In economics they call it a “natural monopoly.” It’s when the startup cost of a business is so great it makes no sense to try to compete with the guy who is already in that business.
Your city’s sewer system is a good example. In order to compete with that sewer system, a company would have to dig separate sewer lines to your home all the way to their own sewage treatment facility.
Water and gas lines fall in this category too. Trash collection, by contrast, isn’t a natural monopoly. While some cities run their own trash service, that is a forced monopoly. In order to stop competition, they ban it, preventing you from getting a better deal.
Transit is another forced monopoly. It’s why governments love to do their empire building with rails rather than bus or high occupancy vehicle lanes, which are cheaper, faster and allow more frequent service. On a bus/HOV lane, competitors like carpools, vans, shuttles or Uber can offer choice. On the steel rails, no one else can be part of the “transit” solution.
And then there’s the 90% to 95% subsidy (for operations and capital) transit gets from taxpayers. Hard to compete with that.
AT&T was a natural monopoly for phone service. Was.
The thinking was that no one could compete with the telephone system. What are you gonna do? Run your own phone cables? That’s nuts!
Well, that’s just what the competition did, once the government took off their shackles. They ran their own cables and new fiber optics; they used new microwave and satellite technology to just skip over where AT&T painstakingly ran physical cables.
Competitor phone companies had to pay a fee to AT&T (broken into smaller “baby bells”) to use the “last mile” of phone line to your house. The “natural” monopoly was busted. Instead of phone lines acting like transit’s railroad tracks, allowing no else on, the last mile of phone line was like the bus/HOV lane allowing competition on.
Electric power has always been assumed to be a natural monopoly, but now we are seeing it’s just another corporatist forced monopoly.
Texas lets consumers choose their own power provider from dozens of competitors. You can choose a company that gives you the best rates or one that uses renewable energy, or whatever you want. And the last-mile is similar to the phone system.
Now with technical advances in solar power, batteries and micro-grids (buying power from a neighbor who is generating more than he needs), the monopoly Xcel Energy of today could become the busted AT&T of tomorrow.
So, of course, Boulder is trying to build its own electric power empire because they can do it better than Xcel, don’t ya know, they’re Boulder. But if technology will disrupt Xcel in the future, it will certainly disrupt Boulder’s government-owned monopoly too.
But here’s the big difference — like AT&T, when Xcel takes a hit, their stockholders lose. When a government-owned monopoly takes a hit, taxpayers lose. (Um, social justice warriors, where are you on this injustice?)
The new craze of city-owned broadband service is nothing more than switching financial risk from private stockholders, who willingly take the risk, to taxpayers.
Longmont’s leaders decided they could do a better job of providing internet service than Comcast, Century Link or other private providers. The city went into debt for $45 million to build its own system. The bonds are backed by the electric utility. If their new business fails, unlike if Comcast fails, their citizen’s electric bills go skyrocketing. Loveland is launching its own broadband network too.
You can get new internet service in Longmont for about $60 to $70 a month (early birds were grandfathered in at a lower rate), roughly what Comcast charges. Many new residents are choosing Comcast because they can also get TV service.
But in the future, residents might bypass both the city’s service and a private service altogether. As 5G wireless technology comes online, consumers may need no cable line at all coming into their homes and businesses.
The question for cities lusting over municipal-owned broadband, like Fort Collins, is do they want to be left holding the bag when technology and innovation render their monopoly irrelevant?
Better question, why should city councils play Monopoly with taxpayers’ money?
Jon Caldara is president of the Independence Institute, a free market think tank in Denver.