As Yogi Berra
said, "You can observe a lot by watching."
There is now a
lot of accumulated evidence – available for observing by those willing to watch
– that government-owned and operated communications providers typically
underestimate costs and overestimate demand when formulating their
"business plans."
In part, of
course, this may be because, by definition, governments aren't schooled in
developing realistic business plans in the way that for-profit businesses
necessarily must be. Mostly, though, it is because the government planners know
from the get-go that taxpayers, ultimately, will be back-stopping their telecom
projects. This knowledge does not help focus the mind in a way that sharpens
business plans.
Over the years,
FSF and others have chronicled the woes of many of these problematic government-owned
telecom ventures, whether the misleadingly named UTOPIA project in Utah, or the troubled Mooresville and Davidson, North Carolina
city broadband systems, the
Lafayette, Louisiana fiber system, or the Iowa state telecom network.
Without
rehashing the gory details of each project here, the common denominator of
these government-owned telecom systems is this: Because of almost universal cost
overruns and less than projected demand for the services offered, taxpayers typically
are left to bear the burden of the ensuing financial distress, either by
providing direct subsidies from government coffers or by providing indirect subsidies
through premium guarantees for bond offerings used to finance the projects.
You can observe a
lot by watching these government-owned telecom projects. But, still, despite
the record, there are unceasing calls by some for more government systems and
municipalities still embark on the projects.
Speaking of
observing, an April 14 editorial in the Raleigh, N.C. News and Observer caught my eye. Entitled "An Intolerable Monthly Jolt," the paper excoriates the N. C. Eastern
Municipal Power Agency, comprised of 32 municipalities, for a series of bad
decisions over the years that has lead to the government agency's customers
"paying rates 40 percent higher than the state average and over 50 percent
higher than Duke Energy's." Duke is the state's leading private electric
power provider. Aside from the hardship to individuals, the editorial points
out that "no job-bearing business is going to take up in a town that
charges half again as electricity as most of the state." This is true. One
option, according to the News and
Observer, is the sale of the agency's power generating assets.
I understand
that government-owned electric power providers and government-owned telecom
providers differ in some respects and operate in somewhat different contexts. I
understand too that it is probably safe to say that no two government-owned
telecom providers are identical or operate in the very same contexts. Nevertheless,
there are certain fundamental principles of political economy that remain
applicable in any event.
Governments
should not enter the telecom marketplace with government-owned systems when
private sector providers, with their own capital at risk, are willing to provide
service.
With the government
systems' financial backing and subsidies from taxpayers – even if such backing
and subsidies often are extracted unwittingly – along with various special
privileges and benefits, it is exceedingly difficult for private sector
companies to compete on an equitable basis with government providers. While I
have never taken the absolutist position that it is improper under all
circumstances for municipal governments to provide telecom services, such entry
should be limited to areas in which no private sector provider is offering service
and no private operator has shown a willingness to provide service.
Amidst all the
fiscal difficulties that governments at all levels are experiencing, difficulties
which sometimes call into question their ability to deliver basic government
services, they should not be entering the telecom business in competition with
private sector companies able and willing to provide the services that
consumers demand.
There is more
than enough evidence available for observing to reverse the trend – I might say
the fad – of ill-conceived government forays into the communications business.
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