Research Notes

6 trends in municipal broadband – a ticking bomb for commercial broadband providers in a liberalized market

As part of its research on the telecom industry around the world, Strand Consult has observed that municipal broadband has been gaining traction in a number of countries. This comes as an antithesis to efforts for more than a generation to privatize state-owned telephone networks. There was a consensus among economists, politicians, and the public that market-based competition best delivers next generation network technologies. Private providers of mobile telephony have connected more people faster and better than any government.  Nearly every person on the earth can access a mobile phone and network thanks to privatization.

But this success story falls by the wayside as evangelists of municipal broadband utopia offer city leaders deliverance from their real world problems, if they would only take the public money and put it all into the one basket of a single futureproof technology.  It would be unwise for a person saving for retirement to put all his money into a single risky asset, so too with broadband networks. But a number of municipalities make this mistake, and in so doing, not only mortgage their taxpayers’ future, but undermine national telecom policy built as a parliamentary consensus in democratic countries.  The will of the people is certified through the legislature where they decide on a market-based, technology neutral approach networks. Technological risks is to be taken by companies and their shareholders, not citizens and taxpayers.

1. Municipalities should not be in the business of building and operating telecommunications infrastructure because it distorts market-based competition, saddles taxpayers with fiscal obligations, and frequently, violates the rule of law. Moreover the entry of government providers in a market diminishes incentives for private actors to upgrade and invest in new networks. Based upon its research, here are 6 trends that Strand Consult has observed about municipal broadband worldwide.

2. The day to day affairs of municipalities can be grim. Municipalities face fiscal challenges with budget shortfalls, healthcare, pension, and other balance sheet liabilities, debt obligations from failed projects, litigation, and dissatisfaction from residents on many issues. Politicians desire a distraction to turn voters’ attention away from fixing real problems.  The promise and utopia of a community network is the snake oil of the information age, a magical network that cures all ills, drives economic development and growth, and offers a “recession-proof” society.

3. In many cases, municipalities establish infrastructure in areas where commercial operators have already invested. Using public money to fund infrastructure in places where it already exists is anticompetitive, and many parts of the world have national rules which prohibit or limit this practice. Indeed inserting public money into any market has a distortionary effect. While some countries have enacted laws to protect against this kind of abuse, other countries support the entry of a municipal provider, which has access to preferable conditions that private providers could only dream of.

4. Municipal broadband violates tenets of technological neutrality. For example, advocates claim that fiber is the only viable technology and deem it “futureproof,” but broadband subscriptions around the world suggest otherwise. While wireline subscriptions have been flat for years, wireless subscriptions continue to grow. Moreover, copper and cable-based technologies continue to improve in speed, price, quality and value. While fiber has many desirable qualities, it can be cost-prohibitive to build new fiber infrastructure as other networks are increasingly competitive and better price points.

5. While a number of organizations purport a municipal broadband utopia, the reality is that most municipal broadband networks struggle. Many never break even, let alone earn a profit. Many projects fail; some have gone bankrupt. There is no better illustration than Google Fiber. After failed attempts to grow in some 20 cities, Alphabet has put the company on ice, slashed its workforce in half, and hired a former cable industry executive to make a turnaround. If Google Fiber can’t make a business case for new fiber networks (especially with the preferable conditions it secured from municipalities), it is doubtful that municipal actors can do better.

6. All the same, municipal broadband is touted by academics, regulatory advocates, and the media. Stokab, the municipal broadband project in Stockholm Sweden, is held up as a gold standard, even though the results of the project to are less than stellar. In spite of many failures of municipal broadband  around the world, there is little critical investigation into the topic, as proponents are enamored of the theory of infrastructure utopia that they dismiss facts which don’t support their preconceived view.

While local control in desirable in many areas, communications policy is one area for which a national policy is essential, as the nature of internet and communications transcends the municipality. Municipal broadband projects frequently undermine policy promulgated by the national legislature and federal regulators to ensure fair competition and maximum private investment.

There is no doubt that the commercial broadband providers have the necessary capital to ensure that all citizens have access to advanced broadband services. A constructive dialogue with the broadband providers and policymakers can ensure the full coverage without resorting to public subsidies.  Strand Consult creates knowledge about telecom policy and regulation and how it impacts the industry in short, medium and long term. Our goal is not only to provide valuable research to the public domain, but to teach our customers how to use scholarly information so that they succeed in their political and regulatory goals. Strand Consult offers thought leadership to support a constructive dialogue with policymakers regarding municipal broadband.

For more than 20 years, Strand Consult has held strategic workshops for boards of directors and other leaders in the telecom industry.  Strand Consult has distilled its global knowledge and experience into the workshop “Next gen telecom policy and regulation.” This workshop offers strategy and policy communication skills for professionals in public affairs, regulation, legal and related roles in the telecom enterprise.

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