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State Laws Not To Blame For Lack Of Government-Run ISPs

April 18, 2017

In a column posted last week, Will Rinehart, director of innovation and technology policy at the American Action Forum, asks why more city governments aren’t launching their own Internet Service Providers (ISPs).

Supporters of municipal networks often blame state law or regulation.

That’s not the culprit, Rinehart says. The real reason is cost. Rinehart says, “Localities face complex tradeoffs created by bond issuance, taxation, and regulation that in turn affect their own revenue streams. Developing municipal fiber is no easy task …”

First, there are the actual costs of building a network. Rinehart notes that Google Fiber, which has pulled back from its plans to create gigabit broadband systems in several U.S. cities, has learned that coming up with the revenue for broad, citywide, ultra high-speed networks, is often impossible. Rinehart says, “Since the entire network must be built, and only then can revenues be collected, new networks owned by municipalities face the same kind of financing problems as any other entrant.” Cities need the revenue—and they have to decide where to find it. The answers are raising taxes, borrowing, or finding a partner in the private sector to help.

Second, there is the risk. Rinehart says municipalities sometimes can “cobble together” the revenue to build a network, but that doesn’t mean it will succeed. “Undertaking these kinds of projects entails significant risk,” Rinehart argues, including the prospect of raising utility rates “in order to pay for new broadband infrastructure or tackling on more debt which could put it [a city] into a funding bind.” At some point, the money, and the political will, to keep dumping money into a network will subside. What happens then to city residents who rely on the network?

Rinehart also takes a look at the state laws that municipal broadband supporters argue unfairly restrict the growth of government-owned broadband. He notes that “only a few states have outright bans” on government-owned ISPs. Most states simply require municipal networks to play by the same rules that private ISPs do or, like Florida, require “a plan to ensure the network breaks even” after a few years. Requirements like these “make sense,” Rinehart says and, as the Coalition for the New Economy has argued repeatedly, they protect taxpayers and electricity ratepayers.