The Impact of Government-Owned Broadband Networks on Private Investment and Consumer Welfare

While the debate over government-owned networks is heated, what is lacking is a cohesive economic analysis of the phenomenon. This study attempts to fill that gap by breaking the issue down to its fundamentals by using standard economic concepts and the available evidence. The study concludes that:

1) Municipal broadband buildouts are almost always subsidized, and that a government firm with no regard for profit is a legitimate and serious concern because it threatens privacy investment and "exposes taxpayers and captive municipal electric ratepayers to significant financial risks."
2) Economics suggests subsidized municipal broadband won't increase competition because it will be a "poison pill" for investment in the sector or drive out unsubsidized private competitors.
3) Subsidized entrants are "prone to be predatory," attempting to capture market share and even possibly exposing cities to antitrust actions.
4) Because there is no profit motive, having deterred private investment, that lack of investment can then be used to justify the municipal entry that caused that lack of competition.
5) Subsidies are more costly than they appear because "every dollar of spending by government costs much more than a dollar to gather and distribute." The study asserts that "hundreds of millions in federal, state and local subsidies have been used to support failed municipal networks."
6) Incurring "massive" fixed costs of building broadband networks with subsidy dollars is an inefficient means to the end of broadband deployment, with subsidies to existing firms a more efficient approach. While such subsidies are continuous and can be targeted, subsidizing buildouts are "discrete, untargeted, relatively expensive, risky for taxpayers, and arguably predatory."