The drawbacks of government-owned broadband networks
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As communities determine how to divvy up BEAD funding, a new report suggests deploying publicly owned broadband networks may not always be an effective use of the money.
State and local governments may want to think twice before establishing government-owned broadband networks, findings from a new report suggest.
In recent years, the U.S. has seen a “dramatic surge” of publicly owned broadband networks across communities, according to the Institute for Local Self-Reliance. Nearly 50 networks have been built by municipalities since 2021, with the total number of public networks reaching at least 447.
The increase in government-owned broadband networks comes as states continue to determine how to allocate $42.5 billion in federal funding from the Broadband Equity Access and Deployment, or BEAD, program. BEAD funding, approved by Congress in 2021, can be doled out to private and public broadband providers, but a report from the Information Technology and Innovation Foundation released earlier this week suggests governments may want to hold off on using BEAD money to deploy public networks.
Government-owned broadband networks help fill gaps in the broadband market by serving communities that private internet service providers may not reach, said Ellis Scherer, report author and research assistant at ITIF. But without effective guardrails and regulations, they can also pose monetary challenges for municipalities and create an unfair market for private broadband networks.
“There should not be a universal disinterest or aversion to government-owned networks, Scherer said, “but some situations where they’re operating do create a waste of societal resources.”
The ITIF report, for instance, which assessed 20 government-owned broadband networks in the U.S., found that of the 17 of those networks that had publicly available financial documentation, nine networks reported financial losses. This year, for instance, Idaho Falls Power and Fiber had an operating income of -$4.7 million and an operating margin of -$132%. Across the 17 networks, the average operating margin was -7%, according to the report.
“If a government-owned network is unsustainable, and it's using city funds that could be put elsewhere to continually prop itself up and prevent itself from failing or having to be bought out,” Scherer said, “we see that as problematic, and goes back to that idea of sort of wasting resources that could be better allocated elsewhere.”
The report also suggested that government-owned broadband may seem like an appealing alternative to pricey commercial internet plans, but that could be because public broadband networks are often subject to looser regulations and more financial support than private broadband companies, said Joe Kane, director of broadband and spectrum policy at ITIF.
In Maine, for instance, a 2022 law established a direct funding stream for the deployment of government-owned broadband networks, which private internet providers are not eligible for. And some states like Minnesota exempt municipal broadband from certain right-of-way regulations that make it easier to deploy network hardware.
The report found that Barnesville Municipal Utilities in Minnesota was one of the most profitable networks in the study, but that could be because it faced fewer regulatory hurdles than private ISPs in the state, according to the study.
“We have found evidence that government-owned networks are not competing on a level playing field with private providers,” Scherer said. “When policymakers at the local level are making decisions about how best to connect their communities, it's important that they are making that apples-to-apples comparison and taking into account all of these various advantages enjoyed by government-owned networks before they make those decisions about what is going to be the best option for their communities.”
That means government leaders should also consider how to ensure the broadband market is balanced among public and private networks, Scherer said. Otherwise inequities in broadband regulations and funding faced by government- and private-owned networks “can lead to uninformed decisions about what’s going to be the best way to get communities connected.”
Policymakers could, for instance, extend regulatory exemptions afforded to public networks to private ISPs, Kane said. That could reduce the need for governments to build a completely new network all together, saving time and resources for other causes, and help lower consumer prices for existing broadband providers.
Ultimately, the goal for government leaders should be internet affordability for their residents, Scherer said, but “don’t just throw the kitchen sink at it and assume that building an entirely new [public] network is going to solve the affordability issue.”
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