There is good reason why local government officials in cities, towns, and counties across North Carolina and in nearly half of the states in the U.S. are not allowed to create or expand a government-owned broadband networks, as Mayor Scott calls for. In fact, Mayor Scott doesn’t have to look far to find examples of how efforts to get municipal government into the broadband business often end in taxpayer tears.
The most recent cautionary tale is KentuckyWired, the statewide government-owned broadband network that is currently being constructed in the Bluegrass State. KentuckyWired was sold to taxpayers as a $350 million project that would be complete by the spring of 2016. Now, years past the original date of completion, only half of the network has been installed, none of it is usable, and a recent report from the state auditor concluded that taxpayers will lose around $1.5 billion on this redundant network over its 30-year life.
Chattanooga, Tennessee’s Electric Power Board (EBP) began its fiber-to-the-home service in 2008. Even with a $50 million loan from the EBP’s electric power division to finance initial planning, $162 million in local revenue bonds to finance the construction, and a one-time $111.5 million subsidy from the federal government, it would still take more than 680 years — well beyond its useful life — for this government-owned network to break even.
There are a number of other examples around the U.S. of government-run broadband networks ending up as taxpayer-backed boondoggles.
Fair competition cannot exist when government is a market player
An inherent problem with municipal broadband is that government entities are incapable of fairly competing in the market, as they are taxpayer-backed and therefore able to charge less for a service than it actually costs. Private businesses cannot do this, as doing so would result in bankruptcy.
A 2012 study by Widener University’s Joseph Fuhr Jr. found that “many cities and municipalities have entered into the broadband market with disastrous results,” and concluded that government-run networks “have neither the resources nor the expertise necessary to provide consumers with reliable state-of-the-art broadband connections.”
This is why North Carolina and Tennessee lawmakers enacted legislation in recent years to prohibit local governments from setting up or expanding municipal broadband networks. Twenty-one states have such laws on the books prohibiting the expansion of municipal broadband.
The Democrat-controlled U.S. House of Representatives passed a bill in April to repeal these state restrictions on local government-run broadband. That bill awaits consideration in the Senate, but is not expected to pass so long as Republicans maintain control of that chamber. Whether or not that’s the case will be determined by the January runoff elections in Georgia.
There are lawmakers in the North Carolina General Assembly who recognize that it is the private sector, not state or local government, that has both the resources and the technological know-how to expand internet access to locations that lack it. North Carolina legislators have wisely exempted telecommunications and cable network equipment from state and local sales taxes, a move that others states are seeking to emulate.
“New technology pushed by those daring enough to innovate, like SpaceX and its Starlink satellite-based Internet service, bring more broadband opportunity to rural areas in our state,” wrote North Carolina Rep. Jason Saine in a recent op-ed. Recognizing that municipal-run broadband is not the answer, state lawmakers are looking to expand connectivity by promoting private sector investment and getting government out of the way. These actions include the removal and streamlining of regulations that drive up the cost deployment, cutting pole attachment fees and making them less complicated, and lowering franchise fees.
The outcome of the Georgia runoffs could have major ramifications for the way state and local officials look to expand internet access in the coming years. Democrats have maintained control of the House, albeit with a smaller majority, and will soon control the White House. If Democrats are victorious in both Georgia runoffs they will control the U.S. Senate with Vice President Kamala Harris casting the tie-breaking vote. If that happens Democrats will be able to enact the House-passed bill to preempt state restrictions on municipal broadband that are there to protect taxpayers, just as they’ll be able to overturn state Right to Work laws designed to give workers a say on whether or not to join a union. Elections have consequences and the policy implications for these two Senate runoffs in Georgia are enormous.
(Patrick Gleason, a Haywood County resident, is vice president of state affairs at Americans for Tax Reform.)