by John S. Niles
Sidebar: Benefits and Counter Arguments for Government-Owned Telecommunications (1998)
- Benefit: Achieves economy of scale in procurements by supporting the aggregation of demand for telecommunications service across agencies of government, levels of government, and even across users outside of government.
- Counter argument: Pulling government telecommunications needs onto a government network and out of the market that is supplied by the private sector could lower the supply of services available to private sector users who are not part of the government network.
- Benefit: Can avoid the deployment of duplicative infrastructure by multiple telecommunications providers. State of Utah Chief Information Officer Gordon Peterson mentioned this benefit. Some government officials believe that telecommunications infrastructure is a natural monopoly. As Forum participant Steve Rivkin explained, "Natural monopoly exists where there is a facility or service that can be expanded more cheaply than a competing facility or service can be developed."
- Counter argument: duplicative infrastructure is good, because it offers users a choice of suppliers, and also provides users with the security that comes with alternative supplies of a critical resource.
- Benefit: Acting as a direct implementer of telecommunications that accelerates broadband deployment is an easier and more effective path of development than trying to understand and fix the multi-jurisdictional regulatory problems that may be causing the deployment lag.
- Counter argument: Government cannot cast aside its intrinsic role as a referee, even if it wants to be a direct provider. The attempt to both implement and referee sets up a clear conflict of interest between roles. Some would say that when governments take on telecommunications as an operational responsibility, they lose moral authority to facilitate and referee the entire telecommunications milieu.
- Counter argument: Government telecommunications investment in infrastructure and operations is fraught with controversy and ends up consuming an inappropriate amount of management and leadership energy. As Dave Roederer describes the controversy in Iowa, "The ICN is a project where reasonable people can be sitting in the same room hearing the same information, but afterwards you think, nobody was in the same meeting...there is so much talking past each other."
- Benefit: Telecommunications can be a source of new government revenue.
- Counter argument: But this source of revenue generates costs as well as revenues, and there is competition from the private sector. Will government's telecommunications revenues exceed its costs in the face of competitors trying to take away that revenue? The experience to date is mixed.
- Counter argument: Governments are not well-positioned to maintain the technical and management capability to compete in telecommunications to the degree that the industry shows a high rate of technological and market change. For example, copper cables used for telephone service, coaxial cables used in cable TV, and terrestrial (non-satellite) wireless alternatives have recently become much stronger competitors of fiber-optics in the local loop infrastructure, and they are likely to continue to become stronger.
- Counter argument: To the degree that governments can succeed at telecommunications, they are open to legal challenges from the private sector about unfair competition because of the advantage in government having regulatory authority over private carriers.
- Benefit: Government-owned infrastructure can be leased to competitive entrants to the telecommunications business, thus lowering barriers to competitive entrance and facilitating the availability of service alternatives in the jurisdiction.
- Counter argument: Facilities-owning incumbents still doing business under state government regulations governing depreciation, prices, and universal service requirements view this level of government support of new competition as unfair, unjustified intervention in the marketplace. Incumbents are especially incensed when their infrastructure is regulated by the same government jurisdiction that is leasing out infrastructure to competitors.
- Benefit in the case of government-run electric power utilities: the addition of telecommunications activity provides a competitive edge in customer service in the face of imminent deregulation. In addition, telecommunications offers revenue-enhancing diversification.
- Counter argument: Electric utilities are not significantly better positioned than municipal general governments to compete in the dynamic telecommunications industry.