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Government-Owned Network Supporters Incorrectly Cite GAO Report

March 26, 2014

iStock_000005643842MediumEarlier this month, the Government Accountability Office (GAO) released a report on government financing of broadband that proponents of government-owned networks (GONs) claimed showed GONs provide faster service.

In a piece in Forbes this week, Pacific Research Institute Senior Fellow Wayne Winegarden examines the GAO study and GON supporters’ reading of it. He concludes, “[T]he GAO report does not demonstrate what” GON supporters suggest. Here are the reasons:

  • The report only looks at 28 networks (14 privately-financed and 14 that received government funds). Winegarten suggests this sample is too small and says they “are not representative of either the typical government network communities or the typical private network communities.” Indeed, Winegarden notes the “GAO states in the report that ‘the results of our interviews cannot be projected to all service providers and small businesses’.” (Exactly what GON supporters have done, he says.)
  • Because it looks only at the fees consumers pay for monthly service, the report doesn’t look at the “total costs” associated with GONs.  Winegarden argues, “[T]he actual cost of a government-operated network, which should include the costs incurred by taxpayers to construct and operate the government-operated broadband networks, is much higher than a simple rate comparison implies.” Winegarden also notes it’s not only taxpayer funds that are used to construct GONs. Cities like Chattanooga, Tenn. “embed the building and construction costs into residents’ electric bills.”
  • The report doesn’t account for the long-term cost to maintain broadband networks. This omission is important because this cost is the reason most GONs fail. As Winegarden explains Municipal networks are “often unable to meet additional capital commitments jeopardizing the long-term viability of the government-operated networks compared to private-operated networks.”
  • The report undervalues the amount of capital private providers invest in broadband. Winegarden notes while the federal government has spent $15 billion to develop broadband over the last five-and-a-half years, private providers have invested $250 billion in just the last three.

Why is this last figure important? Because, as Winegarden says, if lawmakers – spurred by GON supporters – draw the wrong conclusions from the GAO report it “would significantly inhibit the growth and efficiency of the U.S. broadband infrastructure.”

How? As CNE has argued repeatedly, government entry into the broadband market stifles competition. Because GONs receive so many taxpayer and regulatory subsidies, private providers are simply less likely to compete where the government is in the market. Which is why Winegarden concludes, promoting “robust competition between private firms is the best path for ensuring that the U.S. broadband infrastructure remains vibrant and innovative throughout the 21st century.”