Municipal Broadband: Long Term Liabilities For Residents; No Economic Benefits
In his June 2020 article “Study Looks for Economic Effects of Municipal Broadband, Finds None”, Research Associate Nathanial Lovin of the “Technology Policy Institute” shares:
“Proponents of municipal broadband often make claims that such a network will increase broadband adoption, economic growth and employment for the community.”
This sounds logical, but in reality it simply comes down to “how much incremental value the city-owned network adds and the resources required by taxpayers to build and operate the networks.”
His colleague TPI Senior Fellow Sarah Oh digs into this question in her study “What Are the Economic Effects of Municipal Broadband?” and she shares:
“In theory, municipal networks might enhance welfare by providing residents with an additional broadband provider, leading to lower prices and higher quality service. Empirical evidence has not proven whether this theory is true, however. This paper seeks to measure the economic effects of municipal broadband in order to test this claim.”
More from her introduction:
“Public provision of private goods often results in losses rather than gains for residents, such as the case of municipally-funded sports stadiums. Public funds spent on Olympic stadiums have generated long-term debt obligations for local residents internationally as well.
Municipal broadband follows a similar pattern of high fixed-cost investment and long-term debt in towns and cities. Many small towns have built their own networks, only to sell them at a loss to private operators a few years later. Electric utilities often incur net operating losses in broadband provision as well. Debt payments are structured on expectations of future revenue, but forecasts are often wrong, leading to long-term liabilities for local residents.”
“The effect of municipal broadband on change in household broadband subscription rate, change in unemployment rate, and change in labor force participation “is not statistically different from zero”.
Beyond controlling for the number of providers, population, density, age and income, she had to take into account that the choice to build municipal broadband is not random. This second analysis also showed “that the effect of municipal broadband is not statistically different from zero.”
This post was co-written by guest contributor “C.R. of Lucas”
More about Sarah Oh
Sarah Oh is a Research Fellow at the Technology Policy Institute. Oh completed her PhD in Economics from George Mason University, and holds a JD from GMU and a BS in Management Science and Engineering from Stanford University. She was previously the Operations and Research Director for the Information Economy Project at George Mason School of Law. She has also presented research at the 39th Telecommunications Policy Research Conference and has co-authored work published in the Northwestern Journal of Technology & Intellectual Property among other research projects. Her research interests include law and economics, regulatory analysis, and technology policy.
More about the Technology Policy Institute
The Technology Policy Institute is a think tank that focuses on the economics of innovation, technological change, and related regulation in the United States and around the world. Our mission is to advance knowledge and inform policymakers by producing independent, rigorous research and by sponsoring educational programs and conferences on major issues affecting information technology and communications policy.
Today’s digital economy may be new, but the economic principles underlying it are not. First principles still matter in both developed and emerging economies. Thus, government should intervene in these dynamic markets only when markets fail and when proposed solutions will demonstrably improve society’s well-being.
New technologies can greatly improve standards of living around the globe, but policymakers must carefully consider how policies affect the development of those technologies. Our research will help inform those deliberations.
The Technology Policy Institute is a 501(c)(3) research and educational foundation.