Government Broadband: Unnecessary and Unfair

From Detroit to Marquette, municipalities by the dozen want more control over Internet access. Undaunted by the frequent costly failures of such ventures elsewhere, many local officials insist they can solve an array of economic and social ills by managing citizens’ connections to the World Wide Web. But there’s clear evidence that private services are far superior to a government-run network.

The timing of this trend could not be more incongruous. The Michigan Legislature recently rewrote state law to promoteprivate investment in telecommunications. But efforts to prohibit municipalities from muscling in on the market were largely defeated by the likes of the Michigan Municipal League and other advocates of government-run Internet access. In the absence of government interference, however, the number of high speed lines statewide has increased by 1,251 percent in the past five years, to more than 1.1 million. At least 32 firms in Michigan already offer Internet access of every sort, including coaxial cable, DSL and wireless.

Nonetheless, even cash-poor communities are lining up to finance and operate broadband networks or to franchise a favored firm that’s willing to discount rates in return for a captive customer base. In addition to Detroit and Marquette, government broadband initiatives are underway in the counties of Oakland, Macomb, Washtenaw, Kent, Genesee and Ottawa, as well as in the cities of Battle Creek, Grand Rapids and Muskegon, to name but a few.

Proponents contend that municipal broadband will stimulate economic growth, alleviate illiteracy and even conquer blight. "The benefits are nearly endless," according to Oakland County Executive L. Brooks Patterson, whose Wireless Oakland proposal ranks as Michigan’s most ambitious to date.

Assuming even the best of intentions, there’s solid evidence that local governments are ill-equipped for the rough and tumble of the high-tech market. More often than not, municipal broadband ventures have saddled taxpayers with unwelcome debt or otherwise failed to deliver promised results.

There’s hardly a shortage of Internet access in Michigan. Even those preferring to Google in public can easily find wireless "hotspots" in airports and hotels, as well as Starbucks, Borders and Kinkos. Meanwhile, a joint venture between McDonalds and Intel will soon make wireless access as ubiquitous as Big Macs, while Verizon, among others, is preparing to expand wireless services across entire communities in 2006. Free broadband also is widely available in public libraries and schools, as well as community centers, compliments of federally mandated taxpayer subsidies.

The adverse consequences of government-managed access are abundantly clear, as evidenced by a closer examination of the Wireless Oakland project.

County officials are promising "free" wireless Internet access, both open-air and in-building. Plans also call for "no cost" or "low cost" computers and training for low-income residents. Mr. Patterson and his team claim that the project will attract new business, boost tourism, improve education, enhance public safety and eliminate the so-called "digital divide" in one of the nation’s wealthiest counties — all without taxpayer financing.

The Pontiac-based firm of MichTel Communications, LLC will own, operate and maintain the wireless network, but will be required to answer to an advisory board appointed by the county. In theory, the plan is viable because the county has pledged to provide unfettered access to hundreds of public facilities for MichTel’s rooftop antennae and receivers. The access inventory includes 35 buildings, 350 public schools, 1,400 traffic signals, 200 tornado siren poles and other structures that county officials say is worth "hundreds of millions of dollars."

Competing firms — all those that have not won county favor — can only dream of such access. For example, telecom firms paid Oakland County communities more than $2.1 million for rights-of-way in 2003-2004, according to state figures; payments statewide totaled nearly $16 million. MichTel thus will enjoy a tremendous competitive advantage in the state’s most lucrative market, assuming it actually secures the estimated $113.5 million in financing needed in the next five years to build and operate the network.

The provision of free access by MichTel will also erode rivals’ market share, thereby reducing customer choice and technology investment. Meanwhile, tech experts are warning that new technologies could render the proposed service obsolete before project costs can be recouped.

Alternatives do exist for local officials dissatisfied with the course of the market: To the extent that municipalities reduce tax and regulatory barriers, broadband penetration and consumer choices will increase. Simply put, Michigan needs less government involvement in broadband, not more.

Diane S. Katz is director of science, environment and technology policy with the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.