As many of our regular blog readers know, broadband access is a hot topic we cover here at TeleQuality. In the past few months we’ve highlighted the significant challenges rural and remote areas of the United States face when trying to recruit telecom companies to expand high-speed broadband services to their communities; however, many times the business models of these ISPs simply can’t justify expanding into communities with a significant low profit margin risk.
One solution that has been controversially discussed in the telecom industry is the idea of municipal broadband, a.k.a. partial or fully-subsidized government broadband networks.
Advocates say it helps close the digital divide by bringing competition to the marketplace, while opponents say it puts tax payer money at severe risk and raises questions regarding the role of federal vs. state government in broadband. What’s the truth? Let’s break down both sides so you can decide which side of the debate you fall under and if municipal broadband could potentially work for your community.
Municipal broadband, also called community broadband networks or muni networks, are broadband Internet access services provided either fully or partially by local governments, with varying degrees of subsidization. Local city governments usually pursue building out municipal broadband in an effort to make Internet service part of the utilities they can offer their residents, bypassing the commercial broadband providers in part or entirely.
One important note to make is that no two municipal broadband networks or financials are exactly alike. Because they are so community-focused, muni networks are often developed specifically to fit the regulatory and economic conditions and environment of its municipality, with some networks being fully subsidized by the local government and others partially subsidized then passed along to ISPs to sell. Municipal networks can also vary in terms of the modality build out from public Wi-Fi, cable-owned networks, fiber-to-the-home (FTTH), dark fiber and more. MuniNetworks.Org, a site which actively tracks municipal broadband networks across the country, displays the 500+ ongoing projects in their Community Network Map. They also break down the differences in various open access arrangements between municipalities and providers, financing models, and more for communities interested in exploring the topic.
The Case for Muni Networks
One of the most-compelling arguments advocates make for muni broadband is the possibility of these networks having the power to effectively bridge the gap and close the digital divide that exists between small towns and large city centers across the United States. Advocates cite how providing free or low-cost Internet networks will significantly increase access to areas of the country that are overlooked. Proponents argue muni networks allow cities to enter the marketplace with cheaper, more reliable, and more community-tailored Internet services to rural areas than what is offered by large ISPs. They believe once municipalities have the power to make operational decisions, they can make infrastructure improvements and upgrades with the best interest of the specific community in mind, instead of the profit-motive behind large ISP corporations. Advocates also frequently cite the history of electricity in the American economy as a stepping stone to how they envision broadband to progress in the future toward classification as a utility, not a commodity.
Advocates of muni networks also cite the enormous social and economic benefits these projects could have on communities. They point out how muni networks, when rolled out correctly, can provide a healthy source of revenue for municipalities without raising taxes, promote job creation, keep money flowing into the individual communities instead of funneled through large telecom giants, promote civic engagement, and can lead to attracting new business development in the region. The gold standard of muni networks is the “Gig City” of Chattanooga, TN, the first city in the Western Hemisphere to offer 10-gigabit-per-second fiber Internet service to all residents and businesses. While an achieving success, some critics have also pointed out that the triumph of the Gig City is really a decades-long collaboration between civic organizations, foundations, non-profits and public-private partnerships in the Chattanooga area, warning other municipalities that muni network success is a much more complicated and collaborative matter than many realize.
Another reason muni networks can be successful is that governments have an advantage of being able to write off investments over longer periods of time compared to traditional private and publicly-traded companies. In instances of publicly traded ones, these companies must show profits to their shareholders in a very short period while municipalities typically have more time depending on their financial mix of bonds, grants, and tax dollars.
The Case Against Muni Networks
One of the most fundamental arguments against municipal broadband is the role of the federal government imposing on the rights of the states in regards to regulating their own economies. In 2015, the FCC voted to block laws in North Carolina and Tennessee that would have prevented municipal broadband providers from expanding, but this ruling was struck down by the US Court of Appeals in favor of the states. Essentially, this ruling gave states the power to pass laws restricting the rights of cities and towns to compete against private Internet service providers. Currently, there are about 20 states that have these laws in the books.
One of the biggest disadvantages of municipal broadband cited by opponents is the risk of tax payer money funding a project that has several historical records of failure. While municipal broadband may seem like a successful idea on paper, numerous examples have shown the difficulties facing municipalities to turn initial large-scale investments into long-term sustainable solutions. In fact, one study found that only two of the 20 networks studied are making enough to cover development costs. Additionally, the study reported that “90% will not generate enough to cover costs within the period of the bond issued to borrow money for them, and only two of them are expected to be able to cover total project costs over an estimated 30-40 years of ‘useful life’”. Another instance is the city of Provo, Utah, which spent $39 million on a network and struggled to operate out of the red, eventually leading to Google Fiber buying them out. While profit is not the end-goal of muni networks, municipalities and local governments must ensure the project can keep up with the debt service on the bonds, or it could even put the city’s financial future at risk like the town of Burlington, VT, who ended up with over $16.9 million in debt after a failed muni network.
With both stories of success and failure, municipal broadband may not be the end-all solution for the digital divide, but it can become a integral piece of the broadband pie the makes up our nation's telecommunications infrastructure. When executed properly, muni networks can help bring much needed competition to the marketplace but must be proceeded by municipalities with extreme caution, planning and vetting.
What are your thoughts? Do you think muni networks are a good way to close the digital divide or will the private marketplace figure out how to expand to these underserved areas?
Let us know in the comment section below!