Five rationales for municipal broadband deconstructed, discredited-Part III

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. In this post we look at their “overbuild rationale.”

This argument is used by governments that build broadband networks for their own internal uses, and then extend these networks, making them available to residents as a way “to generate a better return on the investments,” say the authors.

They are more generous than I am about this particular issue. Too often the justifications used by government agencies are little more than  smokescreens to gain support for their entry into broadband delivery, with the full intention always of using their taxpayer or ratepayer subsidized systems to compete against incumbent providers.

They offer Burlington, VT as an example, saying there are numerous places where this rationale is playing out.

Here in Washington state, public utility districts (PUDs, local municipal corporations authorized by individual county commissions throughout the state) offered the early justification of needing to build their own fiber systems in order to manage their power systems more effectively and eventually offer smart metering.

They may get around to smart metering one day. Their early overbuild of incumbent facilities in rural (but nonetheless more densely populated) towns, however, and their subsequent attempts to then cherry pick local schools, hospitals, and government offices — the largest broadband customers in most rural communities — signal their real intentions all along.

These same governmental entities also used high-speed internet service to the unserved, most remote reaches of their counties as justification for their entry. It’s been a decade since they began their projects and these remote areas have yet to receive fiber service. In Chelan County remote residents learned last year that they will likely never receive service across PUD fiber.

Most of these attempts around the country are struggling to cover operational costs. If they are able to walk away from repayment of the original capital costs of these systems, they have done so. Those who used debt financing, encumbering their taxpayers’ or ratepayers’ children in the process, are looking at possible bond defaults or sale of their facilities for cents on the dollar.

The authors conclude saying, “The common thread across many of these failures is the total assumption of risk by the municipality and the inability to develop a sustainable business model.”

Referencing Seattle’s recent announcement of its partnership with Gigabit Squared, it’s in this section that the authors also offer a hint of their upcoming recommendations:

In cases where there is a compelling case for a municipality to lease excess capacity of proprietary broadband networks, the better approach is to forge public private partnerships in an effort to share the risk with and tap into the expertise of firms and organizations operating in the private and nonprofit sectors.

While we think the jury is still out on Gigabit Squared’s proposals and that there are likely a whole host of competitiveness issues that need yet to be sorted, we nonetheless are optimistic and open to learning more as these partnerships evolve.

Tomorrow in Part IV we discuss the “smart community/economic development rationale.”

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

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