Julius Genachowski – Hooking Communities on Government-Supported Gigabit Catnip

by Mike Wendy on January 23, 2013

Last week, FCC Chairman, Julius Genachowski, urged America to get behind broadband gigabit hubs, which, in his estimation, must play an integral role in driving our economic growth and innovation leadership over the coming years.  In his statement, he gave a big shout out to the current poster child of gigabit networks – Chattanooga’s municipally owned EPB fiber network – noting:

We’ve already begun to see the promise of gigabit connectivity to drive innovation and investment in a handful of forward-looking U.S. communities.

Chattanooga, Tennessee built out a gigabit fiber network that has helped attract businesses like Amazon and Volkswagen, creating more than 3,700 local jobs.

As you may know, Chattanooga’s network was an offspring of the utility’s smart grid project, which employs fiber optics to improve system quality and operating efficiency for customers.  Together, the grid and broadband systems have reportedly cost taxpayers about $390 million, with those funds coming from local revenue bonds ($229 million), federal grants ($111 million) and loans from the electric to the fiber optics division of the utility ($50 million).

For Chairman Genachowski, it’s important to show cause and effect in order to prove that the government-subsidized, gigabit network model “works.”  Finding ostensible support for his claim, Wikipedia, as well as a joint industry-government group, US Ignite, aver that the expansion of the VW and Amazon plants was “due in large part” to the Chattanooga network.

Yet, no statements – other than assertions from local officials or groups that advocate for the expansion of EPB-like facilities nationwide – can confirm the companies’ reasoning, let alone that the gigabit network was “key.”

As one research paper concludes:

“State and local officials assert that the broadband initiative has been a major economic development asset, but we have found no empirical analysis of the economic effect of the initiative.” (Emphasis added)

Seemingly confirming this, even this pro muni-provided broadband group notes:

“Volkswagen was already committed to a significant investment in Chattanooga for a variety of reasons…”

So, who cares if the connection between Chattanooga’s network and its influence on Volkswagen’s and Amazon’s decisions to move there does not exist?  That little fact isn’t going to stop the Chairman’s next rhetorical sleight-of-hand about the 3,700 jobs – the so-called result of the non-existent gigabit catnip. Its proximity in the sentence to “gigabit fiber” makes it appear that the fiber caused the jobs.  It did not.  Those 3,700 jobs are basically what the companies brought to Chattanooga with their initial moves.

Sure, infrastructure like broadband can have a “jobs multiplier.”  But, that is not the implication of Julius’ line.  For him, fiber has directly “created” all these jobs; that’s what he (and others) want you to believe.

Factually and logically, his assertion is false.

What were the most likely reasons why the companies moved to Chattanooga?

Well, a potent mixture of land and tax incentives, local “sweeteners,” Chattanooga’s central location to ground and air transportation, an ample supply of permanent and seasonal workers, and the nimbleness of the community to reach the deals were almost assuredly the key reasons why Amazon and Volkswagen chose Chattanooga (as noted within here and here).

The bottom line: Though Chattanooga’s gigabit project may have “helped attract” some companies to Chattanooga at some time, it appears it was far from integral or key for Volkswagen and Amazon in their decisions to move to the city.

__________

Chat subsidies 2Having rebuilt itself over the past 15 years, Chattanooga is an attractive place, regularly ranking as one of America’s most livable cities.  That attractiveness has brought in a lot of broadband competition.  Recent FCC data notes that the Chattanooga market has seven broadband providers, serving the city’s 170,000 residents.  It is becoming even more competitive with the deployment of LTE services added to this mix.

Yes, EPB is the only gigabit provider in the market (they get those bragging rights). Yet, of EPB’s 43,000 customers (39,000 of which are residential), a company spokesperson confirms that only 48 customers (39 commercial, 9 residential) have actually purchased the $300 a month gigabit service thus far.

The new chorus of support for gigabit networks caterwauls that all of America should have EPB-like gigabit services; if they do not, they’re getting gouged by the local incumbent, among other alleged “atrocities.”

But, where they are offered, customers seem slow to purchase them.

That doesn’t bother people like Julius Genachowski, though.  For him, the real goal of the “forward-looking community” is fastening an individual locale onto the idea that, if it wants to thrive, the only true way to do so is through taxpayer supported “investments.”  Yes, they’re costly, especially when one looks at the dynamic and growing broadband market that’s meeting the public’s needs anyway.  But, worry not about that “investment,” soothes Chairman Julius, for as he states, “Our history provides a clear lesson about infrastructure: If we build it, innovation will come.

Stated differently, government will provide a “solution” in spite of actual need.

In sum, Chattanooga’s gigabit network is nice technology.  Someday we may all use something like it, or its successor.  But, the vibrant marketplace is working to deliver speedy services where they’re needed and desired, and it’s doing so in a far more sustainable, less politically malleable manner, for society.

More to the point, the magical qualities advocated by Chairman Genachowski – i.e., you turn on a government-supported gigabit network and jobs and other growth immediately results – are either grossly negligent in their conflation of cause and effect, or an outright prevarication designed to influence and manipulate citizens to support government programs that unseat the working, private marketplace.

We know it can’t be the latter, right?

Yeah, right.

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