But about 15 states have laws that restrict or limit the ability of their local governments to become broadband ISPs. And there are many good reasons for restricting government-owned broadband networks – whether through outright prohibitions, limits on the use of public funds to support such networks, or local referenda requirements.
For starters, operating commercial broadband Internet networks or other commercial business enterprises is outside the traditional scope of government functions, such as police, fire, sanitation, and road maintenance. As a matter of good governance and accountability, it is entirely reasonable for a state to insist that their local government stick to basic functions or that local residents to vote to affirmatively authorize their local governments in engage in non-traditional commercial functions.
A related reason why laws that restrict or limit government-owned networks are reasonable is that local government ownership and operation of broadband networks poses an inherent conflict of interest. In essence, local governments become participants in the markets over which they have regulatory power. There is a real risk that local governments might give preferences to its network over private competitors, including through local permitting processes and fee assessments.
Another reason for laws that restrict or limit government-owned networks is they can pose a significant financial risk to local governments and to their residents. The broadband Internet access services market is competitive, with pressure coming from satellite, mobile wireless, fixed wireless, cable, and fiber providers. Running a broadband network requires not only high startup costs but significant ongoing operational expenses. Thus, even a new entrant government-owned network seeded by federal government grants could fast hit financial trouble once it is up and running. Not every market entrant succeeds, and many have lost money and ultimately failed. When a private broadband network provider fails, its owners stand to lose on their investments. But when a government-owned network fails, the local government can incur significant losses, and the public treasury as well as local taxpayers are likely to be tapped to make up for those losses – in the form of reduced services, higher taxes, or both.
The Free State Foundation does not categorically oppose government-owned networks, as there may be unique situations where geographic and demographic challenges make the business case for private market entry all but non-existent. But the federal government is constitutionally obligated to respect states' sovereign control over their local governments, and it cannot usurp that authority via federal preemption. Moreover, government grants should not be spent to fund government network-owned overbuilds in areas that already are served by private providers.
As noted in my May 2022 Perspectives from FSF Scholars, "NTIA's Broadband Subsidies Must Respect State Law Limits on Government-Owned Networks," the agency's Notice of Financial Opportunities (NOFO) does not require states to eliminate any existing legal restrictions on government-owned networks in order for those states to participate in the program. As explained in that Perspectives, the agency's implementation of the BEAD Program "should respect states' decisions about government-owned networks and emphasize that subgrants should ultimately go to the best providers available to connect unserved Americans."
Posts
