Public Utility Model Doesn’t Hold Traction for Broadband | Citizens Against Government Waste

Public Utility Model Doesn’t Hold Traction for Broadband

The WasteWatcher

On November 4, 2013, a study released by Reason Foundation found that government-owned broadband networks (GONs) do not provide the value that cities and towns hope to achieve.

According to the study, which focused primarily on the Lafayette Utility Service (LUS) in Lafayette, Louisiana, plans for broadband GONs are developed using the same budgeting model as public utilities such as water and electricity.  However, because the replacement cycle for critical infrastructure is much shorter for broadband networks than for public utilities such as water or electricity, the same budgeting model cannot be applied to broadband services.

In addition, the study noted that even though GONs appear to be desirable, they are often built in direct competition with and on top of existing private-sector Internet service providers (ISP), wasting precious taxpayer dollars.  Most local broadband markets are highly competitive with significant entrants into the field, including cable, wireless, satellite, and fiber.

The Reason study pointed out that, “the only real similarity between broadband and classic utilities is that the underlying infrastructure is expensive to build.  Even here, however, superficial similarities mask a crucial difference.  Utilities require high investment up front, low investment thereafter combined with lengthy amortization of infrastructure.  As LUS’ experience demonstrates, broadband requires not only high investment up front but ongoing significant investment thereafter.”

The study mentioned similar attempts by other cities to build municipal broadband networks using standard public utility budgeting models, including Provo, Utah.

In July 2004, Provo began a build-out of its fiber-optic network, known as iProvo, to be operated as a publicly-run utility.  The city borrowed $39 million to build iProvo, with plans to repay the debt through a $5.35 tax, known as a “telcom debt charge,” on the monthly utility bills of city residents.  By 2008, iProvo had already posted $8 million in losses, not including the money borrowed to launch the project.

On April 18, 2013, the city announced an agreement to sell iProvo to Google as part of an agreement to bring Google Fiber to the city.  Google paid $1 for iProvo in addition to the costs for further fiber build-out to the community.  Google Fiber is expanding the existing network and in October 2013, began accepting early registrations from residential subscribers already on the iProvo network.  In January 2014, Google will begin accepting new residential and business subscribers, and begin rolling out fiber-to-the-home in early 2014.

Broadband capital investments do not resemble those of water or electricity investments.  Broadband infrastructure requires planning for continual change in order to meet the demands of consumers who use the service for everything from Internet surfing to TV and video viewing.  At a time when local governments face major financial challenges and struggle to balance their budgets, using scarce resources to fund municipal broadband projects is an irresponsible use of taxpayer dollars.

Sign Up For Email Updates

Optional Member Code