NCPA - National Center for Policy Analysis

Municipalities Offer Telecom Services

August 17, 2001

Scores of mostly medium-sized and smaller localities are challenging their local cable, phone and Internet providers by installing public fiber-optic networks. And some are extending such services even to low-income public housing projects.

For the telecommunications industry, the new competition comes at a bad time. Regional Bell and cable companies have also poured billions into improving their connections to homes -- without yet seeing much return.

  • Only about 9 percent of households nationwide are estimated to have high-speed cable and Internet service.
  • The municipal efforts are funded in many cases by special bonds and in other cases by cash generated by local utilities.
  • Less concerned about turning profits, these municipalities are more willing to incur the heavy expenses required to extend high-capacity lines into homes and businesses.
  • Some in the telecom industry object that government-built systems enjoy unfair advantages -- such as bond financing that is tax exempt and easier access to rights-of-way and licensing by the very entities that own them.

The industry has taken its case to legislatures in Texas, Missouri and eight other states -- seeking to pass laws restricting or banning municipal networks from providing telecom services.

Companies are also trying to head off proposed municipal networks with aggressive local public-relations campaigns aimed at persuading voters that the systems will lose money -- forcing taxpayers to pick up the tab.

Source: David Armstrong and Dennis K. Berman, "Telecom Companies Confront New Rival: The City Hall Network," Wall Street Journal, August 17, 2001.

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