MENU

Reason.com

Free Minds & Free Markets

City-Owned Fiber Networks Are a Terrible Idea

How municipal broadband drains local taxpayers

Fiber optic cableGroman123/FlickrWhen the Minnesota city of Monticello established a municipal fiber network in 2009, the business leaders who pushed the plan projected that it would make money. Instead, the network—dubbed FiberNet—faced acute financial woes from day one, losing millions in its first years of operation and even suspending payments to bondholders in 2012. By 2014 officials had given up on the service ever being in the black, with one councilmember telling the Monticello Times, "I don't believe, at this juncture, that FiberNet will ever be a profitable entity. Just like the Monticello Community Center, baseball, soccer fields, bike paths, parks..."

Since then the government has kept FiberNet afloat by raiding funds from the city's only profitable business (a liquor store) and from the street light budget. But the service is still operating at a loss, running a $100,000 operational deficit in the last half of 2016 alone. Today the network costs $5,549 per household, or $16,875 per subscriber.

That makes it the most expensive project per capita in a new study from the University of Pennsylvania, which examined the 20 city-owned broadband networks around the country whose profitability could be gauged. (Most municipal fiber networks are run through local electrical ulitlities who only report aggregated financial data on the whole of their operations.)

Given how badly most of the networks examined in the study have failed, one can see why these utilities aren't more transparent about their costs. Eleven of the 20 are operating at a loss, and all but two will fail to pay back the costs their installation by the time the projects become obsolete.

The Taxpayer Protection Alliance Foundation has put together an interactive map of more than 200 municipal networks, color-coded for their level of indebtedness. Fourteen of these services have failed completely, while another 50 remain mired in over $1 million in debt. About half the projects on the map are colored gray, because their indebtedness levels are unclear. (In those cases, requests for public documents are in progess.)

Sometimes, as with Monticello, these networks are a wholly local initiative. But often they are spurred on by investments from the federal government. In 2009 the Obama administration established the Broadband Technology Opportunity Program, allotting $4.7 billion in grants to 277 state and local projects as part of the president's promise to bring "true broadband to every community in America."

Predictably, much of this money was squandered on needless projects, undocumented expenditures, and simple graft. A New York Times investigation found that a contractor for one of the grants ended up using federal funds to route fiber through its employees' neighborhood. $594 million of the program's funds were ultimately suspended.

Yet the dream of a city-owned broadband network won't die. In 2017, bills enabling or encouraging municipal governments to establish their own fiber networks were introduced in a several Southern states, and last year 26 communities in Colorado voted to opt out of a state-level ban on municipal broadband investment. Several of those Colorado towns are now mulling proposals for their own networks. They should take a close look at Monticello's experience before they take the plunge.

Photo Credit: Groman123/Flickr

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • sarcasmic||

    Stupid libertarians. This is a moral issue. Governments don't funnel profits into the bank accounts of rich people. Corporations do. So what if government totally mismanages whatever it does, provides inferior services, and runs in perpetual debt? It doesn't siphon off money and give it to the rich, like the corporations. That is what really matters.

  • ||

    The Right to Netflix is somehow involved as well. I don't know exactly how but it's morality, it doesn't have to make sense. The Right to Netflix just has to exist.

  • dan'o en barrel||

    In fairness, some of these projects are functioning well. In Longmont, CO 3/4 of residents currently have access to 1 gig up/download NextLight internet service for $60 a month. Comcast slashed prices on their top end cable internet to compete, but 56% of residents still chose the fiber route. The 40 million dollar bond is currently on pace to be paid off in 2025.

    http://www.timescall.com/longm.....ht-project

  • sarcasmic||

    Yeah, but who wants to live in Longmont? Right next to Looserville and the People's Republic of Boulder.

  • NotAnotherSkippy||

    But they have the Pump House.

  • dan'o en barrel||

    I'm willing to live anywhere with a Georgia Boys. I bought in Firestone, so I'm covered.

  • Red Rocks Baiting n Inciting||

    Right next to Looserville and the People's Republic of Boulder.

    Boulder's minimum-wage servant class has to live somewhere, and Longmont's probably the last city in Boulder County that they can find housing they can afford with a relatively close commute to work.

  • mtrueman||

    "to be paid off in 2025."

    Fibre optics will be obsolete by then. The article seems to imply that.

  • Diane Reynolds (Paul.)||

    No it doesn't.

  • mtrueman||

    Read again if you can spare the time.

  • Diane Reynolds (Paul.)||

    This is exactly the problem. Longmont, CO is giving people excellent service with a $38,000,000 debt.

    $60 a month is clearly so far below market rate, that the Longmont service is unsustainable. Yes, we know, people love free shit. They super-love subsidized shit. If the people of Longmont had to pay market rate, I suspect their bills would be 5x that $60 rate.

    Of course people are going to love a plan the provides them a Lexus at Yugo prices.

  • Stormy Dragon||

    $60 a month is clearly so far below market rate

    If providing communications in Longmont is sustainable at $60 month, but the market rate is way above that, how come no other businesses are entering the market?

    When crony capitalists like Comcast are able to get away with blocking competitors for entering the market, their disgruntles customers inevitably are going to start seeking other mechanisms to get what they want.

  • Diane Reynolds (Paul.)||

    In this particular context, 'market rate' applied to the municipal broadband service as the current network is built. The muni-network is what it is, it costs what it costs, so the 'market rate' for that service @ $60 a month is clearly below that.

    When crony capitalists like Comcast are able to get away with blocking competitors for entering the market, their disgruntles customers inevitably are going to start seeking other mechanisms to get what they want.

    The cronyism is entirely enabled by the government the voters are addressing and enabling to provide the over-priced and underfunded services.

    I'm not going to argue that if you live in a city where [insert cable company] is the only choice, you might reach out for other options, but what I will argue is that you're going to pay for those options one way or the other. Sure, the residents of Longmont only pay $60 a month for 1 gig fiber directly into their home, but their electric, property taxes, sales taxes and other fees are covering the rest not accounted for in their bill.

    You're going to pay one way or the other.

    BTW, I don't know how it is in every burgh in the nation, but the idea that [insert cable company] being the only choice you have is certainly fading in my area. In addition, many of these municipal broadband services can't make up the costs in subscriptions because many locals still opt for the [insert cable company here], creating the gap between service and recouped subscription fees.

  • dan'o en barrel||

    Its actually $50 for people who signed up earlier.... your point is beefier.

  • Brandybuck||

    Of course government businesses lose money. If they didn't lose money some real business would have moved in and offered the service in the first place. Even the Post Office, with a monopoly straight from Congress's behind, can't make a profit.

  • Don't look at me.||

    And so after showing billions in losses they drop the price of stamps.

  • Zeb||

    Well, part of the reason they can't make a profit is that they can't raise prices without permission from congress.

  • mtrueman||

    I was surprised to see how popular municipal broadband is in Colorado. Info is in the penultimate link, 'opt out of a state-level ban.' Over 70% support for the initiative is typical, not in some survey or study, but actual people actually voting. And this despite an army of consultants and experts on the ground whose only work was to convince Coloradonians that the initiative was bad.

  • Diane Reynolds (Paul.)||

    Look, if I can get $16,000 worth of free service off my neighbors back, I'm in too.

  • mtrueman||

    I thought you were a proud Libertarian. You turn commie for $16,000?

  • Diane Reynolds (Paul.)||

    As long as it comes out of your hide, I'm good with it.

  • MarkLastname||

    Thereby illustrating the problem with communism

  • mtrueman||

    Or the importance of reliable fast internet services. Americans are willing to shed their half-hearted embrace of Capitalism and Free Markets for Netflicks and porn.

  • Hello Clarice||

    pffffft, speak for yourself (well, technically that's what you're doing). Netflixs blows and pornsites still don't! Not worth the articles price tag IMO.

  • mtrueman||

    "Not worth the articles price tag IMO."

    97% disagree. Since when have Americans been afraid of getting something they want today as long as their children are going to pay for it?

  • Red Rocks Baiting n Inciting||

    I was surprised to see how popular municipal broadband is in Colorado.

    The Front Range has a pretty robust tech sector that reflects current Ars Technica-type shibboleths, i.e., the internet is a public utility and should be regulated as such. The irony, of course, is that there are plenty of broadband choices available, but these goons have fallen for the line that EVUL CORPORASHUNZ are what's keeping everyone from getting 1 TB service into their homes.

  • E. Zachary Knight||

    I would love to dig more into the nature of these networks. Are these failing cities trying to actually run the ISP itself, or are they acting as a dumb pipe and allowing any ISP to connect their residents to the internet? If it is the former, then I could understand why they might be failing. If it is the latter, then they need to up the line fee paid per household to make up the difference.

  • ||

    Amman Idaho has municipal fiber that is quite successful. And uses your latter model. Not losing money. No taxes raised. It's probably a much better model than the city trying to be the ISP.

  • Red Rocks Baiting n Inciting||

    On the other hand, there's the iProvo network in Provo, Utah that was a massive flop.

  • Diane Reynolds (Paul.)||

    Today the network costs $5,549 per household, or $16,875 per subscriber.

    No one is going to pay $17,000 a year for service.

  • Diane Reynolds (Paul.)||

    Yet the dream of a city-owned broadband network won't die. In 2017, bills enabling or encouraging municipal governments to establish their own fiber networks were introduced in a several Southern states, and last year 26 communities in Colorado voted to opt out of a state-level ban on municipal broadband investment.

    Surely this isn't a mystery to anyone.

    Clearly, they've seen the results of the other broadband plans and want to get in on the action too.

  • mtrueman||

    Black Hawk, Colorado, 97% support; saying yes to municipal broadband. That's getting up there to Saddam Hussein levels of support, although vote rigging may also account for these unusually high numbers.

  • Diane Reynolds (Paul.)||

    Of course 97% of people support getting something for free or way below market rates on the backs of their neighbors. That's the fucking point that's being missed.

  • mtrueman||

    Their neighbours support it too if the 97% number is to believed.

  • Diane Reynolds (Paul.)||

    Of course they do because they've been lied to about the costs. 0% of these projects were sold to the voters as money losers.

    Tacoma put in one of these in 2000 and all I heard were stories in the press about how much people loved the service. No discussion about how city residents now have to pay much higher electric bills to make up for the operational losses. If the people of Longmont and other places are happy to keep their heads in the sand over these realities, let them vote themselves into tax slavery with high speed Netflix and HD Pornhub.

  • mtrueman||

    "let them vote themselves into tax slavery with high speed Netflix and HD Pornhub."

    I don't think Black Hawk residents are as averse to tax slavery as you are. The overwhelming support for the initiative indicates high speed, reliable internet service is of greater importance.

  • Hello Clarice||

    As long as I don't have to pay for it, let people do what they want.

  • MarkLastname||

    If 97% vote to kill the other 3% and take all their stuff, surely it must be a good idea.

    Do we need to explain to you the concepts of private property and individual rights again?

  • mtrueman||

    "If 97% vote to kill the other 3% and take all their stuff"

    You're mis-reading my comment. Check the link yourself if you doubt me. The 97% vote was in favour of municipal broadband, and no killing was mentioned in the initiative.

    The residents of Black Hawk are probably supporters of the Republicans and Democrats, parties which are often hostile to private property and individual rights. High speed reliable internet is obviously more of a concern.

  • Glide||

    Sure, but every government mandate comes down to killing if you resist it with enough dedication. You could get the death penalty for jaywalking if you skip your court date and then assert your property rights and self-defense rights when they eventually come to collect.

  • mtrueman||

    Get a gun. Learn how to use it.

  • Rhywun||

    That's because each individual thinks that only other people are going to get stuck with the tab. Gee I wonder where I've seen this phenomenon before....

  • mtrueman||

    "That's because each individual thinks that only other people are going to get stuck with the tab. "

    You assume the vote was on the up and up, and not rigged. Doesn't a 97% approval get your spider senses atingle? You prefer your telepathy skills?

  • esteve7||

    No matter how expensive and shitty government run anything is, idiots will still idiot. They would literally prefer worse services that are more expensive because the government is like all of us and not evil like those evil corporations, who are evil.

    They are literally as dumb as the film actors guild in team america

  • E. Zachary Knight||

    Or it could be that people are so fed up with the crappy service and speeds of the 1 or if they are lucky 2 service providers in their area that they are willing to try to break up the monopoly/duopoly and do something different.

  • Ship of Theseus||

    City owned ______ are a terrible idea.

    Pretty much anything you fill that blank with will make that sentence true.

  • JSpey||

    I've had fiber running to my house in eastern WA since 1999. 100Mbps sure was nice in the 90's when everyone else had 56k. I always wondered how it was paid for when only $1.80 out of my $45 internet bill goes to the PUD that owns the fiber. The rest goes to the ISP of my choice.

  • Red Rocks Baiting n Inciting||

    I always wondered how it was paid for when only $1.80 out of my $45 internet bill goes to the PUD that owns the fiber. The rest goes to the ISP of my choice

    If yours was like iProvo, the ISPs are charged by the city to access the network, so the ISP gets the lion's share of the monthly payment in order to cover the access costs plus administrative and maintenance costs, which in turn are used to pay off/pay down whatever municipal bonds were used to finance construction of the network.

    What hurt iProvo is that the ISPs couldn't cover the debt service on the bonds and ended up dropping like flies, which allowed Google to pick it up for a whole $1.

  • 0x1000||

    Missing from this entire conversation is the privacy concerns that seem so popular on sites like reddit. Government can't be trusted to not snoop on private networks, so let's instead plug our computers straight into government networks?

    Is it because it's a different government that totally won't bend over as easily as AT&T does?

  • Zeb||

    Nobody really cares about privacy. They just don't like targeted ads.

  • mtrueman||

    If privacy is a concern of yours, you had better not connect your computer to the internet. You should be pretty safe then.

  • Cyto||

    If only there was some other way of delivering high speed internet connectivity to low density populations. You know, some way that didn't require the power of government confiscating money from everyone in order to implement its vision.

    But that would be impossible. There's no way a private company could possibly do something like launch thousands of satellites to deliver broadband to the world.

  • Erezeneb||

    Satellite is not the same. Bandwidth is limited too many ways, and the latency is terrible.
    It's great if you can't get anything else, but so is dialup.

  • DRM||

    Current satellite has terrible latency (600-800 ms), but that's a function of the orbital distance of 23,000 miles above the Earth. The SpaceX constellation liked to by Cyto (like the proposed Teledisic before it) is a low-orbit proposal. One-twentieth the distance up means one-twentieth the latency.

  • pan fried wylie||

    One-twentieth the distance up means one-tenth the latency, right, since the signal has to get up there then come back?

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online