Introduction
Updated as of January 2020.
One aspect of the economy that garners much attention in the urban/rural divide is internet service. More populous metropolitan areas have a greater range of private services offering broadband, just as they have more options among grocery stores, restaurants, gasoline stations, and other things. It is expensive and challenging for service providers to site broadband infrastructure to connect relatively sparse populations to high-speed broadband.
Connectivity is an increasingly important need for homes and businesses, however. For that reason, local government officials can become convinced that the solution is for government to provide the service. But the results from local governments offering public broadband networks are not desirable. Even for the few public networks that are cash-flow positive, most would take over 60 years before they could break even.
Public networks are marked by financial difficulties. Earlier this century, a handful of North Carolina cities — Wilson, Salisbury, Mooresville, Davidson, and Morganton — chose to set up municipal broadband services. In short order, however, their residents faced higher taxes and even higher electricity and water rates, as the cities were borrowing from other funds to cover their broadband network losses.
In response, state legislators passed the Level Playing Field Law in 2011. The law protects citizens from being hit with higher property taxes and utility costs owing to such cross-subsidization, and it also protects any existing or future service providers from facing unfair competition from governments.
The law does that by requiring new public broadband systems to comply with the same federal, state, and local laws that their private competitors must follow. It prevents public systems from requiring subscribership from individuals or developments, and the law disallows cross-subsidization to cover losses or pricing services below cost. The law also forbids local governments from using bonds not approved by voters to fund the services.
The Level Playing Field Law is grounded in the wisdom that the private sector, featuring competing enterprisers seeking new opportunities and finding innovations, is best suited to solve difficult market problems.
Key Facts
- By 2011, Wilson was borrowing from its municipal electric and gas funds to make up for an over $11 million shortfall in its Greenlight network. Mooresville and Davidson’s MI-Connection had posted consecutive annual losses of $5.6 million, $6.8 million, and $6.4 million. Salisbury was borrowing millions of dollars from its water and sewer fund to support its Fibrant network, saw its bond rating downgraded, and in 2018 easily passed a voter resolution to lease the network.
- In December 2018, the U.S. Department of Agriculture (USDA) announced a $600 million grant program to be used by “telecommunications companies, rural electric cooperatives and utilities, Internet service providers, and municipalities … to connect rural areas that currently have insufficient broadband service.” Insufficient service was deemed to be download speeds of 10 megabits per second (Mbps) or less and 1 Mbps to upload. Approved service would be at least 25 Mbps (download) and 3 Mbps (upload).
- Under USDA’s 2018 standard, nearly all of North Carolina has sufficient service speeds and competition. In June 2018, the Federal Communications Commission’s analysis of fixed broadband deployment found that 95 percent of North Carolinians had access to at least three providers offering broadband speeds of 25/3 Mbps or more, and the remaining 5 percent had two choices at those speeds. Over 92 percent of North Carolina had access to very high speeds of 100/10 Mbps.
- An April 2019 report from WUNC discussed how smaller, innovative broadband companies were sprouting up across North Carolina to offer rural broadband services. Despite a lack of traditional infrastructure, the companies are making ingenious use of such features as grain elevators, water towers, and even sweetgum trees for posting transmission equipment.
Recommendations
- Leave broadband service to private providers. The private sector, featuring competing enterprisers seeking new opportunities and innovations, is best suited to solve difficult market problems.
- Uphold the Level Playing Field Act. Oppose any bill that would exempt local government broadband efforts from the Level Playing Field Act, whether to build a new network or to build network infrastructure to lease to a private company. Cross-subsidization hides the costs and hits poor residents especially hard.
- Streamline permitting and remove regulatory roadblocks to building wireless infrastructure. Examining rural broadband issues in North Carolina, the Mercatus Center at George Mason University in 2017 recommended that North Carolina reduce state and local regulatory obstacles to building wireless infrastructure on public property and public rights-of-way.
