Obama’s speech at Cedar Falls, Iowa was like most of his speeches; much to do about nothing. He is proposing nothing short of allowing municipal governments to use taxpayer funds to compete against private enterprise, and he is encouraging the FCC to override 20 state laws in contradiction to the Tenth Amendment. I make no bones that I am a free market capitalist and I am strongly against the government taking over or competing against private enterprise. What Obama is proposing is not only anti-capitalism but also illegal.
I have written here that our current duopolies are not optimal for consumers, but replacing them with a subsidized government bureaucracy is a move in the wrong direction. I support municipal governments determining their own broadband destiny as much as I support removing restrictions allowing new entrants into the market by removing obstacles that municipalities and states have created. Twenty states have created laws to protect taxpayers from having to pay for cities failed attempts into the broadband services markets. These states realized that the communications market is competitive and fast moving. They have seen how over 50% of all municipal broadband efforts have failed leaving taxpayers to pay off creditors and bondholders (link, link). Proponents of government broadband, including the press, are quick to point out the few successes like EBP in Chattanooga and Cedar Falls, but they don’t bring up UTOPIA or Longmont, Colorado that is going for its forth attempt to provide residential broadband services. There are a variety of reasons that municipal broadband efforts fail which is why it is better to leave the risk to private enterprise.
Obama cannot instruct the FCC to just override the 20 state laws enacted to protect taxpayers. The Tenth Amendment gives states the ability to make its own laws without the federal government overriding them except for powers expressly granted by the Constitution and states. The Supreme Court has already upheld the authority of the states to prevent municipalities from providing telecommunications services in Nixon v. Missouri Municipal League by a 8 to 1 decision. He can say what he wants but case law is already pretty clear on states’ authority granted by the Telecommunications Act of 1986.
There is no question to the value of broadband services to a community, but it should be delivered in a competitive environment to enjoy all of the value that it brings. Either industry partnerships or cities should be allowed to come together to build open-access broadband fiber infrastructure as done in many cities and countries outside the United States. Sharing a common infrastructure will reduce the barrier to developing a profitable business model for a service provider; therefore, promoting competition that will benefit everyone in the community. This is the direction that Obama should be encouraging states to go.