Policy Documents

Research & Commentary: UTOPIA and the Problems Facing Municipal Broadband

December 10, 2012

One of Utah’s most ambitious municipal broadband programs is facing serious subscribership and funding problems. The Utah Telecommunications Open Infrastructure Agency (UTOPIA), a municipal broadband program organized in 2002 by a group of communities in the Wasatch Front area of the state, is facing massive debt, low enrollment, and, despite millions of dollars in taxpayer investments, difficulties raising enough revenue to keep the system running.

Advocates of municipal broadband programs say they create economic renewal and tech sector growth. However, these programs have a very spotty record of success, with many having suffered cost overruns, service disruptions, debt, and limited use. The result: Taxpayers are saddled with expensive, underused broadband systems that cost millions to maintain.

The UTOPIA system was constructed because the partner communities believed private telecommunications companies were not willing to bring high-speed Internet and other broadband services to them. The partner communities committed around $500 million over the next 32 years to back the bonds sold to finance the UTOPIA network’s development and construction. The system failed to live up to its creators’ promises. Of 56,000 households with access to the network, only 8,572 have signed up for service. Between 2010 and 2011 the network operated at a loss of $6.1 million.

A National Taxpayers Union (NTU) study by Andrew Moylan and Brent Mead found UTOPIA debt has skyrocketed from $85 million in 2005 to $201.5 million in 2011. Moylan and Mead also note the effect of UTOPIA’s debt on the partner cities, arguing the UTOPIA obligations are overwhelming them. The NTU study found the 11 partner cities had four dollars of UTOPIA-related debt for each dollar of debt associated with normal infrastructure operations.

Instead of spending millions of taxpayer dollars on an unneeded municipal broadband system, communities in Utah should focus on using competitive tax rates and business regulations to create a vibrant market that encourages telecom companies to expand their services.

The following documents examine and explain municipal broadband and UTOPIA in greater detail.


Ten Principles of Telecom Policy
http://heartland.org/policy-documents/ten-principles-telecom-policy
Hance Haney and George Gilder examine the beneficial results of telecom reforms in Indiana, the advances made by other innovation leaders in the telecom market, and how other states can follow their lead to reap the rewards of new investment in telecommunications services. 

Eleven Utah Cities in Big Debt from Muni Telecom Network
http://news.heartland.org/newspaper-article/2010/12/13/eleven-utah-cities-big-debt-muni-telecom-network
Utah Taxpayers Association President Howard Stephenson reports on the substantial debt facing the partner cities of UTOPIA and the growing problems facing the municipal broadband system.

Audit: Problems Still Plague Money-Losing UTOPIA Network
http://www.sltrib.com/sltrib/money/54599344-79/utopia-network-report-million.html.csp
Vince Horiuchi and Steven Oberbeck of the Salt Lake Tribune discuss the results of an audit of the UTOPIA broadband system and its efforts towards reform. The article notes that after nearly a decade of operations, UTOPIA continues to lose millions of dollars each year. “And despite new management and an ambitious five-year turnaround plan, it appears to be making at least some of the same mistakes that landed it in financial trouble in the first place, according to a scathing Legislative Auditor General’s report issued Wednesday,” the writers note. 

Director Says UTOPIA Will Be Broke Within the Month
http://www.standard.net/stories/2012/09/01/director-says-utopia-will-be-broke-within-month
Antone Clark of the Standard-Examiner examines the difficulties UTOPIA is having in raising enough revenue to continue operating and the efforts to resolve the problem. “Pressed on the group’s financial status during an Orem City Council meeting this week, Todd Marriott said UTOPIA will be out of operating funds by the end of this month. Marriott was unavailable for comment, but Jason Russell, communications manager for the group, confirmed the statement,” Clark reports. 

Municipal Broadband: Wired to Waste
http://heartland.org/policy-documents/municipal-broadband-wired-waste
In this National Taxpayers Union policy paper, Andrew Moylan and Brent Mead analyze the costs imposed upon taxpayers for municipal high-speed networks. The researchers found several high-profile attempts have ended in utter failure due to mismanagement, and taxpayers have been left to foot the bill for entrepreneurial adventurism gone wrong. 

Municipal Broadband Ventures More Harm Than Help
http://www.digitalliberty.net/municipal-broadband-ventures-more-harm-help-a104
Kaitlyn Ewing of Digital Liberty discusses several municipal broadband programs implemented across the country and identifies the difficulties many are facing. 

Municipal Broadband: Optimistic Plan, Disappointing Reality
http://heartland.org/policy-documents/no-108-municipal-broadband-optimistic-plan-disappointing-reality
In this Heartland Policy Study, Steven Titch compares the financial performance of a municipal fiber-to-the-home system in Bristol, Virginia with projections made by the same consultant for a proposed fiber-to-the-home system in Lafayette, Louisiana. Titch notes the Bristol system is losing money because its operating budget is growing unexpectedly fast. He also notes the proposed Lafayette system fails to reflect these higher real-world expenses, and consequently budgets too little. 

Research & Commentary: State & Local Broadband Initiative Failures
http://heartland.org/policy-documents/state-local-broadband-initiative-failures
Since the start of this century, municipalities across the nation have proposed and implemented plans to provide their citizens with high-speed Internet access. As of 2007, 52 municipal broadband systems had cost taxpayers a combined $840 million. Cities such as Philadelphia and Provo, Utah—expecting low costs and a reliable revenue stream—have experienced ever-increasing costs and limited demand. 

The Viability of Municipal Wi-Fi Networks
http://heartland.org/policy-documents/viability-municipal-wi-fi-networks
Braden Cox of the Competitive Enterprise Institute argues municipal wi-fi does not possess the characteristics of a public utility warranting government involvement. “Municipalities should focus on ways to make it easier for private companies to provide service. State legislatures should ensure that they make right-of-way access available on terms that are fair, administratively efficient, nondiscriminatory, and pro-competitive,” he writes. 

Municipal Broadband’s Record of Failure: A Profile in Market Intrusion
http://heartland.org/policy-documents/municipal-broadbands-record-failure
Before spending billions of taxpayer dollars on municipal broadband under the guise of economic stimulus, we should consider the results of recent projects that already have been undertaken. Almost without exception, the results have been overwhelmingly negative, this study notes. 

Not in the Public Interest: The Myth of Municipal Wi-Fi Networks
http://heartland.org/policy-documents/not-public-interest-myth-municipal-wi-fi-networks
Ownership of broadband networks by municipalities, like many other government initiatives, is framed in the best intentions. Proponents claim a high-speed network will help energize decrepit downtown areas, break poverty cycles, increase tourism, and earn a city a reputation as tech-friendly. Such promises are rarely met, this New Millennium Research Council study found.

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit The Heartlander’s Tech News Web site at http://news.heartland.org/tech, The Heartland Institute’s Web site at www.heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org

If you have any questions about this issue or The Heartland Institute, contact Heartland Institute Senior Policy Analyst Matthew Glans at 312/377-4000 or mglans@heartland.org.