Is public broadband a threat to taxpayers? Let towns decide

A casual observer might think towns across the country are contemplating Communism, rather than construction projects. Such is the state of the national debate over how to build more high speed internet, which is becoming as indispensable to modern life as hot water or electricity.

The crux of the debate is over how small cities, especially those where fast internet is in short supply, can get better broadband networks. The right answer, however, should not be a matter of partisan politics — but in looking at the competence of individual towns, and ensuring that their populations can have a say in the decision on whether or not to build. The FCC will vote on the issue on Feb 26, but in the meantime the right role for public broadband will remain a hot topic for the President, pundits and consumers across the country.

Blessing or boondoggle?

The state of the national broadband debate was on display this week in Cedar Falls, Iowa. President Obama was there to extol the town’s homegrown broadband network, and to urge the FCC to override laws in some states that restrict cities from building high speed internet projects of their own. In response, Republicans and industry groups pounced on his remarks, accusing the President of promoting a broadband model that meddles with the market and sticks it to taxpayers.

Why is a place like Cedar Falls at the center of this? The answer is the town’s community-owned internet provider, which reportedly offers its 40,000 residents connected speeds of 50 megabits a second for $45.50 and, for a little more money, 1 gigabit speeds. This sort of service is unavailable to many Americans and, especially, to those outside major cities where the fastest internet may be well below a new proposed 25 Mbps definition of broadband.

The Cedar Falls example is also what led Obama to call on the FCC to come to the aid of places like Wilson, North Carolina and Chattanooga, Tennessee, which have promising broadband projects of their own, but are being stymied by state rules that restrict their operations. The two towns currently have a petition asking the agency to invoke federal law in order to override the state rules, and there’s a good chance the FCC will grant the request since Chairman Tom Wheeler has repeatedly stated cities should be able to decide for themselves what to build.

Not everyone, however, is as enthusiastic about cities getting involved in the broadband business. Groups with names like the Center for Boundless Innovation in Technology and the Taxpayers Protection Alliance have been loudly claiming that city-run broadband projects are a sinkhole for taxpayer dollars. Here is how the latter group described the situation in a recent press release (my emphasis):

Five high-profile municipal broadband networks have failed spectacularly, including one in Provo, Utah, which was sold to Google for $1, though taxpayers will continue to pay off the construction costs for another 12 years. Another, in Burlington, Vermont, was sold to a private company for $6 million, not even coming close the $51 million cost of the network. And the debt racked up by a third network in Salisbury, North Carolina, was the reason Moody’s downgraded the entire city’s bond rating. The system in Salisbury was such a financial mess that they resorted to using water and sewer funds to make up shortfalls from the network’s expected revenue, which isn’t being realized.

You get the idea. The underlying argument is that city-run internet will inevitably turn into an expensive failure, and that state laws that limit municipal broadband projects (either through outright bans or cumbersome procedural rules) amount to a sensible shield for consumers against government boondoggles.

U.S. President Barack Obama inspects a piece of fiber-optic cable during a visit to Cedar Falls Utilities on January 14, 2015 in Cedar Falls, Iowa. Obama spoke of plans to increase access to affordable high-speed broadband internet service across the nation.

U.S. President Barack Obama inspects a piece of fiber-optic cable during a visit to Cedar Falls Utilities on January 14, 2015 in Cedar Falls, Iowa. Obama spoke of plans to increase access to affordable high-speed broadband internet service across the nation.

Despite the above claim of “five high-profile” examples, however, the overall evidence is thin that city broadband projects are intrinsically flawed or wasteful.

According to Christopher Mitchell, who leads community broadband studies at the Institute for Local Self-Reliance, most of the 450 municipal internet networks the group is tracking were not financed by tax dollars in the first place. And most of the 100 or so that are have avoided financial trouble.

Mitchell added that, in places like Burlington that have lost money, the critics have also overlooked overall benefits to the city from the project.

“The City did indeed borrow $51 million and the network has recently been sold in part for $6 million – but the deal is much more complicated. These groups often ignore all the revenue generated over the life of the network – so they compare the full costs of debt with only some of the revenues. Now in the case of Burlington, it happens that the debt does outweigh all the revenues over the years – but the network also lowered prices from competitors in the market, generated many jobs, and other benefits,” Mitchell said by email.

Meanwhile, in the case of Chattanooga, which made a prescient decision to invest early on in a fiber network, the project has not just been financially sustainable in its own right. It has also brought the town new cachet as a “gig city” that can attract businesses in search of fast and affordable internet.

The upshot is that there doesn’t appear to be an over-arching economic case one way or the other as to whether cities should supply broadband in the same way they do sewers or electricity.

“I don’t think every city should do it, but I think every city should analyze it,” said Mitchell, adding that places with a history of competent local government, including Wilson, are good candidates for broadband projects, while those with a history of corruption are not.

The problem is that municipal voters in many states don’t get a choice to decide in the first place.

Should states ban city transit too?

As the President noted in his Cedar Falls speech, there are 19 states in which legislatures have passed laws to ban or restrict cities from building broadband infrastructure (a recent report suggests the number of states is actually 21 — see full list below).


Craig Settles’ report breaks down state laws restricting broadband into 3 categories: 1) “If-Then laws” that impose requirements on communities before they can build; 2)  “Minefield Laws” that create major obstacles but fall short of a total ban; 3) Total Bans (some states may have loopholes)

Despite the prevalence of these laws, however, they don’t seem to be grounded in economics. Instead, as a withering investigative report from last year suggests, they appear to be the fruit of a larger campaign by telecom incumbents like AT&T to stymie competition through lobbying and litigation.

The result is a situation in which millions of Americans can choose from only one company — and sometimes none — that is capable of offering real broadband (defined as 25 Mbps). But at the same time, their local governments are also barred from acting to increase competition.

Harold Feld, a senior lawyer with advocacy group Public Knowledge, likens the situation to one in which states forbade cities from building public transit.

“Take public transportation as an example. Sometimes it works out well, sometimes it works out poorly. But no one would say that the problems we’re having today in Washington DC prove that New York City shouldn’t be allowed to operate a subway system,” said Feld by email.

The issue of what cities can and cannot do in terms of internet infrastructure will become clearer in the next month or so when the FCC decides whether to pre-empt the state laws. (If the agency does opt for the pre-emption route, however, the process is likely to end up in a swamp of court challenges brought by AT&T or another big incumbent).

In the meantime, the current legal logjam means thousands of towns across the country will not only continue to lack Cedar Falls style internet amenities, but they will be cut off from pursuing them in the first place. As Feld notes, this situation bodes poorly not only for the push for more broadband, but for basic American principles of self-governance as well.

“As a rule, communities don’t get into the broadband business unless they feel they have no alternative. That ought to be their decision, not the decision of special interests lobbying state houses to get bills passed behind closed doors. Preempting these state bans used to be a bipartisan issue. I’m hoping it will be again.”

The states with laws that ban or restrict municipal broadband, according to a 2015 report by analyst Craig Settles, are: Alabama, Florida, Arkansas, California, Louisiana, Missouri,  Colorado, North Carolina, Montana, Iowa, South Carolina, Nebraska, Michigan, Utah, Tennessee, Minnesota, Virginia, Nevada,  Pennsylvania, Washington, Wisconsin.