Government-owned broadband needs scrutiny

Government-owned broadband needs scrutiny

By Joseph P. Fuhr Jr.

A "big mess," "sloppy" and an "embarrassment."

These are not generally concepts to emulate, but, unfortunately, with its expansion into Bloomington-Normal and nearby communities, these are words that could soon apply to the Central Illinois Regional Broadband Network (CIRBN), a government-owned broadband network (GON) slated to go live in the near future.

The Normal City Council recently approved a contract to join CIRBN, arguing that it can save several thousand dollars by getting service from this taxpayer-funded GON as opposed to the city's current private-sector provider.

It is very unlikely that Bloomington-Normal and other towns will come out ahead. To see how badly the city may fare, local officials need to look no further than nearby Champaign-Urbana, where nearly $30 million has been spent on a government-owned network that has only 850 subscribers. This geographic area is already being served by private firms and a low-income subsidy for service could have achieved such access levels at a much lower costs.

The adjectives listed above, in fact, were used to describe that network. Consumers have had serious difficulty getting the cities to even connect them to the GON, and when the city did show up to connect service, its workers often seriously damaged homes and property in the process. Overall, the cities have not come anywhere close to attracting as many subscribers as they needed to make the service solvent. Even though the building of the network has been heavily subsidized by the federal government an essential issue is whether the network once built can be sustained financially.

I have studied government-owned broadband networks and I can testify that for the most part these towns' dour example is not unique. In one Utah town, residents are paying higher property taxes to make up revenues for a failed GON.

A Connecticut town sold its network at a more than $27 million loss. Several Florida towns have dropped out of a regional GON because local lawmakers became so worried about the chilling effect the network would have on private sector telecommunications investment. Initial reports on the CIRBN indicate that the savings will fall short of expectations.

Government-owned broadband networks almost always run substantial operating deficits that taxpayers must make up through higher taxes or cuts to other services and, because they receive substantial tax and regulatory advantages over their private-sector competitors, GONs do reduce private sector investors' desire to move to an area. Meanwhile, the promised savings to customers never come to fruition.

Residents deserve to see a detailed business plan so that they can be vigilant concerning the financial progress of the network. Given the fact that so many of these networks have failed — even when they did have some sort of business plan — taxpayers deserve to know at what point the city will decide to get out: How much debt is too much debt? If things do not go as planned, will lawmakers raise taxes or cut essential services to subsidize the system?

City officials should also answer more fundamental questions. For example, why is this network necessary when the city already has access to broadband? What justifies this taxpayer risk? Residents deserve to know whether the city explored a public-private sector partnership that would encourage more private sector investment in broadband in the area, before they considered direct taxpayer investment. These questions are important, and will certainly save taxpayer dollars in the long run.

At a time when cash-strapped municipalities need to conserve every dollar, we need to look closely at government's involvement in high-speed broadband networks. Certainly we need to expand broadband networks to communities — particularly rural and underserved areas — without access, but we must also ensure that government safeguards taxpayer dollars by not duplicating services already provided by the private sector.

Joseph P. Fuhr Jr. is professor of economics at Widener University, Chester, Pa.

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