WASHINGTON, D.C. - Ignoring the worldwide trend toward privatization of government-run enterprises and U.S. efforts to deregulate its telecommunications marketplace, local units of government are entering the communications business at a record pace. And, according to a study released today by The Progress & Freedom Foundation - "Government Entry into the Telecom Business: Are the Benefits Commensurate with the Costs?" - these municipalities are exposing their tax and ratepayers to significant losses, while violating the principle that government should avoid entering markets where private firms are active. 

Despite government subsidies of up to $1000-plus per customer, numerous tax-exemptions, low-cost borrowing, easy access to public rights-of-way and other preferences, government-run ventures - usually offshoots of electric companies, with access to ratepayers' funds - are producing "large negative returns" and "will be an indefinite drain on taxpayers," concludes PFF Senior Fellow and VP for Research Thomas M. Lenard, who wrote the study. 

Based on new case studies of publicly-funded networks in Bristol, Virginia, Kutztown, Pennsylvania and Ashland, Oregon, and Lenard's analysis of other experts' studies of ventures in Glasgow, Kentucky, Paragould, Arkansas, Negaunee, Michigan, Cedar Rapids, Iowa and Tacoma, Washington, the PFF economist argues "The municipal governments that are using their taxpayers' money to enter the telecom business are not investing that money wisely."

Lenard says the national telecommunications market is characterized by aggressive competition, and that in each of the above cases, there is at least one private sector competitor, making it "exceedingly difficult [even with subsidies and preferences] for government entrants to attain the combination of market penetration and price level necessary to make their investments pay." Thus, "taxpayers would be better off with any of the available alternative uses of [their] resources.lower electricity rates, lower taxes or even investing in income-earning assets at prevailing market rates."

According to a separate Foundation study, the number of governments offering telecom services increased by over 50 percent in a little over two years, while the number of offerings increased by over 85 percent.

The Progress & Freedom Foundation is a market-oriented think tank that studies the digital revolution and its implications for public policy. It is a 501(c)(3) research & educational organization.