The following article was published by Law360:
A new report from an industry-backed think tank skewers government-owned broadband networks for purportedly relying on public resources to survive but operating inefficiently and competing unfairly against private internet service providers.
The Information Technology and Innovation Foundation on Monday contends that networks run by the public sector "often miss the mark in providing cost-effective, necessary coverage for the communities they serve," but the report quickly received pushback from advocates for public broadband who said it did not acknowledge how many communities remain unconnected to adequate broadband service.
According to the paper by the organization's Ellis Scherer, government-owned networks rely on a host of advantages afforded by the public sector, from subsidies to tax breaks and a favorable regulatory environment, creating unfair competition with ISPs.
The report says some of the ways public networks gain advantage are capital grants and exemptions from right-of-way fees. It also claims these networks overbuild in some areas, and nearly half operated at a loss.
"To be clear, GONs don't need to turn large profits, but they should earn more than their operating costs. Moreover, a long track record of losses without a way to turn them around makes a GON unsustainable," the paper says.
"When GONs make long-run losses, they have turned valuable resources into something less valuable than what they started with. In short, those projects have been wastes," Scherer says. "While business failures are a natural part of a healthy market, GONs are insulated from the profit-loss mechanisms that allow the private market to reallocate resources to productive uses."
Scherer adds that "the ability to stay in business despite continual losses is a source of unfair competition. For example, in situations where a private ISP would have gone out of business, allowing someone else to use their resources, GONs often dip into public coffers for alternative funding to remain operational, thus continuing the economic waste."
The report says it "does not imply that governments should never produce any service," and offered what it would define as a "good GON." This includes cases where "the private sector is unwilling to build a network if the local government provides the same regulatory and financial benefits for both GONs and the private sector," but it adds these situations appear to be rare.
According to the report, the Information Technology and Innovation Foundation reviewed 20 randomly selected government-owned networks and evaluated "how they use their resources, whether they gain advantages from regulatory exemptions and special financing, and how they approach network buildout." While the group studied is "too small for the data to represent all U.S. GONs reliably, this research provides compelling evidence that GONs and private ISPs are not competing on a level playing field," it says.
Among the policy recommendations are targeting funds only to unserved areas and making sure government-owned networks adhere to the same regulations as private ISPs.
One group that advocates for community-backed networks, the American Association for Public Broadband, took exception to the Information Technology and Innovation Foundation's findings on Monday — in particular its conclusion that "there is no gaping market failure in need of repair" by community broadband networks. Gigi Sohn, the AAPB's executive director, called that notion "laughable."
"Tell that to the tens of millions of households that cannot access, afford, or use a broadband connection," Sohn told Law360 in an email. "Community broadband networks have arisen because big cable and telecom companies refuse to serve some communities with affordable and robust broadband, not the other way around."
Sohn said the paper is "full of assumptions" about community broadband networks and how they operate. "ITIF conveniently forgets that big cable and telecom companies have benefitted to the tune of tens of billions of dollars from federal and state coffers and from the benefits of the use of local rights of way," she said. "To suggest that incumbent ISPs somehow operate in a purely private 'market-driven' world is to ignore reality."
Full article is available here.