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From the FSF Blog                              April 19, 2013


Observing Troubled Government Telecom Systems




Randolph J. May  


As Yogi Berra said, "You can observe a lot by watching."


There is now a lot of accumulated evidence - available for observing by those willing to watch - that government-owned and operated communications providers typically underestimate costs and overestimate demand when formulating their "business plans."


In part, of course, this may be because, by definition, governments aren't schooled in developing realistic business plans in the way that for-profit businesses necessarily must be. Mostly, though, it is because the government planners know from the get-go that taxpayers, ultimately, will be back-stopping their telecom projects. This knowledge does not help focus the mind in a way that sharpens business plans.


Over the years, FSF and others have chronicled the woes of many of these troubled government-owned telecom ventures, whether the misleadingly named UTOPIA project in Utah, or the Mooresville and Davidson, North Carolina city broadband systems, the Lafayette, Louisiana fiber system, or the Iowa state telecom network.


Without rehashing the gory details of each project here, the common denominator of these government-owned telecom systems is this: Because of almost universal cost overruns and less than projected demand for the services offered, taxpayers typically are left to bear the burden of the ensuing financial distress, either by providing direct subsidies from government coffers or by providing indirect subsidies through premium guarantees for bond offerings used to finance the projects.


You can observe a lot by watching these government-owned telecom projects. But, still, despite the record, there are unceasing calls by some for more government systems and municipalities still embark on the projects.


Speaking of observing, an April 14 editorial in the Raleigh, N.C. News and Observer caught my eye. Entitled "An Intolerable Monthly Jolt," the paper excoriates the N. C. Eastern Municipal Power Agency, comprised of 32 municipalities, for a series of bad decisions over the years that has lead to the government agency's customers "paying rates 40 percent higher than the state average and over 50 percent higher than Duke Energy's." Duke is the state's leading private electric power provider. Aside from the hardship to individuals, the editorial points out that "no job-bearing business is going to take up in a town that charges half again as electricity as most of the state." This is true. One option, according to the News and Observer, is the sale of the agency's power generating assets.


I understand that government-owned electric power providers and government-owned telecom providers differ in some respects and operate in somewhat different contexts. I understand too that it is probably safe to say that no two government-owned telecom providers are identical or operate in the very same contexts. Nevertheless, there are certain fundamental principles of political economy that remain applicable in any event.


Governments should not enter the telecom marketplace with government-owned systems when private sector providers, with their own capital at risk, are willing to provide service.


With the government systems' financial backing and subsidies from taxpayers - even if such backing and subsidies often are extracted unwittingly - along with various special privileges and benefits, it is exceedingly difficult for private sector companies to compete on an equitable basis with government providers. While I have never taken the absolutist position that it is improper under all circumstances for municipal governments to provide telecom services, such entry should be limited to areas in which no private sector provider is offering service and no private operator has shown a willingness to provide service.


Amidst all the fiscal difficulties that governments at all levels are experiencing, difficulties which sometimes call into question their ability to deliver basic government services, they should not be entering the telecom business in competition with private sector companies able and willing to provide the services that consumers demand.


There is more than enough evidence available for observing to reverse the trend - I might say the fad - of ill-conceived government forays into the communications business.






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