City Enters Local Broadband Business By Saddling Costs On Private Vendors

Editor's note: This story has been updated with comments from Marshall City Manager Tom Tarkiewicz.

The city of Marshall appears to have bucked the trend of cities trying but failing to create a viable municipal broadband network for their residents. Unfortunately, the success may be built upon creating an unlevel playing field for private sector providers by exempting its own service from regulatory burdens and costs that potential competitors must overcome.

Theodore Bolema, executive director of the Institute for the Study of Economic Growth at Wichita State University, recently published an analysis of the Marshall system. It asked how this small city managed to create a broadband network that appears to be financially viable when private companies “with far more experience operating such systems” were unable to do the same.

When the city proposed the broadband project, it also sought bids on a system built and operated by private companies. But Bolema reports there was never an apples-to-apples comparison between the city’s plan and private sector plans. That’s because “the city requested proposals from private companies without extending to them the same right-of-way and regulatory advantages it gave its city-owned utility.”

Marshall gave its city utility department right-of-way-access at no charge, which also let it avoid potentially costly and time-consuming licensure and permitting processes that require substantial fees.

The city then “complained that no private companies were willing to play on the unlevel field,” Bolema said.

“Presumably the city could make it just as easy for any private company to come into Marshall,” Bolema noted. “But the city did not do that, and instead chose to proceed with a government project that received a government-created advantage.”

He wrote, “This is not a real economic advantage, but rather an advantage created by the city tilting the playing field to favor its utility, but not to private companies, and exempting itself from regulatory requirements and approvals that apply to private companies.”

In press reports, Marshall electric utilities director Ed Rice was quoted touting the advantages of making the rules favor its own plan.

“The city had an advantage because we are a municipal electric utility,” Rice told the Battle Creek Enquirer in 2018. “It was pretty straightforward to get the fiber attached to the poles, because sometimes that could be a pretty convoluted process.”

Marshall City Manager Tom Tarkiewicz refutes Bolema's assertions.

"Under the METRO Act we have to extend the same access to the right-of-way as the City," Tarkiewicz said in an message. "The City had to go through the same permit process and pay all the same 'make ready' costs. So our Marshall FiberNet had to follow the same rules as any other provider."

Tarkiewicz said as part of the state law, the city solicited Request for Proposals from current and other providers to supply a high speed symmetrical fiber service but did not receive any responses.

"So the City moved forward," Tarkewicz said. "Our residents and businesses are now receiving a high speed symmetrical fiber service which was not being provided by the providers."

Bolema says those private companies had a disadvantage compared to the city.

“Private companies were well positioned to enter any unserved and underserved parts of the city, and they may well have done so if all of the advantages given to the city-owned utility had been extended to them,” Bolema wrote. “These private providers are now less likely to enter or expand in Marshall if they have to compete with a broadband system run by the same government that makes the rules for everyone else.”

In his view, Marshall has essentially established a monopoly, depriving local citizens of the right to choose their broadband service provider in the future. Without competition from private companies, the city utility will also have little incentive to improve the quality of the broadband service with innovative technologies.

“Economists generally find encouraging more private output is preferable to the government itself offering the product or service,” Bolema wrote.