How does Holland think his Internet service will succeed where so many others have failed?
Cities elsewhere in Michigan and across the country are grumbling about building government-run Internet networks that their taxpayers have to subsidize. On August 2, Dutch voters will decide if they want to bet that Holland can succeed where so many other cities have failed.
Dutch voters are expected to vote ‘no’ on whether to impose a mileage to subsidize a government-run internet system to compete with private companies already in the market.
What Holland offers is not unique, but at least Holland has the opportunity to learn from what has happened elsewhere. Cities across the country launched municipal broadband systems that quickly proved to be financial failures.
The pattern is always the same. Local governments claim that private companies do not provide adequate internet access and that they can do better. They make projections on the price of the service and on the number of people who will want to register. And then the actual results do not come close to the optimistic forecasts.
Take the Traverse City public broadband system. Its supporters have said it needs at least 40% of the city’s residents to sign up to break even, which they say will happen by 2021. Still, the service’s latest financial report Traverse City’s public shows that it has only 640 customers, half the number needed. to break even, and revenues are only 39% of pre-construction projections. Traverse City’s internet operation just took out a $14.7 million loan to stay afloat and says it still needs to find another $3.2 million.
The city of Marshall’s public broadband system isn’t faring much better. Although it can at least cover operating costs, Marshall’s broadband operation has defaulted on a loan on the power side of the utility. In March, Marshall had to raise internet rates to cover non-repayment of borrowed funds. The Marshall project manager even bragged before the project started that the city was giving its own project major regulatory benefits that were not extended to private companies planning to expand into Marshall.
Local government internet boondoggles are not unique to our state. A 2022 study found that 87% of government-run Internet systems in the United States did not generate enough cash flow to put them on track to achieve long-term solvency, and 73% generated negative cash flow over the past three years, which has caused them to take on more debt.
The August 2 ballot proposal would allow mileage for up to 25 years. Internet technology today is very different from the technology of 1997. It is almost certain that today’s technology will be obsolete long before 2047. When that happens, residents of the Netherlands will be forced to pay for a wired network offering much lower performance than private sector alternatives in the near future. Sports teams often end up regretting the long-term contracts they offer superstar players, but at least their contracts don’t last 25 years.
Indeed, the transition to wired broadband has already begun. Many people, especially young internet users, are already cutting the cord on their wired internet plan because they can get whatever they want from their cell phone service. This trend will continue as wireless service continues to advance and overtake the type of wired network that Holland proposes to build at taxpayer expense.
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Holland is already served by at least a dozen private sector internet providers. Many of them only serve part of the area, but some cover almost the entire market. ISPs grow by expanding into new areas, so they have an incentive to reach underserved areas. But this investment by private companies in the Netherlands will quickly dry up if they know they have to compete with a broadband system subsidized by taxpayers and run by a government that is both arbiter and competitor.
At best, the Dutch public internet proposal will improve service for a relatively short period of time for a relatively small number of residents. It’s not even clear that the Holland Board of Public Works, starting with $30 million from taxpayers and stimulus funds, can do better than the private companies that are already providing services without being subsidized by taxpayers. It is crucial that Holland uses its funds appropriately and does not make taxpayers pay for 25-year commitments with meager benefits that are unlikely to last more than a few years.
— Ted Bolema is the executive director of the Institute for the Study of Economic Growth at Wichita State University and a Dutch resident.