Study: Municipal broadband a risky proposition
Municipalities should not compete against the private sector in the broadband market, but governmental entities can play an important role to ensure that high-speed data services are available to their constituents, according to a study released this week.
Entitled “Municipal Broadband: Digging Beneath the Surface,” the report written by former Legg Mason telecom analyst Michael Balhoff and longtime state regulator Robert Rowe examines the controversial topic of government offering high-speed access.
Proponents and opponents of government offering such services are outspoken in stating their opinions on the issue, but the arguments include a “phenomenal amount of rhetoric and not many data-centric views,” Balhoff said during a press conference this week introducing the report. Both Balhoff and Rowe emphasized the independence of their study but acknowledged its sponsorship by industry
As many commercial broadband providers have stated for years, the report states that government should not enter the high-speed access market in competition against private enterprise, citing financial risks and potential anti-competitive ramifications. Where commercial providers are unwilling to enter a market, government may be the best broadband option.
But, even in these situations, elected officials should proceed with extreme caution, according to the report.
“If the municipality is not successful in supporting or stimulating private-sector activity, it is then reasonable to consider whether to dedicate limited public capital and assume greater risk in building and operating networks,” the report states.
Most municipal broadband ventures do not meet the adoption and revenue levels promised, according to the report. In fact, none of the municipal fiber buildouts “are close to being present-value positive,” Balhoff said during the press conference.
Balhoff expressed skepticism about the competitive nature of Philadelphia’s citywide Wi-Fi deployment being done by Earthlink at no cost to the city. Although acknowledging that he did not know the details of the arrangement, Balhoff questioned why Earthlink would not have pursued the venture on its own unless it was getting some sort of break—such as tax or right-of-way waiver—from the city.
Initially, the report focused on fiber buildouts, but Balhoff and Rowe said the relatively new phenomenon of wireless broadband buildouts has been much more difficult to assess.
“We do not have a history on wireless,” Balhoff said. “We do have a history on [municipally owned] fiber, and it’s not been good, so far.”
With lower upfront costs, wireless broadband networks are more attractive to municipalities, but Balhoff said these capital-expenditure projections typically do not consider the notion that upgrades to the network will be needed within three to seven years to remain attractive to consumers. While fiber networks are much more expensive initially, they are relatively “future-proof,” he said.
Rowe noted that governmental entities can provide incentives to commercial providers and can build networks that ultimately are used by retail customers. However, instead of a city—and its taxpayers—taking the financial risk and potentially competing directly with the private sector, Rowe and Balhoff suggested that entities should seek to wholesale the networks to commercial providers.