For many local governments, the promise is seductive. A cottage industry of consultants and network builders — who stand to profit handsomely — sell the idea to misty-eyed government officials that building a municipal broadband network will spawn a local Silicon Valley microcosm that will be a monument to their incumbency. But what they don't see is that the economics of the grand venture doom it to likely failure.
For the most part, municipally-built broadband networks have the economic chips stacked against them and, where tried, have saddled local taxpayers with a mountain of debt and half-built networks that are then sold at fire-sale prices to vulture investors. Taxpayers in Provo, Utah, for instance, spent $40 million to build a relatively small and modest network only to sell it for $1 a few years later because they underestimated the massive costs of operating, upgrading and maintaining it.
But Provo is just the latest exhibit in a long pantheon of such failed initiatives that include Groton, Conn., ($38 million taxpayer loss) and Marietta, Ga., ($35 million taxpayer loss). Cities as large as Philadelphia, New York and Chicago and as small as Lompoc, Calif., and Acworth, Ga., have also tried and failed to launch their own broadband networks — or simply gave up.
It's as destructive as it is unnecessary. Here in Maryland we've so far chartered a wiser course, targeting scarce public funds at truly under-served areas using less risky and far more appropriate methods. For example, the One Maryland broadband initiative is leveraging over $100 million federal dollars to link more than 1,000 government agencies and community "anchor" institutions to high speed communications networks. The non-profit Maryland Broadband Collective is working through private sector members to affordably reach the most difficult to connect portions in the state, without leaving taxpayers holding the bag.
Yet local governments continue to flirt with an idea that should have been discarded years ago. Typically, any local wired or wireless broadband network will cost, conservatively, tens of millions of dollars in up-front construction and equipment costs. On top of that, broadband networks require huge annual operating expenditures to pay for administrative staff, customer service, repairs, security and all of the other services needed to have a credible chance at attracting consumers. And, as Provo residents learned, even their recently built network — barely a decade old — requires $20 million in upgrades before its new owner — Google — deems it fully operational.
To pay-down these massive costs and to break even year-to-year, municipal networks need to sign up tens, if not hundreds, of thousands of customers. But picking off customers from other broadband providers isn't just difficult — it's unlikely.
Broadband is an extremely competitive market — more so than it ever has been. Over 80 percent of the public can get super-high speeds of over 100 Mbps, and nearly all Americans can (or will soon) get four different wireless 4G technologies with speeds up to 20 Mbps. Prices per megabit are dropping quickly. Even advocates of government-owned networks like US Broadband Coalition founder Jim Baller have grown skeptical that government-owned networks can win enough customers, arguing that community broadband projects "are more challenging now than they've ever been."
To beat these odds, some seek to build networks that rival those of existing broadband providers. Chattanooga, Tenn., asked taxpayers to float a $220 million bond to build a fiber-optic broadband network. But the experiment was a golden fleece, signing up just 34 customers (eight residential!) to its $350 per month 1 Gbps offering. Chattanooga residents saw little use for a 1 Gbps connection, particularly at such a premium cost.
Of course, 6 percent of the country still lacks access to a wired broadband network, and in those communities, there could be a case for these highly speculative, risky ventures. But for the rest of country, the economics make little sense for taxpayers who already face a nearly $4 trillion deficit of investment in modernizing our water and sewer infrastructure, roads, railways, bridges and schools.
Those who want to win the argument about whether government can stimulate a struggling economy would be well advised to stick with what we know works and stay away from fanciful boondoggles.