George S. Ford

On June 14 The Tennessean ran a story entitled Chattanooga Mayor: Gigabit Speed Internet Helped Revive City in which Mayor Andy Berke touts the economic impact of the municipal broadband system in his city.

Chattanooga’s fiber system required a $330 million investment, with $105 million coming from federal taxpayers. A sizeable share has also been shouldered by the city’s captive electricity ratepayers. Demonstrating the economic benefits of such massive investments — about $4,400 per customer — is a necessary political task, albeit a tricky one, especially since most Chattanoogans purchase service from private providers in that city. Upon inspection, the mayor’s claims just don’t add up.

Mayor Berke’s lead claim is that the “city’s unemployment rate has dropped to 4.1 percent from 7.8 percent,” over the past three years. Yet, over the same period, the nationwide unemployment rate fell from 7.5 percent to 4.7 percent. In terms of unemployment, Chattanooga isn’t much different than the nation as a whole. Unless the Chattanooga system is having nationwide economic impacts, it’s pretty clear that attributing the unemployment decline to a city broadband network is bogus.

Looking at the unemployment rates within Tennessee presents an even more interesting story. The Bureau of Labor Statistics provides unemployment data for twenty-six cities in Tennessee. Of those, Chattanooga’s decline ranks near the bottom—24th out of 26 —and is 20% below average.

In the present absence of federal handouts for broadband network construction, the captive electric ratepayers serve as an excellent source of cross-subsidies for the unprofitable municipal systems. As a result of a high incidence of municipally-provided electricity, it’s little surprise that Tennessee has many municipal broadband systems. For those cities operating broadband networks, unemployment has fallen by an average of 4.0 points.

In cities without municipal systems, unemployment has fallen by 4.7 points, a statistically significant difference of 0.7 points. Thus, if declining unemployment is the measuring stick, then the evidence is decidedly against government-owned networks. In May 2016, unemployment in muni-broadband cities was 4.3 percent, which is higher than the 4.1 percent rate in non-muni-broadband cities. The number of actual jobs in Chattanooga grew by 3.6 percent, slightly below the city average of 3.9 percent. While the job market in Tennessee is recovering, it’s not being driven by municipal broadband.

Broadband networks are expensive to construct and upgrade. Private investment exceeds one hundred billion annually. If there’s money to be made, then private providers will make the necessary investments.

If there’s no money in it, then there’s an obvious reluctance to invest. Getting broadband to unserved areas is a difficult and expensive proposition, since by definition investing where the private sector will not will assuredly lead to financial losses and thus higher taxes or electricity rates to cover the difference.

Cities across the country have tried to build and operate networks, dependent on a near constant influx of government money. As economics predicts, the record of such ventures is abysmal, with scarcely any exceptions. A former poster child of municipal broadband in Bristol, Virginia, is being sold for pennies on the dollar and three executives are doing time for corruption. Similar scenarios are in plentiful supply.

The level of bogosity about the benefits of municipal broadband is at an all-time high, and Mayor Burke’s use of unemployment data only adds to the stock of nonsense aimed ultimately at the government monopolizing broadband and communications. When that day comes, we can be as happy with our broadband as we are with our roads, postal service, and public education — that is, not too happy.

Dr. George S. Ford is the Chief Economist of the Phoenix Center for Advanced Legal & Economic Public Policy Studies ( www.phoenix-center.org), a non-profit 501(c)(3) research organization that studies broad public-policy issues related to governance, social and economic conditions, with a particular emphasis on the law and economics of the digital age.