Town May Not Mandate Muni Network Connection

Published June 1, 2006

You would think that a local government would vigorously oppose a company that forces people to install its equipment on their property and then charges them a hefty fee. In a recent court case, however, a city actually used tax dollars to defend this anti-consumer practice. Why? Because the “company” was the city itself.

The case involved a city-run telecommunications department in Lebanon, Ohio. In the late 1990s, Lebanon felt its citizens were paying too much for cable television. It was also concerned that high-speed Internet service was not readily available. The city government decided to start offering telecommunications services in 1997. Eventually the city offered cable, phone, and Internet.

Seeking to raise money to expand the services throughout the city, the Lebanon government passed an ordinance mandating that all new construction include a hookup for the city-run telecommunications system. Businesses would be charged $2,000; residents, $1,250–regardless of whether they wanted to purchase these services from the city. Essentially, the town was collecting a fee to connect people to a system they might never use, and then subsidizing its business operations with that money.

The story of Lebanon is a perfect illustration of why government should not be “competing” with private businesses. The temptation to use the power of coercion is too strong to resist.

In a victory for consumers, in February the 12th Appellate District Court of Ohio ruled the city’s connection requirement is an unconstitutional “taking” of private property. The city argued, however, that since a portion of the “connection fee” was being used to fund projects other than the mandatory connection, it should still be able to collect that fee.

The court disagreed with the city’s assertion, but its decision seems to allow the city to enact another ordinance requiring anyone seeking a new building permit to pay a fee to expand telecommunications service, as long as the city does not force these new buildings to actually connect to the system. It remains to be seen if the city will use that power.

The court’s decision should give pause to the citizens of other cities that are considering getting into the technology business. Governments, by design, accomplish their goals by forcing people to do things. Businesses, on the other hand, must obtain the voluntary cooperation of customers by providing attractive goods and services.

It’s questionable whether government should even be providing services, such as cable, phone, and Internet, that private companies can provide. It’s even more dubious to say a government should be able to use its unique legal power to give itself a competitive advantage.

Marc Kilmer ([email protected]) is a research associate specializing in technology issues with the Buckeye Institute for Public Policy Solutions.