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New Study Says No, Analyzing One City's Experiment Gone Awry
WASHINGTON, D.C. - Government entities and the taxpayers who finance them should think twice before entering the telecommunications business, according to a study released by the Progress & Freedom Foundation, “When Government Enters the Telecom Market: An Assessment of Tacoma’s Click! Network.”
Written by Paul Guppy of the Washington Policy Center, the paper discusses policy concerns over government entering the telecommunications market, the results of Tacoma Public Utilities’ five-year experiment, strategies for stemming the utility’s associated losses and recommendations for future actions. This paper relies in part on an earlier study by PFF President Jeffrey A. Eisenach, “Does Government Belong in the Telecom Business.”
Guppy argues that such government ventures are not as efficient as private ones, cause people to either pay twice or drop existing services, and expose public funds to the extreme risks of the telecommunications marketplace. Moreover, because they have access to public funds (in the Tacoma case, to the reserves of the public power utility, as well as other public funding mechanisms), government telecommunications ventures tend not to heed constructive signals from capital markets. Citing these problems and other government failures in similar ventures, the paper urges Tacoma to sell the network.
“The disappointing results of Tacoma’s foray into the telecommunications business indicate that traditional public utilities are not well equipped to pursue construction and operation of high-technology infrastructure projects,” writes Guppy. “Such a public system can exist by operating at a loss and relying on revenue from its existing subsidized services, but it cannot sustain itself financially over time.
“Government can play important, indeed vital, roles in fostering an effective local telecommunications market, but owner and market competitor is not one of them,” Guppy continues. “Running a sophisticated telecommunications and cable service is simply not a core function of government.”
The Progress & Freedom Foundation is a market-oriented think tank that studies the digital revolution and its implications for public policy. It is a 501(c)(3) research & educational organization.
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