The high cost of free Internet

By NEIL MELLEN - Guest Columnist

When something sounds too good to be true, it probably is. The promises of a free statewide wireless broadband cloud are a case in point.

Some politicians are promising a free lunch. They want the state government, through ETV or the state chief information officer, to offer “free” or “inexpensive” wireless Internet access to the entire state. Proponents claim that this statewide Internet cloud would cost the taxpayer nothing. They promote the proposal in business-friendly terms such as “free market” and “public-private partnership.”

State-sponsored Internet access does not work. Failed or failing municipal WiFi has cost taxpayers and contractors millions of dollars in Philadelphia, Anaheim, Huston, Chicago, Saint Louis and even tech-savvy San Francisco.

Large public networks require a core of contractually committed customers to finance the initial infrastructure build-out. Governments wanting to offer free or reduced-rate Internet access inevitably sign themselves up as the anchor client. These mandates prevent individual agencies from soliciting more cost-effective or technologically efficient bids from private contractors. These programs also subsidize the government network so that business and residential access can be sold at an artificially low rate.

Anchor clients and subsidies then drive private providers from the area, further inflating the enormous costs of building the network and limiting consumer choices.

In addition to unleveling the consumer marketplace, these large public wireless networks are simply unable to provide the tightened security features and uncompromised reliability demanded by high-volume clients such as hospitals, financial institutions or technology and media corporations. It is these large customers that constitute the primary revenue source for private-sector Internet service providers and help to finance the infrastructure build-out that supports low-cost residential and small-business service. Without the ability to sufficiently serve these clients, public networks need taxpayer support to remain operational.

The politicians will quibble. They will argue that WiMax (a new technology) is different from WiFi (the product that already powers your wireless router) and this difference will solve all the problems. This is only half right; WiMax signals do reach further than WiFi, but WiMax is neither the international industry standard that WiFi is, nor does it have the necessary penetration to work effectively at higher distances. The same business-model failings that crippled municipal WiFi will again haunt public WiMax. What’s worse, politicians in South Carolina are looking to finance this plan by simply giving (not auctioning) dozens of state-owned licenses to a private company for a 30-year contract (three times the industry standard). The company will have no-risk, no-cost access to the ETV broadcasting infrastructure that spans the state.

If lawmakers are serious about expanding Internet access — and first we need to determine what the baseline really is — they should look to the model of Kentucky. There, a nonprofit used federal and private grant money to encourage demand. It pooled the propriety data of providers to find where services were limited. The nonprofit helped inform citizens about their options. There was no centralized planning, no choosing of a state-favored technology, no special contracts and no long-term, state-subsidized monopolies.

South Carolina was the first state to have all public schools wired with Internet access. It did this with the help (often voluntary) of private telecommunication companies. The K-12 technology initiative was both pragmatic and efficient. There was no favored provider or championed technology. But the details of the proposed wireless cloud are very different. Even though the promise of free Internet is enticing, the risks of unintended consequences and the track record of government failures elsewhere are too stark to ignore.

Mr. Mellen served on the S.C. Broadband Technology and Communications Study Committee while he was research director for the S.C. Policy Council. He is now communications director for South Carolinians for Responsible Government.