North Carolina Better off without Public Broadband
American companies are the world’s primary source of new Internet-based services and applications, and North Carolina contributes more than its fair share. Internet service providers invest tens of billions of dollars into landline and wireless broadband networks annually, providing vital fuel for the tech industry and valuable services to households. Nevertheless, too many North Carolina cities, like Wilson, keep trying to compete with private providers in offering their own communications and technology — a well-meaning approach, but a proven failure.
The General Assembly is considering legislation that could lead to more government involvement in internet provision. Some of the ideas in this legislation might have merit. But a look at the history of government involvement in municipal broadband should provide some pause.
Some people may remember the high-profile struggles of “municipal cable” in the 1990s and 2000s and “municipal WiFi” failures in Chicago, San Francisco, and Philadelphia 10 years ago. The Charlotte Observer reported in 2015 that Mooresville and Davidson’s public cable system was still $74 million in debt after nearly a decade of operation. The latest fad pushed by “community broadband” consultants and advocates is public broadband networks built and operated by cities.
Municipal broadband in urban areas creates two harms: It diverts public funds to gold-plated services that benefit a minority of residents, and it siphons customers away from private providers, who may have to raise fees to maintain profitability.
Typically, consultants will convince city councils and mayors to put taxpayers on the hook by promising that “gigabit” government broadband networks will stimulate jobs or economic growth. These slick presentations tend to be heavy on anecdotes and light on data.
One of the few economic studies of municipal broadband, authored by researcher Brian Deignan and published by the Mercatus Center at George Mason University, examined 80 small and medium-sized cities that have deployed municipal networks. Deignan found modest results. While these networks had no effect on private employment, they were associated with a 6 percent increase in local government employment. This is unsurprising, considering the substantial public funds spent.
Only a small portion of citizens benefit directly from public broadband networks. Advocates often point to Chattanooga, Tenn., which spent over $150 million on a public network a few years ago. Not only is the Chattanooga experiment a unique case — it received tens of millions of dollars in one-time federal stimulus grants — it reveals the disappointing consumer demand for gigabit. At last count, a mere 4 percent of households with access to the public network subscribed to gigabit speeds. Households tend to subscribe instead to broadband speeds already offered by private providers.
For every ostensible success story about municipal networks, there is an example of failure. Take, for instance, the multicity Utopia public network in Utah that lost millions annually despite injections of federal funds. After over a decade of throwing good taxpayer money after bad, the cities faced over $200 million in liabilities. Several cities raised sales taxes and utility fees for even nonsubscribing residents, or raised new bonds to make up the shortfall.
In short, public networks rarely live up to the hype. Municipal broadband has proven to be an unwise investment for towns, which have pressing financial obligations to public education, police and transportation.
Instead, more cities should minimize private providers’ cost of access to state and municipal property and rights of way — particularly in rural areas — to encourage private broadband development. Larry Summers, a former U.S. Treasury secretary and economic adviser to President Obama, offered his recommendations for infrastructure spending recently. Broadband investment is “clearly the responsibility of the private sector,” he noted, and it’s imperative for regulators to “streamline regulatory decision-making and reduce uncertainty.”