A Government ISP is not Market Competition

Government Programs are not Market Competition

Government Programs are not Market Competition

President Obama is set to make a push today for the FCC to override state and local laws prohibiting municipalities from getting into the business of providing Internet access. The push is part of a larger package of initiatives the President is unveiling leading up to his January 20th State of the Union address.

Incumbent telecoms like AT&T and Time Warner Cable have lobbied extensively around the country to ensure they don’t have to compete directly with such municipal projects. About 20 states have laws that make it more difficult for local governments to invest in or expand community broadband networks.

Take Cedar Falls Utilities for example, who is planning to host a speech for Obama today on the subject. They have been a leader in the municipal movement to provide an alternative to major ISPs. They already offer service to local residents with speeds of up to one gigabit per second, far faster than nearly any affordably priced residential provider. Plans range from 3Mbps for $29.95/month to 1Gbps for $135/month. Local laws are preventing them from expanding outside their current service area, and the FCC proposal would seek to let them do so by overturning those local laws at the federal level.

That might sound pretty good, depending on where you live, and what your Internet usage is like. If the Federal Government has any useful purpose at all (and I’m not saying it does), it is to overrule bad state and local laws, and hold officials accountable to some higher authority.

Thing is, you can’t get Verizon in this area. You can’t get AT&T. You can’t get Comcast. You can’t get Time Warner. (At least not at 1 Main Street, the address I used to check service availability)

It was likely the case that these providers didn’t service these areas before Cedar Falls Utilities came into existence, so the utility’s presence was probably welcomed by the residents there. The problem here is that it is exceedingly unlikely that you ever will be able to get these or any other self sufficient private providers there, because these providers need to make a profit to stay in business. Governments have no such hindrance, and can even rely on taxpayers to keep them afloat when they make horrible business decisions that would bankrupt any other entity.

Governments also have the distinct advantage of complete dominion over all common spaces, where most utility lines are run, as well as radio frequencies used to deliver wireless services. It may well be the case that higher levels of government are not entirely motivated to help lower levels of government, but they are infinitely better motivated to help other governments than they are to help folks like you and me.

Oh, and governments collect taxes, as opposed to paying them like private businesses.

For some other provider to set up shop in Cedar Falls at this point would be completely pointless. Their competitor would be the government itself, the owner of all the radio waves and common spaces. At every step of the way, they would need to ask their competitor for permission. If they suffered losses, that would effect shareholders who can sell off stock, and end the company, while the utility company can simply extract funds from taxpayers.

Imagine local laws preventing their expansion were overturned. While competition amongst Internet service providers is already limited, thanks to the FCC and other government regulations, you probably have at least two choices in your area. While it may at first seem advantageous for the government to provide a third option, they would in many cases become the only option as they drove competitors from the market with the advantages they gain through government force.

It reminds me of the debate leading up to Obamacare, and the push for a “public option”. Government doesn’t have to forcefully take over companies to nationalize an industry, they just need to subsidize a government alternative long enough to put their market “competitors” out of business. Once the government has put all of its competitors out of business, it just says “Hey, see, look, the free market can’t provide this service, so now we’re outlawing competition.” Remember Jacob Hacker’s talk at the Tides Foundation?

“Someone once said to me this is a Trojan horse for single payer, and I said well it’s not a Trojan horse, right? It’s just right there, I’m telling you. We’re gonna get there.”

Same principle here. Using the advantages they gain through force, government provides a seemingly superior product, at a seemingly lower price, until they are the only game in town. Once that happens, the government will be your ISP and you will not have market alternatives. Does anyone in their right mind believe we’re going to be better off with government run Internet?

Government cannot free you from the constraints of market economics, it can only add new constraints through threats of force. They aren’t going to free you from the limits of your Internet Service Provider, they are going to become your Internet Service Provider. If you thought your ISP was bad as an ISP, wait until your ISP is also your plenary lord and master.

Kit Walsh from the Electronic Frontier Foundation will be on Free Talk Live tonight at 7:30pm to discuss Net Neutrality with us. EFF is listed as the 2nd most popular libertarian website on Earth at TopLibertarian.com, and they have come out in favor of the proposal.

You can catch me on Free Talk Live every Wednesday from 7-10pm EST. It airs on over 150 broadcast stations throughout the United States, but if one is not near you, then you can listen on http://lrn.fm or on the TuneIn app for smart phone, or pick up the podcast from iTunes.



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  • kennyalligood

    Good article Chris. Only one point of contention from me. The part about private industry paying taxes making the difference. Stepping beyond the obvious that paying taxes is never a benefit except to those that forcefully extort said taxes we all know major private industry doesn’t pay taxes either. Any taxes are either included in the costs of their service and/or they have a team of accountants that can get out of all taxes receipts… think GE.

  • Mike Thomolson

    I am not completely certain what is stupider, your ideas or that banner picture you have up there.