If you ran an internet service provider company, and you were looking at new markets to enter, would you attack where there are two suppliers of gigabit internet access already operating, with full-city networks and prices ranging from $65 to #110 a month?
Would you see unmet demand where 84 percent of households already buy service, and service at 40 Mbps costs $45 a month; 140 Mbps costs $65 a month, 250 Mbps service costs $60 and where lower prices are available in bundles?
None of that stopped the Tallahassee city council from voting to study the feasibility of a
municipal broadband network, in a city where adoption rates already exceed 84 percent and where 19 competitors offer service.
The city early estimated it would cost $280 million to $300 million to establish a city-run broadband utility. That works out to a cost of more than $23,000 per household.
For the sake of argument, assume that network eventually got 33 percent market share. That would be capex of $69,000 per account. In other words, there is no payback, as the typical customer pays $30 a month for service.
It is hard to see how there is a payback on such an investment. Nor does there evidence of big market gaps.
Comcast sells stand-alone internet access operating at 100 Mbps for $50 a month and gigabit service for $110 a month. CenturyLink sells 40 Mbps service for $45 a month, 140 Mbps service for $65 a month and gigabit service for $65 a month.
Economic rationality does not always win out against political rationality. Bad ideas get funded when the benefit does not outweigh the cost. But one of the council members now will rescind her "yes" vote on proceeding with the feasibility study, perhaps after realizing how big the risks were.
The city of Tallahassee provides an example of economic reality creating a brake on an almost-fanciful public policy initiative to create a municipal broadband network where there is almost no evidence of need.
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