Lenard, Thomas. “Government entry into the telecom business: Are the benefits commensurate with the costs?” Februrary 2004 http://www.pff.org/publications/communications/pop11.3govtownership.pdf. Link Accessed: 2004-04-09.

Keywords: municipal telecommunications

Abstract:

The Progress Freedom Foundation (PFF) is a Washington D.C based think tank that studies and evaluates the ongoing digital revolution and the role that government plays in business. PFF believes government should play a limited role in the regulation, taxation, and control of telecommunications. This paper looks at the performance of municipal entry into telecommunications and argues “[g]overnment entry into the markets violates the principle that government should stay out of markets where the private sector is active” (Pg 3)

The paper claims municipalities hold an unfair advantage when entering into the telecom market. This assertion is based on the premise that many municipal providers utilize their public power companies as a base for telecommunciation. Public utilities benefit from a number of advantages that artificially lower the cost of entering the market and doing business. Some of the advantages listed include: exemptions from local, state and federal taxes, ownership the right of ways, the ability to issue bonds to raise capital, not subjected to anti-trust requirements. According to the author, these advantages enable a municipality to enter the market with much less expense then a privately owned company.

The author cites numerous risks in municipal provision of telecommunication services and argues that municipalities would be better served by lowering electricity rates and taxes, or investing in the market for income-earning assets. He warns telecommunications is a cut throat market in which making a profit is very difficult.

Contributed by Adam Collet – Accounting & Information Systems, Virginia Tech