Municipal Wireless as Unfair Competition

by on February 3, 2005

While much of the rest of the world is privatizing state-owned enterprises, there’s a growing movement here in the U.S. for local municipalities to get into the business of broadband. This is a testy issue that draws visceral responses over the proper role of government, property rights, and democracy itself. But the focus of my contribution to the publication released by the New Millennium Reach Council concludes that public sector competitors have a form of “home field advantage” that discourages entry from private firms.

I didn’t include a discussion on the hybrid municipal approach in the report but I wish I did. Some municipalities take a hybrid approach – they build the networks and sell wholesale access to private firms or they outsource to firms that then manage the customer relationship. But these are still a second-best solution.

Utah’s government-backed multi-city fiber project, UTOPIA, has promoted its model of private competition combined with public ownership of facilities by analogizing it to an airport.

The idea is that the city builds the airport but leaves it to the private sector to fly the planes.

This kind of thinking ignores the fact that all networks require close coordination of physical assets and operating decisions. And indeed we see the need for this in the airline industry. Airlines are free to set their routes and fares but must rely on government provided air traffic control and airports. The lack of private sector control results in poor coordination of assets–slow improvements in traffic control technology and inefficient airport operation leads to congestion and a diminished customer experience. Customers complain to the airlines because they’re closest to the customer. But its government agencies that are to blame, and because they’re distant from the customer relationship they’re slow to respond. I’d hate to see the same thing happen with communications networks.

Outsourcing can also result in a politicized vendor selection process ends up favoring special interest groups, often those with deep pockets. In the private sector world, a customer vendor relationship is a partnership of sorts that we encourage in the private sector but should, due to concerns about favoritism and kickbacks, be wary of in the public sector.

Short of acting as a market participant or creating a new subsidy program, governments can take steps to ensure that the private sector performs as desired. Municipalities should focus on ways to make it easier for private companies to provide service, such as removing franchise licensing barriers. State legislatures should ensure that they make right-of-way access available on terms that are fair, administratively efficient, nondiscriminatory, and pro-competitive. Federal telecommunications law requires reform and spectrum needs to be better managed.

Today the communications industry is finally converging to the benefit of consumers. Services are truly becoming “intermodal” or “inter-technology.” Especially in those areas where a provider already exists, we don’t need or want government to compete. Inter-technology competition between phone and cable companies is great. Inter-sector competition between the public and private sector is not true competition, and sets a precedent for even more expansive government involvement in the digital world.

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