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Watchdog Wire: Government Owned Networks a Headache for Their Owners

Thursday, March 07, 2013

Last year the R Street Institute expressed serious concerns with a proposed government-owned broadband network (GON) project in southwest Florida. After attending a public input workshop organized by the Southwest Florida Regional Planning Council to discuss plans of establishing a GON, we explained how government is fundamentally ill-equipped with managing such networks and keeping up with technological advances and the capital investments they demand; GONs are a drain on taxpayers; and how such GONs—despite safeguards and good intentions—undermine competition from private companies actually experienced in delivering cutting-edge service and technology, among other things.

Since then, there have been some developments that have validated our concerns.

In a recent paper, Dr. Joseph P. Fuhr, a professor at Widener University in Pennsylvania, revealed how the mayor of Davidson, NC and the manager of the GON in that city are trying to get their GON out of a financial hole so they can auction it off. So dire is that GON’s financial situation, that a quarter of Davidson’s annual city budget goes to keep it afloat—money that otherwise could be used for roads, public safety, and other services. Davidson and nearby Mooresville entered into the broadband business together and established MI-Connection despite warnings from leaders in other cities that the plan was economically unsound and the revenue estimates overly optimistic. According to Dr. Fuhr, today MI-Connection has fewer than 15,000 subscribers and a debt topping $81 million—or $5,400 for each subscriber.

Dumping the GON will not be easy for Davidson and Mooresville. According to Dr. Fuhr, “Because of bond financing obligations, 2017 is the earliest that the network can be sold.”

A separate GON case gone awry had a better outcome for the local government involved. Here in Florida, the Columbia County Commission voted unanimously to withdraw from the Obama Stimulus-funded North Florida Broadband Authority (NFBA) this past November. Unlike the Davidson/Mooresville case, Columbia County was not bound by any such bond obligations, which made withdrawal that much easier.

Initially touted as a means to provide service for the “unserved and underserved” areas in North Central Florida, the NFBA quite simply did not meet its goals. Instead, the NFBA entered areas where high-speed internet access was already offered by private companies, which put the GON in direct competition with its private counterparts while doing little to achieve its prime directive.

Commissioners also cited internal issues with the NFBA, including public records requests that went unfulfilled and allegations of wrongdoing that NFBA officials never bothered to disprove.

Lack of transparency appears to be a characteristic of GONs, as officials at the southwest Florida meeting I attended in September offered little details about policies to protect taxpayers and private job creators as part of their GON project.

The R Street Institute’s long-held position is that consideration for a GON should be limited only to truly unserved or underserved areas, and that if established, it should be treated no differently than its private counterparts. GONs should be subject to the same laws, rules and regulations, and they should not receive preferential tax treatment, preferential access to rights-of-way or subsidized rates that make them cheaper than private carriers. Most importantly, these networks must not be permitted to compete against private carriers and should include an exit strategy provision to encourage the private sector to eventually enter these areas and better serve its residents and taxpayers.

“Free money” from the feds is not reason alone to consider establishing a GON. One speaker at the Columbia County Commission meeting last November put it best: “Federal programs offer a lot on promises and are short on delivery.”

Unfortunately, it’s the local taxpayers that are forced to pick-up where the feds fall short.

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