Municipal Broadband Networks Waste Taxpayer Dollars
Communities across the country have been lured in by the false promises of publicly operated broadband networks, otherwise known as government-owned networks or GONs.
Towns believe that GONs will close the digital divide and create new economic opportunities, but the truth is these networks put communities into significant debt while providing no real benefits.
GONs do not lead to more jobs
Chattanooga, Tennessee dubbed itself “Gig City” after constructing its own fiber broadband network, even though the community already had high-speed internet access from multiple private providers. That nickname, though cute, is not entirely accurate.
A May 2019 report from the Phoenix Center found that the creation of Chattanooga’s GON did not, in fact, favorably affect the city’s labor market, as previously claimed by the city’s mayor. The unemployment drop in the city could only be attributed to new automobile manufacturing jobs provided by the opening of a new Volkswagen plant. The city spent $400 million building a network that doesn’t substantially benefit its taxpayers. Even worse, it will be paying off the network for centuries.
The report’s findings don’t just apply to Chattanooga. Government-owned networks do not foster job creation in cities where privately-owned high-speed broadband is already available; they create only massive amounts of debt.
GONs are unsustainable
Broadband networks are expensive and complex to build and maintain. Private companies have invested a lot of money in broadband networks — AT&T and Verizon spent $21.8 and $22.7 billion, respectively, in 2018 alone. It would be impossible for governments to provide the necessary funding and maintenance to keep pace with the ever-changing telecommunications industry.
The vast majority of GONs will not be paid off within the life expectancy of the networks, according to Christopher Yoo and Timothy Pfenninger. The authors also found that a hypothetical network would take between 81 and 318 years to break even, meaning that taxpayers will still be paying off networks long after they’ve stopped working.
Chattanooga’s own GON, which remains one of the most expensive ever constructed, is currently over $36 million in debt, with an estimated 412 years before it will be paid off. Many GONs have fallen so far into debt that they cannot recover, and are sold at cost, or even at a loss, to the private-sector competitors they aimed to undercut.
Government shouldn’t be competing against the public sector
Since broadband isn’t a traditional government monopoly like the U.S. Postal Service, it shouldn’t be competing against the private sector.
In truth, local governments cannot enter the broadband market without harming the industry as a whole. GONs can undercut competition by subsidizing their costs with taxpayer dollars, forcing private providers out of the market because they have to turn a profit.
Further, the decreased competition as a result of widespread GONs puts most of the burden of providing internet access on the government, which it cannot do as efficiently as the private sector can. As Tom Reynolds wrote, “A dollar, when spent by the government, ends up costing much more than a dollar. It would be more cost effective to subsidize private-sector internet providers instead of the government getting into the business themselves.”
Robust competition in the market leads to lower prices and better services. GONs are hostile to the free and open competition that exists in the broadband market today. America’s free market principles are crucial to the nation’s success as a global leader in technology.
There is also the fear that government-run programs will be more susceptible to corruption.
Bristol Virginia Utilities operated a GON which was lauded as a “good example of the potential of community broadband in rural America” in a 2009 FCC report. But a few years later, the utilities authority would be plagued with debts and scandal—including the misuse of public funds, bid-rigging and tax evasion. By 2016, nine former Bristol Virginia Utilities employees pleaded guilty to or were convicted of corruption and fraud schemes.
Sunset Digital Communications offered to buy the government network, which cost Bristol $132 million to build and operate, for $50 million. In February 2019, experts determined “the resulting net proceeds of the sale are a negative $2.9 million,” indicating the city may receive no money from the transaction.
On the surface, GONs may seem appealing, but they are not worth the massive amounts of debt and corruption they bring to U.S. cities. Communities should instead spend their residents’ hard-earned money on services that create new jobs and lasting benefits, like improved infrastructure.
Authors: Katie Ryerson and Bethany Patterson
Photo credit: Dave Crosby (Flickr, CC BY-SA 2.0)