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Another View -- Tom Eaton: Like a bad penny, municipal broadband keeps turning up


Lawmakers in New Hampshire are once again considering legislation that would encourage cities and towns to build and operate their own telecommunication networks.

SB 170, under consideration by the Senate Public and Municipal Affairs Committee, would eliminate the restrictions that limit the use of municipal bonding for broadband networks to areas that are currently unserved by any provider. This is a risky and unnecessary expansion of municipal bonding authority that would hurt taxpayers, consumers, and private companies that have invested hundreds of millions of dollars into broadband infrastructure in the state.

Broadband access is undoubtedly an important service in the modern economy, and it may make sense for local voters to approve bonding to expand existing networks into unserved areas. However, financing government-owned competitors where private sector networks already exist is a slippery slope, fraught with financial risk to taxpayers and unintended consequences for consumers.

Municipalities across the country have borrowed tens of millions of dollars on networks that purported to provide more “universal” access where it was otherwise available, but ultimately failing. Groton, Conn., borrowed $34.5 million to build its network, which it was forced to sell for $550,000 when it failed. Provo, Utah, borrowed $39 million, and sold its network for $1. Burlington, Vt., taxpayers were left on the hook for more than $10 million when Burlington Telecom’s network failed. These government-owned networks could not operate on a sustainable basis, incurring significant operating losses, never mind recovering the original capital investment. In the end, communities are forced to unload their networks for virtually nothing while remaining responsible for the debt.

When municipalities subsidize networks in areas where private networks already exist, it sends a strong signal to those companies that their investment in network expansion and upgrades can and will be put at risk by unfair competition. Inevitably, those companies will decrease or withdraw their investment, and direct it to areas where they can more confidently achieve a return. This harms consumers all across our state, as network penetration into rural areas is slowed.

Often, “underserved” actually means “too expensive.” The unstated goal of overbuilding a municipal network is often to drive down the price charged by incumbent providers. This is akin to local officials not liking the high-priced grocery store in a small rural town, and seeking to have the town build a government-owned, lower-cost competitor.

Government-owned entities in competition with private enterprise almost always result in failed outcomes. Either the service is not delivered as promised, costs much more than anticipated, or drives out competition through artificially low prices (subsidized through taxpayers or ratepayers.) This suppresses innovation, investment, and efficiency, keys to lower prices and improved services over time.

In the broadband marketplace, we have seen remarkable progress over the last decade, with available speeds increasing annually at double digit growth rates, penetration increasing to cover all but the most remote areas, and new and innovative services deployed on a regular basis. New technologies such as fixed wireless broadband, delivered with technologies such as LTE that reach speeds once reserved for high-speed wired networks, promise to bridge the last mile to almost any location. Communities, residents, businesses and government should be promoting these innovations, not stifling them.

And while we should always be wary of expending taxpayer funds in a manner that extends government’s reach into the realm of the private sector, there do exist measured and reasonable options for communities that want to improve broadband access for their residents. Rather than competing against the private sector, municipalities can engage with the private sector. One such solution would be for a municipality that believes it is underserved to issue an RFP for private companies to deploy services to a specific geography and at a specific minimum service level or higher. Companies could bid to build or extend existing networks and offer service to any additional customers who would be interested. Not only would private sector expertise and participation inevitably result in a more cost-effective proposal, but current law allows for such an arrangement to be funded through municipal bonding, thus achieving the broadband goals of the town at a lower cost and with much less risk.

Municipal bonding for broadband in currently served areas just does not make sense. The Senate should reject SB 170, and keep the current law in place to protect taxpayers from expensive white elephant networks that will require bailouts down the road.

Tom Eaton is the former president of the New Hampshire Senate.


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