Back when municipalities first started installing wireless broadband networks, our skepticism was piqued. A government-run Wi-FI utility, competing with the private sector? History suggested that a government service would be more expensive, less efficient, regulation-bound and stifling of the profit motive that encourages investment and innovation. The clincher was advocates’ sales jobs, claiming that government Wi-Fi equaled economic development, that all-too-familiar excuse for unaccountable claims on the taxpayers.
Given our reliance on a dial-up modem and not living in any of these technoloy-aspiring communities, we stopped paying attention to the issue. But then the Pacific Research Institute released a new report, “Wi-Fi Waste: The Disaster of Municipal Communications Networks.” Skepticism justified! How reassuring. How sad.
From the executive summary:
When faced with strong competition from the private sector, most government-run networks have resorted to predatory pricing to achieve fiscal solvency: of those in our sample that reported their earnings in 2004, 69 percent priced their services below cost, recklessly undercutting incumbent providers in hopes of forcing them to capitulate and leave the marketplace.
When governments use cut-throat means in an effort to establish marketplace monopolies, incentives for future investment are reduced. Private-sector providers in deadlock with muni networks often don’t have the necessary cash flow to provide anything more than bare-bones services. They are forced to delay infrastructure upgrades and maintenance repair, and they have no money for R&D, thus stifling innovation.
Muni telecom systems have proven to be nothing but a digital white elephant, costing the public much more than they’re worth. They have also proven difficult to dispose of because bureaucrats rarely acknowledge defeat. Rejecting big-government solutions and adopting promarket policies — such as streamlining the video franchising process, cutting red tape, and creating Internet vouchers — are more likely than muni telecom networks to solve the core problems those networks are intended to address.
The full report, including a full range of policy recommendations, is available here in .pdf format. Any community considering going down the path of government-run Wi-Fi — and there are many — should first take a serious look at the study. Odds are, the private sector will do a much better job.
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