New Study Exposes Flaws with Municipal Broadband

Chattanooga, TN (courtesy, Wikimedia)

There is no shortage of things that government thinks it can do better than the private sector and there’s no limit to what government will spend taxpayer dollars on as keenly demonstrated on a regular basis in Washington, D.C. One of the more egregious examples of this regularly occurring phenomenon is the funding of municipal broadband networks. These government-backed operations have been shown to be a waste of valuable taxpayer money with systems that have quality far less comparable to the same work provided by the private sector.

A recent study by George S. Ford, PhD, of the Phoenix Center took a close look at these municipal broadband networks and found evidence to suggest that one of the supposed “benefits” of these government programs doesn’t actually exist:

In a new economic analysis released today entitled Do Municipal Networks Offer More Attractive Service Offerings than Private Sector Providers? A Review and Expansion of the Evidence, Phoenix Center Chief Economist Dr. George S. Ford evaluates claims by the New America Foundation and the Consumer Federation of America that municipal wireline broadband service providers offer much more attractive triple-play prices than do commercial broadband service providers. As Dr. Ford demonstrates, the alleged price differentials between the public and private sector are the direct and sole consequence of New America and Consumer Federation improperly comparing the prices of unlike bundles. After correcting for New America’s and Consumer Federation’s numerous factual and technical errors, Dr. Ford shows that, in actuality, municipal systems typically charge consumers substantially more than their private-sector rivals for very similar triple-play offerings. Dr. Ford’s analysis also suggests that the competitive price for a fairly standard triple-play service is about $100 in the U.S., and the expansion of municipal provision of broadband service won’t alone alter that reality.

The study from Dr. Ford is a direct response to an earlier study that claimed municipal broadband services offered a better deal on the so-called “bundled packages” as compared with private companies. Dr. Ford found the study was comparing plans that weren’t alike and when he made the adjustments, both the public and private sector offered the similar plans at similar prices:

In order to make meaningful price comparisons across public and private-sector broadband providers, it is first essential to collect prices on nearly identical services, since there is no expectation that prices for different things will be similar. In a triple-play package, broadband speeds may differ, the number and types of video channels may differ, and the number of included voice minutes may differ, among other things. Accordingly, in order to make meaningful price comparisons, an effort must be made to ensure product offering comparability—an effort never made by either New America or Consumer Federation.  As neither New America nor Consumer Federation undertook the requisite leg-work, in this perspective I do it for them.

And, another difference in price is that taxpayer-funded networks cost taxpayers hundreds of millions of dollars while the private sector networks have ZERO cost to taxpayers.

Municipal broadband networks are not only using taxpayer dollars to try and sell something for the same price as a private company, they’re actually selling a less desirable product overall. The New York Times published an article about Chattanooga’s EPB in an article titled “Fast Internet Is Chattanooga’s New Locomotive.” The New York Times painted a picture of a program that boasts some of the fastest Internet speeds in the world, right in rural America. TPA has researched EPB and the facts don’t support the claims by The New York Times (read here).  The biggest problem with EPB is that there’s not enough people that use the service to warrant a taxpayer-funded program that remains years after it was first introduced. Most consumers in the city aren’t using (or will probably never use) the gigabit service so there is no reason why taxpayers should be funding the EPB after it has been around for four years and still isn’t providing a unique service in high-demand.

In fact, early on, it was the private sector that helped EPB achieve the 1 gigabit speed.  According to the Chattanooga Times Free Press:

In August, Iron Labs snagged a $50,000 award courtesy of the Gig Tank — a contest featuring entrepreneurs dreaming up ways to use a gig in a commercial venture. EPB was one of the competition’s primary sponsors.  There was only one hitch. When Aaron Welch, the force behind Iron Labs, asked to partner with EPB to showcase the gig Internet service in his business, the electric company told him to buzz off.  When he then offered to purchase the gig at the advertised small business rate of $299.99 per month, EPB again refused, claiming only companies that could never actually use a gig were eligible for that price. EPB said that if Welch wanted the gig service, it would cost $50,000 — an outrageous sum for a small startup.  In the end, Welch had to rely on Comcast, EPB’s most bitter competitor, to provide Iron Labs with the needed bandwidth at a reasonable price.

Chattanooga’s EPB is one of the worst examples when it comes to municipal broadband. The service is designed to prevent mass amounts of subscribers to the gigabit service and the stats shown by the New York Times shows just how little it is being utilized, even with hundreds of millions of taxpayer dollars propping it up:

Even so, few people, including many who support the systems, argue that everyone in the country now needs a one-gigabit home connection. Much of the public seems to agree. According to Federal Communications Commission statistics, of the households where service of at least 100 megabits per second was available (one-tenth as fast as a gigabit), only 0.12 percent subscribed at the end of 2012. In Chattanooga, one-third of the households and businesses that get electric power from EPB also subscribe to Internet service of at least 100 megabits.

The work done by Dr. Ford and the Phoenix Center on this issue is extremely important to the debate over whether or not municipal broadband programs are really beneficial to consumers and taxpayers. The study rightfully points out that proponents of municipal broadband cannot make a credible claim when it comes to the cost comparisons between the public and private sector providers. When you factor in these findings with some of the other problems that have plagued municipal broadband programs around the country, including lack of demand and deficient service as evidenced by Chattanooga EPA and the Lafayette Utilities Service, it all makes for a much needed debate on why taxpayers continue to provide the funds for programs that just are not worth the price of admission.