Expanding Municipal Broadband: A Raw Deal for Tennesseans

Tennessee legislators are currently debating HB 2482 and corresponding SB 2562, which would allow municipal electric companies to expand their broadband offerings to any location within their county or adjacent counties.  These types of government run networks don’t necessarily connect the unconnected; more often than not, they enter areas already well served by other providers.

While some tout municipal broadband networks as additional competition that will drive down prices and provide faster cheaper service, that is not the full story – there is no such thing as a free lunch.  There are two main problems with these networks:  (1) Governments don't technically compete, because through taxpayer backing, they can actually charge less than it costs to provide broadband. (2) It is expensive to build a network and expensive to maintain; competing with already existing billion dollar networks is not an efficient use of taxpayer dollars. 

In terms of broadband access, through wired or wireless connections, 98 percent of Americans currently have access to high-speed Internet via multiple devices.   There are the big four wireless companies to choose from, plus a number of other smaller networks and pay as you go plans; cable companies provide internet as part of their television and phone bundle; AT&T U-verse offers DSL connections; and satellite companies have wireless offerings as well.  Furthermore when we look at the prevalence of wired broadband connections, connectivity reaches 95 percent of Americans.  

According to US Telecom, “The broadband industry has invested more than $1.2 trillion dollars since 1996. The wireline industry alone invested approximately $660 billion during that period.” Plus, most Americans have their choice between two or more providers, and there are new entrants in the wired broadband market without the government joining the fray.  Verizon Fios was launched in 2005, and Nashville, Tennessee was just announced as a new possible location for Google Fiber. 

Still, government owned broadband providers, or municipal broadband networks, are looking to horn in on the market at the expense of taxpayers and broadband consumers under the guise of altruistic promises.  In 1999, Tennessee began allowing municipal electric companies to offer broadband services within their electric service footprints.  Now, as legislators debate House Bill 2482 and corresponding Senate Bill 2562, some lawmakers are pushing for an expansion, which would allow the nine government-owned and operated electric companies already offering broadband to expand into 38 counties and compete with existing private sector providers. 

With competition booming and so many free market options, it’s hard to understand why local governments would want to make such a risky venture with taxpayer dollars.  We all want more affordable options, but quite frankly these networks don’t always deliver as promised, and there are programs already available for low-income portions of the population. 

Comcast’s Internet Essentials has been vastly successful connecting 1.2 million low-income Americans since 2011 to high-speed low cost broadband.  One of the main stays of Google fiber is offering to link folks up for a $300 connection fee that includes 7 years of free high-speed access.

Networks are expensive to build and maintain.  Existing government owned networks have contributed to millions of dollars in debt, all to be footed by the taxpayers through higher electric prices and subsidies.  Chattanooga EPB received over $111 million in federal stimulus money and borrowed what will amount to nearly $400 million in bonds to build a fiber optic Smart Grid in an area well served by other providers.  

Yes, debt is obviously accrued at the beginning of a build, but this is not a private debt.  This is a gamble in the market by non-experts.  For example, Government owned Memphis Networx was found to have been over staffed, grossly overpaying for overhead, and shelling out “exorbitant salaries.”  The company’s mismanagement and looseness with taxpayer funds resulted in its failure.  Perhaps failure is a consequence, but it’s easy to be careless with other people’s money.  

Again, governments don’t really compete.  They can charge less than what is necessary to recoup investment, because they can always go back to the taxpayer pot and “apply” for more grants.  Predatory pricing by taxpayer subsidized providers would undercut private broadband providers who invest millions in Tennessee, distorting the free market and ultimately handing government a monopoly. 

HB 2482 and SB 2562 will take Tennessee down a dangerous path, stifling consumer choice and encouraging risky business practices by government owned networks.  We need to look at the legislation for what it really is—a big government takeover of the broadband industry, with taxpayers signing a blank check.