People are economically rational about municipally owned and operated broadband systems. Emotions – hatred of incumbents or warm, fuzzy collectivist feelings – do not motivate consumers to switch ISPs or vote for tax-backed bonds to pay for a publicly provided gigabit. That’s my conclusion yet again, after reading yet another professionally executed muni broadband feasibility study, this one by Columbia Telecommunications Corporation for Multnomah County in Oregon (h/t to Fred Pilot at the U.S. Telecom Infrastructure Crisis blog).
There is no free lunch. The report found that “the appetite for a government-operated network depends heavily on price point”. Even though independent, private sector Internet service providers, such as Google Fiber, charge $70 a month or more for gigabit service and the average broadband bill in Multnomah County is $70 as well, “$50 was the sweet spot” for local taxpayers and “interest faded rapidly with each $10 increment”. According to the study…
The financial analysis developed for this report suggests that the countywide strategy would be self-sustaining at a take-rate of 36 percent, assuming a 4 percent bond interest rate and residential service fees of $80 per month…
However, the financial model suggests that a take-rate of 70 percent is required to achieve positive cash flow if the residential gigabit product is priced at $50, demonstrating that the financial viability of the initiative is very sensitive to pricing and the willingness of consumers to pay more for fiber-based services. This suggests some level of risk given that the residential market research participants, when asked if they would be willing to purchase 1 Gbps high-speed internet service from a new provider at various price levels, demonstrate limited interest at monthly fees in the higher ranges.
Indeed, the residential market research suggests that consumer willingness to pay for fiber-based services falls off considerably above monthly costs of $50.
It’s the same conclusion I reached in a similar study in Palo Alto in 2012, and consistent with what I’ve observed since then. Very few people, relatively speaking, care about broadband as a policy issue or consider it a moral cause. The vast majority of people care about the price they’re paying, what they’re getting in exchange and how much risk they face. Taxpayers, correctly, perceive publicly-owned utilities as presenting a financial risk to themselves – if the business case fails, they’re on the hook.
Privately owned utilities may be perceived as greedy or even evil, but so long as consumer needs are met at an acceptable price point, there’s no economic motivation for taxpayers to take on the liability of owning and operating a utility. Increase the quantity and quality of service provided and drop the price far enough, and the immediate benefit begins to outweigh the long term risk.