The Law and Economics of Municipal Broadband

Abstract

This Article presents a legal and economic framework for analyzing municipal broadband. Economics predicts, and the evidence confirms, that municipal broadband is in almost all scenarios subsidized entry, covering capital costs and losses with tax dollars and other internal transfers. Consequently, municipal broadband is incapable of increasing competition in the long run, is prone to be predatory (i.e., prices below incremental cost), and discourages private sector investment. Many provisions of state law overseeing municipal broadband, especially those discouraging cross subsidy, therefore have a sound economic basis. Empirical studies on municipal broadband confirm the uneconomic nature of municipal entry and suggest the lack of competitive price effects and broader economic rewards. The Article also shows that federal efforts to preempt state laws governing municipal broadband suffer from several Constitutional concerns. Moreover, case law indicates that when government acts as both regulator and competitor, Fifth Amendment due process protections may be violated. In all, the analysis prescribes a heavy dose of caution regarding municipal entry into the communications business.[enter Abstract Body]

Keywords: Municiplal broadband, preemption, due process, predation, cross-subsidization

JEL Classification: H13, H49, H54, K21, K23, L32, L33, L96