News

Municipal broadband - survey may not be as impartial as it seems

by Guy J Kewney | posted on 07 December 2006

A new report "warns that cities considering municipal WiFi shouldn’t fool themselves into believing that the experience will be as routine as running water, gas and electricity systems." The report should come with a Thatcher Warning; it's not ideologically neutral.

The report comes from the Reason foundation, and on the face of it, is simply a consultant-style investigative report into the economics of "utility broadband" as being implemented by several US cities.

However, it focuses almost exclusively on projects which have run into problems, and ignores some world-famous municipal broadband projects, such as the Greater Stockholm fibre network, which have scored enthusiastic support from local businesses.

As a warning of what can go wrong, the Reason report is probably invaluable.

Presented by media such as Network World as "written by a former deputy director and acting director of the Federal Trade Commission’s Office of Policy Planning," the report takes a sceptical view of the likely success of municipal broadband. And it includes several obviously sensible observations about the difference between running a water utility and running an IP pipe.

However, although there should be no inference that the report is in any way incorrect, there should equally be care in inferring that it is unbiased.

Reason is (for example) the publisher of the twenty-year-old publication: "Transforming Government Through Privatization" annual report; and is about as likely to approve of publicly-owned enterprise as would be Milton Friedman, the Nobel Prize winning economist who inspired Thatcherism (and who strongly admires Reason).

The full study, A Dynamic Perspective on Government Broadband Initiatives, is available online at http://www.reason.org/ps349.pdf

Author Jerry Ellig, former deputy director and acting director of the Federal Trade Commission's Office of Policy Planning, is not any more enthusiastic about "outsourced" muni WiFi than he is about municipality-operated broadband. He says: "Beware of geeks bearing gifts," suggesting that companies like EarthLink and Google are interested in providing free WiFi "because the deals will give them rights-of-way and valuable access to public infrastructure like light and telephone poles."

Here's the report summary of what Ellig says will be "seven critical issues for governments to tackle before jumping into the broadband market":

Competition: At the end of 2005, 67 percent of U.S. zip codes already had at least four high-speed Internet providers; 93 percent had two or more high-speed competitors; and just 1 percent had no competitors. Thus, municipal cable and Internet offerings face stiff competition and are unlikely to grab a large market share unless they are willing to lose a lot of taxpayer money doing so.

Performance Competition: New government systems will have to offer higher speeds or lower prices to compete with private companies. Existing government systems will need to consistently upgrade their speeds or drop their prices to compete with private sector improvements.

Continuous Improvements: The real consumer price index for Internet services has fallen by 23 percent since the Bureau of Labor Statistics started tracking it in 1997. Unlike traditional government-owned utilities, the lightning pace at which broadband technology improves and prices fall is difficult for municipalities to match.

Technological Change and "Lock-in": The market can get locked in to an inferior technology if government decides to subsidize the inferior technology, thus blocking out better or less expensive technologies. For example, ISDN was short-lived method for sending data over phone lines. Today we don't know how Evolution Data Optimized (EV-DO) technology and cell phone companies will change the market; if we'll see broadband over power lines; or what fiber optic service by cable or phone companies will mean to consumers and the Internet.

Obsolescence: Because wireless technology improves so rapidly, capital investment quickly becomes obsolete. Plans for government broadband need to assume faster depreciation rates than have been used for traditional government utilities. A workable plan for municipal WiFi needs to cover operating costs and recover initial capital outlay in three to five years.

Risk: Broadband is a risky endeavor and governments must not finance it as though it is a low-risk infrastructure investment.

Uncertainty: Since taxpayers bear the financial uncertainty in their role as the owners of government broadband, officials should ensure the accountability and transparency in these projects is at least as good as that of publicly held companies.

Liberterian principles, overtly espoused by Reason, underly all the arguments, leaving the report vulnerable to the suggestion that its conclusions were never in question.