Government Overbuilds Called Waste of Resources; Supporters Disagree

It’s a waste of resources for the government to fund overbuilders, though it’s ok to have experimental networks like Google’s fiber network in Kansas City, said Robert Atkinson, ITIF president. One of the rationales used by municipal broadband backers is that a publicly subsidized additional network would boost competition and drive down prices, he said. But building a duplicative network costs a large amount of money and often provides no better service, only more choice in the service, he said.

Overbuilding also means fewer subscribers and eventually lower profits, Atkinson said. As a result, overbuilding projects would result in higher prices for consumers who subscribe to a service from a competitor, he said. Many municipal projects have failed, Atkinson said, citing Utah’s municipal fiber coalition “UTOPIA,” which he said was on the verge of financial collapse in 2008. Exacerbating the situation for projects like UTOPIA is the wholesale business model, which has proven inefficient, he said. Cities rightly seeking to have faster broadband networks should consider municipal provision as a last resort, rather than a first one, Atkinson said, citing public-private partnership. If communities were to build their own networks, they need to be subject to the same regulations as private providers, he said.

Policy makers shouldn’t exclude any approach to help the U.S. reach universal broadband, and municipal networks are one of the solutions, said municipal attorney Jim Baller. Many communities have gone to incumbent providers first but many of the providers refuse to build, Baller said. The claim that municipal networks have largely failed is untrue, he said. Many projects have been operating for years, he said. The few that are unsuccessful are the ones that use the wholesale model which creates inefficiencies, he said. “We need to get a wholesale model that works,” he said. All the community broadband planning has been conducted in an open, transparent process, he said.

In many cases communities reach out to incumbent providers who refuse to build, said Christopher Mitchell, director of telecom with Institute for Local Self-Reliance. The thinking that “if you wait long enough you will get it” is wrong, he said. Communities can’t afford to wait, he said. The reality is there’s very little competition and the price has gone up, he said. “Americans have paid too much for too little” comparing with peer countries, he said. Almost all local governments want the private sector to solve the problem so they don’t need to get involved, but the private sector hasn’t lived up to expectations, he said. There should be competition at both the service and infrastructure level, he said. The value of the network lies on usage, he said.

In some cases, millions of dollars in government grants and loans have been made in areas where a significant majority of households already have broadband, said Jeff Eisenach, managing director with Navigant Economics, citing three RUS funded projects in western Kansas, northeastern Minnesota and southwest Montana. More than 85 percent of the households in the three project areas already are passed by existing cable broadband, DSL, and/or fixed wireless broadband providers, he said. In part because a large proportion of project funds are being used to provide duplicative service, the cost per incremental (unserved) household passed is extremely high, he said.