Last week, Pennsylvania’s Governor Rendell signed a law to provide telecommunications carriers with costly and unnecessary incentives to deploy new telecom services in the state. The bill also included a provision to prohibit offerings of telecommunications services for a fee by local governments.

The timing of the bill is not coincidental. Philadelphia and other cities are actively considering deploying a government-owned wireless Internet service in direct competition with private companies. Now the state of Pennsylvania is getting involved by setting the ground rules for this public-private competition.

Like other Americans, Pennsylvanians already have many options for telecommunications services. They have choices of two or more commercial broadband providers, and many more are on the way. Incumbent telephone and cable companies provide high-speed Internet services, as do many smaller new competitive carriers. Satellite companies offer broadband services. Trials are beginning for broadband services over electricity lines.

The latest frontier is wireless broadband. Large companies such as Verizon, well-known investors such as Craig McCaw, and dozens of small companies are planning and deploying the latest in wireless technologies to provide high-speed Internet access.

All of these new services have been a boon to the American businesses and consumers. Practically every American household and business has access to broadband services at competitive prices, and more than one in four households subscribes. The rate of new subscribers is growing faster than the economy and the population.

The success of the American broadband industry appears not to be good enough for some, including the leaders of the Philadelphia city government. A few months ago, Philadelphia’s Mayor Street announced “Wireless Philadelphia,” a city-owned project to provide wireless broadband services for either a small fee or for free. The city has requested proposals from vendors, and plans to have its network in place by 2006.

Wireless Philadelphia may be a political success but an economic nightmare. Governments that give away services for free or prices well below cost are briefly popular with the electorate but never with investors.

Over the past three decades, governments around the world have abandoned state enterprises in telecommunications. The painful lesson of the first part of the twentieth century is that government-owned telecommunications companies are usually costly, inefficient, and resistant to innovation.

Government-owned enterprises are having a revival in, of all places, American cities. Many cities have long owned and operated city services, usually charging competitive market rates, from bus systems, waterworks, and hospitals to electricity generation and distribution.

The latest city-owned industry is telecommunications, sometimes offered at below-market rates. The objectives of Wireless Philadelphia are admirable and include promoting the city as a tech-savvy community where businesses would seek to invest.

But rather than being attracted, investors are appalled by a city willing to invest in providing free and subsidized technology in an already competitive industry. Former communist countries around the world have sold their phone companies to private interests as a means of attracting investment capital; Philadelphia, on the other hand, builds new ones.

It is not just telecommunications investors who are frightened. A city that can decide to build its own telecommunications service network in competition with many private companies might plausibly decide to compete with the private sector in other areas. In fact, the Pennsylvania already owns many enterprises typically in the private sector, such as wholesale distribution rights of wine and spirits.

The City of Brotherly Love will soon discover that running a telecommunications company is neither simple nor predictably profitable. City taxpayers will bear the burden. The city may well decide to sell Wireless Philadelphia, but it will be difficult to sell an enterprise whose competitive advantage is based on a public subsidy.

Verizon, the biggest local telephone company, reacted to the Philadelphia plan by pushing the state legislature to pass the legislation that Governor Rendell signed last week. In a deal cut with Verizon, Philadelphia will be allowed to proceed with its wireless plan while other municipalities will not.

To the detriment of all concerned, the most intense form of telecommunications competition in Pennsylvania has been relegated to the State House and city halls. New businesses will look elsewhere. Other states and cities should take note.

A former FCC commissioner,Mr. Furchtgott-Roth is president of Furchtgott-Roth Economic Enterprises. He can be reached at hfr@furchtgott-roth.com.