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Phoenix Center: Outside Factors Sustaining Chattanooga Broadband

January 26, 2015

Last week the Phoenix Center for Advanced Legal and Economic Public Policy Studies released a report by Dr. George S. Ford on Chattanooga, Tenn.’s government-owned broadband system.

As Coalition for the New Economy readers know, the Chattanooga network is very often used to encourage other U.S. cities to create their own municipal broadband networks. The Phoenix Center report, titled “Why Chattanooga is not the Poster Child for Municipal Broadband,” outlines why the Chattanooga network is unique and cautions other cities that they may not be able to replicate its model.

Like a study issued last summer by the New York Law School, the Phoenix Center reports that the relative financial stability of the Chattanooga system is due to several factors other cities will never be able to rely on, including:

  • Implicit backing by the city’s utility network. Dr. Ford says this help “reduce(s) costs, thereby making profitable entry into broadband more likely.”
  • The $111 million grant the network received from the U.S. government. This sum equates to a $2,000 per subscriber subsidy.
  • A $50 million loan from the city utility’s electric division.

According to Dr. Ford, the federal subsidy alone gives it an unfair advantage over private Internet Service Providers (ISPs). For example, Dr. Ford explains “[I]f the U.S. government gave such a subsidy to Comcast for every home in its markets, then Comcast would be entitled to a federal subsidy of about $35 billion, which equals about eleven years of Comcast’s annual capital investment.”

Instead of getting generous subsidies like these, though, private ISPs are faced with “actively expanding” and “burdensome regulation in the sector,” a fact that also benefits the government system since it is not subject to many of those regulations.

The Phoenix Center report also tackles other common myths about the Chattanooga network. Dr. Ford found subscription prices for the Chattanooga network’s triple play packages “are not lower than their private-sector counterparts” and “if anything, they are higher.” (The Phoenix Center last week also hosted a discussion on municipal broadband in which Dr. Ford outlined several cities where municipal broadband prices are higher than private ISP subscription prices, including Bristol, Va. where private providers charge $40 a month less than the city-owned network and Lafayette, La. where private subscribers pay $40-$50 less than city subscribers.)

Dr. Ford also says there is no conclusive evidence Chattanooga’s city-owned network is responsible for the economic improvements many supporters attribute to it.

Dr. Ford concludes, “Municipal broadband has a place in markets where the private sector can’t profitably serve. But using government funds to directly compete with the private sector in developed markets is radical by any standard and a policy that deserves close and honest scrutiny.”