Local Governments Should Promote 5G Smart Cities, Not Municipal Broadband

Despite the dismal record of financial performance by municipal broadband systems, some municipalities are moving forward with plans to build new government-run systems. Some proponents of municipal broadband point to a new report from Harvard’s Berkman Klein Center claiming that municipal systems are the “value leaders in America” because they supposedly offer service at lower prices than those from private providers.

Last month, FSF Senior Fellow Ted Bolema and I published a Perspectives from FSF Scholars entitled “A Critical Assessment of Harvard’s ‘Community-Owned Fiber Networks: Value Leaders in America’ Study,” in which we pointed out many problems with the Harvard study. But even setting aside the problems with the dubious methodology and questionable interpretation of the data from the Harvard study, municipalities that believe their residents do not have sufficient access to broadband have better options than government-run broadband. Instead of promoting municipal broadband projects, local governments should seek to streamline the implementation of 5G “smart cities,” which will provide vastly superior net economic benefits to consumers, businesses, and residents.

The Harvard study purports to find that in 23 out of 27 municipalities with community-provided broadband the government providers offered lower prices for entry-level broadband packages than the private providers. In our paper, we explain how the Harvard study’s data and methodology creates a heavy bias in favor of municipal providers.

But even if a municipal system can offer lower prices to those who subscribe to its broadband service, that does not make it a better value for its community than private broadband. Most municipal providers use taxpayer funds to subsidize the price of broadband below a profitable level, oftentimes generating massive long-term debt. That may make the price of the service attractive to potential subscribers, but the community, including the residents who do not subscribe to the municipal network, still must pay for the subsidies and the debt used to finance the project.

We point out that there are nine municipal projects that were analyzed in both the Harvard study and a University of Pennsylvania study that analyzes the financial viability of municipal broadband projects. Of those nine overlapping municipal broadband projects, at the end of 2014 four of them were cash flow negative and four of them were not on pace to be paid off within the lifetime of a broadband network, which is generally between 30 and 40 years. For example, the municipal provider in Lafayette, LA, LUS Fiber, provides the greatest cost “savings” over the first four years of service, according to the Harvard study. But Lafayette residents are on the hook for over $36 million in debt that is unlikely to be repaid with the current level of cash flows. The table below shows that municipal networks with the greatest cost “savings” also generate burdensome long-term public debt.

Results from Markets Found in Both Studies

Municipal Network	Cost “Savings” Over Four Years According to Harvard Study	Net Present Value of Municipal Broadband Project	Years until Project Turns Positive
Lafayette, LA	$600.00	-$36,086,333	Never
Morristown, TN	$324.12	-$4,281,017	Never
Clarksville, TN	$138.75	-$7,442,513	Never
Monticello, MN	$122.74	-$25,508,327	Never
Pulaski, TN	$237.24	$97,948	490
Brookings, SD	$163.13	$290,521	349
Chattanooga, TN	$107.25	$2,062,787	412
Tullahoma, TN	$19.22	$846,549	108
Bristol, TN	$79.22	$4,168,048	34

The Harvard study also does not consider all of the dynamic changes in the broadband market. For example, more people than ever are turning to mobile broadband as a substitute for fixed broadband. The future of mobile broadband is 5G wireless technology, and with at least 10 times faster speeds than 4G, 5G will make mobile broadband even more competitive with other broadband technologies. Throughout U.S. cities, mobile broadband providers are deploying small cell infrastructure for 5G wireless technology, which can target municipal areas in the same way that wireline municipal broadband does, but potentially at a much lower cost.

When 5G wireless technology is deployed, “smart cities” will be able to enjoy more efficient and effective use of local government services such as energy, utilities, transportation, and public safety, saving the cities millions of dollars. For example, smart lighting automatically will dim public street lights when no pedestrians or vehicles are present. Public transportation will be able to reduce wait times by optimizing bus and train schedules with commuter smartphones. High-speed video surveillance will allow first responders to assess crime scenes and dangerous situations before arriving.

As I discussed in a January 2017 blog, 5G wireless technology is projected to create $275 billion in investment, 3 million jobs, and $500 billion in gross domestic product throughout the United States, which should be much more attractive to local governments than the financial instability often created by municipal broadband projects. These projected net economic benefits of 5G enabled “smart cities” outweigh the net economic costs of many municipal broadband networks.

Instead of imposing long-term debt on residents by promoting municipal broadband projects, local governments should promote 5G small cell deployment. By reducing pole attachment fees, allowing the use of public rights-of-ways, and accelerating approval processes, states and municipalities can streamline the deployment of 5G technology in local areas. Not only will this relieve residents from the tax burden imposed by a municipal network, but it will help implement a next-generation network which will provide at least the same consumer benefits as municipal broadband with less financial risk to local governments.