03/14/2024 | News release | Distributed by Public on 03/14/2024 12:31
Photo Credit: Getty
We are all familiar with bait and switch, the deceptive practice where a customer is enticed by one offer and then forced into a higher priced or inferior product.
Government owned networks (GONs) are a version of bait and switch, only instead of a few dollars lost to an unscrupulous salesperson, millions are being wasted or diverted from better uses. A GON is a broadband network owned and/or operated by a governmental entity, typically a municipality, county or other form of local government. GONs are touted as a genuine broadband network alternative but often end in failure and debt.
The pro-GON forces nonetheless believe in their cause and have the administration's ear. So much so that the Infrastructure Act of 2021 provided $43 billion in GON funding. The American Association of Public Broadband (AAPB) recently published a "how to" handbook for communities interested in building a GON. AAPB's strategy is to "double the number of public networks in the next five years…"
Notwithstanding that enthusiasm, a 2022 University of Pennsylvania study of a 15-project dataset shows the chronic financial underperformance GONs. It reported that "none of the projects generated sufficient nominal cash flow in the short run to maintain solvency without infusions of additional cash from outside sources or debt relief." Additional findings are:
In light of this data, the GONs' bait and switch is apparent. But GON advocates tout how wonderful the network will be, often without transparency regarding taxpayer risk.
While Infrastructure Act funds and other federal loans and/or grants may be available, GONs have typically been funded by local taxpayers through taxes and debt, such as general obligation bonds. This means that every community member has to pay for the GON whether they want it or not and whether they use it or not. And when a GON fails, the debt payment obligations can continue for years and total in the millions. Examples of failed GONs abound, but a few are:
The better approach is the way privately owned broadband networks have been historically funded. The company may borrow money from banks or issue corporate bonds but then relies on the revenues of customers to provide a sustainable return on investment. Only the customers that the company is able to acquire pay for the network. There are no general obligation bonds putting the entire community on the hook. The company builds the network with no guarantee that it will acquire any customers or make any profits. It is classic risk-taking.
And running a broadband network is hard. It requires ongoing investment, maintenance and upgrades. The network needs strong operating talent to manage it. Local governments quickly learn how challenging this is and as the examples show they frequently struggle, fail and leave taxpayers on the hook for millions.
This real-world experience shows that the bait and switch of promised high quality, affordable GON broadband often leads to fire sales, taxpayer losses, and debt.
To truly provide a service, AAPB could have published a single sentence GONs handbook: Don't do it.
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