The Law and Economics of Municipal Broadband
Total Page:16
File Type:pdf, Size:1020Kb
The Law and Economics of Municipal Broadband T. Randolph Beard, PhD* George S. Ford, PhD† Lawrence J. Spiwak, Esq.‡ Michael Stern, PhD¨ TABLE OF CONTENTS I. INTRODUCTION ......................................................................................... 3 II. SUMMARY OF FINDINGS ........................................................................... 9 III. THE ECONOMICS OF THE BROADBAND BONUS ...................................... 14 A. The Externality Issue .................................................................... 15 B. Competition is Not the Solution to Externalities .......................... 16 C. Economic Development and Municipal Broadband .................... 17 D. Economic Migration Versus Growth ............................................ 18 IV. MUNICIPAL BROADBAND, COMPETITION, AND WELFARE ..................... 19 A. The Equilibrium Number of Firms ............................................... 22 B. Welfare and the Number of Competitors ...................................... 27 C. Adding Competitors to a Market Already in Equilibrium ............ 29 D. The Value of the First Firm .......................................................... 32 E. Externalities and the Equilibrium Number of Competitors .......... 32 V. SUBSIDIES, PREDATION, AND PRIVATE INVESTMENT ............................ 34 A. Municipal Broadband and the Number of Firms ......................... 35 * Senior Fellow, Phoenix Center for Advanced Legal & Economic Public Policy Studies; Professor of Economics, Auburn University. † Chief Economist, Phoenix Center for Advanced Legal & Economic Public Policy Studies. ‡ President, Phoenix Center for Advanced Legal & Economic Public Policy Studies. The views expressed in this Article are the authors’ alone and do not represent the views of the Phoenix Center. Portions of this research were supported by the State Government Leadership Foundation. ¨ Senior Fellow, Phoenix Center for Advanced Legal & Economic Public Policy Studies; Professor of Economics, Auburn University. -1- B. Municipal Broadband is Subsidized Entry ................................... 39 C. Direct Subsidies ............................................................................ 42 D. Indirect, Implicit, and Cross-Subsidies ........................................ 44 E. Private Investment and the Threat of Municipal Entry ................ 52 VI. EXTERNALITIES, COMPETITION, AND SUBSIDIES ................................... 53 A. Subsidies vs. Entry ........................................................................ 54 VII. PRACTICAL CONSIDERATIONS FOR REASONABLE POLICY ................. 56 A. Burlington, Vermont ..................................................................... 57 B. Provo, Utah .................................................................................. 59 C. Tacoma, Washington .................................................................... 60 D. Groton, Connecticut ..................................................................... 62 E. Lake County, Minnesota ............................................................... 63 F. Salisbury, North Carolina ............................................................ 63 G. Summary ....................................................................................... 65 VIII. RECENT EMPIRICAL EVIDENCE ON MUNICIPAL BROADBAND ............ 65 A. Labor Market Outcomes ............................................................... 65 B. Incumbent Responses to Municipal Entry .................................... 66 C. Welfare Effects of Municipal Entry .............................................. 68 D. Municipal Provider Prices ........................................................... 69 IX. OUTSTANDING LEGAL ISSUES: PREEMPTION, PREDATION, AND DUE PROCESS .............................................................................................. 76 A. Preemption of State Laws Governing Municipal Entry ............... 77 1. Nixon v. Missouri Municipal League .................................... 78 2. The FCC’s 2015 Preemption Order ..................................... 79 3. Sixth Circuit Review ............................................................. 86 4. Postscript: Mozilla v. FCC .................................................... 88 5. SumMary ............................................................................... 89 B. Municipal Broadband and the Antitrust Laws ............................. 89 C. Municipal Entry as A Due Process Problem ................................ 92 X. CONCLUSION .......................................................................................... 96 -2- Issue 1 MUNICIPAL BROADBAND 3 I. INTRODUCTION Broadband Internet service is integrated into nearly every aspect of contemporary AMerican society, perhaps even to a fault. Kids sleep (or not) with their Internet-connected Mobile devices under their pillows, Mental health professions treat afflictions like Internet Addiction Disorder and CoMpulsive Internet Use, and half of the nation’s Ministers are having issues with online pornography.1 Like all things, there are downsides, but broadband Internet connectivity is now seen as essential for Modern life, not only because of the significant private benefits to its users, but also because of the alleged sizable social payoff—a “broadband bonus” above and beyond the purely private benefits of the service.2 Consider the FCC’s 2010 National Broadband Plan’s take: “Broadband is a platforM to create today’s high- perforMance AMerica—an AMerica of universal opportunity and unceasing innovation, an AMerica that can continue to lead the global econoMy, an America with world-leading broadband-enabled health care, education, energy, job training, civic engagement, government perforMance and public safety.”3 While the rhetoric is often MelodraMatic, broadband is unquestionably iMportant to consumers for its private benefits and to policymakers for its purported social payoffs, leading some political leaders 1. Hillary Cash et al., Internet Addiction: A Brief Summary of Research and Practice, 8(4) CURR PSYCHIATRY REV. 292 (2012); Doni Bloomfield, Kids Who Sleep Near Smartphones Get Less Shuteye: Study, BLOOMBERG (Jan. 5, 2015), http://www.bloomberg.com/news/articles/2015-01-05/kids-who-sleep-near-smartphones-get- less-shuteye-study [https://perma.cc/9QXD-EZCW]; Bo Lane, How Many Pastors Are Addicted to Porn? The Stats are Surprising, EXPASTORS.COM (Mar. 25, 2015), http://www.expastors.com/how-many-pastors-are-addicted-to-porn-the-stats-are-surprising [https://perma.cc/U4QW-SJD2]; Computer/Internet Addiction Symptoms, Causes and Effects, PSYCHGUIDES.COM, http://www.psychguides.com/guides/computerinternet-addiction- symptoms-causes-and-effects (last visited July 5, 2020) [https://perma.cc/CJ8M-3JJH]. 2. See generally T. Randolph Beard et al., The Broadband Adoption Index: Improving Measurements and Comparisons of Broadband Deployment and Adoption, 62 FED. COMM. L.J. 343 (2010); Shane Greenstein & Ryan C. McDevitt, The Broadband Bonus: Accounting for Broadband Internet's Impact on U.S. GDP, (Nat'l Bureau of Econ. Research, Working Article No. 14758, 2009); Connecting America: The National Broadband Plan, FED. COMMC’N COMM’N (Mar. 16, 2010), http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC- 296935A1.pdf [https://perma.cc/A5EK-GBZJ] [hereinafter National Broadband Plan]. 3. National Broadband Plan, supra note 2, at 3. 4 FEDERAL COMMUNICATIONS LAW JOURNAL Vol. 73 to label the service a “necessity” and even a “huMan right.”4 Ubiquitous availability of broadband, if not universal adoption, is now a policy goal.5 Private investMent has gone a long way to providing ubiquitous deployment and about 86% of U.S. homes now subscribe to the service.6 There reMains work to be done, however. Nearly 5% of households still can’t subscribe to a basic fixed broadband service of 10 Mbps download speeds and 1 Mbps upload speeds (and 6.5% at 25/1 Mbps) and the capabilities of 4. See, e.g., Frank La Rue (Special Rapporteur on the Promotion and Protection of the Right to Freedom of Opinion and Expression) Report of the Special Rapporteur, U.N. General Assembly, Human Rights Council, U.N. DOC. A/HRC/17/27 (May 16, 2011); Broadband Opportunity Council Report and Recommendations, U.S. DEP’T OF AGRIC. & DEP’T OF COMMERCE (Aug. 20, 2015), https://obamawhitehouse.archives.gov/sites/default/files/broadband_opportunity_council_rep ort_final.pdf [perma.cc/H78V-ZFMZ] (“Access to high-speed broadband is no longer a luxury; it is a necessity for American families, businesses, and consumers.”); Finland Makes Broadband a “Legal Right”, BBC NEWS (July 1, 2010), http://www.bbc.com/news/10461048 [https://perma.cc/3SJ2-SUXU]; Internet Access is “A Fundamental Right”, BBC NEWS (Mar. 8, 2010), http://news.bbc.co.uk/2/mobile/technology/8548190.stm [https://perma.cc/ZM2V- UTMN]. 5. In the U.S., since the passage of the Telecommunications Act of 1996, the ubiquitous availability of broadband connections has been a bi-partisan goal of federal policy. See, e.g., Section 706, 47 U.S.C. § 1302; see also FACT SHEET: Broadband That Works: Promoting Competition & Local Choice In Next-Generation Connectivity, THE WHITE HOUSE - OFF. OF THE PRESS SEC’Y (Jan. 13, 2015), https://www.whitehouse.gov/the-press- office/2015/01/13/fact-sheet-broadband-works-promoting-competition-local-choice-next- gener [https://perma.cc/UB6H-NUDJ]; Nick Mudge, President Bush Says Universal Broadband by 2007, GOVTECH.COM (Apr. 2, 2004), http://www.govtech.com/policy-