There are things governments are particularly well suited to do. And then there are things that don’t quite fit the core purpose of government. One of those things that governments do not do particularly well is running business enterprises in a competitive marketplace. Government services, and governments, often lack market discipline, technological savvy, and quick reactions needed to meet the competitive pressures of a market environment.
But that doesn’t stop government officials from thinking they can use taxpayer resources to start up competitive enterprises.
Take, for example, telecommunications—in particular municipal broadband telecom networks. There are scores of communities across the Unites States that have embarked on building public broadband networks.
And, there are scores of failed government broadband enterprises littering the market landscape—the result of poor planning and of governments attempting to expand beyond their core competencies.
A recent article in the Salt Lake Tribune provides a colorful illustration. In 2003, the City of Provo, Utah, launched a broadband fiber optic telecom network called iProvo. It launched a $40 million bond, with an additional $25 million interest obligation. Their “business plan,” such as it was, contemplated a break-even point of 10,000 customers.
Well, surprise! In fiscal year 2006, iProvo needed more money and took out a $1 million loan. It also needed to pay $500,000 in interest on its outstanding obligations. And again in fiscal 2007, iProvo took another $2.1 million in loan principle, and paid $859,000 in interest. Total iProvo debt stands at $68 million. And, it turns out that the break-even point is 18,000 customers, not 10,000. For now.
But wait, there’s more! This year, instead of a loan, the City is proposing to funnel $1.2 million in “surplus” sales tax dollars directly to iProvo, “for a third straight year to prop up the fiber-optic system” to help the network meet its “annual $3.2 million debt payment without slumping further into the red.” Without the so-called surplus in sales tax revenues, according to the City Council Chairman, “the city might not have the favorable economic conditions we have today, which could result in cutting city services to fund iProvo debt.”
One Provo resident testified at a recent City Council meeting that the iProvo system also suffers from technical glitches. “In the marketplace,” he noted, “it doesn’t matter what promises are made. If a customer doesn’t get what he thinks he paid for, he’s going to go somewhere else. That’s what we’re seeing with iProvo.”
And Provo isn’t the only city in America to: 1) get caught in the broadband headlights thinking they can do what private marketplace does; 2) underestimate costs of getting into the marketplace; and 3) overestimate demand. A recent AP news article reports on similar failed enterprises across the Nation.
A $3 million wireless broadband project in Lompoc, CA, a city of 42,000 residents, “promised a quantum leap for economic development” in that town. They estimated they’d need 4,000 customers to break even. They got a few hundred. Turns out that the city’s residents prefer DSL or cable modem service to the city’s wireless network, which, by the way, has trouble penetrating walls—a slight problem if you entertain the silly notion of wanting Internet access from inside your home or office. Without the revenues cities were counting on from forays into the broadband market, “elected officials might have to break promises or find money in already-tight budgets to subsidize … access” to these systems,” according to the AP article.
MiniWireless, an industry web site, projects over $400 million will be spent this year in government broadband networks. Cities like Philadelphia and Portland, OR, are examples. Yet, there’s little success to account for these ventures. In Tempe, AZ, the network vendor “wound up tripling the access points” needed to deploy wireless service, adding $1 million to the project’s cost and roughly doubling expenses. And in Portland, customers have trouble accessing the network, even when it’s up.
So the next time you hear a bright idea about how your city can come to your rescue by building a really cool broadband network so that you can have “free” high speed access to the Internet from (nearly) anywhere in town, hold on to your wallet. Governments can do a lot of good things for us. Running broadband networks, it turns out, is not one of them.
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Contact: Geoff Feiss, General Manager Montana Telecommunications Association 208 North Montana Avenue, Suite 105 Helena, Montana 59601 406.442.4316 gfeiss@telecomassn.org
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City Wi-Fi challenges are no surprise to broadband executives
Joe Vanden Plas
For the past few years, Wisconsin cities have pursued wireless Internet service with a mixture of optimism and frustration, but the latter emotion has ruled the day of late.
Full Story: http://wistechnology.com/article.php?id=4060