Government owned network tax credit will further grow the digital divide
Broadband deployment is an expensive proposition, and providers tend to focus first on areas that can generate sufficient returns on investment. In areas with few potential customers, Americans may see delayed deployment. As a result, a digital divide exists: there are Americans with broadband and those without. To help address this issue, the Senate passed the Bipartisan Infrastructure Framework, which would allocate $65 billion to help spur broadband deployment in the United States—especially in unserved areas, which lack basic connection. However, somewhat controversially, the infrastructure deal forbids states from excluding local governments from participating in the program. Now, the House is poised to go even further, potentially including a 30 percent tax credit for government owned networks (GONs) in the reconciliation bill, exacerbating the debate about municipalities getting into the broadband business.
Instead of traditional private funding and ownership, GONs are often owned entirely by a local government and integrated into an existing public utility, like an electric company. Because the local government does not attempt to maximize profits, proponents see these municipal networks as a way to provide broadband service to every member of a community at low prices. Further, because the focus of the government is connecting constituents—even if that means losing profits—communities that lack any business case for private deployments can be addressed. Unfortunately, these views fail to fully appreciate the risks involved with a local government investing significant resources into a network and attempting to run that network—a move which leaves taxpayers on the hook for any failure.
The fact is, deploying, operating and continually improving networks requires continued investment, and most GONs just can’t keep up. When GONs fail to deliver, taxpayers have to foot the bill—and private providers have little incentive to invest in deploying additional infrastructure. A failure in the city of Provo led to additional charges on captive energy payers; the network itself sold for $1 to Google, leaving the city with about $39 million in debt. Worse, the economics of the broadband business limits potential competitors in a market, which is hard on captive ratepayers on the electric utility side of the business. As government owned networks become more commonplace, we threaten to drive away private investment.
Rather than trying to experiment with risky GON strategies, we first need to address the fact that too many Americans lack even a basic broadband connection. We can do this by exploring other options that facilitate competition and promote private deployment in these hard-to-reach areas.
Fortunately, the funding exists. There is already around $800 billion available for regulators to subsidize the deployment of broadband, and the infrastructure deal would earmark another $42.5 billion specifically for a grant program to expand access. At this point, regulators should target using existing funding effectively rather throwing more money at the problem. Unfortunately, House democrats would rather give an unrestricted tax credit to any local government that wants to get into the broadband game. Considering the risky nature of these ventures, American taxpayers may end up bearing the weight of these projects without seeing any benefit to areas that truly need access.
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