Community Broadband and the Changing Free Market

Earlier today, my Gigabit Nation radio show tackled the source of many of our broadband woes – the lack of sufficient  broadband competition in the U.S. despite incumbents’ fairy tales to the contrary. The flip side of the same counterfeit coin of “robust competition” is the claim that the free market can meet all of our broadband needs and local governments cannot. Pul-leaze!

Last week I had to lay out the facts of broadband life to dispel this “free market” myth. Someone who clearly did not listen to my interview with Loma Linda, CA about their muni-owned network tried to make the case, “The free market insures that a provider delivers the services the market demands at a fair price or competition steals the business..[broadband]..should be left to market players who know the business best, understand the risks, and who risk their OWN money or that of investors willing to risk their own.”

However, his conclusion about government’s inability to succeed and the state of competition are proven not true. How’s that? First, take Loma Linda. As everyone who listens to the interview will learn, the City started their network specifically because the incumbents wouldn’t or couldn’t provide services to meet individuals’ and companies’ needs, and no free market competitor was there to fill the void. So the City filled it. FURTHERMORE, the City runs a multi-product/service  broadband business that breaks even. Meaning the business is paying all of its bills. Has been for some time. 

The only tax-payer money involved these days is $100K the city puts in, which technically is classified as a subsidy. But city government is in fact a customer on the network. In return for its investment it gets full use of the network for communication and data services that helped lower government operating costs by 20%. The city’s network access also replaces all kinds of T1 lines that would be prohibitively expensive. The broadband business wins. The taxpayer wins.

Communities are doing something right

The second gaping flaw in my critic’s charge against government success is that over 300 communities own and run their own networks with reasonable to exceptional competence. A few dozen of them have been interviewed on my show. Thomasville, GA, for example, eliminated local taxes in large part because of their broadband network’s revenue. A number of these community nets have been operating successfully since the turn of the century. The argument that “business competence only resides in the private sector” doesn’t wash.

This critic also took exception to my contention that in order to measure a network’s true profitability to a community (value that justifies and/or exceeds money invested into the network), you sometimes need to use metrics of that don’t fit into the Wall St. bean counter’s worldview. “‘Different metrics’ means to me that it [the network] cannot be judged a success in normal, tangible, and measurable ways.” <sigh> Sadly misguided.

Some of the different metrics I referred to, if one listens to the Loma Linda interview, are measurable. Getting new businesses to move into town isn’t quantifiable in the same way private-sector companies want to see on standard P & Ls. In a city, the new companies represent direct sales of broadband services. Plus some number of jobs that benefit the city, and some amount of on-going taxes that benefit the town.

Loma Linda’s hospitals use broadband to enable services that increase the number of patients who, together with their families, spend money in local hotels, restaurants and shops. This further benefits the city and its residents.

Unlike a corporation that lives and dies by stockholder and owner profit, a properly researched, well-planned network delivers intangible benefits that come to the city that bring value, but not in any way that would satisfy owners and stockholders. That said, these communities with successful networks do have to get on the stick and improve how they track outcomes, while finding ways to better document the intangibles so these too have some degree of predictability.

Communities should not be held hostage

To that sentiment about investors (substitute “big incumbents”) being willing to risk their own money, many communities will miss the boat if they believe corporate broadband providers in a small town, or even large cities, will deliver services they find unprofitable. No matter how much people demand better, faster service.

We’re trapped in a situation in which there must be minimum numbers of people within an area who will pay a certain price before big providers deliver that service. If you ask, as many cities have done, incumbents will tell you to your face you don’t qualify and they won’t deliver that service.

As those 300 communities I mentioned earlier bear out, the only competition that is coming to some towns is competition brought on by local government, public utilities, local companies and other organizations. That’s why you have cities like Santa Monica,CA Wilson, NC, etc. that have built fiber networks which deliver speeds and prices companies such as Time Warner and Comcast can’t deliver. Forget whether they’re willing or not.

The market is deciding

Depending on how these community networks are paid for, and a number are not funded with tax dollars, the towns people are making conscious decisions that the risks were worth the potential reward. And this comes to the heart of the flaw in the argument, “communities need to stay out of it, let the market decide.”

Who the hell do these free marketers think the market is? The markets are those individuals, businesses and institutions that comprise the constituents in a town or city. If they who write the checks for broadband services decide to pool their money, or raise their taxes or enter into a public-private partnership or sacrifice goats in the pubic square so they can get what they feel is better broadband, the market has spoken.

The free market evangelists only believe in the market when the “market” means only those big companies that sell broadband are calling all the shots. That’s the only “market deciding” these evangelists care about. Well, sorry, but towns like Loma Linda, Wilson and Longmont, CO have decided with their votes and with their wallets that they want local government to own the business of broadband. These towns are calling “bullshit!” on being held hostage to pathetic broadband because of ideology that doesn’t hold water for them. Others are joining their ranks. Quickly.

One Response

  1. In order to have competition, there first has to be a truly competitive market defined as one with many sellers and many buyers. That’s not possible with Internet infrastructure due to high barriers to entry and high ongoing operating costs.

    Local governments build Internet infrastructure not to engage in market competition with incumbent legacy cablecos and telcos. They do so in response to market failure where the incumbents cannot profitably serve local needs.

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