Municipal Broadband Networks

Published November 5, 2002

Dear Editor:

As the author of the study that was the subject of Tona Kunz’s recent news article (“Municipal cable service knocked by think tank,” November 2), I would like to respond to some of the criticism of my study leveled by municipal officials she quotes.

City officials in the Tri-Cities are considering a plan to build and operate a municipally owned fiber-optic broadband network over which to provide cable television, telephone, and high-speed Internet access. My report found such a plan would “subsidize a small number of community residents and businesses who want the highest quality broadband services but aren’t willing to pay the full price for them.”

“Municipal ownership of broadband networks,” I wrote, “is probably not in the best interests of residents and most businesses, even in communities not well served by private companies.”

Larry Maholland, a St. Charles official quoted by Kunz, complains that I am criticizing a plan that hasn’t been finalized or approved, but is then quoted as saying “what we are planning on putting in already surpasses all of AT&T’s upgrades.” Which is it?

In fact, it is easy to discern what Tri-Cities officials are planning to do from their correspondence with UTI, the consulting firm paid $97,500 to produce a “feasibility study” of building a municipal network. My research shows municipal networks are expensive and risky.

In my study, I predict a municipal broadband entity would probably go bankrupt in a few years when SBC, AT&T, and other big players “come off the bench” and engage in ruthless price cutting to capture market share. Peter Collins, a Geneva official quoted by Kunz, is certain my forecast is wrong. “It won’t go bankrupt. That won’t happen,” says Collins.

I don’t know why Collins is so certain of this when he and other city officials claim they don’t yet have a plan. In any case, taxpayers should find his reasoning, as reported by Kunz, very disturbing. Apparently Collins thinks the municipal entity will stop offering telephone, cable, and Internet access when competitors underprice it, and will then offer only “remote reading of meters” for the municipal electric departments to “shave power costs by more accurately regulating peak-use power for industry.” (These words are Kunz’s, not Collins’.)

So the Tri-Cities will run fiber-optic cable to every home and business, at a cost expected to be tens of millions of dollars, and when faced with private-sector competition, will use this gold-plated system only to help some local companies save a few hundred or a few thousand dollars a year on their electric bills?

Collins is right: In this case, the broadband entity wouldn’t go bankrupt. Taxpayers would simply be forced to pay off the entire cost of the bonds, and 90 percent of the lines they paid to install would never be used. I think that would be a very foolish use of taxpayer dollars.

Finally, Bill McGrath, a Batavia official quoted by Kunz, says responsibility to his constituents means the cities need to study the possibility of municipal ownership and put it before voters before ruling it out. In my study, I commend city officials for doing just that. Judging by their reactions to my study, though, it appears some Tri-Cities officials have already made up their minds.


Joseph L. Bast, President, The Heartland Institute