Municipal broadband warning: Costs exceed projections in Australia. Again.

[Commentary] Municipal broadband projects are in the spotlight following President Barack Obama’s endorsement of them and the FCC’s decision to relax rules limiting the extent to which taxpayer-subsidized networks may compete with those funded by the private sector. While there is a case for subsidized networks where no provider is willing invest, it is far from clear that governments -- be they national, state or municipal -- are well-placed to commission and oversee network rollouts.

Without the normal commercial pressures to make a return on invested capital, such projects can lead to “gold-plated” investment in infrastructure that vastly exceeds end-user demand. Absence of competition also leads to such operations being less efficient. This is exactly what has happened in Australia, and it has placed a significant cost burden on the very taxpayers whom the network was supposed to benefit.

[Bronwyn Howell is general manager for the New Zealand Institute for the Study of Competition and Regulation]