Broadband

Report Shows Municipally Owned Fiber Networks are a Losing Proposition for Taxpayers

According to a recent report from the University of Pennsylvania’s Center for Technology, Innovation and Competition, municipally owned broadband networks simply are not wise investments for localities. The report analyzed the available financial data for twenty municipally owned fiber networks and sought to determine whether the government owned networks were likely to remain solvent or whether the network would lead the locality to default on its bond.

A municipally owned broadband network occurs when a local government or a sub-entity of the government, decided to build a service to deliver internet services to its residents. The reasons municipalities put forward in support of building such networks vary. Most, though, relate either to increasing competition or decreasing price.

The Report noted that private broadband providers serviced all twenty of the municipalities surveyed. The municipalities tended to use existing utility right-of-ways and infrastructure, such as electric poles, to build out the networks, which provides municipalities a competitive edge over private companies. When constructing government owned networks, municipalities can speed up the process by waiving permitting requirements, for example, cutting through layers of bureaucratic red tape, which they created.

In the mid-2000’s municipally owned broadband networks seemed like a hot commodity. While municipalities launched networks to compete with the private sector, state governments started crafting policies designed to limit municipalities’ ability to launch networks. On the one hand, local governments argued they needed to benefit citizens by competing with the private sector, while on the other hand, states wanted to protect taxpayers from misuse of funds.

The Report, authored by University of Pennsylvania Law School Professor Christopher Yoo and Timothy Pfenninger, highlights the many fiscal problems plaguing municipally owned broadband networks. Only two of the twenty networks studied had the potential to repay bonds and turn a profit in the near future. The municipal broadband project in Vernon, California may turn positive in about 2 years, while the Bristol, Tennessee project may turn positive in thirty-four years. Of the remaining eighteen projects, eleven will never turn positive and 5 will turn positive in over a century, or centuries.  In other words, of the twenty projects, sixteen will likely never repay the bond(s) used to pay for the networks.

Best Performing Municipal Broadband Networks

Municipality Age of Network (years old) Years to Turn Positive
Vernon, CA 5 2
Bristol, TN 5 34
Fayetteville, TN 10 61
Windom, MN 6 65
Tullahoma, TN 3 108

 

Sample, Cost Per Household and Operating Cost as a percentage of Revenue

Municipality Adjusted Cost Per Household Operating Expense per Operating  Revenue
Monticello, MN $5,549 160%
Lafayette, LA $2,215 92%
Burlington, VT $2,139 94%
Kutztown, PA $3,412 115%
Clarksville, TN $765 108%

The Report highlights one commonly missing component from most municipal broadband networks: transparency. The Report focused on twenty networks, because the authors could only locate economic data about those networks. The remaining sixty-eight networks remain shrouded in mystery. It is difficult, if not impossible, independently to judge whether those sixty-eight networks are operating efficiently, or even whether they are following various laws.

Municipally owned broadband networks may not be a wise idea, especially where private companies already offer services. This is not to say, though, a municipality should never construct a broadband network. Instead, it should weigh a number of options first, including incentivizing private investment by reducing or streamlining the local permitting process. Based on the data presented in the University of Pennsylvania Report, government owned networks should be an ultimate last resort.


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