How Municipal Broadband Railroads Due Process

[Commentary] Over the last decade, there has been much debate over whether local governments should get into the broadband business by building their own networks. While most don't view municipal broadband as controversial in rural high-cost areas where it is too expensive for the private sector to enter profitably, it is a very different story when municipalities seek to overbuild in established metropolitan areas that are already served by multiple private sector providers. These government-owned networks (“GONs”) typically require massive injections of federal, state, and local tax dollars for their construction and operation. Some city governments have taken to raising taxes, shifting funds between other government services like a city electric utility, or just dipping straight into the city's coffers to cover seemingly perpetual financial shortfalls.

The motivation for the private sector's distaste for such systems is plain enough. Taxpayer subsidies permit the GONs to charge below-cost rates—a type of predatory pricing that is both sanctioned and financed by the government. Competing under such conditions is difficult, at best, for unsubsidized private firms. Municipal entry could very well be a poison pill for private sector investment. Indeed, even the threat of municipal entry makes investors skittish about committing billions of their own money to build Internet networks that would have to compete with uneconomic pricing by a self-subsidized government network.

[Spiwak is the President of the Phoenix Center for Advanced Legal & Economic Public Policy Studies]