Governments build roads, sewer systems and occasionally power grids. So why not a communications infrastructure in a era when the Internet is considered a must?
Level Playing Field
Many private, often incumbent and monopolistic, providers use the term "level playing field" as code for ensuring communities are unable to build their own networks. They do not actually want a "level playing field," they want more advantages for their businesses.
Consider the fight in 2009 over this issue in North Carolina:
HB 1252 would create extraordinary financial accounting and administrative burdens on municipal broadband providers that would render their existence fiscally difficult, if not impossible. The bill also subjects municipalities to the new jurisdiction of the North Carolina Utilities Commission, while not requiring the same of private providers. Also troubling is the injunctive relief provision, which could encourage litigation for purposes of gaining competitive advantage. Furthermore, the legislation appears to prevent municipalities from pursuing alternative funding sources, such as broadband grant programs included in the Federal stimulus bill, the American Recovery and Reinvestment Act of 2009. Source: Save NC Broadband Blog
Additionally, the process in North Carolina reveals the extent to which private providers like Time Warner buy legislation in some states.
Cable and telephone companies are able to cross-subsidize their networks - they can charge more in the areas they serve where there are no competitors in order to charge less in a competitive community. Numerous state and federal laws prohibit public entities from cross subsidizing across services. Further, when private companies are forced to have open meetings and disclose their business plans like their public sector counterparts, we will be closer to a "level playing field."
In 2005, the Florida Municipal Electric Association rebutted many of the common charges levied against publicly owned networks. The following charts are from "The Case for Municipal Broadband in Florida." It must be noted that different states have different laws, but in general, claims that the public sector has overwhelming advantages over the private sector are absolutely false.
| Taxes and revenues | Public | Private | Gross Receipts Taxes | Yes | Yes |
|---|---|---|
| Sales Tax | Yes | Yes |
| Communications Services Tax | Yes | Yes |
| Documentary Stamps | Yes | Yes |
| Intangibles Tax | Yes | Yes |
| Property Tax | Yes* | Yes |
| Payment in lieu of taxes | Yes | No |
| Corporate Income Tax | No | Yes |
| * Under dispute at the Florida Supreme Court | ||
| Regulatory Requirements | Public | Private |
| Public purpose requirement | Yes | No |
| Public records law | Yes | No |
| Open meeting law | Yes | No |
| Competitive bidding | Yes | No |
| Civil Service | Yes | No |
| Public hearings on budget/financing | Yes | No |
| Public election or recall of CEO (Mayor) | Yes | No |
| Conflict of interest standards | Yes | No |
| Intra-fund transfer restrictions | Yes | No |
| Investment restrictions | Yes | No |
| Local regulation via referendum and initiative | Yes | No |
"Private sector companies have completely different goals, driven by shareholders’ and the financial community’s demand for high, near-term profits from user revenues. In the face of this reality, it is completely inappropriate to use of conventional Wall Street metrics to judge whether a municipal project is successful. The metric for success certainly should not be: “If this were a private firm, would Wall Street like it?”
Source: Jim Baller and Casey Lide - "The Case for Public Fiber-to-the-User Systems"
What is undeniable is that the public sector and the private sector serve different ends. In general, the private sector excels at maximizing returns for investors and focuses on the short term. The public sector primarily invests for the long term and in order to maximize social benefits. Therefore, the public sector and private sector use different balance sheets.
Consider a Broadband Network and how public balance sheets differ from private
If a broadband network encourages economic development because it offers fast speeds, reliability, and affordable prices, a public balance sheet benefits tremendously as the community prospers. However, private balance sheets would not reflect many of the social benefits because they cannot be monetized for shareholders.
If a broadband network discourages economic development by foregoing costly upgrades that would improve service, the private balance sheet may benefit but the public balance sheet would suffer due to a decrease in social benefits.
When subscribers make their monthly payments, it shows up once on the private balance sheet (assuming the owner is located outside the community). Some of that money returns to the community in the form of taxes and salaries for technicians. However, on a public balance sheet, the revenue has a larger multiplier effect because that money stays in the community.
Another significant difference between the balance sheets is how much profit is necessary. On a private balance sheet, there is a pressure to profit quickly and increase profits year after year. On the public balance sheet, if it takes ten years to break even, that is acceptable (when was the last time a road "broke even?"). The pressure to profit on the private side results in off-shoring or cutting back on local support that degrades service. On the public side, if a network takes an extra year to generate net income because it has hired another local technician to ensure prompt service, the community benefits.
We are not opposed to profit, but we do not think profit should be elevated above the good of the community. When it comes to essential infrastructure, putting profit first hurts everyone.
Comments
Post new comment