Internet access mattered before the COVID-19 pandemic caused nationwide and global stay at home orders. Now internet access matters even more.
As classrooms, workplaces and socializing migrated online, the glaring digital divide was never more apparent. Municipal broadband is one possible answer to the question of access and Economics Professor Kyle Wilson thinks it’s a good one. Wilson talked to us about what it means for cities to provide internet service, the economic effects, President Biden’s infrastructure plan and, of course, Zoom.
This interview has been condensed and edited for length and clarity.
Can you talk about the issue of municipal broadband and cities providing service and how that's either a boon or a detriment?
Municipal broadband is something that we've seen grow in popularity over the course of the last 10, 20 years or so. And basically, what we've seen is that there are a lot of cities out there where private firms that have traditionally provided internet service—these are cable firms and DSL firms—are just not upgrading the quality of their service, the download speeds that they offer, at the rate that the consumers in the area would like. What we've seen now is there are a lot of cities in the U.S. where they've taken it upon themselves to install their own network that runs in parallel with the offerings of the private firms, that compete right alongside the private firms, stepping in and trying to offer those speeds that consumers desire. For local constituents, the big benefit is that they're getting faster speeds. What's being installed is what's called fiber internet, which is much faster than what cable and DSL typically offer, and so consumers are benefiting from faster speeds. Often, they're benefiting from lower prices as well. That's not quite as uniform.
The upside here is that when cities are offering this directly, unlike private firms, they're not motivated solely by profits, right? They're motivated to act by some combination of profits and consumer welfare, and so that leads to these kind of better speeds, and often lower prices, for consumers.
The potential downside, of course, is that doing this is really expensive. The city has to shoulder the burden that would otherwise have been paid for by private firms. In many cases, they're taking on debt in order to do that, with the hope that the revenue brought in through it will pay for that in the long run.
This is a big question, but how does this affect the economy?
A lot of the municipalities that have installed these type of networks have seen some local economic benefits. They've seen population growth. They've seen new businesses either start up or move into the city, or they've seen growth of existing businesses, and along with that growth in employment opportunities with the potential for higher wages as well.
Are there some examples of success that you can point to?
Probably the best known of these municipal installations is in Chattanooga, Tennessee. They were among the first to do this. They actually launched the first what's called a gigabit network in the United States. That means they're offering speeds that are 1000 megabits per second, and they were doing this at a time where the average speed in the United States was somewhere around 20 megabits per second, and that's the improvement that these municipal installations have offered over lagging private installations. In Chattanooga, there have been multiple businesses that have credited that installation with their decision to move there and expand their operations there, so those can be directly tied together.
Another noteworthy success story, in terms of municipal internet, was in Wilson, North Carolina. They installed a similar network that was eventually successful enough that several of the neighboring cities and towns asked them to expand their network into their cities and towns. They did expand into one of them, but it set up a long legal chain of events because in North Carolina municipalities are restricted to offering internet service, if they do it at all, only within their city boundaries. The state stepped in and sued the city of Wilson for expanding beyond their reach, and the city of Wilson, North Carolina, called on the Federal Communications Commission to step in and intermediate. The FCC issued an injunction siding with the city, which would allow them to continue offering services beyond their city limits. They've said that they had the authority to do this from the 1996 Telecommunications Act, which specifically restricts states from passing laws that would restrict competition in broadband. But then the state sued the FCC. This was all litigated in a federal circuit court. Their claim was that the FCC doesn't have the legal authority to preempt these state laws, and the circuit court agreed with the state of North Carolina. So Wilson ultimately had to shut off services in the neighboring cities and still offer service within their own city boundaries. This is a very successful network and an important story in the history of municipal broadband.
Does public competition crowd out private investment?
An important consideration when thinking about these municipal broadband networks is to understand what it's going to do to the actions taken by the private firms, who still provide most of the internet service in the U.S. If a municipal network is installed in a city, and that's taking place somewhere where the incumbent private firm would have likely increased their quality in the near future, then the benefits of that municipal network are likely fairly limited. And they do come with a huge cost.
I look at this in some of my research, and I do find some evidence that this is taking place, but it is fairly limited. I find that roughly about one out of every five municipal installations takes place in an area where, sometime within the next 20 years, a private firm would have otherwise provided fiber. And the other four out of five installations are areas where that would not have taken place. On the flip side, we might even also expect that just the mere threat of a city entering and installing their own network, that might induce the incumbent private firm to make those investments that the local consumers are looking for in an effort to preempt the city from entering and retain their existing market share, and what I find is that this effect is a lot more prevalent. I find that for every actual municipal installation that we observe around the country, there are an additional 1.7 private upgrades to fiber that would not have taken place without this lingering threat that the local municipality might install their own network.
How does this play out in President Biden's infrastructure plan?
Biden’s infrastructure plan is pretty far-reaching. It aims to tackle a lot of sectors of the economy, things like transportation, water, schools, and among them, broadband. The stated goal of his infrastructure plan as it pertains to broadband is universal service. The goal is to reach 100% of Americans with high-speed broadband internet.
His plan calls for a number of things. One of them is for increased competition, with the idea that more competition between internet service providers will lead to lower prices for consumers, and higher internet speeds. In order to get there, he calls for lifting these state barriers that prevent municipal networks. I talked about one of those state barriers in North Carolina that limits installations to being within city limits. There are actually about 20 U.S. states that have a restriction like that, and a lot of them are actually even more stringent and ban the practice outright.
And then in addition to that, there's a financial component. He calls for investment of $100 billion towards improving the broadband infrastructure in the United States, and that basically means extending wiring out to communities that currently are unserved or underserved. In doing that, he calls for prioritizing municipal networks and private-public partnerships rather than giving those subsidy dollars directly to private firms.
In light of the pandemic, how are broadband issues particularly relevant or the topic has been elevated? This was the nearly year and a half of Zoom, right?
There's no question that broadband became more essential this past year than ever before. Two key ways where its importance was highlighted were that students, learning from home, needed access to reliable broadband in order to learn; the second big one, of course, is that employees that were working remotely, again, need reliable, high-speed access in order to Zoom. In order to do those things, it's not sufficient to have internet access. You need high-speed internet access because video streaming and videoconferencing are really among the most data and bandwidth-intensive activities that you can do online. And so, despite this elevated importance of broadband, there are still millions of Americans that don't have adequate speeds capable of allowing for videoconferencing. It's somewhere around the order of 30 million Americans. That left a substantial share of the country unable to effectively learn or work during this past year.
Universal service and the digital divide are an ongoing part of this broadband policy discussion. With less than 20% of K-12 students—low-income, children of color—not having reliable wireless service… What's the economic impact of this?
The gap is even wider when we talk about wired internet service at home as compared to wireless service. And when we talk about digital divide, we're referring to the gap between those with and without access to reliable internet access and without access to computing devices. We observe in the data that there's lower access to internet infrastructure for rural Americans, particularly for those living in tribal areas. We have less access for low-income families, and we have less access for people of color. That means that in having less access to internet service, we have unequal access to the economic benefits that the internet enables. There are countless economic effects that can be attributed to having reliable access to internet service. As we talked about already, it enables remote learning and remote working. Even absent a pandemic and remote learning, it boosts students’ educational outcomes. It allows or helps jobseekers to find employment. It enables entrepreneurs to start new businesses, access to computing and the internet, it increases labor productivity of those that are employed, which leads to higher wages. It increases social connections and social supports, which are connected to a variety of health outcomes. It increases healthcare options. Some people receive service through telehealth. And it allows consumers to conduct commerce online. It allows them to engage in price comparisons, and there's evidence that leads to achieving lower prices on purchases for things like automobiles, or really anything where the price is negotiated.
Are you optimistic about universal service going forward?
I am. We've had a number of policies in place for the better part of the last 10 years or so with the goal of universal service, and I think that allocating a substantial sum of money towards that goal goes a long way. Cost is by far the largest barrier to universal service. In particular, getting access to rural areas and to tribal lands is very expensive. A program that would allocate substantial resources toward that goal I think gives us reason to be hopeful that we'll make significant progress toward it.
That said, the political reality of passing an infrastructure bill through Congress remains a barrier to expanding internet access. But the prevalence of smartphones and access to wireless internet has helped to close the digital divide already, and I believe it will continue to do so.
Do you remember your first internet experience?
We had AOL internet service, and I remember just the horrible sound it made when you had to connect and the experience of getting kicked offline because someone picked up the phone. I don't remember the first things that I did online, but I certainly remember being connected and disconnected.