On its May 2nd editorial page, the Concord Monitor opined that “Concord should embrace municipal fiber optic network”. The question residents need to ask themselves is: Why? Concord currently has several broadband providers that serve its residents. Why would taxpayers foot the bill to duplicate existing networks?
The Monitor offers a quote from a former Obama Administration official, Susan Crawford, who claims that, “…a limited number of Americans have access to it (high-speed internet access), many can’t afford it, and the country has handed control of it over to Comcast and a few other companies.” Huh? According to a recent study by the New York Law School, 96% of housing units in the United States have access to wireline broadband and 99% of Americans have access to at least one wireless broadband provider. Since 1996 Internet Service Providers have invested over $1 trillion in network infrastructure, which has led to 85% of US households having access to network speeds of 100 Mbps and 82% of the US population able to choose from at least four wireless broadband providers.
Here in New England we can see firsthand the disasters that can befall municipalities that leap into broadband markets. In 2005, the city of Burlington, VT began offering municipal broadband to residents and businesses, an effort that was projected to at least break even on its investment. However, by 2009 Burlington Telecom was deep in debt and had failed to pay back a $17 million dollar loan from the city, violating state law. A settlement was reached with the private bondholders, but who is going to make taxpayers whole for the $17 million loan paid to Burlington Telecom? Burlington’s bond rating is now a step away from junk status and costing taxpayers more every time the city borrows money. A similar scenario unfolded in Groton, CT where the city borrowed heavily, underperformed and left taxpayers on the hook for $28 million.
The Monitor cites Chattanooga, TN as a success story, pointing out that “the price of gigabit service fell from $300 per month to $70 per month”. What they don’t tell you is that Chattanooga received $110 million from the American Recovery and Reinvestment Act to subsidize the overbuild and that the project is over $200 million in debt. While the price of gigabit service in Chattanooga did fall to $70 per month—it fell from the Electric Power Board (EPB) of Chattanooga’s own original price of $350, then to $300 and now to $70 as a result of public pressure and low subscription numbers—a whopping 34 residents and businesses through 2012. The implication that EPB swept in and lowered the rates of a private provider is disingenuous at best. In a city with over 170,000 people, 3,600 residents subscribe to EPB’s “Gig” service, leaving the service struggling to repay its debt.
Beyond the taxpayer implications though, ratepayers should be concerned when the government steps in to help. Municipal interference in the market drives out private sector providers, discourages additional investment in existing networks and ultimately leaves ratepayers with inferior service, even though it may be at a lower price. Paying less is great, but so is paying the same amount and getting a lot more bandwidth. That is what happens with technology adoption, which municipal network advocates don’t discuss. Just look at the cellphone in your hand that costs the same amount as a Motorola flip phone did 10 years ago and provides far more service than the flip phone ever could.
As for municipal fiber-optic networks “typically” charging lower rates than private competitors—it is important to compare similar products. Comparing a package consisting of 3Mbps internet service, 15 cable channels and limited telephone service with a standard triple-play package from Comcast is hardly apples-to-apples. In January 2014, Dr. George Ford, an economist with the non-partisan Phoenix Center, reviewed comparable “triple play” (cable TV, internet, telephone) products from municipal and private-sector providers and concluded:
“The evidence is clear…it appears that the prices of municipal providers are higher than that of their private-sector rivals for similar triple-play bundles. This evidence supports the notion that triple-play prices offered by commercial broadband service providers are consistent with competitive outcomes.”
Why would a city that is having difficulty raising capital to renovate Main Street want to take on more debt to overbuild a fiber-optic network when it already has one? It shouldn’t do it because the New York Times editorial page and Susan Crawford says that it’s a good idea. Municipal fiber in Concord is a solution looking for a problem—one that would likely come back to haunt policy makers, but more importantly ratepayers and taxpayers. Just ask the city of Provo, who recently sold its $39 million network to Google for $1—a bargain for the internet giant but certainly not taxpayers.
Marc Brown is the Executive Director of the New England Ratepayers Association, a nonprofit dedicated to protecting ratepayers.
(A version of this column originally appeared in the Concord Monitor.)