Federal monopoly is a way to degrade — not enhance — broadband development

Federal monopoly is a way to degrade — not enhance — broadband development
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Over the past 10 years, America’s wireless industry has invested over $265 billion into cutting edge mobile broadband networks, and plans are aggressively underway to construct advanced “Fifth Generation” or “5G” networks. Given this success story, it came as quite a shock when news broke a few weeks ago that the National Security Council had authored a memorandum proposing to have the federal government supplant the private sector and build and control a centralized 5G wireless network to combat foreign cybersecurity threats.

Needless to say, the notion that someone in the White House was seriously contemplating nationalizing the wireless industry — particularly in the name of “national security" — caused quite a kerfuffle.

While the private sector swiftly condemned the memorandum, condemnation also came from leading members of the president’s own party — including all three Republican commissioners of the Federal Communications Commission. As FCC Chairman Ajit Pai observed, “Any federal effort to construct a nationalized 5G network would be a costly and counterproductive distraction from the policies we need to help the United States win the 5G future.” Commissioner Michael O’Rielly (a seasoned Capitol Hill staffer before being named to the commission) was particularly and characteristically blunt: “I’ve seen lead balloons tried in D.C. before but this is like a balloon made out of a Ford Pinto.”

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Even the White House quickly backtracked. According to the Washington Post, “Senior officials at the Commerce Department and the White House’s National Economic Council were livid at the suggestion that the memo reflects administration policy and called it hogwash…” Shortly thereafter, the author of the controversial memo — Air Force Brigadier Gen. Robert Spalding — left the White House.

 

With some hindsight, it would be easy to dismiss this incident as a bad Dr. Strangelove anecdote of an over-zealous general. After all, any notion that we should nationalize our communications networks makes us no better than the authoritarian regimes threatening our national security.

But is there more to the story? Does the leaked memo indicate that the Trump White House has a favorable view towards government-run networks over the private sector?

If past is prologue, then the leaked memo is, as the White House claims, probably just an aberration. After all, perhaps one of the President TrumpDonald John TrumpWSJ: Trump ignored advice to confront Putin over indictments Trump hotel charging Sean Spicer ,000 as book party venue Bernie Sanders: Trump 'so tough' on child separations but not on Putin MORE’s greatest accomplishments in the private sector is the saving of the iconic Wollman Rink in Central Park. After years of incompetence by the New York City government to repair the rink, then citizen-Trump stepped in and finished the job in just four months at a final cost 25 percent below the budget. As one press report observed, “it wasn’t rocket science according to Trump. It was common sense and ’management.’”

On the government officials in charge of the project, Trump described them as “nice people” but “idiots.” Certainly, if ever there was a politician who understands the inefficiencies of government and government-run infrastructure, it is President Trump.

Still, when viewed in the context of the broader municipal broadband debate, one can see why the leaked memorandum caused such consternation and why its timing was, perhaps, not mere coincidence.

For years, proponents of municipal broadband have argued that government can provide broadband faster and cheaper than the private sector. But despite overwhelming empirical evidence that the opposite is true, with $20 billion tucked into the recent budget deal for infrastructure (including the expansion of rural broadband) proponents of municipal broadband (and their allies in Congress) are licking their chops hoping to get their cut.

And no wonder: municipal networks generally require both massive federal subsidies and massive cross-subsidization from captive electric ratepayers to survive. In the absence of such subsidies, the list of failed muni-broadband projects is long and always growing, invariably leaving taxpayers holding the bag. Not everyone has learned the lessons from municipal broadband failures and the mostly-squandered billions in broadband subsidies from the Obama-era American Reinvestment and Recovery Act.

In many (if not most) cases, government-owned networks do not aim to solve the problem of a lack of access but instead are justified as bringing competition to the private providers already serving the market. Doing what the private sector will not implies the venture must be subsidized, and subsidizing such entry is a waste to taxpayer dollars. If anything, such subsidies facilitate predatory entry and raise significant due process concerns.

So when this $20 billion starts to flow, the Trump administration must be extremely vigilant on the projects the government supports. Serving the unserved is the priority, not using government money to subsidize municipal overbuilding of private investment.

As President Trump is fond of saying, big infrastructure projects should come in under budget and ahead of schedule. But given municipal broadband’s sordid past, it is probably safe to assume that having the government provide critical broadband infrastructure — as a monopolist no less — won’t achieve this goal.

Lawrence J. Spiwak is the president of the Phoenix Center for Advanced Legal and Economic Public Policy Studies, a nonprofit organization that studies broad public-policy issues related to governance, social and economic conditions, with a particular emphasis on the law and economics of the digital age.