Policy Documents

Municipal Broadband’s Record of Failure

James Valvo –
March 1, 2009

The recently passed American Recovery and Reinvestment Act included over $7 billion to stimulate broadband infrastructure development and Internet demand. The legislation intends for the funds to help both unserved and underserved areas. Unserved areas include rural communities with no existing service provider, while underserved indicates areas with low capacity or exceedingly low enrollment rates. This bill must not be hijacked to redirect funds into markets that already contain multiple private Internet service providers.

Before billions of taxpayer dollars are spent on municipal broadband projects under the guise of economic stimulus, we should consider the results of recent projects that have already been undertaken. The results, almost without exception, have been overwhelmingly negative.

The complexity of public-private structures that are employed in municipal broadband projects introduces a bureaucracy and an inertia that makes these systems poor competitors with commercial services, leading to taxpayer dollars being squandered on subsidized systems. On the whole, such hybrid relationships have not performed as advertised.

Conversely, the private sector continues to rapidly develop new broadband services that offer higher quality and innovative services at competitive prices. Since 1996, more than $146 billion has been reinvested by the cable industry to expand broadband services. Rapid technological advances by wireless providers has improved the speed and coverage of wireless data services, reducing the demand for WiFi services overall and even further with municipal providers in particular.

The stated goal of “free” or low cost municipal service is to bridge the digital divide and provide poor citizens with access to the online world. However, the private sector, including charity and non-profit organizations, has proven far more adept at solving these types of issues in other areas and Internet service will certainly be no exception; see the Philadelphia example below.

Easily the biggest problem with municipal projects is that they commit taxpayer money to projects that nearly always run over budget for construction, are not financially sustainable once they are built and rely on future subsidies to provide so-called “free service.” As is always the case when governments enter the free market, distortions in price, customer service and availability hinder competition and ruin what could otherwise be a profitable venture.

This paper will examine the recent history of local governments attempting to subsidize broadband access in the face of private sector competition. This document is a compilation of available public information regarding the most significant municipal broadband projects. We examine large and small markets domestically as well as international examples in Asia and Australia.

The result of our investigation is that taxpayer-subsidized municipal broadband projects are nothing more than a record of failure.