ON PAPER, it may sound like the perfect side business for municipal governments: a city-owned broadband system that can offer high speed Internet access to citizens while bringing in revenue to city coffers.

But all that glitters isn’t gold, and city leaders with visions of dollar signs in their heads should consider the reality of owning and maintaining a municipal broadband system before committing money from Savannah taxpayers to such an enterprise.

Savannah officials currently are working with a group of consultants, Magellan Advisors, to figure out if a municipal broadband network is the way to go for the city. Savannah has already paid Magellan tens of thousands of dollars to explore the issue.

City officials usually have already made up their minds that they want a municipal network before employing such consultants, and typically, Internet consultants tell city politicians what they want to hear.

But, here’s the trick: when a municipal network fails to turn a profit and ends up bleeding cash, as is usually the case, it’s not the consultants who risk being voted out of office. It’s the politicians who bear that burden.

They should proceed carefully. Cautionary tales about municipal broadband networks abound.

Consider the situation in Marietta, the sprawling suburb northwest of Atlanta. Marietta started its own municipal network that stretched along a 210-mile long route. After spending $35 million to build out the network, Marietta earned a grand total of 180 customers.

The then-Mayor said the city couldn’t keep pace with the expenses associated with the constant flood of technology upgrades required to manage a broadband network. The city ultimately sold the network in 2004 for a $20 million loss.

Pacific Research Institute, in a report on municipal broadband, found that “Mariettans had decided that they would rather take a $20.33 million loss than continue to subsidize a municipal telecom venture that was sucking their city dry.”

Marietta may be relatively close to home, but it’s not the only example. Provo, Utah spent $40million to build its network, only to sell it to Google Fiber for the princely sum of $1. In Groton, Connecticut, taxpayers lost $38 million.

City leaders need to consider the downside risk to municipal services if and when the broadband network fails to attract customers and generate case. The shortfall has to be made up somewhere. Where will the money come from? Tax hikes?

Budget cuts to basic services or to the police or fire department? Try explaining that to voters come election time, especially if the crime rate is on the rise.

According to Kelly McCutcheon, President of the Georgia Public Policy Foundation, typically the consultants are the only ones who come out good on these deals. It would be a bitter pill to swallow by Savannah citizens and city leaders alike.

Let’s dig into some of the specifics on Internet needs in Savannah. Of the 280,000 residents in Chatham County, only 6,000 residents do not have access to wired Internet of any kind. About 90% of Savannah residents can choose from two or more wired Internet service providers (ISPs).

The city’s current residential providers offer speeds up to 105 mbps, and its twelve business providers offer speeds that are generally between 100 mbps and one gigabit, which is considered to be very speedy in the Internet world.

Private providers also are making big new investments in the area. Last year, Hargray Communications announced a plan to offer one gigabit speeds to Lowcountry customers. In March, Comcast announced its intention to offer 10-gigabit speeds to city businesses. Last month, AT&T said it also would begin offering incredibly fast capacity to Savannah entrepreneurs.

Clearly, the City of Savannah and Chatham County at large are well attended to by private Internet service providers. It’s easy to understand why city leaders would be seduced by the idea of starting a municipal broadband network.

Public officials may be dreaming of a legacy item – a monument to their incumbency. But, a municipal network is, poised to be, at best, a vanity project — and at worst, a major boondoggle Savannah taxpayers simply cannot afford.

cs

This article appears in Jan 11-17, 2017.

4 replies on “Municipal broadband: An opposing view”

  1. Another anti-community broadband editorial filled with flawed and inaccurate stories designed to further entrench the duopoly of one cable and one phone company (both which contribute handsomely to the campaigns of politicians who do their bidding).

    It is patently false to claim that municipal providers “usually” fail to turn a profit and bleed red ink. There are hundreds of municipal utilities offering telecommunications services in this country including broadband. Only a very tiny percentage of them create problems for municipal governments, most fixable. Municipal utilities deliver power, telephone, natural gas, broadband, wireless, and water services to millions of Americans and are among the highest rated service providers — rating MUCH higher in customer satisfaction than Comcast and AT&T.

    There are co-ops and municipal providers in small towns and large cities like Chattanooga that deliver gigabit broadband and the benefits that come from it, including new high-tech jobs. In Chattanooga, businesses have relocated from across Tennessee and other states solely because the city’s telecom infrastructure. They didn’t relocate because of Comcast or AT&T.

    The story of the “failure” of municipal broadband in Marietta told by Ms. Flanders is deceptive and inaccurate. Perhaps she read it from one of the many Comcast and AT&T-funded think tanks that have been spreading this tall tale for years.

    In Marietta, the public broadband collapse was one-part political intrigue and two-parts media myth.

    Marietta FiberNet was never built as a fiber-to-the-home service for residential customers. Instead, it was created as an institutional and business-only fiber network, primarily for the benefit of large companies in northern Cobb County and parts of Atlanta. The Atlanta-Journal Constitution reported on July 29, 2004 that Marietta FiberNet lost $24 million and then sold out at a loss to avoid any further losses. But in fact, the sloppy journalist simply calculated the loss by subtracting the construction costs from the sale price, completely ignoring the revenue the network was generating for several years to pay off the costs to build the network.

    In reality, Marietta FiberNet had been generating positive earnings every year since 2001 and was fully on track to be in the black by the first quarter of 2006.

    So why did Marietta sell the network? Politics.

    Mariettas then-candidate for mayor, Bill Dunway, did not want the city competing with private telecommunications companies. If elected, he promised he would sell the fiber network to the highest bidder, whether it was making money for the city or not.

    He won and he did, with telecommunications companies underbidding for a network worth considerably more, knowing full well the mayor treated the asset as must go at any price. The ultimate winner, American Fiber Systems, got the whole network for a song. AFS retained the entire management of the municipal system and continued following the citys marketing plan. So much for the meme government doesnt know how to operate a broadband business.

    While Ms. Flanders wants to pick at the integrity of independent consultants, she ignores the very fundamental conflicts of interest at work in the sources she quotes. The “Pacific Research Institute” is hardly a research body or an institute. It’s a pro-corporate right wing think tank funded with dark corporate money and the Koch Brothers. The same is true of the Georgia Public Policy Foundation, which promises its corporate benefactors it will keep their contributions a secret. When one of these groups starts taking an interest in broadband issues, you can be sure AT&T or Comcast cut them a check to muddy the waters. And why wouldn’t they, with millions in excess profits at stake?

    As a Savannah resident, ask yourself if you are happy with your broadband provider choices and the prices they charge. Are you happy finding Comcast suddenly adding an arbitrary usage cap on your internet usage despite the fact the company earns billions on a service that costs them less and less to provide every year. Is AT&T offering you gigabit service for $69.99 a month with no data cap and without selling your browsing and shopping habits to third party companies? No. If you lived in Chattanooga, you can sign up for gigabit service for less than $70 today by calling the municipal power company EPB. No data caps, no sneaky fees, and customer satisfaction MILES ahead of AT&T and Comcast.

    Ms. Flanders wants you to believe public broadband is just some sort of “dream” that will never become reality, but in fact it is reality for residents just a state away, and it is possible in Savannah and many other cities across the country. But Ms. Flanders and her cable and telco friends don’t want it to happen. They all enjoy the rapacious profiteering and campaign contributions that makes the current system work for them but not for you.

  4. Phillip: Hope you read Lebos’ article and will come back with a response. This is fascinating information and I would greatly appreciate any input you have – especially about the new technology that will supersede a fiber optic network.

    I’m not one of those people who believes that government can’t do anything right (Medicare, SS, clean water, clean air) and I’m still interested to know if the government can do it better, cheaper, faster than private industry. AND I’d like to warn all of us that net neutrality will be a thing of the past in very short order (I predict less than a year). How much is THAT worth to customers of a government owned grid?

    When people vote for “freedom” it means we are free to pay private enterprise twice what we pay the government for the same service. And the employees, the American employees, who take those jobs that used to be government jobs will be underpaid, overworked and no benefits. But they’ll have the title of “manager.”

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