Congressional Committee Should Focus on Red Tape, Not Taxpayer Money, to Close Digital Divide

As the House Energy and Commerce Subcommittee on Communications & Technology meets to discuss increasing broadband access, it should keep in mind lessons from the past – the failures of taxpayer-funded broadband networks and the successes in reducing red tape to close the digital divide.

The subcommittee will listen to experts speak on the issue of “Broadband Equity: Addressing Disparities in Access & Affordability.” A memo from Rep. Frank Pallone (D-N.J.), chair of the Subcommittee on Communications and Technology, notes that both lack of infrastructure and cost have led to many American households not subscribing to high-speed internet services. In short, people either can’t access it or they can’t afford it.

His argument that many Americans view internet as essential as other utilities, such as power or water, is the same arguments espoused by many governments, which has led them into the trap of creating their own networks and providing services – much like it would other utilities. But these networks have proven to be black holes for taxpayer money, as chronicled by Taxpayers Protection Alliance’s report “GON with the Wind: The Failed Promise of Government Owned Networks Across the Country.”

Here are a few examples:

• Once touted by the Federal Communications Commission as an example of the potential for community broadband, Bristol Virginia Utilities’ OptiNet was later sold to a private provider after mismanagement and corruption led to huge taxpayer losses. After private company Sunset Digital bought the failed network it began an expansion project to service several surrounding counties in southern Virginia.
• Lake Connections in Lake County, Minnesota, was sold for just $8.4 million to a private provider in 2019 despite more than $80 million in federal and local taxpayer money being sunk into the project. Ironically, the Lake County Board of Commissioners sought to sell its government network because it felt a private provider could do a better job of hooking up eager customers sooner.
• Voters in Salisbury, North Carolina, chose overwhelmingly (81 percent) in May 2018 to lease the city’s failing municipal network Fibrant to the private Hotwire Communications. The network never met subscriber goals of 30 percent of residents. The shortfall resulted in the city borrowing money from its water and sewer reserves to pay operating expenses. Salisbury had been losing about $3 million per year operating Fibrant before the lease. Combining the initial bond for construction and the loan from the reserve, Salisbury borrowed around $40 million for Fibrant, and still owes about $32 million. Revenue from Fibrant was so meager for so many years that Salisbury was just paying interest on the loans and not any principal.
• The ambitious statewide middle-mile fiber project known as Kentucky Wired has been notoriously over budget and behind schedule. It only began servicing its first customers (through providers connecting the last mile to home and businesses) last year although the project was supposed to be completed by 2019. Kentucky Auditor Mike Harmon’s staff found that the project had shifted the costs of the project onto Kentucky taxpayers, putting them on the hook for $1.5 billion to pay for the project when the initial public investment was supposed to be about $30 million. Australian-based Macquarie Infrastructure Developments LLC and a consortium of contractors were originally supposed to bear most of the debt, but state officials decided to take advantage of tax-exempt bonds by creating the nonprofit Kentucky Wired Infrastructure Company. That effort to reduce costs to state taxpayers will likely result in them paying more after the project was unable to capture federal E-rate funds to connect public schools, money that was supposed to pay for a large portion of KentuckyWired.
• Leaders in Traverse City, Michigan, moved forward with plans to build their own network even though the city already had several providers. After the project found it tough to capture customers, bureaucrats found loopholes in state law to apply for federal subsidies.

The follies of government broadband has fortunately led to changes in state laws to limit the malfeasance. Some states have implemented regulations that limit or forbid such projects.

In Michigan, a lawmaker introduced a bill this session to establish rules for how previously appropriated federal broadband money is spent, including prohibiting government-owned networks from receiving the funds and ensuring that the money goes to private providers expanding in unserved areas. Better that money go to rural Michigan than an overbuild in Traverse City.

This year, several state legislatures are discussing utility pole attachments. This is an attempt to ease access for providers by preventing pole owners from overcharging for broadband equipment attachment – which leads to an increase in the digital divide when projects become too costly due to the money grab.

As state and federal leaders discuss broadband access and affordability, they should focus on the root of the problem: unnecessary red tape that makes broadband projects in sparsely populated areas too costly. By reducing regulations, government officials can help close the digital divide.