Broadband Myths: Does Municipal Broadband Scale Well to Fit U.S. Broadband Needs?

Information Technology & Innovation Foundation – Doug Brake and Alexandra Bruer

No, local governments generally are not well-suited to providing broadband service. Economic theory suggests city-run broadband would not serve the country well, and previous real-world attempts bear that out with a mixed track record marked by several failures.

The Biden administration has proposed a preference for federal funding of broadband infrastructure provided by municipal or nonprofit operators, thrusting municipal ownership of broadband facilities back into the center of telecommunications policy debates. Any federal broadband infrastructure subsidies should be awarded on an “ownership neutral” basis, neither favoring nor penalizing government-provided broadband systems. Municipal broadband does not scale well to serve the country, but should be an available option for connecting areas private firms would otherwise leave genuinely unserved despite infrastructure subsidies—generally small, widely dispersed towns where private provision is unsustainable even after the initial subsidized infrastructure deployment.

For advocates on the left, who would like to see broadband provided as a utility-like service, having the local authority provide Internet service at cost as a public good is nirvana. There are several problems with this view, however. It ignores the dynamic, evolving nature of broadband. It misunderstands the economics of a high sunk-cost industry with a limited addressable market. And it encourages unfair “cream skimming” wherein municipal providers take the lowest cost, highest revenue customers and leave the others outside of municipal borders for private providers.

On the other side of the political spectrum, free-market libertarians also go too far, preferring no government involvement in this market at all—indeed many states bar local authorities from providing broadband service, even if they can prove they will do it without unfair subsidies or regulatory advantages. Policymakers should be pragmatic and keep all tools available for bridging the digital divide, but the significant trade-offs of municipal broadband mean it is only appropriate for narrow circumstances.

The complete article can be found here.