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There are vast disparities in Americans’ access to fast, affordable broadband service. In part, this is a result of demographic differences: Denser, richer neighborhoods present a more attractive opportunity for investment by broadband providers than areas that are either less populous or less affluent. But another important factor is the presence (or absence) of meaningful competition in a particular market. In a number of cities and towns across America, new entry — often by a municipal service or public-private partnership — has increased competition and led to faster speeds and cheaper prices.
Chattanooga, Tennessee, is home to the first gigabit fiber network in the U.S. EPB, the local public utility that built the network, offers gigabit service to Chattanooga consumers for $70 per month, with even cheaper plans for those who don’t quite need 100 times the average U.S. broadband connection speed. With gigabit broadband service, you can download a three gigabyte HD movie in 24 seconds (versus 40 minutes with a 10 megabits per second connection).
In response, the incumbent cable broadband provider put up billboards around Chattanooga touting its service, and began offering highly discounted introductory packages and gift cards to customers willing to switch back from EPB. It also lowered its cable prices and increased the speed of its fastest broadband packages. Consumers in Chattanooga now benefit from more choices and faster speeds.
They aren’t alone. Kansas City also boasts a gigabit fiber network. As in Chattanooga, a new entrant — in this case, Google — built the next-generation network. Following Google’s entry, the incumbent cable companies both announced they would increase Internet speeds for their Kansas City customers — without any increase in prices.
Similar stories have played out in other communities. In some places, incumbents initially decline requests by local governments to upgrade networks. However, when a new provider enters the market, these same incumbents invest in upgrades and deploy new technologies.
The experiences of Chattanooga, Kansas City, and other cities and towns like them concretely demonstrate the benefits of broadband entry for consumers. The Open Technology Institute found that consumers have better options and faster speeds in communities where three or more providers compete.
But according to a December 2014 report by the U.S. Department of Commerce, less than one in 10 Americans is served by three or more wireline providers capable of providing 25 Mbps service — the new threshold for broadband service proposed last week by Chairman Tom Wheeler of the Federal Communications Commission. The majority of Americans face (at best) a broadband duopoly.
In spite of this, rather than lowering barriers for new broadband entry, many states are raising them. Twenty states have enacted laws that restrict municipal broadband projects in one form or another. More states may join these ranks, as state legislatures return for 2015 sessions and consider restrictions. In some states, these restrictions take the form of outright bans — including bans on public-private partnerships. Other states don’t formally ban municipal offerings, but hinder municipal entry as a practical matter.
Proponents of laws restricting municipal broadband frequently assert that public investment in municipal broadband infrastructure is unfair to private companies and discourages investment by the private sector. They note, in some cases correctly, that local broadband projects are expensive and can fail — and if they do, taxpayers can end up on the hook.
But broadband networks are infrastructure that generates public benefits related to education, health and economic development. As such, they are textbook cases for public support. Because a private company cannot monetize the full value of its broadband network, it will tend to underinvest in broadband deployment.
Not surprisingly, a recurring story told by cities and towns that have built their own fiber networks is that they did so only after the incumbent providers declined to make those investments themselves. In these cases, the city or town stepped in where the market failed to meet the demand for more modern infrastructure.
The experience of cities like Chattanooga demonstrates that the prospect of new broadband entry actually appears to spur investment by incumbents. Competition — whether provided by a private entity or a municipality — works. It is important that legislators and policy makers considering restrictions recognize the vital role competition plays in achieving better, faster Internet services.
Terrell McSweeny is a commissioner at the Federal Trade Commission. Prior to joining the Commission, McSweeny served as Chief Counsel for Competition Policy and Intergovernmental Relations for the U.S. Department of Justice Antitrust Division. Her government service also includes her work as Sen. Joe Biden’s deputy chief of staff, and policy director in the U.S. Senate. The views expressed in this article are her own, and do not necessarily reflect those of the Federal Trade Commission or any other commissioner. Reach her @TMcSweenyFTC.
This article originally appeared on Recode.net.
