Johnny Kampis, Taxpayers Protection Alliance
Critics of municipal broadband eviscerated a recent report created by the Open Technology Institute (OTI), a cheerleader of government-owned networks (GON)s.
OTI released its annual Cost of Connectivity report last month, claiming that municipal networks (i.e. taxpayer-funded networks) are both cheaper and offer more robust speeds than the networks of most private providers. The report called for laws prohibiting or limiting GONs to be repealed.
George Ford, chief economist at the Phoenix Center for Advanced Legal and Economic Public Policy Studies, used OTI’s data and found that mean prices for high-speed internet is about $13 per month higher in cities that have municipal broadband.
Ford notes that OTI attempts to compare prices for a standalone broadband product, but broadband is most commonly purchased bundled with other services such as cable or telephone service, making price comparisons difficult.
Noting its municipal network, OTI’s report calls Ammon, Idaho, the “most affordable” city in the U.S. for broadband. Ford points out that OTI failed to take into account the pricing structure that requires customers to take out a 20-year loan and make monthly payments of $40 on that debt to subscribe to the GON.
These mistakes led to Liam Sigaud, economic policy research manager of the American Consumer Institute, pointing out the OTI study is “riddled with inaccuracies that fatally undermine its argument.”
“Instead of demonstrating the consumer benefits of government-owned networks, OTI’s research actually shows that these ventures contribute to higher consumer prices,” Ligaud wrote in Inside Sources.
In his analysis, Ford examined the prices for plans offering download speeds of at least 100 megabits per second in the 13 cities cited by OTI and found the unconditional mean price was $74.66 for private providers and $76.46 for government providers.
He further found that the unconditional mean prices are $71.77 in cities with a GON and $84.72 in cities without one, again using the cities highlighted in the OTI study.
Ford also criticized OTI for basing much of its analysis on price-per-megabit, which he called a “meaningless statistic.” He pointed out that analysis can lead to “perverse conclusions,” noting that a gigabit service with a price-per-megabit of $1 would cost $1,000 a month, while a basic broadband service of 25 Mbps with a price-per-megabit of $2 would cost $50 a month.
“Nearly every consumer would prefer the lower priced service despite its lower speed,” Ford pointed out.
He further notes that OTI’s study doesn’t take into account subsidies, which are common among municipal networks. Studies show, for example, that Ammon’s GON will never generate a profit.
“If the municipal network will never generate a profit, then low relative prices, to the extent they exist, reflect prices below cost,” Ford wrote. “Financial support from the city, which is withheld from private companies operating in the city, distort competition rather than support it.”
The Taxpayers Protection Alliance, in its recent report “GON with the Wind: The Failed Promise of Government Owned Networks Across the Country,” examined 30 GONs across 18 states, finding that most aren’t getting enough customers to break even and rarely meet the expectations touted by consultants.
That’s a point echoed by Siguad in his column.
“Local governments often succumb to political pressures and the whims of bureaucrats over sound, consumer-driven policymaking. As a result, municipally owned broadband services routinely exhibit gross mismanagement, poor quality of service and slow speeds,” he wrote. “Municipally owned networks are exactly what policymakers and regulators should avoid if they seek to expand access efficiently and affordably to broadband.”
Johnny Kampis is a senior fellow and investigative reporter for Taxpayers Protection Alliance.