The city of Lebanon, Ohio disclosed in August that it is in discussions with Cincinnati Bell to sell the city-run cable television and Internet business.
As a recent Buckeye Institute report pointed out, the Lebanon telecommunications system is a burden on the taxpayers of the city. This latest news is a good way for the city to extricate itself from a business that should never have been started.
The Lebanon experience is also a lesson for other cities considering entering the business of selling telecommunications services. Governments simply do not have the resources and ability to compete in this arena, and these efforts end up harming both taxpayers and consumers. While Lebanon finally realizes this, other cities seem intent on going down the same path.
Ill-Conceived Venture
The city of Lebanon has been in the cable television and Internet business since 1999, competing with private businesses that offer the same services. The city has threatened the rival cable television provider and has used the taxpayers of Lebanon to subsidize its ill-conceived business venture.
While the former city manager thought the city could garner 90 percent of the cable television market in the town by offering lower prices than Time Warner Cable, the city won less than 60 percent of the market … and its prices are higher than Time Warner’s. Because the municipal system has failed to live up to unrealistic expectations, the city is now $9.8 million in debt.
The failure of Lebanon’s telecommunications business illustrates why governments should not compete with private enterprise. When Lebanon was considering this venture, there was no indication the city had the expertise or resources necessary to compete with Time Warner Cable, which has a national service footprint.
Perhaps the city now realizes that, with advances in technology, the market for providing video services will soon become much more competitive. Even smaller phone companies like Cincinnati Bell are entering the market with video services. This means consumers will see more choices and lower prices through increased competition. The municipal system in Lebanon was struggling against just Time Warner. The prospect of more competition would be disastrous for that system.
Lebanon defends its venture by pointing out cable television prices were lowered by the city-run system’s entry into the market. While cable prices are indeed lower in Lebanon due to competition, those lower prices have been subsidized by the taxpayers of Lebanon. Competition is indeed good, but this competition should not be subsidized by taxpayers.
If Lebanon is successful in selling its cable and Internet business to Cincinnati Bell, it will end a seven-year business that should never have been started. While it would have been much better for Lebanon taxpayers if the city had never become involved in this business, if the city can extricate itself now then taxpayers will not be forced to carry the burden of this ill-conceived venture any longer.
Marc Kilmer ([email protected]) is research associate for The Buckeye Institute for Public Policy Solutions.
