Does the US government really want to get into the broadband business?

When US president Barack Obama proposed eliminating rules in 19 states that prohibit cities from building out their own public broadband networks, the response from the cable industry and government skeptics was immediate: Big government is taking over the internet, and it won’t end well.

“Many such enterprises have ended up in failure, saddling taxpayers with significant long-term financial liabilities,” warned chief cable lobbyist Michael Powell. “It’s about pushing government-run Internet, the ultimate fantasy of the Digital Left,” cautioned Berin Szoka, president of Tech Freedom, a libertarian tech policy organization.

And indeed, every time Obama cites his favorite example, Chattanooga, Tennessee, a city that parlayed municipal broadband into economic development, critics bring up Provo, Utah, which built a $39 million network but later sold it to Google for $1, citing management difficulties.

The competition cure

But Obama is on to something: As his administration’s white paper notes, there’s not much competition when it comes to broadband. For 40% of Americans, 10 Mbps broadband either isn’t available or can only be purchased from one company, and 75% of Americans have no choice when it comes to accessing a 25 Mbps broadband connection.

(White House)

Put simply, competition spurs faster and cheaper broadband service. The administration notes that academic studies and empirical data show that when new networks come to town, everyone gets better: When Google built a fiber-optic network in Kansas, speeds on existing networks there nearly doubled; when it announced a similar plan in Austin, Texas, AT&T hastily unveiled its own investment plan.

The White House isn’t really expecting municipal internet to make a major dent the market share of existing cable providers. As with the short-lived “public option” for health insurance before it was cut from the president’s health care proposal, the idea here—and on a much smaller scale—is to hold telecoms’ feet to the fire by providing a baseline level of service. And the cable industry’s unease suggests that this would be the exact result: If only municipal budgets were at risk, corporate lobbyists wouldn’t get so worked up about it.

The local-monopoly problem

Why are there laws forbidding municipalities from setting up their own internet networks, anyway? To protect incumbent firms that have already built networks from public competition. In Pennsylvania, for example, a city can’t build a network if a telephone company already provides one. Obama wants to scrap those laws.

But he’s not looking to over-rule other laws that also block competition, namely the monopoly franchises that local governments have effectively given to incumbent cable and, before that, telephone companies.

Currently, anyone who wants to build a network needs to pay expensive fees to local governments in order to put wires on poles or under roads. These are the rules that Google demanded cities relax for it to build out fiber-optic networks, and that other companies say deter investment. But granting special privileges to Google alone doesn’t seem particularly fair, either. It makes sense for Obama to push for localities to simplify and reduce the fees that companies pay to install networks.

In the loop

Even then, though, installing new networks is expensive and time-consuming compared to the incumbent’s close-to-zero cost of adding a new customer. In many European countries, the answer is “open access” or “unbundling the local loop”—a regulatory scheme that recognizes that if you really only need to lay down fiber-optic cable once to get a monopoly, the right way to kill it is to make companies share it. Comcast or Verizon may have built the local network, but anyone can pay for the right to sell internet access over it.

Open access is a much bigger threat to incumbent telecom profits than municipal broadband is, so it is a much harder political lift. (It is also a fiendishly complex policy to design.) Attempts to introduce open access in the US at the turn of the century got bogged down in lawsuits and bureaucratic in-fighting.

But, to return to where we started, a local government isn’t likely to be as protective of a network it builds as a commercial operator. As the administration puts it, cities “can build their own middle-mile networks and offer competitive access to the private sector.” And that may be the real promise of this initiative—while government-run networks might not be the ultimate solution to providing better broadband service, it’s worth seeing if open access to publicly-financed local networks can be.

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