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New America Foundation Report Finds Municipal Broadband Providers Gouging Consumers

Wireless Router

In its second annual report assessing broadband speeds and prices in various nations, the New America Foundation reports some disturbing findings. Broadband provided by U.S. municipal governments costs much more than broadband provided by private sector providers in other nations. The local government of Bristol, Virginia ranks 31st; Lafayette Louisiana’s service 44th, and Chattanooga Tennessee’s, a recipient of federal stimulus funds for broadband, ranks a dismal 57th in the price of broadband. All of them charge their unsuspecting citizens prices around four times higher than their private sector competitors in other nations.

As they write, “Many American consumers take high prices and slow speeds to be a given, but our data demonstrates that it is possible to have faster, more affordable connectivity in cities of comparable density and size.” New America writes that it will be releasing a report shortly calling for policy solutions to address this terrible situation. Based on their analysis, I am sure they will be calling for Congressional legislation prohibiting socialist local governments from getting into the broadband business.

Of course my reason for pointing this out is to show the absurdity of the New America report, for it purports to make the case that U.S. private sector broadband providers charge too much relative to providers in other nations. But if U.S private sector providers are fat, lazy monopolists earning fat profits, why don’t these municipal providers who charge much higher prices than foreign providers not charge much less? Perhaps they are run by lazy incredibly inefficient government bureaucrats? Perhaps they are paying for welfare for the poor on the backs of the excessive revenues they are extracting from their captive broadband customers? Or perhaps their prices, and the prices of comparable U.S. private sector providers, are in fact, not out of line at all.

Of course, the last explanation is the right one. I won’t go into all that is wrong with the NAF ranking. (We did that when NAF came out with the first edition of its report.)

However, let me point out several of the more egregious issues with the study. First, anyone ever watch French cable TV? If so you know what a wasteland it is. One reason why triple play broadband in the U.S. costs more than in nations like France is that American cable TV content is of a much higher quality, and that costs more.

Second, does anyone really believe that it costs the same to provide broadband to consumers in Seoul, Korea than it does in Los Angeles? It costs significantly more to run broadband to dispersed households than to ones all living in high rise complexes. And as ITIF showed in its report from earlier this year comparing broadband among nations, the United States has the second least densely populated metropolitan areas of any nation reviewed (only the Aussies had less densely populated metros.)

I should also point out that even with these legitimate impediments, according to the OECD, US broadband prices for entry-level broadband are among the cheapest in the world.

Finally, if prices are actually higher and they are due to lack of competition, then one of two things has to be true: U.S. providers are either inefficient or making too much profit. There is no evidence they are inefficient, and as we pointed out in our earlier report, U.S. private sector broadband profit rates are actually lower than European, the place where NAF says competition has driven broadband nirvana.

In short, the fact that municipal broadband providers have pretty much the same pricing as private sector providers in the U.S. makes clear that fallacy of the New America thesis. If too little competition is the reason for supposedly higher U.S. prices, then their data suggest that these municipal broadband providers must be raking in a pretty penny of their unsuspecting local consumers.



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