Since the end of the Great Recession, just 20 of the United States’ more than 3,000 counties have generated half of the country’s new businesses and the better part of its economic growth. Most of these 20 are home to tech-intensive industries that employ skilled labor. Think Silicon Valley in California.
Understanding this dynamic, several cities, most notably Chattanooga, Tenn., have attempted to attract tech startups by building their own municipal broadband network. Opelika has done this, sinking more than $40 million—an enormous financial commitment for a town with less than 30,000 people—into becoming Alabama’s first “Gig City.” Consumers aren’t biting. As of late 2016, the network, provided through Opelika Power Services (OPS), had only one customer for its gigabit service.
Despite low demand, the state legislature is considering four pieces of legislation (HB 375, SB151, SB192, and SB228) that would allow OPS to extend the network to include all of Lee County and perhaps beyond.
As a citizen of Lee County, I have some concerns about these proposed bills.
First, is Opelika’s network financially viable even within its existing boundaries? OPS shows a sizable loss on its publicly available financial statements. These financial documents, however, don’t provide enough detail about the telecom aspect of Opelika Power’s business, and the shifting of costs ($28 million in debt) onto its electric ratepayers, to provide a measured assessment of future viability. If policymakers determine the existing municipal system is unable to pay for itself going forward—a situation most municipal systems find themselves in—then proposals to increase its coverage area should be rejected.
Second, how much will it cost to provide new fiber lines to the rural areas of Lee County that have a lower population density than Opelika? Will Opelika’s captive electric and sewer ratepayers, who already subsidize the city’s money-losing telecommunications division, bear this additional burden and temporarily or perpetually subsidize the rural residents of the county, the city of Auburn, and perhaps even other areas as well? It seems so. This is not a sound decision.
Before considering this legislation, legislators need to answer these questions. They also should evaluate how other municipal systems have fared and use the lessons learned from those experiences to inform their efforts.
Internet service has substantial benefits, but it is costly to provide. The “success” stories out of Chattanooga, for example, often do not mention that an enormous subsidy, $111 million from federal grants (approximately $2,000 per subscriber), was required for that system to be financially viable. Other municipal broadband systems have not gone out of business. For example, the city council of Provo, Utah sold its $39 million fiber network to Google for $1. In Groton, Conn., the city’s residents are still paying for a $38 million network sold for $550,000. Four city officials in Bristol, Virginia, home to the latest failed government Internet system, are serving time in the penitentiary.
The spillover benefits of better paying jobs and economic growth are used to justify municipal broadband networks even though many city systems serve areas already covered by the private sector (an inherently anti-competitive act). But even when Google Fiber installs and manages a fiber network in a new city, economic growth is lackluster. In 2012, Kansas City was the first city in the nation to deploy a Google Fiber network (the company has since stopped fiber deployment) and the city’s GDP growth has still lagged behind the national average. Even Chattanooga has not outgrown its peers.
Super-high-speed internet is no panacea for economic woes. And, as we know in Opelika, it is costly. That’s why tech hub Seattle actually rejected building a government fiber network.
Until our leaders can tell us how OPS’s system will avoid the fate of other municipal networks, and until they answer questions about the OPS network’s current financial situation, changes to state law allowing any city to further bury their constituents in debt trying to compete with private telecommunications companies should be tabled. Otherwise, we’re just trying to catch lightening in a bottle.
Alan Seals is an associate professor and director of graduate studies at Auburn University’s Department of Economics.
