Reason.com

Free Minds & Free Markets

City-Run Broadband Internet Is a Disaster in the Making

These projects aren’t fiscally responsible, but the FCC has given them a thumbs up.

Credit: joestump / photo on flickrCredit: joestump / photo on flickrGovernment Internet is coming to a city near you. The only question is if anything can be done to stop the politicians scheming to bring it.

Across the country, there's been an explosion in what are euphemistically called "municipal broadband" projects—government-funded and operated broadband services that are competing with community service providers that have been operating for years. All across the country, from Newark, Delaware, to Seattle, Washington, government officials are exploring the possibility of sinking hundreds of millions of taxpayer dollars into these projects.

This isn't a new fad: Government broadband networks have been pursued by officials since the late '90s, when smaller locales like Ashland, Oregon, and Marietta, Georgia, built out their own government-run networks. There are lots of reasons that they've proliferated in the last decade—politicians get glowing national press for their support, for example—but an important ruling by the Federal Communications Commission (FCC) this year has incentivized them to spread further.

In February, the FCC issued an unprecedented order, unilaterally overturning laws in 19 states that had prevented local governments from attempting to build out and compete with their own broadband networks. The given reason for this was to try to tear down barriers to competition and expand access to "advanced" broadband technology.

This was the latest in a string of FCC actions that enhanced the incentives for politicians to pursue these new projects. Just one month earlier, the FCC redefined what they meant by "advanced" broadband by more than tripling those benchmarks. And even by these new standards, 83 percent of Americans had access to advanced broadband, up from 80 percent one year earlier.

So, because a vanishingly small percentage of Americans did not have access to what the FCC determined to be sufficient internet speeds, the FCC found it necessary to unilaterally strike down state laws that were passed with overwhelming legislative support. In a statement of dissent from the FCC majority that passed this order, Republican commissioner Ajit Pai called it "unlawful" and that the FCC "usurps fundamental aspects of state sovereignty."

For now, it is the law of the land. And the sexiness of "infrastructure investment" and the ability for local bureaucrats to play like they can run a business just as well as the private sector means that the odds are pretty high that there's a taxpayer-funded local broadband network being considered near you.

Consider what's happening in Newark, Delaware, where local politicians are building a network that seems superfluous at best. The current market has 98.9% broadband penetration, and residents in Delaware enjoy the fastest average speeds of any state in the country. Broadband customers already have a choice of 16 providers. A taxpayer-funded 17th seems unlikely to increase either network penetration or speed, which are the stated goals of the FCC. In fact, the only possible justification that a project like this could have is, as their exploratory report stated, as a "revenue generator."

A committed federalist may look at some of these government broadband schemes and tell them to go for it—after all, local governments can be laboratories of democracy, and as long as they're only gambling with their own constituents' money, those constituents can vote—both with their ballots and with their feet.

Notwithstanding that making money by operating a business in a service industry has never really been a good justification for new expansions of government, it's unlikely that municipal projects like Newark's are going to function as revenue generators for local governments. The track record simply isn't there.

Take Provo, Utah, whose city-run broadband scheme was supposed to be a model for the entire country. Provo built out and launched a public-private fiber-optic broadband network that broke ground in 2001. By as soon as 2006, the network had thousands of subscribers. Yet it was steadily losing money anyway, to tune of almost $10 million per year. City officials panicked; the boondoggle was hemorrhaging money, and they were still on the hook for $39 million in loans the city took out to pay for its initial construction. After multiple rounds of proposed buyouts, Provo sold its entire fiber-optic broadband infrastructure to Google in 2013—for one dollar.

The end result was that a corporate behemoth benefited by acquiring a massive taxpayer-funded infrastructure for nothing. In the end, this cutting-edge project meant to turn Provo into a tech industry leader was just a big corporate welfare project for Google.

Marietta, Georgia, spent over $30 million on a government-run broadband network that was later sold to a private developer for only $11 million. Burlington, Vermont's network went $17 million into debt on improperly borrowed taxpayer money that contributed to a Moody's downgrade of the city's debt rating. MI-Connection, a joint government project undertaken in 2007 by multiple Charlotte, North Carolina, suburbs, racked up almost $90 million in debt in the first four years of its operation and has yet to get on sound financial footing—all while continuing to float by on taxpayer subsidies.  

These are just a few of the most egregious examples. But despite project after project proving that local bureaucrats can't effectively run these private networks and despite the millions and millions that keep getting flushed, the projects keep getting planned. They're in search of a holy grail that would be well-run and provide optimal service at low prices universally and at a profit to the government.

So far, that doesn't exist.

The go-to for government broadband advocates so far has proven to be the Chattanooga EPB fiber network in Tennessee. And give them this: Unlike other government networks that have struggled to even provide service equivalent to the private sector, the Chattanooga project has actually provided competitive service to a good portion of the potential market. Local government officials tout the project as a form of stimulus, bringing jobs to the area and transforming it into a tech hub.

"It's really altered how we think of ourselves as a city," Chattanooga Mayor Andy Berke said.

"We're a model for the nation and I'm proud of it," Chattanooga City Councilman Chris Anderson said.

Photo Credit: joestump / photo on flickr

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • Antilles||

    How is the FCC even remotely Constitutional? They're a government agency that lays down vague rules to private companies regarding the content of their broadcasts. And those who inadvertently violate those rules are punished severely with outrageous fines. That's the very definition of censorship. The fact they're worming their way into cable TV and the internet doesn't bode well for the future of free expression.

  • Free Society||

    It's "constitutional" because it formed in an era when fascism enjoyed a lot of popular support.

  • Flowingwords213||

    "A committed federalist may look at some of these government broadband schemes and tell them to go for it—after all, local governments can be laboratories of democracy, and as long as they're only gambling with their own constituents' money, those constituents can vote—both with their ballots and with their feet."

    Could've stopped the entire article there. The people voted for it and want it. If the "free market" wasn't so rigged in favor the cable cartel, maybe local politicians wouldn't be looking at municipal broadband at all. Moreover, how is stopping cities from building broadband networks of their own (at the behest of cable companies who write the bills) even remotely democratic?

  • mfckr||

    The problem is that it'll end up turning internet access into a public utility, thus rendering it subject to all manners of regulatory largesse, rate hikes, and infrastructural stagnation worse than what we have now.

    It'll also become much easier to restrict what people can access, as well as be more invasive in curtailing privacy, etc.

  • Robert||

    How (any of what you wrote)? How is a law forbidding states from allowing local entities, including gov't-run ones, from entering the broadband biz, going to lead to a lack of competition?

  • mfckr||

    State-owned internet providers would be able to operate at a perpetual net loss (i.e., subsidized by taxpayer $).

    In such an environment, a private provider would be far less willing to invest the substantial costs necessary in fielding its own network infrastructure, etc.

  • Muzzled Woodchipper||

    So you argue that the "successful" one, with a 33% subscription rate that was built with someone else's money is proof that they "want it?"

    And why blame the cable cartels on anyone BUT THE GOVERNMENTS THAT SET THEM UP AND ENSURE BOTH THEIR EXISTENCE AND CONTINUING VIABILITY?

    The cable cartels, like taxi cartels, didn't just spring up. These monopolies exist BECAUSE of government.

  • Flowingwords213||

    My point exactly. People are getting tired of the bull**** at the federal level (and at state for banning municipal broadband) who are in bed with the cable companies. Obviously nothing was being done about it. So why not build out your own? That's about the most American thing I've heard in a while (ie. telling big govt to shove it and you go your own way.)

  • Jordan||

    That's about the most American thing I've heard in a while (ie. telling big govt to shove it and you go your own way.)

    Spending hundreds of millions of big government's money is telling them to shove it?

  • Sir Chips Alot||

    How about the people simply vote in politicians who remove all the reasons we have cable monopolies in the first place? Wow, no new spending? cant have that can we?

  • Free Society||

    My point exactly. People are getting tired of the bull**** at the federal level (and at state for banning municipal broadband) who are in bed with the cable companies. Obviously nothing was being done about it. So why not build out your own? That's about the most American thing I've heard in a while (ie. telling big govt to shove it and you go your own way.)

    People are tired of federal bullshit, they want bullshit that's closer to home. Yep there's nothing more American than taxing your neighbors to provide you with goods and services.

  • Fairbanks||

    You got half of it right. Telling big government to shove it IS very American. And anything that removes unreasonable restrictions that states place on cities is OK by me (but I'm not keen on the FCC's lawfulness in doing so). But you forgot the other half: politicians thinking that that a legitimate function of government is to run businesses and that they actually know how to invest in and run businesses, and getting proven most of the time that they're wrong, is also very American.

  • Fairbanks||

    You got half of it right. Telling big government to shove it IS very American. And anything that removes unreasonable restrictions that states place on cities is OK by me (but I'm not keen on the FCC's lawfulness in doing so). But you forgot the other half: politicians thinking that that a legitimate function of government is to run businesses and that they actually know how to invest in and run businesses, and getting proven most of the time that they're wrong, is also very American.

  • Red Rocks Rockin||

    Do you have any idea how expensive it is to install and run high-speed internet? If just the municipal subscribers were paying for it, that would be one thing, but the problem is that the costs are going to inevitably be "socialized" among the other residents who don't have a subscription in an attempt to mitigate installation and operating costs. How the fuck is that a free market?

  • macsnafu||

    Exactly. People who are already paying for a private service will get to "voluntarily" pay taxes towards the government-run competition, who aren't constrained by business needs or market restrictions.

  • Jerryskids||

    The given reason for this was to try to tear down barriers to competition and expand access to "advanced" broadband technology.

    If the feds really wanted to tear down barriers to competition they could have issued an order that the locals granting monopoly franchises to cable companies was an unconstitutional restraint of trade. But that's not how government works and there's no incentive for governments to ever do less to meddle in the market. I just don't see why the arguments for monopoly franchises don't extend to supermarkets and gas stations and clothing stores and everything else - wouldn't it be more efficient to only allow Walmart into town and ban any competition? If you can see that the competition for your grocery dollar is what keeps grocery prices as low as possible, why can you not see that that would apply to everything else?

  • Free Society||

    If the "free market" wasn't so rigged in favor the cable cartel, maybe local politicians wouldn't be looking at municipal broadband at all.

    So the scare quotes indicate that you know it's not a real free market, which necessarily implies that political interference is present. Yet you say this political transgression against free markets gives license to politicians interfere even more.

    Moreover, how is stopping cities from building broadband networks of their own (at the behest of cable companies who write the bills) even remotely democratic?

    What does democracy have to do with it?

  • Sevo||

    "...If the "free market" wasn't so rigged in favor the cable cartel..."

    Gee, it's only Monday, and we already have a leading candidate for "Fucking Imbecile of the Week"!

  • Robert||

    Am I reading this article correctly? Seems the FCC overrode state laws that interfered w choices to lay & operate communication services. it happens that in 20 states, some of those laws prevented municipalities from offering such services. So as a side effect of allowing competition, the FCC rule allowed municipalities to go into business they'd've otherwise been barred from, and of course municipalities are likely to lose $ from taxpayers in doing so. That's why the article is condemning FCC's ruling?

    What if obscenity laws were struck down by the US Sup. Ct., and municipalities went into the obscene porn biz? Would that be a reason to condemn the court ruling?

  • macsnafu||

    Government-run porn businesses just sort of boggles the mind. But I doubt that they would be any better than other government-run businesses.

    Whatever happened to the idea that governments are supposed to be limited to protecting rights?

  • Migrant Log Chipper||

    You obviously have little knowledge of government getting into businesses. Two prime examples being the USPS and Amtrak, a couple of government union cronyfests that provide shitty services with high prices and lose billions of taxpayer dollars annually. The only winners are gov union employees.

  • muskegonlibertarian||

    I might note that the cable company pays a "franchise fee" (it is a separate item on my bill) to my city's government. Does the city government "do" anything to earn this fee? No, it is simply an agreement between the cable company and my city's government. The company collects the money and hands it over to the city government with the agreement that the city government will prohibit anyone else from competing with the cable company. By any honest definition this is a good example of the sort of political corruption that is endemic here in the USA.

  • muskegonlibertarian||

    I might note that the cable company pays a "franchise fee" (it is a separate item on my bill) to my city's government. Does the city government "do" anything to earn this fee? No, it is simply an agreement between the cable company and my city's government. The company collects the money and hands it over to the city government with the agreement that the city government will prohibit anyone else from competing with the cable company. By any honest definition this is a good example of the sort of political corruption that is endemic here in the USA.

  • Rockabilly||

    Peoples have the right to internets built by Al Gore !!!

  • DaveH||

    The other half of the story is that the uncertainty created by the potential of a municipal broadband network destroys the incentive of real businesses to serve the city. The People's Republic of Palo Alto (where I live) has been disincentivizing commercial broadband for years; just when the project starts getting priority with the commercial operators, city council revives the idea again.

  • bassjoe||

    This is a classic "two wrongs don't make a right" situation.

    The FCC shouldn't have overturned state laws.

    But these laws shouldn't have existed to begin with. If a locality is feeling shortchanged by commercial internet services, it should be allowed to experiment in running its own network. If the local taxpayers want to pay for it, that should be their prerogative.

  • Win Bear||

    I think city-run broadband is a lousy idea. Nevertheless, I also think it's a lousy idea for states to be able to tell cities what they can and cannot do with respect to broadband.

  • Fairbanks||

    Agreed. There are two issues here: what should be legal and what makes sense as an investment by municipalities.

  • MokFarin||

    I think that city-run backbones can be a good idea, if done for the right reasons and in the right way. If the municipality created a utlity-style backbone, these backbones could then be used by Comcast/Century Link/Jimbo's Telecom Shack to provide internet access services over.

    I say this because there are a LOT of towns (and sometimes parts of towns) that are simply uninteresting to companies like Comcast because it won't make money. In these places, having a municipal broadband backbone is likely something that the townsfolk wouldn't mind paying for.

    But this is a municipality-by-municipality decision and it should be a decision that each municipality can decide on their own. I would like it if no other cities went the way of Chicago or Detroit, but I shouldn't be telling them - states away - what they should and should not be doing.

  • muskegonlibertarian||

    I can vote out the politicians in office, and replace them with others who "might" be a bit more willing to serve the people, not the corporations. Only the stockholders have any "say" over what a cable company does. And they are happy to collect their dividends regardless of "where" the money came from in the first place.

    Here locally there are only two providers of Internet services (besides the cell phone companies). One is Comcast, the other is Verizon. Unfortunately Verizon doesn't provide Internet service unless you also sign up for landline phone service which makes it more expensive than it needs to be.

    No doubt without these "franchise" agreements with local city governments, other providers likely would be willing to step up and provide services. But with these franchise agreements, where the service provider "pays" the local government for the "privilege" of providing service, we can see the relationship between business and government and how the result is "political corruption" with the people getting the "short end of the stick"...

  • Scarecrow & WoodChipper Repair||

    Calling Provo's sale to Google "corporate welfare" is almost certainly wrong. I worked at a company which specialized in buying up other companies' product lines cheap, then making money off them. Whether the sellers wanted to get rid of a white elephant, changed their business model, or were in bankruptcy was of no concern -- could we streamline the operation enough to make money at it? One line had such horrendous obligations for the next ten years that we were paid millions to take it over -- a negative purchase price.

    The fact that Provo's operation sold for $1 means it had huge future obligations and that no one else wanted to touch it. I doubt very much Google is making much money off it; it is probably a lab experiment to them. If it had been such a corporate welfare boondoggle, some other companies would have bid the price up.

  • VicRattlehead||

    NOTHING LEFT TO CUT!!!!!!11111!!!!!OMGZZZZZ

  • Response||

    Not really worried about in Los Angeles. The city gov has already regulated the prevention of any infrastructure for them to take over and it would be too much of an undertaking for them to do it themselves in any sort of timely manner.

  • ||

    Don't worry about Los Angeles. We're talking about an entity so inept that they cannot event do graft right.

  • ||

    " the feds can't redistribute hundreds of millions to every city in the country"

    Wanna bet ?

    Here, hold my slightly chilled chardonay.

    Now watch this.

  • C. S. P. Schofield||

    Would that the FCC could be persuaded to put the kibosh on local cable monopolies. But the FCC doubtless finds the proliferation of services it has to oversee ann annoying distraction from their much more important goal of getting big raises and nice new offices out of congress.

    Local public utilities usually run at a loss (sometime hidden, sometimes not) and often skimp maintenance or don't pay their bills. Local governments wanting to be into the Broadband business the voters should check on how they are doing with keeping the streets paved, maintaining the schools, and so forth. If they are up on those, then maybe the Broadband idea won't be a total fiasco.

  • TerminusEst||

    Best way to expand internet access is to get out of the way of the people and companies that want to do it. Elon Musk (of SpaceX) has a plan to develop and test a network of thousands of satellites that will provide internet access to the entire world.

    Right now, the biggest barriers to his goal aren't the cost or the technology-- it's government.

    http://www.washingtonpost.com/.....story.html

    If anyone can do it, it's Musk.

  • Migrant Log Chipper||

    And Musk will do it with billions of federal tax dollars, just like every other business he runs. The only actual "profit" he has made is federal tax dollars, last time I looked between 5 and 6 billion dollars.

  • Suicidy||

    Even with multiple streams of federal largesse, Tesla still runs deep into the red. I would like Tesla, and Musk, a lot better if Tesla could function on it's own.

  • Uncle Joe||

    "Government at all levels, from the FCC to your local city hall, is conspiring to bring you the service of Comcast with the experience of the DMV."

    Seems like Comcast is doing a fine job of that on their own.

    Seriously, if a city wants to foster competition, while ensuring that ISPs don't cherry pick the neighborhoods that will generate he most revenue, they just have to stop using right of way concessions as a monopoly maker & let anyone who wants to build out their city do so, as long as they build out everywhere. Access to cheap, fast Internet is something that builds the local economy, so it's possible the loss of overpriced right of way concessions will be offset by increased revenue elsewhere.

    It's still not a completely free market, but government is doing something a government should do: insure equal access to the Internet at the most competitive rates.

  • Red Rocks Rockin||

    It's still not a completely free market, but government is doing something a government should do: insure equal access to the Internet at the most competitive rates.

    Only if they charge their actual customers for the cost of installation and service instead of everyone in the municipality with an increase in property or sales taxes. If they can't do that, then the argument that they're insuring equal access (at the expense of people who aren't using it) is disingenuous at best.

  • muskegonlibertarian||

    The monopolistic cable TV industry no doubt paid to have this article written. Cable companies are the major suppliers of Internet service today, and since franchise agreements do not allow for any competition, we can be sure that the consumer of these services is paying "monopoly prices" for their service.

    As proof of this please note that other developed countries provide these services for a lower price than what Americans are forced to pay. Plus, in many of these countries the speed is higher than it now averages here in the US. Government can do some things better, especially when the "competitor" is a legal franchised monopoly that doesn't have to compete with anyone else.

    I can vote politicians out of office. But monopolies like cable providers are a different matter.

  • macsnafu||

    Sure, monopolies are bad. And while you're voting politicians out of office, be sure to vote out the ones who imposed the franchise fees in the first place. The cable companies couldn't have any monopolies without the support of those politicians.
    But the electoral process is extremely restrictive, too. I seriously doubt that you, by yourself, can vote out the politicians who support monopolies. It takes you and a whole lot of your friends, but it's wasted unless you have a decent alternative to vote for.

  • Akira||

    "Government can do some things better, especially when the "competitor" is a legal franchised monopoly that doesn't have to compete with anyone else."

    I can vote politicians out of office. But monopolies like cable providers are a different matter.

    You said that the government is the one enforcing the monopoly on cable/Internet, thus forcing customers to accept crappy service and high prices... But in the very next sentence, you've implied that "monopolies" are invincible leviathans that can't be dealt with by voting. Which is it?

    Monopolies are bad, no doubt. But 99 times out of 100, they're a SYMPTOM of protectionist government policies. The symptoms will keep coming back until you cure the underlying disease.

  • Red Rocks Rockin||

    Yeah, it's telling that this idiot is arguing that a monopoly instituted by government can only be solved by making the government more powerful. Shitlib self-awareness never did run very high.

  • Red Rocks Rockin||

    The monopolistic cable TV industry no doubt paid to have this article written.

    ShitlibMillenials.txt

  • AD-RtR/OS!||

    The primary thing government's succeed at is failure.

  • AD-RtR/OS!||

    Wasting the taxpayer's money to build something that businesses are installing to entice customers, while complaining there are no "charging stations" for electric cars - charging stations that no one is falling over trying to build - and wondering why consumers won't use these cars to leave the city limits.

  • gphx||

    If you don't want private internet you don't sign up for it. If you don't want government internet they'll probably take the money from you anyway and, if you don't pay it, take your home.

  • J. S. Greenfield||

    I worked in the private broadband industry for a long time, and I'm highly skeptical that municipal efforts to compete will produce good results.

    But seriously, the state laws prohibiting such are classic economic protectionism. They are policies designed to protect entrenched interests. They are most certainly not in place to protect taxpayers from poorly-executed governmental efforts (even if they, incidentally, end up serving that purpose).

    Even with the FCC action having plenty of issues of its own, it strikes me as quite odd for Reason to put itself in the position of defending such protectionism.

    Seriously, if you're going to take the time to criticize, which do you think is the bigger threat to efficient markets and freedom? Government imposing arbitrary protectionist laws to limit competition? Or government eviscerating such protectionist laws -- and allowing the possibility that some municipalities make foolish decisions and create inefficient services?

  • caseylain||

    Forgive me if I am being too simplistic but...

    I believe as we live in a information age...

    Our information highways should be public use just like our actual highways.

    Before you go on ranting about how our infrastructure is crumbling.

    The USA is ranked 30th in broadband speeds. We also pay 10 dollars more per month for that slower service.

  • lalina||

    Love reason :)

    New Status

  • James234||

    This is an amazing piece of article on broadband internet.
    Loved it.
    AndroidAppsOnline

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online