MTA Commentary: April 4, 2013 Government Owned Networks

There’s a myth spreading around in government circles that the private
sector can’t be trusted to deliver vital telecommunications services to our nation’s
communities. Therefore, the solution is–you guessed it–taxpayer-funded,
government-owned telecom networks.

For us to buy into the "government-is-the solution" argument, we need to
be persuaded that there’s a problem. So we’re told, for example, that the United
States lags behind other nations in broadband deployment. But studies show
this simply isn’t true. The United States leads the world in information technology
investment, and broadband infusion in the U.S. is among the highest on the
planet.

In fact, 95% of American households have access to some sort of
broadband service. And 80% of Americans now have a choice of two or more
broadband providers. While many Americans may not be using high speed
Internet, it’s not because they don’t have access to it. It’s because for one
reason or another many of us choose not to subscribe to broadband services.

Another rationale for government network activism is the belief that
telecom networks today are like electricity was in the 1930s: a "natural
monopoly." The Telecommunications Act of 1934 was written in part in the belief
that AT&T was a natural monopoly.
But wait, AT&T, it turns out, was not a natural monopoly. In the 1970s and
1980s, AT&T was broken up to make room for a vibrant, competitive
telecommunications market. And in the 1990s, there was a mad rush to jump
into the telecommunications trade. The mantra was, "If we build it, they will
come." So they built it. And we ended with the dot-com and fiber bubbles which
ultimately burst. Companies like Touch America and its employees were swept
away.

Now government officials across the country want to jump on the telecom
bandwagon. But, like watching a Shakespeare play, one needs to suspend disbelief and make several assumptions before drinking the government network
Kool Aid. For example, you need to assume that governments can run
competitive enterprises better than competitive enterprises.

But even before you
get there, you need to assume that there’s an unmet demand for more network
facilities despite the fact that there are multiple broadband providers already
serving our communities. You need to assume that everyone–not just an elite
group of heavy telecom users–wants whatever it is that governments think they
can offer, and that everyone should pay, rather than only those who choose to
use the stuff. And finally, you need to assume that government networks can
actually deliver more for less. In other words, you need to believe in free lunch.

So let’s look around and see what’s happened where governments have
built their own networks. The Iowa Communications Network has spent over
$320 million and now is up for sale, having demonstrated it cannot operate
effectively. Another failed government network–ironically named UTOPIA–has
tried for years to provide cheap, fast telecom service in the Salt Lake City area.

Utah’s Auditor General concluded last year that UTOPIA cannot cover its debt
service and operating costs. But, like many government programs, it refuses to
go away. In Burlington, VT, the city "borrowed" $17 million from itself, and is
financing a $51 million debt. It’s being sued by a creditor. The network serves
only 4,000 residents out of a population of more than 42,000. No wonder the
city’s debt rating has been downgraded. And this is just the tip of the iceberg.
Examples of big plans and failed execution go on and on.
Many government entities badly underestimate what it costs to build,
operate, maintain, and upgrade a telecommunications network. And, they often
overestimate demand for their services. Most governments that do their due
diligence conclude that it’s too risky to justify building and maintaining
government owned networks.

When governments enter into competitive markets, they have an
immediate chilling effect on private sector investment and jobs. Private
companies need to earn a return on investment. But governments can simply
assess the taxpayer for whatever it costs to run a network. They don’t pay taxes. They don’t face regulation. They can require exclusive use of their network.
Customer service is optional. While companies that fail to meet customer
expectations can go out of business, governments, on the other hand, have a
steady supply of captive customers; and they don’t go out of business. In short,
companies can’t compete against governments.
This is not to say government can’t play a constructive role in promoting
telecom investment. Government, for example, can drive demand by
leveraging–rather than duplicating–existing infrastructure. And it can
encourage investment in areas where it is otherwise uneconomic to build a
business case. Rarely do such areas include America’s cities and towns.

There’s a lot of things that government can and should be doing. Building
telecom networks is not one of them. So the next time you hear about a
government plan to spend your money on a shiny new telecommunications
network, just ask yourself, "what could possibly go wrong?"

Contact: Geoff Feiss, General Manager

Montana Telecommunications Association

Helena, Montana

406.442.4316

[email protected]