Mangum Economics Study: Provision of High-Speed Broadband in Virginia

The Full Mangum Economics Report can be found here.

Executive Summary

1) Both the US and Virginia have a robust broadband market. In fact, if Virginia were its own country it would rank among the top ten countries in the world in terms of average peak internet speed and the proportion of its population that subscribes to high-speed broadband services.

2) The private sector Wired Broadband industry that services that broadband market is an important part of Virginia’s economy:

In 2015, the broader industry category of Wired Telecommunications (includes Wire Broadband), provided 18,078 private sector jobs that paid an average weekly wage of $2,198, more than twice the $1,036 per week average wage across all Virginia industries that year.

Wage growth in this industry has far exceeded the statewide average, exhibiting a one-year increase of 4.0 percent between 2014 and 2015 (relative to 2.5 percent across all Virginia industries), and a five-year increase of 21.5 percent between 2010 and 2015 (relative to 9.6 percent across all Virginia industries).

In 2015 the Wired Telecommunications industry was directly and indirectly responsible for generating a total of 55,491 full-time-equivalent jobs in Virginia, $4.1 billion in labor income, $15.9 billion in overall economic output, and $1.5 billion in tax revenue (of which $0.4 billion went directly to the state of Virginia and local Virginia governments).

3) Private owned broadband networks are the best way to guarantee the continued competitive and dynamic development of broadband services within Virginia:

Absent a demonstrated economic spillover effect, public providers of high-speed broadband services are really only preempting the private firms that would otherwise be attracted to an emerging economic opportunity, or providing a service that will ultimately prove financially unsustainable because the underlying economic justification for t hat service does not exist.

Unlike the competitively insulated and technologically stable water, sewer, and electrical utility industries with which municipalities are familiar, high-speed broadband is a highly competitive and rapidly evolving industry.

GONs entail a significant assumption of risk by locality residents. Broadband networks require large capital Investment. When that investment is undertaken by private firms, those firms assume liability for the debt used to finance it. In contrast, investment in GONs is financed through government bonds. If things do not work out as anticipated, local taxpayers must shoulder the responsibility for paying that debt.

There are opportunity costs to GONs. First, where GONs do not pay taxes, private owned broadband networks do. Second, there are statutory and practical limits on the debt that local governments can issue. That means that if a local government is floating bonds to finance investment in broadband infrastructure, that debt capacity is not available to fund government investment in schools, roads, and other more traditional public infrastructure projects.

One of the arguments used to justify public investment in GONs is the “digital divide.” Our assessment shows that although there is indeed a rural-urban “digital divide” in Virginia with regard to access to high-speed broadband services, that divide is driven by population density and the costs of providing high-speed broadband services in areas with geographically dispersed populations. Switching from private to GONs does not alter those underlying economic realities.

4) In short, Virginia enjoys a robust broadband market, the private sector Wired Broadband industry that’s services that market makes a significant contribution to the state’s economy, and there are several practical and theoretic reasons to believe that, as a general rule, private owned broadband networks are the best way to guarantee the continued competitive and dynamic development of broadband services within the state.