Seven Economic Lessons Learned About Municipal

Broadband Internet connectivity is seen by many to be essential for modern life, not only because of the significant private benefits to its users, but also because of the alleged sizable social payoff—a “broadband bonus” above and beyond the purely private benefits of the service.  In pursuit of broadband’s social payoffs, some municipal governments have taken on the enormous financial risk of building and operating their own communications networks to provide telephone, video, and high-speed Internet connectivity to their constituents (and, in some cases, even to potential customers living beyond their municipal boundaries).  The purpose of this BULLETIN is neither to disparage nor promote municipal broadband as a policy option, but rather to consider the research on government-owned networks (“GONs”) and highlight seven economic lessons learned to aid decisionmakers to understand what municipal broadband is and how one might reasonably support or oppose it.  Portions of this discussion apply equally to broadband networks built by cooperative and investor-owned electric utilities where crosssubsidization from captive electric ratepayers to broadband networks is likely.  As detailed herein, these seven economic lessons can be distilled as follows: (1) building a greenfield broadband network will require subsidies of some sort; (2) asymmetric subsidies pose risk for private supply; (3) subsidized municipal entry is prone to be predatory; (4) GONs do not appear to lower prices; (5) more competition is not always better; (6) a municipal broadband network is unlikely to produce economic gains; and (7) state laws overseeing municipal broadband have a sound economic basis.  To illustrate these rules in practice, several cautionary case studies are provided.  Conclusions and policy recommendations are at the end.