Over the past few years, the issue of broadband connectivity has become increasingly prominent in American political discourse. Much of this trend has been driven by a recognition that broadband is a necessity to survive in the twenty-first century and the post-Covid world. Despite the growing dependence on broadband connectivity 19 million still do not have access to a broadband connection.
In order to correct this, Congress has appropriated $43 billion to “to improve internet services for rural areas, low-income families and tribal communities.” Most of this money will be delivered in grants to states who have expressed interest in creating municipal networks. While Congress invests billions of dollars into improving broadband connectivity, states like California have also begun massive investments in connectivity and a desire to increase the number of municipal networks.
While these sizable investments in municipal networks might seem a simple fix, they will do little to improve connectivity and may leave taxpayers on the hook for expensive networks that deliver subpar service and crowd out private investments.
Alongside federal investments in connectivity, the State of California has also made substantial investments in connecting residents of the state. In 2021, California’s legislature passed Senate Bill 156 which would provide $3.25 billion “to create an open-access middle-mile network to bring equitable high-speed broadband service to all Californians.” SB 156 also created a funding account to provide $2 billion for last-mile connectivity funding and provided a $750 million loan reserve fund that supports municipalities who seek funding “building last-mile projects, with an emphasis on public broadband networks.”
While, in theory, these massive investments will improve connectivity, real-world experience suggests a government led and financed approach will do little to connect the remaining 5.5% of Californians who lack an adequate broadband connection.
The history of municipal broadband networks shows they are simply not viable alternatives to private providers, with many collapsing after just a few years of operation. Provo, Utah’s fourth largest city, operated a municipal network that was ultimately sold to Google for just $1. iProvo cost the city $39 million and never turned a profit.
Quincy, Florida had a similar experience, spending $3.3 million to develop a municipal network for the town’s residents. Despite the significant financial investment, the city never saw a positive return and the network collapsed.
In both instances, municipal broadband networks were never able to sustain consumer access to the internet, despite grandiose promises and significant financial investments. One reason these networks cannot sustain service is the fact they “lack the incentives to maximize returns on investment while minimizing costs,” creating inefficiencies that make operating these networks expensive.
The long-term costs of these networks are often shouldered by taxpayers who are left financing them long after they are defunct. As noted by the American Consumer Institute, “to make up for shortfalls cities have needed to raise taxes and bonds, or increase the prices for other municipal services, like electricity, sewer, and water.” Put simply, government-run provision of broadband often costs residents considerably more in the short and long term.
Municipal networks also crowd out private investment. When a municipality creates its own broadband network, and can operate with taxpayer subsidies, “they can lose money and still survive by pushing financial losses to other municipal services and taxpayers.” Private companies, however, cannot depend on this revenue stream and are forced to leave the market. This leaves consumers with fewer choices while also establishing a taxpayer subsidized monopoly.
As California and the federal government press ahead with significant taxpayer investments in broadband connectivity, both should be keenly aware of the negative impacts such investments have for consumers. Not only are government operated networks inefficient and expensive, they also crowd out private investments and create local monopolies funded by the taxpayer.
If Congress and states truly want to close the digital divide, they need to pursue policies that incentivize private expansion, not drive it away.
Edward Longe is a Policy Manager at the American Consumer Institute, a nonprofit educational and research organization. For more information about the Institute, visit www.TheAmericanConsumer.org or follow us on Twitter @ConsumerPal.