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.
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