Highlights from Municipal Fiber in the US Talk
June 06, 2017
On May 24, the Center for Technology, Innovation and Competition and the Penn Wharton Public Policy Initiative hosted an event to explore the implications of new research that provides a financial assessment of the long run costs of municipal fiber projects.
Penn Law Professor Christopher Yoo shared his research and then moderated a discussion with former Pennsylvania Governor Ed Rendell, American Action Forum President Douglas Holtz-Eakin, and Raymond James Managing Director Frank Louthan.
Municipal Fiber in the United States: An Empirical Assessment of Financial Performance,” co-authored by Professor Yoo and Timothy Pfenninger, is the first comprehensive study of the financial viability of America’s municipal fiber networks. Using SEC data, the authors reviewed the financial statements of current municipal fiber projects over a period of five years to analyze annual cash flows and project future outcomes. In addition to the cash flow projections, the authors analyzed the results of existing municipal fiber projects to determine the factors that could lead to a city’s long term solvency.
The study showed that the average time it would take to break even was 100 years. But this conclusion comes with caveats. There are a number of successes to learn from or build on, for instance, looking at private companies as potential partners instead of competitors.
Governor Rendell emphasized the pressing need to invest in infrastructure and offer not only access, but reasonable prices and high speeds. Acknowledging the dramatic results of the study, Governor Rendell countered, “the cost of doing something is almost prohibitive and incredibly risky, but what’s the cost of doing nothing?”
Holtz-Eakin also noted the need for a smart infrastructure plan. “What will be the path forward on infrastructure? This is a unique opportunity to do some things that would genuinely enhance national connectivity.” Holtz-Eakin challenged a conclusion taken from looking at the data only in isolation. The data should be used to answer an underlying question for policymakers; whether the goal is to service citizens or to correct for market failure dictates difference courses of action like what kind of subsidies should be considered, and for how long.
Louthan noted several challenges, including legal red tape and unique rural market behaviors that could cause different results depending on the project location. He also noted that costs of maintenance and upgrades are often ignored in the planning process but should be factored in.
Infrastructure projects like municipal fiber are risky; yet, given the growing necessity of the Internet, city planners and legislators need to understand available options and their associated costs. This new research paper serves as a spring board for data-based decision making.