Thursday, March 3, 2005 - The Progress & Freedom Foundation Blog

Something Funny Afoot in Florida

The President encourages, nay even pines for, municipalities to offer broadband services. Why? Because municipal broadband networks improve public education, health care and local economies. Each of these areas is harmed by private broadband providers. Certainly taxpayer funded, publicly owned and operated broadband is superior to the delivery offered by private markets. In addition, public networks will attract new private investment and there should be no worry about subsidization since large wireline carriers receive federal subsidies.

Okay, the jig is up. These are the arguments made by the Florida Municipal Electric Association to Governor Jeb Bush in a fifteen-page letter. While their invocation of the President's agenda is shocking, what is most stunning is the number and degree of misleading and contradictory arguments are made in effort to gain Governor Bush's opposition to legislation that would restrain municipal broadband investments.

FMEA Executive Director Barry Moline probably thought he was clever in telling Governor Bush that municipal broadband supports his brother's call for universal broadband by 2007. What was not so clever was to underestimate the policy acumen of the wonky Florida Governor or his team. Both on the actual merits of the issue and on the proposals of President Bush's Administration, Moline is too clever by half.

In a position paper released by the White House's Office of Science and Technology Policy, the administration backed: (1) Tax reform, including allowing greater depreciation of capital costs for broadband buildouts and an extension of the Internet tax moratorium; (2) Regulatory reform, including ensuring fiber-to-the-home buildouts weren't burdened by legacy rules a the FCC; (3) Enabling more ways into the home, by freeing up more spectrum for Wi-Fi and Wi-Max, and developing BPL standards to ensure ubiquitous rollout of that service; (4) Increasing federal R&D spending on broadband. (5) Reforming rights-of-way rules for commercial broadband providers on federal land. I don’t recall a sixth leg to that stool calling for a public takeover of the most innovative sector of the communications marketplace.

That rights-of-way reform is critical. If a municipality determines that a commercial provider isn't moving quickly enough into its community, the first step should be to look at the costs it imposes through rights-of-way charges and other regulations.

FMEA also contends that because "municipalities act with a public motive and not a private motive, their networks will reach more people with superior service." That only works if municipalities, liberated from a profit incentive, can spend freely. Unfortunately, that seems to be their argument, taxpayers be damned. "Since municipal broadband infrastructure serves a public purpose, and is not developed for the sole purpose of making a profit, we should expect that these networks contain higher bandwidth than private sector deployment." Funny thing about profits: They tend to expand capacity. Perhaps Moline thinks that more bandwidth is simply free for municipalities.

Some carriers in Florida are faulted by name. BellSouth is criticized for spending billions on fiber-to-the-curb, which Moline says isn't as good as fiber-to-the-home. Verizon is criticized for not spending enough billions on its fiber-to-the-home plan. Yet a municipality offering Wi-Fi is going to "contain higher bandwidth" than either of those rollouts? Color me skeptical (and not of the technology).

Moline also argues that this massive infrastructure investment by a municipality is needed because "we should expect [commercial carriers] to care only about profits and not behave altruistically. But while a profit-centric view may be good business, it is obviously not good for communities forced to endure substandard education, poor health care, and a sluggish economy." (Underlining in original.) It is hard to see how private communications providers can be blamed for poor schools and medical care.

While these arguments are absurd, perhaps the most off-the-wall -- and frightening -- argument is that municipal broadband networks don't compete with commercial services, but instead provide incentives for more commercial investment. What carrier would want to compete with its regulator? What carrier would want to compete with a municipal network provider that can always undercut price by falling back on more taxpayer money?

As to the argument that carriers receive federal subsidies and thus also benefit from public funding, it would seem that playground logic is in order. Two wrongs do not make a right. It's also a stretch to say those subsidies exist to promote broadband buildouts.

Florida is fortunate in that it has a number of healthy carriers competing in the broadband market, including three major telecom providers -- BellSouth, Sprint and Verizon. That doesn't include numerous cable operators and wireless providers also competing in Florida. These providers know broadband is the future, as it offers tremendous growth potential. These carriers want to deploy broadband networks in Florida communities. The only way to stay competitive is to continually upgrade those networks.

Will municipalities have the same incentive to upgrade? Or will customers of these networks see themselves stuck in a low-bandwidth Wi-Fi limbo while commercial carriers ramp up bandwidth and quality of service in neighboring areas that were wise enough to let competition emerge? I fear the latter is the more likely scenario.

posted by @ 4:37 PM | Broadband , Municipal Ownership , State Policy