Wall Street Journal: A Disconnect on Municipal Broadband

February 20, 2015

A Disconnect on Municipal Broadband

Obama’s promises about government-provided Internet service aren’t borne out by the facts.

By: Lindsay M. Lewis
Wall Street Journal
Feb. 9, 2015 7:25 p.m. ET

Should city governments get into the Internet service business, competing with the likes of Verizon , AT&T and Comcast for the right to pipe the Web into your living room or office? President Obama thinks so. He visited Cedar Falls, Iowa, on Jan. 14 to laud the city’s publicly owned utility, which offers residents fiber-optic Internet. He urged other municipalities to follow its example.

“Today, tens of millions of Americans have only one choice for that next-generation broadband, so they’re pretty much at the whim of whatever Internet provider is around,” Mr. Obama said. “And what happens when there’s no competition? You’re stuck on hold. You’re watching the loading icon spin. You’re waiting, and waiting, and waiting. And meanwhile, you’re wondering why your rates keep on getting jacked up when the service doesn’t seem to improve.”

US President Barack Obama speaks about increasing                   access to high speed internet at Cedar Falls Utilities                   in Cedar Falls, Iowa, in January.

US President Barack Obama speaks about increasing access to high speed internet at Cedar Falls Utilities in Cedar Falls, Iowa, in January. Photo: AFP/Getty Images

Government-owned networks, the White House claims, can bring healthy competition to Internet service, increasing speeds and lowering prices. Mr. Obama even included a line about this in his recent State of the Union address, saying he intended to “help folks build the fastest networks.” Unfortunately for the president, his premise—that our current broadband is slow, costly and inaccessible to many Americans—simply does not check out.

Internet speeds in the U.S. are among the fastest in the world. More than 90% of American households are now served by connections capable of neck-snapping speeds of 100 megabits per second. (Streaming a movie from Netflix on the “ultra high-definition” setting requires a connection of only 25 megabits per second.) Many consumers choose to pay lower fees for slower service. Still, if individual U.S. states were ranked by average broadband speed alongside countries from across the globe, we would hold 12 of the top 20 spots.

Competition in the broadband market is robust, and the result is that entry-level prices in the U.S. are among the most affordable world-wide. America is one of only a handful of countries with three different high-speed Internet technologies—cable, DSL and wireless—fully deployed and vying for customers. Some claim that only cable networks are capable of the fastest speeds, but modern DSL offers 45 megabits per second or more, and newer innovations being tested abroad, such as G.fast, are pushing DSL past a gigabit per second. Wireless networks reaching 200 megabits per second are also being developed.

All of this is thanks to the industriousness of private enterprise, which pumped $75 billion into building broadband networks in 2013, on top of $69 billion in 2012. U.S. Internet providers invest twice as much per household as do their European counterparts.

Mr. Obama’s favored policy—for local governments to build, own and operate competing networks—has been tried and, for the most part, found wanting. Two scholars at the New York Law School, Charles M. Davidson and Michael J. Santorelli, recently studied 10 such networks. Their June 2014 report found that most of the networks are awash in debt and either dragging down their communities or being sold off at multimillion-dollar losses.

Even the network in Cedar Falls, carefully chosen by the White House as an exemplar, was only “partially built” after 20 years of development, the study found, and the long-term debt from the project led Moody’s to downgrade the bond rating of the city’s utility, to A3 from A1. Messrs. Davidson and Santorelli conclude: “The huge cost and long-term debt associated with the municipal fiber system in Cedar Falls raise questions about opportunity costs and whether such substantial resources have been invested wisely.”

Meanwhile, local officials around the country face budget shortfalls for basic infrastructure, including roads and bridges, schools, prisons and hospitals, as the president has also noted.

Mr. Obama is right that investment in next-generation Internet service is vital for the U.S. to remain competitive, as business, education and media consumption increasingly take place online. But with private companies already leading the way, the president’s push for local governments to allocate precious public dollars to build duplicative networks is a poor solution to an imaginary problem.

Mr. Lewis is executive director of the Progressive Policy Institute.