said. “While taxpayer funds are expended, the potential has not been realized. And of course, loss of potential is hardly the most poignant concern when taxpayer money was wasted.”
In general, municipalities around the country have struggled and ultimately failed to provide the services they had envisioned for a number of reasons, including bankruptcy of a private “partner,” often resulting in taxpayer funds being “thrown down a hole,” Cleland added.
“IPI has addressed this issue a number of times over the last several years and have cautioned governments to be careful not to sponsor communications ventures like municipal broadband networks, and in particular, local wi-fi projects,” Cleland said. “Time and experience have proven us correct. “
Markets Outpace Government
The major problem, according to Cleland is that “technology innovation continues to far outpace the speed of government, and therefore government cannot compete with market efforts.”
“Technology infrastructure investment is not for the faint of heart or the partially committed,” Cleland said. “One must jump in with both feet, and be prepared to update and innovate—not only the technology but the business models as well.
“And that is just to keep even with competitors,” he added. “As online services continue to become more sophisticated, customers have become accustomed to regular upgrades, challenging the ability of governments to keep up with demand.”
Phil Britt ([email protected]) writes from South Holland, Illinois.
