Five rationales for municipal broadband deconstructed, discredited-Part I

New York Law School authors Davidson and Santorelli in their March 2013 research, Evaluating the Rationales for Government-Owned Broadband Networks, looked at five common rationales offered by municipal broadband advocates for government ownership and entry broadband service delivery.

The first and leading rationale they discuss is “the availability rationale,” where, but for municipal action, a particular region would be passed by, left behind in the new fast-paced digital world. Saying this rationale has ‘intuitive appeal’ the authors cite examples of all the communities across the country, which have tried and failed to provide broadband service.

They explain the failures:

  • broadband is extremely expensive to build;
  • the technology is complex;
  • broadband requires ongoing investment and upgrade; and
  • it requires highly skilled (and expensive) people and systems in order to maintain.

I would add two additional points to this list. First, broadband technology is still changing rapidly, even after nearly two decades of industry deconstruction (anyone still remember bricks that used to be the early cell phone, or the Archie search engine that preceded the world wide web and Google). And second, broadband technology requires a business model and an administrative infrastructure with a level of flexibility and agility not possible in politically governed entities in order to respond quickly to the changing technology opportunities, consumer needs and operational demands.

As the authors describe, the challenges are even more difficult in rural areas where so much space houses so few people. A 2010 FCC paper shows average census block population density in the U.S. to be about 154 people per square mile. In those census blocks that are still without broadband, densities are closer to 14 people square mile. The authors accentuate the point:

And even in unserved cities and towns where network construction can be “fully subsidized by public funds” [read taxes, bonded debt, municipal electric rates, federal or state grants], some areas are so remote or sparsely populated that recurring network maintenance costs will continue to exceed revenues and thus make it impossible for the service to “operate profitably.”

I would add as a sidebar…they can’t operate in the black, much less absorb and amortize the capital investments required.

In rural Washington state, for example, Chelan Public Utility District has written off hundreds of millions of electric ratepayer dollars spent in the early aughts to build the beginnings of their intended county-wide fiber system. The PUD not only continues to require operating subsidies from its rural electric ratepayers to run the fiber system, but it has yet to reach the remote, unserved portions of the counties…those same communities whose service the PUD used to justify its original entry…with broadband service. Instead, Chelan PUD and other PUD like it throughout the state have overbuilt and are attempting to compete with the broadband services already provided (and continually upgraded over the last 10 years) in their various town centers by private firms like Comcast,  Charter, Wave, CenturyLink,  ATT and Verizon Wireless and various other wireless and wireline providers.

The FCC, together with private wireline companies, has worked since 1997 to support a system, the Universal Service Fund (USF), that takes money from urban-area telecom receipts and uses it to support companies serving rural areas in order to help them bridge the economic gap associated with serving sparsely populated rural areas. With technology changes (even since 1997 when the USF was first enacted) the USF has become outdated and the FCC is working to reform and replace it  (possibly with the Connect America Fund) with a plan more suitable to a 21st Century broadband internet environment. 

The challenge is complex, enduring, controversial, and relevant in remote areas throughout the country. Many and varied local areas responses must surely fail where a broad-based national solution is required. The authors conclude that:

…the notion that a local government possesses the expertise and keen economic insights to split the proverbial Gordian knot of universal service is dubious at best. Indeed, significant evidence to the contrary exists — municipalities are poorly equipped to participate [in these dynamic and volatile markets].

Tomorrow, I’ll review the authors’ evaluation of the “competition rationale” for government broadband. 

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This entry was posted in Duplicate Facilities, Federal Action and Grants, government competition, government-owned networks, Municipal broadband, Municipal finance, Overbuilding, Rural broadband and tagged , , , , , . Bookmark the permalink.

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