Hundreds of cities are planning to provide Internet access to their citizens. But a new study from Jerry Ellig, a former Federal Trade Commission official, suggests such projects probably will turn out to be boondoggles.
The study, published by the Reason Foundation, the nonprofit that owns this magazine, shows that 93 percent of U.S. ZIP codes already have two or more competitors in the high-speed Internet market. Those private broadband providers don't seem to be bleeding poor citizens dry: The Bureau of Labor Statistics' consumer price index for Internet services has fallen by 23 percent since 1997, and access continues to increase via private markets.
Thanks to constantly evolving technologies, government money sunk into particular methods of Internet access has a high risk of going to waste. In the mid-1990s, consumer interest groups called for the government to mandate provision of what then looked to be the most promising high-speed Internet technology: ISDN via telephone. By 1998, notes Ellig, "ISDN was the most expensive and second-slowest form of Internet access."
Even the apparent gift of free or highly discounted corporate-supplied WiFi, an idea in play in Philadelphia, Houston, and San Francisco, can cause unanticipated and unwelcome market distortions, Ellig finds, because such deals often involve monopoly grants of rights of way.