Freedom Line Blog

For years we at CFIF have highlighted the failures and peril of government-run broadband boondoggles.  Government-owned networks (GONs) have an uninterrupted history of failure both domestically and overseas.  They compete with private investment in commercial networks, they create more debt for taxpayers who ultimately become liable for them, they rarely if ever manage to break even financially, and they offer substandard quality.

In that vein, our friend Shane Tews of the American Enterprise Institute (AEI) offers an excellent new analysis highlighting yet another fatal defect of GONs:  weaker cybersecurity:

Local governments are good at many things, but asking them to understand how to keep local networks safe and protect connections to the nation’s internet infrastructure is a stretch.  Cybersecurity plans deserve more scrutiny at every level — especially given the possibility of local weaknesses in our network fabrics via government-owned and -operated broadband networks that often lack the tools to detect cyber intrusions.”

She rightfully contrasts the superior comparative performance of private broadband, and suggests a better option:

Commercial broadband providers, on the other hand, spend tens of billions of dollars annually to keep things running safely. They invest heavily in network security, pay hundreds of professionals to guard their network operations, and endlessly brainstorm ways to protect customers’ information.

We should build on what the COVID-19 work-from-home period has taught us: that our networks work extraordinarily well. Rather than overbuilding duplicative networks in areas that already have good broadband coverage, the state should partner with the private sector to close coverage gaps and build secure networks that give new internet users safe access. There is almost no question that the size and nature of these cyber threats will continue to escalate. We need to strengthen our network defenses — not build new, defenseless networks.”

Her pieces always merit full reading, and she hits the nail on the head by encouraging government to partner with private broadband providers that work extraordinarily well, not needlessly compete against them.

Last week we applauded a federal Court of Appeals ruling upending an Obama FCC campaign to impose government broadband regulations across the country.  Specifically, the FCC had attempted to commandeer state authority to govern cities within their own borders by forcing them to allow local governments to foolishly enter the broadband business.

United States Senator Thom Tillis (R – North Carolina) hit the correct note in reaction to the ruling:  “Today’s ruling affirms the fact that unelected bureaucrats at the FCC completely overstepped their authority by attempting to deny states like North Carolina from setting their own laws to protect hard-working taxpayers and maintain the fairness of the free market.”

Unwilling to let Sen. Tillis’s good deed go unpunished, however, his hometown newspaper The News & Observer maligned him for taking the correct position.  Bizarrely, the paper even admits that local government broadband is a monetary boondoggle whose sustainability requires that funds be diverted from other sources, saying, “They couldn’t price the service at less than it cost to provide it and couldn’t use funds from other sources to subsidize broadband operations.”  The editorial also openly advocates treating broadband as a local public “utility” and laments how private enterprises that invest trillions of dollars in broadband infrastructure can continue to do so “without having to worry about towns competing with them.”

Well, duh.  In what universe is it a good idea to encourage governments to enter the private market, given their ability to bureaucratically tip the scales in their own favor and kneecap competing private entities?  Government at all levels already regulates too much, spends too much and attempts to do too much.  The last thing we need is for it to try to commandeer the functioning and innovative private broadband market.

It amounts to a flimsy hit piece from an editorial board that ought to know better.  We suspect its readers in North Carolina do.

In this week’s Liberty Update, we highlight a humiliating new legal defeat for the Obama Administration in its continuing effort to evade legal reckoning for political persecution by the IRS.  Now, there’s yet another major court loss to report, this time against Obama’s overactive Federal Communications Commission (FCC).

Specifically, the Sixth Circuit Court of Appeals this week rejected FCC attempts to preempt individual state laws aimed at fostering private broadband innovation and growth.  For years, the Obama Administration has sought to encourage cities across the country to enter the broadband marketplace, thereby undermining private enterprises in the same business.  As CFIF has explained in our ongoing efforts to fight that effort, municipal broadband networks (otherwise known as government-owned networks or “GONs”) end up costing much more to build out and maintain than government officials expect or admit.  Moreover, consumers often pay 20% to 50% higher monthly bills than they would with private broadband providers.  It’s therefore no surprise that approximately 75% of GONs fail to realize a profit, causing many cities to fall even deeper into debt and end up selling their GONs at enormous losses.  The unfortunate experience in Provo, Utah provides a textbook illustration. Municipalities across America have better ways to spend taxpayer dollars than entering into competition against private broadband providers, not least because those private enterprises have invested $1.5 trillion in broadband infrastructure and continue to do so.

In order to shoehorn publicly-owned broadband through, Obama’s FCC resorted to infringing on individual state sovereignty by attempting to preempt state and local laws prohibiting these municipal boondoggles.  In other words, it attempted to govern how states could legislate within their own borders.  But the Sixth Circuit was having none of it.  The FCC order, it held, “essentially serves to reallocate decisionmaking power between the states and their municipalities.”

So mark down another embarrassing court defeat for the Obama Administration as it attempts to occupy as many sectors of the private economy as it can before time runs out in five months.

Five things Mississippi taxpayers should know and worry about the Gulf Coast “Fiber Optic Ring”

1)  A new plan proposes to use a portion of Mississippi’s British Petroleum (BP) oil spill settlement to build a government-owned broadband network in South Mississippi. The network or “Fiber Ring” would, in theory, connect a dozen Gulf Coast cities across three counties. Local officials estimate that it could cost over $100 million.

2)  So far, the state has promised $5 million of the BP funds towards the Fiber Ring, though it is not a fiscally sound proposal.  In fact, there’s no indication of where the additional $95 million needed to finance this project will come from, but taxpayers will likely foot the bill.

3)  Government-owned networks rarely succeed, and residents already have access to high-speed Internet provided by private companies. Competing with the private sector will only force taxpayers to subsidize a costly failure.  Private Internet Service Providers (ISPs) already bring high-speed broadband to 97 percent of Harrison County residents, according to BroadbandNow.com.

4)  When the government enters a broadband market, prices for consumers do not decrease.  In fact, government-owned broadband networks have been found to charge consumers more than private firms, for similar services.

5)  Other regions have tried (and failed) at building and running government-owned broadband networks.  Here’s a look at some of the results:

Burlington Telecom, VT
Burlington Telecom was started in 2008 to provide telecommunications services to the citizens of Burlington, VT.  The network floundered, and by 2014, it owed $33.5 million to Citibank.  The city reached a final settlement in which it agreed to pay about a third of what was owed, and turned to the private sector for help financing the settlement.

Memphis Networx, TN
Memphis Networx was started as a public-private partnership by Memphis Light, Gas, and Water Division (MLGW) in 1999.  By 2007, the network had failed and MLGW sold Networx to Colorado holding company Communications Infrastructure Investments for $11.5 million after losing about $28 million in public funds on the venture.

UTOPIA, UT
UTOPIA was started in 2002 to provide Internet services to 11 cities in Utah.  The network’s initial capital investment was $135 million, and by 2014 the debt had climbed to $500 million.  The cities involved have been looking for a private buyer to take over their network for several years.

CDE Lightband, TN
CDE Lightband was started in 2007 with a $16 million loan from the Clarksville Electric Power Board’s electric division to its broadband division.  In 2009, the utility was approved to take an additional $4.5 million in loans to finance the network, leaving taxpayers and utility ratepayers on the hook for the debt.

Help CFIF spread the word.  Email this link to your colleagues, friends and family members in Mississippi and/or share it on social media.  To download a copy of CFIF’s educational fact sheet about the Gulf Coast “Fiber Optic Ring,” click here (.pdf).

The Peachtree City, Georgia city council plans to vote TONIGHT on whether to use taxpayer dollars to build a Municipal Broadband Network for businesses.  This will cost millions of your hard-earned tax dollars and put the city’s bond rating and other important services at risk.  Tell Peachtree City Mayor Vanessa Fleisch and the Peachtree City Council Members TODAY that you do NOT want your tax dollars used to build a municipal broadband network. That is something the private sector can and does provide.

A few important facts to share with your Council Member:

• Municipal Broadband Networks (also known as Government-Owned Networks or GONs) inevitably cost much more to build and operate than policymakers assume or  realize. [New York Law School study]
• Some cities have been driven so far into debt because of their GON that they’ve sold them at huge losses, yet taxpayers were still left to foot the bill. [Provo, Utah]
• Monthly bills are 20% to 50% higher for consumers using GONs than if they used a private broadband provider, according to the American Action Forum.
• Peachtree City simply has better things to spend its money on than a service the private sector ably provides.
• 75 % to 80 % of all GONs fail to make an annual profit. [WiFi Waste: The Disaster of Municipal Communications Network, by Prof. Ron Rizzuto, Univ. of Denver]

1. Our Teacher salaries are 9% below the national average
2. The Peachtree city council has already voted this year to INCREASE TAXES on residents, collecting an extra $645,000

• Private sector broadband providers have invested more than $1.4 trillion into our nation’s broadband infrastructure and they are investing more every day. [US Telecom Broadband Investment]

Costly Municipal Broadband Failures

Burlington Telecom, VT

• Initial Capital Investment: $33.5 Million
• Current Debt: $17 Million
• Potential subscriber pool is 39,000 households yet just 4,000 have joined the network.

UTOPIA, Utah

• Initial Capital Investment: $135 Million
• Current Debt: $500 Million
• Potential subscriber pool if 62,000 households yet just 8,200 have joined the network.

MI-Connection, NC

• Initial Capital Investment: $92.5 Million
• Current Debt: $69.5 Million
• Potential subscriber pool is 88,000 households yet just 16,000 have joined the network.

CDE Lightband, TN

• Initial Capital Investment: $16 Million
• Current Debt: $20.5 Million
• Potential subscriber pool is 146,000 households yet just 18,000 have joined the network.

Contact Mayor Vanessa Fleisch and the City Council TODAY!

Group email to Mayor, Council & City Manager: [email protected]

Mayor Vanessa Fleisch

[email protected]

Twitter: @vanessafleisch

770-487-7657

Post 1 Council member Eric Imker

[email protected]

770-487-7657

Post 2 Council member Mike King

[email protected]

770-487-7657

Post 3 Council member Kim Learnerd

[email protected]

770-487-7657

Post 4 Council member Terry Ernst

[email protected]

770-487-7657

A government-owned broadband scheme in Lafayette, Louisiana, is more than $160 million in debt and is losing $45,000 a day, according to Lafayette’s independent auditor. The city’s broadband business is struggling to compete with cable, telephone, wireless and satellite service providers in terms of price, performance and service options, according to a study by the Reason Foundation.

Of course, none of this should come as a shock to anyone who understands basic economic principles or the value of competition.

The government simply lacks the incentive to provide quality service or spend money wisely. After all, if a government-owned/socialist-style enterprise fails, investors don’t lose money, taxpayers lose money. As a result, time and time again, when the government enters an arena already filled by successful private companies, it’s just a matter of time until the government’s offering goes belly up and taxpayers are left paying the bill.