by James Erwin
A pet project of the outgoing Biden administration has been doling out billions of taxpayer dollars to expand high-speed internet access across the country. Tennessee will receive more than $800 million in federal funds to connect “unserved and underserved” residents to broadband, causing local governments and electric co-ops to see dollar signs. Many are seeking these taxpayer dollars to build broadband internet networks paid for by taxpayers and managed by local governments. But are government owned networks (GONs) the best way to expand high-speed internet access?
A recent report from the Beacon Center of Tennessee suggests the answer is no. It highlights the financial difficulties, risks to taxpayers, and chronic underperformance of government-owned broadband networks across the state.
These networks, which often face significant cost overruns and struggle to attract and retain subscribers, are proving to be a poor investment for Tennessee taxpayers in communities large and small. Heavily subsidized GONs like Knoxville’s KUB Fiber are losing money, and subscriber growth is less than a third of what KUB originally projected, despite spending heavily on ads to its own electric customers and spending millions on flashy sponsorships with Knoxville’s professional soccer club.
In truth, GONs are a taxpayer-funded solution in search of a problem. According to federal data, more than 95 percent of Tennesseans are already connected to the internet. And, according to the Beacon Center report a similar percentage have access to high-speed broadband through wired or fixed wireless technologies. While not all residents are online, the barriers to adoption are primarily about personal choice or cost rather than lack of availability. Among those very few who remain offline, 64 percent report that they simply don’t feel the need, while only 15 percent cite expense as a factor. In total, less than one percent of Tennesseans are unconnected due to lack of access.
With nearly universal broadband access already available across the state, Tennessee lawmakers should ensure these GONs are worthy of public investment by taking swift action to strengthen oversight of their business proposals – reducing waste of taxpayer dollars on dysfunctional government-run projects
GON enthusiasts seek funding for duplicative networks that expand government control of the internet by competing with private providers, largely at taxpayer expense.
And the competition is not going well. GONs have failed for years to attract the subscriber base needed to break even and have wildly underestimated the costs of building and maintaining a broadband network – even so-called “future proof” fiber networks. The Beacon Center report found that GONs in Tennessee have exceeded budget projections by nearly $367.9 million, a staggering 98 percent overrun. While private-sector broadband providers typically reach profitability within three to five years, Tennessee GONs do not break even until year eight on average. This has caused Tennessee GONs to miss profitability targets by an average of 32.8 percent, costing taxpayers $12.1 million in lost revenue.
In the long run, GONs represent an unneeded and unreliable use of taxpayer funds. Not only do they fail to deliver quality service, but they also incentivize harmful government interference in the broadband sector. Even though GONs are often promoted as an affordable alternative to private-sector networks, their financial instability causes them to repeatedly pass their operational costs onto taxpayers for maintenance, expansion and upgrades to the network and are ultimately devastating for taxpayers when they go under. These are the hidden costs these GONs don’t like to talk about.
Tennessee lawmakers should rein in GON excess through common-sense reforms. For instance, the state could block any GON’s business proposal from authorization unless utility providers can verify the financial feasibility of proposed projects. Existing GONs could be required to submit periodic performance reports to the state comptroller’s office – contrasting annual network productivity with previous projections. If projections are missed by a large margin, lawmakers could mandate a robust action plan to remedy GON dysfunction. These measures would promote much-needed accountability for unchecked GONs, ensuring that taxpayers are no longer on the hook for runaway broadband projects.
Simply put, GONs are a bad bet for taxpayers. Strengthening the statutory review process for GON business proposals is a common-sense guardrail that will prevent these networks from becoming bloated boondoggles. Enhanced oversight measures would also ensure that existing GONs are held accountable for their use of public funds.
Lawmakers must prioritize common sense reforms that hold GONs accountable, ensuring that Tennessee’s broadband investments deliver reliable, cost-effective results while avoiding the pitfalls of financial mismanagement and unnecessary government interference with private industry.
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James Erwin is Director of Innovation Policy at Americans for Tax Reform and Executive Director of Digital Liberty. He works on federal and state broadband policy and is based in Washington, DC.
