Alternatives to government broadband

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Universal access to high-speed broadband is a desirable social goal. There is no question that broadband brings incalculable utility and value to individuals, businesses and organizations. Because broadband expands the Internet as a whole, it also creates a “network effect,” in which each marginal addition to the network substantially multiplies the value of the network as a whole.

While there is little debate that widespread broadband access has social value, there has been considerable policy tension about how best to accomplish it. This tension is rooted in the massive telecommunications deregulations of the early-to-mid-1990s that were designed to introduce competition and steer the industry away from the monopoly-utility model that had been the rule since the 1920s. The concurrent expansion of the Internet and introduction of the World Wide Web upended traditional monopoly phone models, as well. The development of the early browsers, such as Mosaic, gave users a point-and-click interface to the Web and opened the Internet to images, video and other applications that called for more bandwidth than copper land lines could handle. Service providers had to alter their long-term network-evolution plans to accommodate developments beyond their control. They faced huge capital outlays to upgrade their networks and to meet the burgeoning demand for household broadband.

Up until deregulation, U.S. telephone companies guaranteed universal phone service in return for a regulated monopoly. The standard utility thinking applied: telephone service was a social good that could best be met with one network per franchised area. Universal service goals could be met through a variety of subsidy formulas: business subsidizes residential; long-distance service subsidizes local service; urban subsidizes rural and so forth.

The emerging trends of long-distance competition, followed in short order by cable entry into broadband and, finally, the transition of telephone users from wired to wireless and Voice over Internet Protocol (VoIP) all upended the monopoly-utility model. The upshot was that, by the mid- to late 1990s, it was clear that broadband infrastructure was going to be expanded by companies with private investment, taking risks in a competitive market.

As a result, concern arose that many high-cost areas would be left behind, as telecom companies pursued wealthier communities in more densely populated areas. One idea that took hold to alleviate this perceived problem was municipal broadband. Local governments would take responsibility for financing and building broadband networks, as well as providing service and support. As a model, supporters cited telephone and electric co-operatives that brought service to many rural towns in the 1930s and 1940s. Their belief was that broadband could be done just as easily.

However, some correctly feared that municipal broadband was too risky. However laudable the goal, a municipal system would require a small city to borrow millions of dollars against projected revenue streams 10 to 20 years out. There also would always be the lingering threat that a private-sector competitor would enter the market at some future date, placing the municipality in direct competition with a deep-pocketed commercial provider with a national footprint and the accompanying marketing and technological clout.

While some local governments explored municipal broadband, others looked to exploit market forces that were in the process of transforming telecom’s value proposition from a one-size-fits-all utility to a tool that businesses and individuals could shape in line with their own needs. Private enterprises operating in a competitive environment could respond to opportunities more quickly, meet customer needs more efficiently and, if need be, react more decisively to changing market conditions. Rather than invest taxpayer money in government-run broadband operations, the alternative approach to encourage broadband expansion would be to make local investment in infrastructure as attractive as possible.

Yet to do so meant revisiting some long-held tax and regulatory shibboleths of the monopoly era. These included special taxes and fees on service, franchise fees and onerous charges for rights-of-way and pole attachments. Under the monopoly model, these costs were passed along to captive customers, so local governments saw an easy way to raise revenue without resorting to higher sales or property taxes. But now that broadband service providers were in competition, these extra costs created barriers to entry in local communities.

The latest major entrant into the broadband market, Google Fiber, has upped the stakes of this contest. In response to Google’s promise to build 1 Gbps fiber-optic broadband networks in select cities, municipalities across the country have fallen over themselves to make their towns attractive. In some cases, the efforts have become theatrical, such as when Topeka, Kan., temporarily renamed itself Google and Greenville, S.C. arranged for 1,000 citizens to use glow sticks to spell out the name “Google” large enough to be visible from the air.

As discussions between Google and prospective fiber cities have gotten serious, the company has generally asked that various fees and requirements that are imposed on incumbent broadband providers be waived. The emergence of Google Fiber is helping local governments understand how their legacy of regulations inhibits broadband investment. Unfortunately, for the most part, cities have thus far mostly only been willing to make regulatory accommodations for this one competitor. But Google is not the only broadband player. If certain changes in local regulatory requirements are enough to spark investment from one major company, there’s every reason to believe the same approach would work with others.

This paper will review reasons government broadband largely have failed and why, despite continued cheerleading from some corners, its prospects are worse now than they have ever been. It will then look at some of the major legacy costs and regulations that inhibit the spread of broadband and how cities are beginning to confront them. Finally, it will look at the lessons that can be learned from Google Fiber’s entry into broadband service provision.

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