OPINION
Free Broadband? Metro Mistake

Following a trend burning across the nation, San Francisco's Public Utility Commission (PUC) recently approved US$300,000 for a feasibility study on whether the city should add broadband to its utility services. This move toward government-run communications systems is dangerous for a number of reasons.

Many cities, like San Francisco, are in debt and ill-suited to manage complex networks. Indeed, as a city audit showed last week, San Francisco has trouble managing routine matters. Because of failure to complete promised suburban capital projects over the past five years, the city caused customers to overpay water bills by $27 million. But San Francisco isn't the only place that can't manage its finances.

Deficit Danger

Tacoma, Wash., Marietta, Ga., Kutztown, Penn., Ashland, Or., Bristol, Virg., Paragould, Ark., Trion, Ga., Cedar Falls, Iowa, and Grant County, Wash. are all examples of socialized broadband gone wrong. And what happens when government forays into the private sector fall on their face? The governments involved either raise taxes to cover the costs or cut services in other areas.

In Tacoma, for example, the city's utility ran a $23-million operational deficit in 2001-2002 on top of $16 million in operating deficits that accumulated over past years. Such a dire situation would lead a private corporation into bankruptcy, but Tacoma avoided this scenario by simply charging residents for this mismanagement. While failure of city-run networks is unfortunate, it is not surprising.

The communications industry is a high-risk area of investment with constantly changing technology and expensive labor and material costs. It is difficult enough for private industry to keep up with the latest developments, let alone lethargic government bureaucracies. This weakness puts millions of taxpayer dollars at risk and diverts money away from important public causes. City-run networks also make it less likely the U.S. will shake itself out of its competitive disadvantage in broadband anytime soon.

Lagging Behind

The United States is severely behind other countries in the deployment of broadband services, ranking a lowly 13th by the end of 2004. One of the reasons for this poor ranking is a 1996 law that discouraged investment in the sector by mandating price controls and property sharing of networks. Given this history, it's a no-brainer that the last thing the communications sector needs now is more government involvement. So why the big push for cities to operate broadband systems?

America's deployment lag, combined with the allure of being "tech-friendly," has inspired local government officials to enter the broadband market. While it is imperative that the US catches up internationally, government-run networks are not the answer and are precisely the wrong direction to head.

Now that some of the 1996 telecom rules have been relaxed and new technologies have increased competition in the broadband sector, investment is beginning to flow back into communications. This is good news, as investment will spur innovation and the creation of jobs.

But if cities decide to get into the business of providing "free" broadband, that could serve as a disincentive for private investment in this area -- a disaster that could stop America from a full broadband recovery. When government competes with the private sector it has an unfair advantage in that it can use tax dollars to shore up debt and artificially lower prices.

Protecting Citizens

The proper role of government is to help create an environment where hard-working people can make a living. When government violates that role by competing and undercutting them using tax dollars, something is very wrong indeed.

San Francisco, meanwhile, is already one of the most wired cities in the nation. As data from the FCC show, when all the city's zip codes are taken together, the number of high-speed Internet providers (DSL, cable modem, wireless, satellite, fiber) offering broadband service to at least one customer is around 12, and it's estimated that 70 percent of the city's households have broadband.

Local officials across the nation should re-think their enthusiasm for government-run broadband systems, and San Francisco should scrap its feasibility study. The $300,000 would have been better spent paying off the city's massive debt. Cities that are a financial basket case, and which are failing to perform those functions they should be doing, should not venture into the risky business of high technology.