For the millions of workers stuck at home, having a stable, reliable internet connection is more important than ever. Private providers have led the way to keep America connected.
In addition to the hundreds of billions of dollars invested by the private sector, far-sighted federal and state regulatory reform has made the digital domain stronger than ever. But unfortunately, local governments across the country are eager to sideline these providers by building expensive, poorly targeted government owned (i.e. taxpayer-funded) networks (GONs) of their own.
According to the Taxpayers Protection Alliance’s (TPA) recently released report “GON With the Wind,” GONs only reach about a third of potential broadband consumers living in the municipalities that have built these networks. But all residents of said municipalities must foot the bill for these boondoggles, resulting in sky-high expenses for taxpayers. It’s time for local leaders to ditch GON projects and empower private providers to keep America connected.
TPA’s report on taxpayer-funded broadband projects finds that GONs break the bank without providing reliable internet. Video and voice services provided by these government networks have been faring particularly poorly over the years because of private sector innovation and the increased use of fast and reliable cellular networks. The report notes that, from 2014 through 2018, weighted-average video penetrations (i.e. the percentage of area residents benefiting from GON video offerings) fell from 31.8 percent to 26.5 percent. Voice services, “dropped from an average usage of 23.6 percent in 2009 to 20.6 percent in 2018 as more and more customers dropped their home line and use cell phones exclusively.” And, more than 60 percent of households in areas with GONs don’t want or need government internet offerings.
TPA’s analysis also highlights the experiences of individual GONs, some of which were sold to private providers in an attempt to recoup lost revenues. This fate befell a taxpayer-funded internet network built by Salisbury, North Carolina in 2010, which was only used by 16.7 percent of residents. The city had to borrow $40 million to construct the project but was only able to recoup about $8 million from broadband operations. Starry-eyed consultants and city planners failed to account for innovative private providers such as AT&T and Time Warner, which were able to offer better services to Salisbury consumers at competitive rates.
As a result of abysmal financial planning and unforeseen private competition, Salisbury faced low subscriber rates and had to raid its reserves to prop up operations. In 2018, frustrated citizens voted to lease the municipal broadband project to a private company over a 20-year period. But with the leasee (a company called Hotwire) only paying the city 30 percent of its revenue from its internet and 10 percent of revenue from video and phone services, it’s hard to see how Salisbury will dig itself out of the financial hole it created. According to a 2017 study by University of Pennsylvania scholars Christopher Yoo and Timothy Pfenninger, the Salisbury GON has only generated $340 in revenue per household despite costing $2,224 per household.
Yoo and Pfenninger find that rampant debt is the rule, not the exception, for GON projects. Of the 20 taxpayer-financed networks they examined, “Only two generated sufficient cash to be on track to pay off the debt incurred within the estimated useful life of a broadband network, which is typically projected to be 30 to 40 years.” These operations almost always lead to runaway debt, while failing to connect most of their residents to reliable internet.
The question is, then, why city planners continue to fall for these tax-and-spend traps. As TPA’s report points out, broadband consultants hired by cities offer impossibly optimistic GON predictions and readily ignore the sorry track record of previous projects. These nice looking, official sounding reports become the basis for ill-advised broadband projects, and taxpayers pay the price.
At this difficult time, taxpayers don’t need a faulty, poorly targeted service that sidelines private internet providers. Keeping America connected means rejecting these GON projects, and instead empowering private networks to continue to deliver for consumers. As TPA’s report makes clear, taxpayer-funded broadband is not the answer
Ross Marchand is the director of policy for the Taxpayers Protection Alliance.