Municipal broadband systems remain a popular idea in many cities, despite their failing track record. Three cities in Connecticut – New Haven, West Hartford, and Stamford – have begun the process of establishing a new open-access fiber-to-the-premises (FTTP) network. The goal of the project, according to its sponsors, is to create jobs by attracting new businesses and high-tech start-ups and take advantage of the state’s extensive fiber network.
In September 2014, the mayors of the three cities called for Requests for Qualifications (RFQ) from companies and organizations interested in developing the gigabit-capable Internet network. According to FierceTelecom, the RFQ identifies three main goals: “create a gigabit-capable network to serve ‘targeted’ commercial corridors and residential areas that show ‘demonstrated demand’ as a way to drive job creation and stimulate economic growth; provide either a free or a discounted 10–100 Mbps wireline or wireless service to underserved and disadvantaged residential areas across the territories and diverse demographics; and deliver gigabit Internet services at prices comparable to other U.S. communities that offer such products today.”
Advocates of municipal broadband programs say they create economic renewal and tech-sector growth. These programs, however, have a poor record of success, with many suffering cost overruns, service disruptions, debt, and very limited use. Taxpayers are saddled with expensive, underused broadband systems that cost millions to maintain.
Steve Titch of the Reason Foundation argues governments make poor assumptions when considering municipal broadband plans: They assume they are entering a monopoly-based infrastructure business when in fact they are undertaking an extremely competitive service business. Titch found the anticipated high revenues expected by local governments are quickly replaced by the reality of high maintenance costs and difficulties in attracting and retaining customers.
The Connecticut plan is closely modeled on the Electric Power Board of Chattanooga’s (EPB) gigabit Internet network, a system many municipal broadband advocates laud as a success story. The reality is far less rosy. Although EPB offers the highest speed of any muni system in the country, the system required expensive upgrades to the city’s electric grid. Upgrading the electrical system cost more than $300 million, with $111 million of that coming from taxpayers via federal stimulus money. All told, the project carried a price tag of more than $550 million for taxpayers and ratepayers.
Justin Owen of the Beacon Center of Tennessee argues the EPB is underutilized and interferes with natural competition. Despite these unfair advantages, Owens notes EPB has struggled to capture a considerable share of the local market. Only 4,000 of Chattanooga’s 173,000 residents are using EPB’s network, with even fewer businesses signing up for the service.
Keeping government-funded broadband providers out of the market while promoting competitive tax rates and business regulations helps create a vibrant market that encourages telecom companies to expand their services. Connecticut has developed a strong telecommunications system without government intervention, and local governments should spend their limited tax dollars on necessary services.
The following articles examine municipal broadband services from multiple perspectives.
Ten Principles of Telecom Policy
http://heartland.org/policy-documents/ten-principles-telecom-policy
Hance Haney and George Gilder examine the results of telecom reforms in Indiana, the advances made by other innovation leaders in the telecom market, and how other states can follow their lead to reap the rewards of new investment in telecommunication services.
Lessons in Municipal Broadband from Lafayette, Louisiana
http://heartland.org/policy-documents/lessons-municipal-broadband-lafayette-louisiana-0
Steven Titch of the Reason Foundation examines one of the largest and most publicized municipal broadband projects in the United States.: the $160-million fiber-to-the-home (FTTH) project launched by Lafayette Utilities Service (LUS) in Lafayette, Louisiana. Six years into the operation, LUS Fiber was 30 percent short of its revenue projection as set out in its business plan, more than $160 million in debt, and struggling to compete with cable, telephone, wireless, and satellite service providers in terms of price, performance, and service options.
Three Connecticut Cities Pursue Gigabit Network
http://www.govtech.com/local/Three-Connecticut-Cities-Pursue-Gigabit-Network.html
The mayors of three Connecticut cities – New Haven, West Hartford, and Stamford – announced in Sept. 2014 their communities will band together to develop a gigabit network for business and public consumption, and they have asked others to join in the effort. Colin Wood of Government Technology examines their proposal and how it developed.
Municipal Broadband Failure
http://www.theamericanconsumer.org/2014/09/municipal-broadband-failure/
For many years, multiple city and local governments have entered the municipal broadband game – spending taxpayer dollars to create broadband networks that compete with private providers. The goal of these programs is to build an Internet service that eliminates the need for private investment, usually with the help of municipal tax dollars. Zach Christensen of the American Consumer Institute discusses how the municipal broadband trend has swelled in recent years despite the failures of the programs to deliver on their promises.
The Hidden Problems with Government-Owned Networks
http://heartland.org/policy-documents/hidden-problems-government-owned-networks
The Coalition for the New Economy examines the budget-crushing dangers for towns all across the country that attempt to use funds better spent on essential services such as fire protection, law enforcement, and education. The paper offers a cost-benefit analysis of government-owned-and-operated broadband networks throughout the United States, finding many are high-risk, low-profit endeavors.
Municipal Broadband: Wired to Waste
http://heartland.org/policy-documents/municipal-broadband-wired-waste
In this National Taxpayers Union policy paper, Andrew Moylan and Brent Mead analyze the costs imposed on taxpayers for municipal high-speed networks. The researchers found several high-profile attempts ended in utter failure due to mismanagement, and taxpayers have been left to foot the bill for government adventurism gone wrong.
Research & Commentary: FCC Plan to Block State Limits on Muni Broadband
http://heartland.org/policy-documents/research-commentary-fcc-plan-block-state-limits-muni-broadband
Municipal broadband efforts have failed in nearly every place they have been implemented, costing taxpayers millions while tackling a nonexistent problem. Recognizing muni broadband systems tend to be expensive and underutilized, several states have adopted measures restricting cities and counties from creating broadband systems. This Research & Commentary examines these restrictions and the Federal Communications Commission challenge to them.
Research & Commentary: State & Local Broadband Initiative Failures
http://heartland.org/policy-documents/state-local-broadband-initiative-failures
Starting in 2010, municipalities across the nation have proposed and implemented plans to provide their citizens with high-speed Internet access. As of 2007, 52 municipal broadband systems cost taxpayers a combined $840 million. Cities such as Philadelphia and Provo, Utah, expecting low costs and a reliable revenue stream, experienced ever-increasing costs and limited demand.
Municipal Broadband Ventures More Harm than Help
http://www.digitalliberty.net/municipal-broadband-ventures-more-harm-help-a104
Kaitlyn Ewing of Digital Liberty discusses several municipal broadband programs across the country and identifies the difficulties many are facing.
Municipal Broadband: Optimistic Plan, Disappointing Reality
http://heartland.org/policy-documents/no-108-municipal-broadband-optimistic-plan-disappointing-reality
In this Heartland Policy Study, Steven Titch compares the financial performance of a municipal fiber-to-the-home system in Bristol, Virginia with projections made by the same consultant for a proposed fiber-to-the-home system in Lafayette, Louisiana. Titch notes the Bristol system is losing money because its operating budget is growing too quickly and unexpectedly. He also notes the proposed Lafayette system fails to reflect these higher real-world expenses, and thus budgets too little.
Municipally Owned Broadband Networks: A Critical Evaluation (Revised Edition)
http://heartland.org/policy-documents/no-105-municipally-owned-broadband-networks-critical-evaluation-revised-edition
This study finds the case for municipal ownership of broadband networks is weak. Broadband services are plentiful and reasonably priced. New data from communities that attempted to build and operate municipal broadband systems suggest taxpayers would be very much at risk, even under financing schemes involving certificates of participation. A broadband initiative in Illinois’ Tri-Cities area (Batavia, St. Charles, and Geneva) remains a useful case study and cautionary tale for communities with similar plans.
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit InfoTech & Telecom News at http://news.heartland.org/tech, The Heartland Institute’s website at http://heartland.org, and PolicyBot, Heartland’s free online research database at www.policybot.org.
The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Logan Pike, Heartland’s state government relations manager, at [email protected] or 312/377-4000.
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance.
