Government Broadband Plan Would Move US Policy to the Left of Europe

From the diaries…

Last year the European Union (EU) ruled that government owned broadband networks are harmful to competition and counterproductive to broadband deployment in markets with private competitors — like the market in Cedar Falls, Iowa where the President spoke.

In a speech preceding the State of the Union Address, President Obama said that preempting state laws prohibiting municipalities from owning broadband networks puts him on the side of “competition.” In reality, it would put US broadband policy somewhere to the left of Europe. Last year the European Union (EU) ruled that government owned broadband networks are harmful to competition and counterproductive to broadband deployment in markets with private competitors — like the market in Cedar Falls, Iowa where the President spoke. Based on thorough data and global economic consensus, the EU issued a regulation that presumptively prohibits municipal broadband deployments.

The new EU law requires that, “Investments in broadband networks shall be undertaken primarily by the private sector, supported by a competitive and investment-friendly regulatory framework.” (Art. 5, § 1) It authorizes local government support for broadband networks only where a detailed market analysis shows there is a market failure or sub-optimal investment situation. (Id. at Art. 5, § 1 and  ¶ (21))

This EU regulation builds on Europe’s experience with earlier guidelines on municipal broadband networks. EU law generally recognizes that government “financial support or support in kind distorts competition insofar as it strengthens the position of [a government] undertaking compared with [private] undertakings.” (¶(14)) Because market data showed that “the highest broadband coverage and take-up is found in [EU] States with infrastructure competition,” the European Commission concluded that it “is all the more important” that government broadband subsidies are “complementary” to the private market and do “not substitute [for the] investments of market players.” (Id. at ¶¶ (3) (4)) It recognized that, if government subsidies for broadband were granted to only one competitor “in areas where [private] market operators would normally choose to invest or have already invested, this could significantly undermine the incentives of commercial investors to invest in broadband in the first place,” which would be “counterproductive” to competition and broadband deployment. (Id. at ¶ (6))

The principle that discriminatory government subsidies are unfair and harmful to competition is not novel. It reflects a global consensus embodied in our international treaty obligations, which prohibit national governments from discriminating in international trade.

The municipal broadband network that the President lauded in Cedar Falls serves a market that already has private competition, which would be presumptively illegal under EU law — just as it would be under many of the state laws the President wants to overrule.

Of course, the President didn’t acknowledge the global economic consensus that discriminatory government subsidies distort competition. He claimed the exact opposite: That government discrimination “fosters” competition.

The President relied on his own “common sense” to decide that the federal government “should do everything [it] can to push back” on state laws that limit government discrimination. I wonder whether the President would appreciate the irony if he were to read Thomas Paine’s revolutionary pamphlet by the same name, “Common Sense.”