Monday, August 26, 2013

Baltimore to Bet Millions from Taxpayer on Government Broadband?

According to recent news reports, the City of Baltimore, Maryland, is looking to get itself deeper into the broadband business. Unfortunately, recent experience repeatedly demonstrates that municipal broadband projects typically put their own taxpayers deeper into debt.
Baltimore is reportedly planning to expand its expend a six-figure sum to hire a consulting firm for purposes of exploring how to expand city-owned broadband infrastructure. Apparently, the city is considering construction of additional infrastructure for leasing. One or a few "anchor tenants" would then provide broadband Internet service to residents and businesses.
Baltimore should think twice before travelling down the same debt-ridden, taxpayer-unfriendly path of prior municipal broadband projects. Several ambitious and much-hyped attempts by local governments to insert themselves into the broadband business have turned into financial debacles. And as a result, local government budgets are squeezed, requiring local taxpayer-funded bailouts. 
The list of municipal broadband busts includes: UTOPIA (Utah), Provo, Utah, Mooresville and Davidson, North Carolina, Lafayette, Lousiana, the N.C. Eastern Municipal Power Agency, and the Iowa State Telecom Network. In such cases, local taxpayers are stuck holding the bag for bad muni broadband investments after the public officials who voted for them leave office, and long after the paid consultants who pitched the projects have left town.
In "Observing Troubled Government Telecom Systems," FSF President Randolph May summed things up:
[T]he 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.
Maryland State Senator Catherine Pugh's August 15 Baltimore Sun editorial, "The False Promise of Municipal Broadband," takes aim at the city's perilous plans and also sums up the poor track record of municipal broadband projects throughout the nation.
Immediate questions are always raised when government seeks to go into commercial enterprise, blurring the line between its public duties and private business. Even so, building and maintaining broadband networks is an expensive and risky undertaking. And in the end, the surplus of good intentions by local governments can't overcome the deficits saddling local taxpayers when pie-in-the-sky muni broadband projects go south.
The better bet is for local governments to reduce actual or effective regulatory barriers to entry for competing platforms by streamlining processes for franchising agreements, rights-of-way, and infrastructure site permitting. Let competitors in the field shoulder the risk of financing advanced broadband networks, not taxpayers.

* Endnote: A few news stories have referred to Baltimore's franchise agreement with Comcast. The agreement is sometimes described as an "exclusive franchise." That description is misleading and technically incorrect. As a general matter, the cable franchising process has historically been the source of monopolistic abuse, especially by local governments. And a local government could act in a discriminatory or corrupt manner that in effect, if not in name, establishes an exclusive franchise. However, federal law prohibits exclusive cable franchises. Section 621 of the Cable Act provides that "a franchising authority may not grant an exclusive franchise and may not unreasonably refuse to award an additional competitive franchise." For that matter, Baltimore's 2004 franchise agreement with Comcast expressly declares it to be a "non-exclusive franchise." Not to be forgotten, federal law prohibits state and local regulatory barriers to entry for competing platforms such as direct broadcast satellite (DBS) and wireless.