From Detroit to Marquette, municipalities by the dozen want
more control over Internet access. Undaunted by the frequent costly failures of
such ventures elsewhere, many local officials insist they can solve an array of
economic and social ills by managing citizens’ connections to the World Wide
Web. But evidence and experience suggest strongly that a market-based approach
would get the job done better and with less political baggage.
The timing of this trend could not be more incongruous. The
Michigan Legislature last month rewrote state law to promote
investment in telecommunications technology. But efforts to prohibit
municipalities from muscling in on the market were largely defeated by the likes
of the Michigan Municipal League and other advocates of government-run Internet
Wireless Oakland has captured headlines as the state’s largest municipal broadband proposal to date.
In the absence of government interference, however, the
number of high speed lines statewide has increased by 1,251 percent in the past
five years, to more than 1.1 million. At least 32 firms in Michigan already
offer Internet access of every sort, including coaxial cable, DSL, and wireless.
Indeed, no other technology has ever spread as far so fast at such affordable
Nonetheless, even cash-poor communities are lining up to
finance and operate broadband networks or to franchise a favored firm that’s
willing to discount rates in return for a captive customer base. In addition to
Detroit and Marquette, government broadband initiatives are underway in the
counties of Oakland, Macomb, Washtenaw, Kent, Genesee and Ottawa, as well as in
the cities of Battle Creek, Grand Rapids and Muskegon — to name but a few.
Proponents contend that municipal broadband will stimulate
economic growth, alleviate computer illiteracy and even conquer blight.
Blanketing a community with subsidized access supposedly will lure loads of
high-tech investment and "prepare citizens for the economy and workforce of
In Oakland county, a wide range of locations from coffeehouses and restaurants to hotels and a mall offer wireless Internet access.
"The benefits are nearly endless," according to Oakland
County Executive L. Brooks Patterson, whose Wireless Oakland proposal ranks as
Michigan’s most ambitious to date, encompassing "free" wireless access across
Oakland’s 910 square miles.
Assuming even the best of intentions, there’s solid evidence
that local governments are ill-equipped for the rough and tumble of the
high-tech market. Indeed, executives have warned Oakland County that new
technologies will render the proposed service obsolete before project costs can
be recouped. More often than not, municipal broadband ventures have saddled
taxpayers with unwelcome debt or otherwise failed to deliver promised results.
Take for example the Florida community of New Smyrna Beach,
which is losing $200,000 a month on its municipal telecom service. To the south,
in Orlando, a 17-month trial of "free" wireless Internet ended after the service
averaged a dismal 27 users daily — rather than the 200 needed to cover costs.
Marietta, Ga., meanwhile, recently took a $23 million loss on the sale of its
fiber-optic network, while the city council of Acworth, Ga., raised property
taxes to cover a $1 million bond payment due on their municipal broadband
system. Similar fiascos have also beset communities in Washington, California,
Iowa and Oregon.
"Nearly every municipal network of the last decade has failed
badly," said David P. McClure, president and CEO of the U.S. Internet Industry
Association, writing for the Washington D.C.-based New Millennium Research
Arguments for municipal broadband might be more plausible if
evidence existed of market failure. But there’s hardly a great shortage of
Internet access in Michigan. Even those preferring to Google in public can
easily find wireless "hotspots" in airports and hotels, as well as Starbucks,
Borders and Kinkos. Meanwhile, a joint venture between McDonalds and Intel will
soon make wireless access as ubiquitous as Big Macs, while Verizon, among
others, is preparing to expand wireless services across entire communities in
Nor is Internet connectivity an issue for lower-income
households, which constitute the market segment experiencing the highest rate of
growth in access. Free broadband also is widely available in public libraries
and schools, as well as community centers, compliments of federally mandated
Thus, the attraction to municipal broadband is hard to fathom
— if we dismiss as a primary factor the conceit of politicians. But the risks
and adverse consequences of government-managed access are abundantly clear, as
evidenced by a closer examination of the Wireless Oakland project.
Wireless Oakland has captured headlines as the state’s
largest municipal broadband proposal to date. County officials are promising
"free" wireless Internet access throughout the county’s 910 square miles, both
open-air and in-building. Plans also call for "no cost" or "low cost" computers
and training for low-income residents, although funding has not yet been found.
Mr. Patterson and his team claim that the project will attract new business,
boost tourism, improve education, enhance public safety and eliminate the
so-called "digital divide" in one of the nation’s wealthiest counties — all
without a dime of taxpayer financing.
The Pontiac-based firm of MichTel Communications, LLC will own, operate and maintain the
wireless network, but will answer to a newly formed public corporation
overseeing the service. And while there are no plans for county taxpayers to
directly finance the infrastructure, the project will still impose significant
costs on the public.
As it is, county staff has already spent untold work hours on
the project, and employing an array of public facilities in the process. But
that’s peanuts compared to the potential ripple effects of usurping private
In theory, the Wireless Oakland plan is viable because the
county has pledged to provide unfettered access to hundreds of public facilities
for MichTel’s rooftop antennae and receivers. The access inventory includes 325
buildings, 350 public schools, 1,400 traffic signals, 200 tornado siren poles
and other structures that county officials say is worth "hundreds of millions of
Competing firms — all those that have not won county favor —
can only dream of such access given the siting obstacles they must endure. For
example, telecom firms paid Oakland County communities more than $2.1 million
for rights-of-way in 2003-2004, according to state figures; payments statewide
totaled nearly $16 million. There’s no accounting for the hours of bureaucratic
MichTel thus will enjoy a tremendous competitive advantage in
the state’s most lucrative market — assuming it actually secures the estimated
$113.5 million in financing needed in the next five years to build and operate
the network . The provision of free access by MichTel will only further erode
rivals’ market share, thereby jeopardizing the investment and innovation
otherwise maximized by free and fair competition.
There’s also great risk that Wireless Oakland will lock in a
technology that may become obsolete even before the network is completed. The
choice of wi-fi presumes that county officials know what system is best despite
the roiling of consumer preferences and the rapid pace of remarkable
According to a Nov. 7 report in Crain’s Detroit, SBC
Communications Inc. characterized the Wireless Oakland plan as unsustainable.
"The rate of technology change and the eminency of known new capabilities will
make it unlikely that a player who invests in a total countywide wireless
blanket will be able to obtain a return on investment prior to next generation
services stealing their customer base," the company stated in a letter to the
Recognizing such dangers, legislators in several states are
considering bans on municipal broadband, while legislation is pending in
Congress. Texas Rep. Pete Sessions introduced legislation in May to constrain
municipal broadband, a sentiment echoed in a recent bill sponsored by Nevada
Sen. John Ensign.
Michigan State Rep. Mike Nofs, chairman of the Energy and
Technology Committee, likewise argues that municipal broadband is
anti-competitive. "We don’t need county, city and township governments trying to
control private businesses. That’s not free enterprise."
Alternatives do exist for local officials dissatisfied with
the course of the market: To the extent that municipalities reduce tax and
regulatory barriers, broadband penetration and consumer choices will increase.
Simply put, Michigan needs less government involvement in broadband, not more.
Diane S. Katz is director of the Mackinac Center for Public
Policy’s Science, Environment and Technology initiative.