Study: Chattanooga broadband hurts taxpayers, local economies in other Tennessee cities

vchicola Economic Prosperity, Technology Leave a Comment

f a business relocates to Chattanooga because of its municipal broadband, another city is hurt.

People paid federal taxes to help set up Chattanooga’s municipal broadband, and residents in the losing city suffer the consequences, according to a study released Wednesday by Washington, D.C.-based State Government Leadership Foundation.

As reported, Chattanooga’s Electric Power Board accepted $111 million in federal stimulus money to set up its network.

“Smaller businesses such as Claris Networks, EDOps, and Lamp Post Group relocated to the city, and Chattanooga is also emerging as an incubator for tech start-ups,” according to the study.

“For the most part, the economic development from municipal broadband systems appears to be based on stealing businesses from other cities.”

Study author George S. Ford, an economist with the Phoenix Center for Advanced Legal and Public Policy Studies, calls it “economic migration,” which isn’t necessarily a good thing, he said.

“Federal subsidies used to support financially municipal networks are funded through federal taxation. Therefore, the people in cities losing businesses are perversely funding the broadband networks that are destroying their economy,” Ford wrote in the study.

“While it is easy to see a city’s leadership wanting to advantage its city over others, it is not clear why federal and state governments should be complicit in the act.”

That’s just one of the findings in the 59-page report.

EPB officials, in an emailed statement, called the study a “politically motivated hit piece.”

“The success of EPB’s Smart Grid and Fiber Optic network are well documented by credible research which has been published in a variety of credible news sources,” said EPB spokesman John Pless.

As reported, EPB officials lobbied hard the past few years to overturn a Tennessee law restricting them and other government-owned broadband networks from expanding outside municipal boundaries — typically into rural areas.

The SGLF study says Tennessee law —along with those in 22 other states —are designed “to protect taxpayers from undue risk.”

Government-owned broadband networks, the study goes on, discourage private Internet Service Providers who have a profit motive for moving to a certain area, and that limits competition, Ford wrote.

Municipal broadband operators often care little about making money, the study says. “Municipal entry may be a poison pill for all private sector investment.”

Private ISPs that already compete against municipal broadband in a certain area may leave on their own, giving a municipal broadband network a monopoly, Ford wrote.

Ford told Tennessee Watchdog on Wednesday that he and others who make that argument may have a tough time winning the public relations battle against EPB and other municipal providers.

EPB set up a nonprofit, the Tennessee Fiber Optics Communities, to lobby legislators to overturn state law.

“It’s very difficult to win any argument that tries to bring some rational thinking to broadband,” Ford said.

“These systems will have to be injected with cash constantly, and the government will have to retain upgrades and maintenance a lot.”

The free market, Ford said, has a less expensive solution — wireless technology —though it will take a few more years to develop.

“It’s going to have to go that way anyway because the cost of running wires is just too high. In fact, the cost of running wires to even suburban areas is pretty darn high, and they are experimenting with wireless technologies and to extend fiber deep into those communities,” Ford said.

“While wireless is a solution for rural areas, it’s also a solution for urban areas.”


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