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The link between the small midwestern town of Chaska, the St.Cloud suburb of Orlando and Philadelphia, one of the largest cities in the US, does not appear obvious. But all three are part of a growing number of municipalities in the US which have either invested in broadband or are thinking about it. They want local inhabitants to have access to high-speed but affordable broadband services and feel they are not currently available from their local providers, usually a telephone company or cable television operator.

But what sounds like a straightforward benefit to local people is actually causing political controversy across the US.

Supporters claim municipally funded networks can benefit companies as well as narrowing the digital divide between rich and poor. But opponents, led by telecoms carriers and cable operators, claim they are distorting a free market that has proved largely successful at delivering broadband at competitive prices.

Esme Vos, the founder of influential website muniwireless.com and an advocate of municipal networks, argues: “In most areas of the US, especially rural parts, there is no broadband. People are on [slower 56 kbits/sec] dial-up. And the telcos have no plan to roll it out. Broadband networks are expensive to build. Even in New York large parts of the Bronx or Brooklyn people do not have broadband. The telco will cherry-pick Manhattan because it’s wealthy but not the Bronx.”

Link Hoewing, assistant vice president of internet and technology issues with Verizon, a leading US telecoms carrier, agrees that rolling out a broadband network to some rural areas is difficult to justify in cost terms, just to reach a small population. But he argues “90 per cent” of Verizon’s local lines in major cities, including New York, are DSL-capable.

But even when a telco and cable operator are present in a market, says Ms Vos, prices are often too expensive for ordinary users because they act as a duopoly. In this analysis, local government is righting the imbalance of an unfair free market.

When a municipality invests in broadband, it is usually based on wireless technology, for example Wi-Fi, rather than the fixed broadband technology, such as DSL, used by telecoms carriers. The radio technology is cheaper to deploy so a city can get rapid and ubiquitous coverage for a relatively small outlay.

Opponents do not see the point. Mr Hoewing says DSL prices from US phone companies have come down from a monthly flat rate of $50 a few years ago to $25-30 a month now. Earlier this month, one US carrier – SBC announced a $15 a month service.

Outside the US, broadband prices are dropping as quickly, possibly faster. but without a similar debate around state funding. In fact, municipal backing for networks is rare in these regions.

In the eyes of supporters of state funding, self-interest is leaving the US lagging Europe and Asia. They argue that Europe in particular has benefited from more competition, leading to falling broadband prices and so removing the need for local government to intervene. European countries have introduced unbundling whereby rivals can take over telecoms carriers’ local lines to offer competitive broadband services. Unbundling is available in the US but critics argues it is too weakly enforced to boost competition to the cable and telecoms duopoly.

However, the lack of municipal projects in Europe might have more to do with the EU’s strict rules on state aid. These generally prohibit government backing for a broadband project unless it is extending coverage to inaccessible rural areas. However, there are exceptions. The most prominent is the city of Amsterdam which is involved in supporting a fibre network that will be built around the Dutch city.

“Local government gets to make choices about spending taxpayers’ money. In a rural community, there’s a lot of sense in investing in communications networks. It’s cheaper than buses and no one else is willing to do it. But in an urban environment where there’s already broadband or it’s ripe for it in the future, it’s a less obvious legitimate use of public money,” says Paul Brisby, a partner in London-based specialist telecoms law firm Towerhouse Consulting.

Countries outside Europe such as Japan and Hong Kong have also adopted an approach driven by competition. One exception in Asia is Korea – arguably the most wired country in the world in terms of broadband penetration – where the government has taken a role in encouraging the rollout of infrastructure.

But in the US some supporters of the status quo argue that it is wrong for the state to subsidise the telecoms market at all. They point out that an investment in Wi-Fi by local government takes resources away from schools, hospitals, roads or other responsibilities. This argument gets to the heart of the debate: is broadband such an essential service that government should guarantee its availability?

Sceptics argue no but Esme Vos has a sharp reply: “That view assumes broadband is not as important. Schools and hospitals are important but so is broadband. Anyone in business needs it.” She says companies have moved from one city to another because broadband has not been available.

Opponents dispute this claim. Dave McClure, president of the US Internet Industry Association, doubts whether any company would relocate just for a broadband connection: “Moving a company is so expensive and difficult. You have established vendor relationships and the question of moving employee families who are based in an area.” Some municipalities claim to have attracted companies to their area by investing in broadband, he argues, but in reality they were drawn by tax breaks.

But supporters claim other benefits flow from installing a Wi-Fi network. “Do companies move only for broadband?” asks Matt Stone, principal of Civitium, a consultancy advising local government on municipal networks. “No. They also move for other reasons such as quality of life, the local education system and tax incentives. But a city with the vision to provide wireless broadband will probably also provide similar technology in the school classroom.” It is a debate that is raging in more and more US cities.

Copyright The Financial Times Limited 2019. All rights reserved.

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