Exploring the Most Transformative Trends in Commercial Real Estate | PROPMODO METATRENDS 2023→

How Will Municipal Broadband Impact Commercial Offices?

Most of the time users and tenants don’t think about where the internet comes from, we only care that it’s working. The reliance on connectivity doesn’t end with our personal computing devices. With smart buildings only getting smarter, internet connectivity is critical to operate facilities and manage the tenant experience. For most of the country, there are few choices for where you can plug into the web. But now local jurisdictions taking on private internet providers by building out municipal broadband networks have the potential to reshape connectivity in the commercial office. 

Originally municipal broadband was conceived as a way to bring affordable internet access to the estimated 21 million Americans that are still unconnected. Today more than 500 municipalities across the United States have developed municipal broadband networks. By ensuring individuals and businesses have fast, affordable, and reliable internet access, local jurisdictions can spur economic growth. Many municipal broadband networks offer faster, more reliable services than private ISPs. Most municipal broadband networks also offer more affordable rates. 

A maturing municipal broadband sector is moving from the initial focus on rural access. It is now pushing into more urban areas, ones that are already serviced by an internet provider, giving local taxpayers another option and the opportunity to work with locals instead of global telecommunications corporations. In fact, these days most municipal broadband projects are happening where the quality of access is unsatisfactory. For office owners and facility managers, poor connectivity can be an absolute deal-breaker. Offering high-speed internet in a commercial office is not cheap, but in today’s leasing environment is necessary. Depending on the installation and number of users, even T1 internet connections, the kind that runs through the original telephone copper wire, can cost $1,000-5,000 per month per tenant, making up a big part of utility bills. That means if you run a successful office building, you already have satisfactory connectivity or the tenant would never occupy the space. 

The biggest advantage of municipal broadband for the commercial office sector is broadening the spectrum of developable office sites. Right now office developers must focus on areas with fast connections, crowding into central business districts, and major thoroughfares served by private ISPs. Municipal broadband coverage across the United States could help bring offices and other forms of enterprise into underserved areas. A report from Deloitte about the prospects of municipal broadband found a 10-percentage-point increase of broadband penetration results in an estimated 806,000 additional jobs. Deloitte’s report found that higher broadband speeds generate more economic growth, but have diminishing returns, topping out at around 150 megabytes per second. 

The shift towards remote work during the pandemic has businesses and employees thinking about where they want to live and work. Smaller towns across America are getting into the relocation game by offering new incentives for remote workers in an effort to attract more residents. Being able to provide reliable, fast broadband connections will play a major part in smaller towns making themselves into viable places for remote workers. The upfront costs of cities can be a major barrier to entry, especially considering many of the smaller municipalities that can benefit from such a service have a limited tax roll to fund major projects. In some cases, building out municipal broadband infrastructure can cost between $50 million and $100 million. That’s a steep price to pay during turbulent times. State and local governments suffered an estimated $70 billion to $74 billion shortfalls in tax revenues in 2020, according to Moody’s Analytics. Shortfalls for 2021 and 2022 could be even greater. 

Municipal broadband offers competitive speeds at more affordable rates. A 2018 study by the Berkman Klein Center for Internet and Society at Harvard University found that in 23 of the 27 markets where researchers could make direct price comparisons, prices for community-owned municipal broadband networks were between 2.9 and 50 percent cheaper than the lowest-cost service from a private ISP. While each municipality varies, prices typically start around $30 a month for the lowest tier internet service. 

Some municipalities are forming partnerships with private ISPs to bring service to areas that a for-profit company wouldn’t typically serve. Google in particular has aimed its Google Fiber operation at under-served areas, making headway in second-tier markets like San Antonio, Charlotte, and Kansas City. Despite plans to revolutionize ISPs, nearly a decade after its launch, Google Fiber is only available in 19 cities. Google’s encountering the biggest obstacle to municipal broadband: private ISP’s general counsel. AT&T and Comcast won a recent victory in court against Nashville, Tennessee’s plan to speed the rollout of Google Fiber. Google wasn’t party to the case, but it highlights the challenges in disputes between private ISPs and local governments. A similar case has cropped up in West Des Moines, Iowa where Mediacom Communications, a lawsuit against the city and its city council claiming they improperly used taxpayer-based financing bonds meant to fight blight to build out a $50 million network exclusively for Google Fiber. Another major issue is if the municipal broadband networks go wrong, taxpayers are left holding the bill instead of investors. Bristol, Virginia sold off its municipal network for $50 million after shelling out over $100 million in subsidies and bonds to build it, putting the cash-strapped city in a bad spot. 

Political costs are critical calculations for cities thinking about pursuing municipal broadband. For many, municipal broadband is not an option. Explicit restrictions against municipal broadband are in place in 18 states while five additional states have other obstacles. House Republicans have even proposed a nationwide ban on municipal broadband. Experts don’t expect the bill to become law, but it shows how aggressive private ISPs are willing to be when it comes to lobbying and crafting legislation to protect their turf. 

In many ways, municipal broadband is a solution to a problem many Americans don’t have. In major cities, there are competitive options for reliable and fast service thanks to the dedicated work of private ISPs. Where service is lacking or unsatisfactory, establishing a municipal broadband network can offer residents and business-critical infrastructure, allowing for an expansion of the tax base. Despite higher upfront costs, municipal broadband saves money in the long term by only serving the debt and bonds used to build the network instead of servicing investors’ demands for higher profits. It could also help smaller cities and more rural areas compete for the growing work from home workforce. At the end of the day, my suspicion is that most office owners and managers care more about broadband’s speed and reliability than where it comes from or who’s profiting from it.

Image - Design