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Two Views: Michael Cathcart: Municipal broadband is risky business

The city of Spokane wants to get into the telecom industry. We urge caution. Municipal broadband is risky business: it has a high rate of failure, is expensive to build out, and it can actually reduce competition in the local market.

Internet access enhances quality of life and fosters economic growth. So, bridging the divide by improving digital equity through affordability is a noble goal and one worth pursuing. Cheaper, faster internet. That’s the dream. There is a role for the city to play in this, but with numerous examples of failed municipal broadband projects across the U.S., and at a time when already the horizon appears quite bright for emerging wireless broadband technologies, owning and operating our own broadband network doesn’t make a lot of sense.

A 2017 University of Pennsylvania study of municipal broadband cities found that a majority of those analyzed are headed toward insolvency. In fact, the analysis reveals that only two are on track to break even. The Taxpayers Protection Alliance Foundation analyzed data from more than 200 municipal broadband networks and concluded that, “overwhelmingly, these government-owned and taxpayer-funded networks leave budgets in the red due to underestimated build out costs, subscriber rates falling far short of projections, and issued bonds straining local budgets for years to come.”

There have been a number of high profile failures. Officials in Burlington, Vermont, were forced to borrow millions to keep their network afloat, resulting in massive debt and a downgraded credit rating. The Tacoma-owned cable and internet provider Click! has lost millions due to low subscription rates. Perhaps most startling, Provo, Utah, was forced to sell its $40 million broadband network to Google for $1 because of unsustainable losses.

The poster child for successful municipal broadband networks is Chattanooga, Tennessee. What doesn’t usually make the headlines however, is the cost of their network. The build out required nearly $400 million in local bonds and $111 million in federal stimulus funds. According to a University of Pennsylvania study, the investment is not projected to be paid off for another 412 years. What are Chattanoogans getting for all of that debt? Well, fast internet … for those willing to pay. The much-hyped 10gbps internet package costs residents $300/month, with the next tiers coming in at $70/month and $58/month.

Unfortunately, this model wouldn’t really improve affordability. While Chattanooga’s speeds exceed that which is widely available in Spokane, the fact is, we have high-speed options with similar monthly fees that meet and exceed the Federal Communication Commission’s broadband definition. Add on the increased taxes to build out the network and the end result may not be much of a deal for anyone.

Proponents of municipal broadband stress that we need more competition. We agree. However, there is reason to believe that as a market competitor, the city of Spokane may push out private service providers, leading to fewer options for consumers. Dr. George Ford at the State Government Leadership Foundation studied the impact of government-operated broadband networks on private investment and found that, “municipal (broadband) entry may be a poison pill for all private sector investment … (and) … may also hasten the exit of private firms from the marketplace, reducing, not increasing, competition …”

Rather than jumping into the internet business, our recommendation to the city is to work with current providers to find and eliminate existing obstacles to lowering prices and increasing connection speeds. Meet with service providers not currently serving Spokane, such as Google Fiber, to understand how we can eliminate any barriers to entry. Reach out directly to Microsoft, SpaceX and AT&T, all of whom have developed some incredibly innovative wireless internet technologies, to determine what our community can do to get these deployed in our town. Lastly, before we commit significant resources to municipal broadband, let’s step back and explore whether there are alternative investments that could be made that would have a more profound impact on our community.

It’s hard to fault anyone for being drawn by the allure of municipal broadband, but it’s our hope that upon further consideration the city will change course and avoid the risk. Let’s focus on core services and leave telecom operations to the experts.


 

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