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Dilemma of Public Vs Private Broadband

Dilemma of Public Vs Private Broadband

Dilemma of Public Vs Private BroadbandPublic vs. Private community investment has been an ongoing argument for many years, and it seems to be very much alive today. Since broadband has become a much demanded commodity in recent years many communities have, or want to, invest in their own broadband infrastructure, forcing private sector companies to compete with the subsidized communities they serve. Facing the dilemma of unfair competitive advantage Telecom operators has lobbied heavily to enact laws to prevent such public investment. See (Public vs. Private Investment in Broadband)

Blocking Community Investment in Broadband

North Carolina adopted a law in May 2011 that restricted community investment in broadband infrastructure.  Eighteen states have enacted laws that restrict, to some degree, public investment with four states, Nebraska, Missouri, Arkansas, and Texas banning communities from building their own broadband infrastructure outright. See (Community Broadband Preemption Map)

The Dilemma

Public vs. Private investment in infrastructure is a problematic and controversial issue. Local communities want fast broadband service in what may be considered underserved areas, where private companies do not sufficiently serve those areas due to the economics. Or, incumbent operators haven’t invested in broadband infrastructures that provide adequate speeds, prices, or service in existing service areas, as perceived by local communities.

Telecom operators usually invest more in urban areas where the take-rate for broadband is high and the return on investment is therefore much higher. In less densely populated areas, those investments fall short of what local governments feel necessary to adequately serve their constituents. Prices are higher due to a lack of competition, and service is handled an ROI (Return on Investment) basis. Here lies the dilemma of public vs. private sector investment and competition. See (Perdue to let broadband legislation to become NC law)

Public Broadband investment is considered controversial due to the nature of funding for the project. Local governments must raise needed funds, quite substantial in any community, to build out the infrastructure, usually from bond issues. After construction is completed the operation must include service aspects and billing which is handled by the community in junction with their local utilities. This can be perceived as cross-subsidizing which Telecom companies refer to as unfair competition.

Local communities need not make a profit, but just strive to break-even, therefore creating another unfair advantage for private investors. Last but not least, the local government operation may not break-even and lose money.  In this case, local taxes can be raised to off-set the short fall creating another unfair advantage private companies do not have.

The Woodstock Republican has filed legislation that would prevent public broadband providers from paying for communication networks with tax or government revenue and from offering their services at prices that are below cost. See (Bill Targets Public Broadband)

Both Sides: Opposing Issues

Each side of the issue has their points. How do communities get the best broadband service from their local Telecom operator, ensuring service to their underserved areas, while ensuring local operators offer fast broadband service at an economical price? It might be impossible with current economics. So, what will ensure those points local governments are so concerned about? It is not an easy solution, but one that local competition could improve, but that depends on population density, demographics, and reasonable paybacks for private sector investors.

Local operators, especially in less populated areas own depreciated infrastructures. That is, their investments have been paid for over the years. This leaves room for competing on price. Our economic model is built on competition and the answer to the dilemma of public broadband vs. private broadband lies in the ability to create effective, fair, and competitive forces in those markets.

Dilemma of Public Vs Private Broadband
Dilemma of Public Vs Private Broadband Leonard Grace (270 Posts)

Founder of Broadband Convergent, a Broadband-Mobile-Cable-Wireless-Telecom market website focused on highlighting industry news and strategic issues within technology arenas. Highly researched and experienced insights and trends both inform and enlighten readers on current industry convergence of Broadband-Cable-Mobile-Wireless and Telecom Sectors.

Dilemma of Public Vs Private BroadbandDilemma of Public Vs Private BroadbandDilemma of Public Vs Private BroadbandDilemma of Public Vs Private BroadbandDilemma of Public Vs Private BroadbandDilemma of Public Vs Private Broadband

  • Vikchar

    The solution to this is pretty straight-forward according to me. The under served areas for broadband must be contracted out on a B-O-T basis (Build-Operate-Transfer). The Public sector takes this up initially, builds and operates it on a no-profit-no-loss basis for a period of time  (as it is economically unattractive to the private sector) and then floats tenders for sale of this at an appropriate time after break even (this will ensure that there is no subsidizing through taxes – which is the concern). The initial build could be financed in the form of bonds with a term roughly equivalent to the potential break even period.

    The transfer of the assets to private bidders on a tender basis will ensure that the existing under served area customers are now served by the winning private sector bidder who can extend current services and offer value-added services on the network.