On March 21st, the Maine Legislature announced the approval of $15 million in broadband Internet funding for rural and underserved areas. The intention is to expand broadband infrastructure, which will ultimately lead to economic development, and provide benefits like telemedicine to underserved communities.
But the proposal is only a mere tactic that uses the current pandemic to preempt state laws in order to provide funding to government-owned networks (GONs). In reality, they will only crowd out private options, leaving consumers with less choice.
The idea that GONs would provide the same quality of network technology as private-owned networks is based on the premise that GONs would offer lower costs as a result of economies of scale. But this premise is flawed. Research investigating the financial performance of GONs show that they don’t come cheap, nor do they free consumers from problematic consequences.
Government-owned network proponents are pushing Congress to preempt laws to allow states to build and manage their own systems, and eliminate private networks. By using misleading and dishonest tactics, GONs restrict American consumers from getting more affordable broadband.
More specifically, GONs produce a series of problems that make them anti-competitive and anti-consumer.
Extensive research shows that several municipality-owned electric utilities were failures from the very beginning as they crowded out private investment and hid prices in other services such as electricity, water, and so on. Yet, these networks continue to be funded while they fail, a trend that continues to be commonplace across the country.
Another common misconception is that GONs improve outcomes for consumers. But a plethora of studies have shown that these systems don’t offer better prices. In reality, they have negative cash flows and push financial losses to consumers and taxpayers, resulting in ineffective and costly operations.
GONs proponents claim that government subsidized broadband creates job opportunities that are more accessible to the Americans that live in underserved areas, and that GONs are the only providers willing to offer low-cost and affordable or even free Internet to consumers. But, the reality is the exact opposite. It is the private networks that provide sizable increases in employment, economic output and consumer welfare benefits.
Private Internet service providers have spent over $1.5 trillion to build and consistently update their systems while also offering affordable Internet service for low-income customers. Comcast service, for example, is available to low-income households for less than $10 a month. Due to COVID-19, Comcast announced that low-income families who are new customers can sign up for 60 days of free internet.
In comparison, government provided services would fail to bring broadband to rural and underserved areas, except at a very high price for taxpayers. The primary reason is that GONs lack the incentives to maximize revenues and meet consumer requirements, and they provide their services at higher costs. Cities like Quincy and Orlando in Florida, Gorton City in Connecticut, Provo in Utah, and many more with government-owned networks fund the resulting revenue shortfalls by raising taxes or by increasing other municipal services such as electricity and water.
Extensive evidence suggests that GONs lead to higher consumer costs and taxpayer burden as they push their financial losses on to consumers and taxpayers to avoid going out of business. Policymakers should look for other options that will result in better and more options for consumers when it comes to advancing access to broadband in cities and counties across the U.S. Streamlining the permitting process for new broadband projects and encouraging private investments are a few promising avenues.
Government-owned networks are exactly what policymakers should avoid if they want to improve consumer welfare and expand access to broadband at affordable prices.
Krisztina Pusok is the Director of Policy and Research and Ana Diaz is a Policy Intern at the American Consumer Institute.