Tom Steward: Not every city should take on broadband

The commentary piece by FFM Investigative Director Tom Steward was featured in the Star Tribune yesterday. Steward raises the issue of local governments becoming involved with providing broadband service to its citizens, even though it has already cost taxpayers a significant amount in many places.

Tom Steward: Not every city should take on broadband

By TOM STEWARD

March 29, 2010

For 95 years, Minnesota law has required municipalities to obtain two-thirds voter approval before entering the telecommunications business. A recent article ("In Minnesota, a de facto limit on broadband," March 15) suggested that this is a drag on broadband service and expressed enthusiasm for public broadband competition. That defies the economic reality that cities face today.

The author of the article, Chris Mitchell, "happily" states that many cities have started building telecommunications networks, but that statement simply ignores the growing number of communities that are losing millions of dollars and exposing taxpayers to great financial risk.

The two-thirds-approval law has stood the test of time and protects the interests of local taxpayers. Times and technology have changed, but without broad community support, the economics of building a telecommunications network are not feasible.

Monticello is an example of what happens when a local telecommunications project does have broad community support. Voters there overwhelmingly approved a network in a referendum, and construction is underway, with completion scheduled for later this year. Mitchell's claim that current law is a barrier just doesn't ring true in Monticello. The real story is that some ballot questions succeed and some fail.

Ninety-five years ago, the telephone network we know today was in its infancy, and there was one choice for local service. Then, the primary decision facing a city was whether to become the local provider or wait for a private company to build a network. Today, there are multiple telecommunications providers (wire line, cable and wireless) delivering voice, video and Internet service to homes and businesses. Upon entering the telecommunications business, a city-owned telecommunications network is at least the fourth entrant in a highly competitive market.

The fact is that the telecommunications business is a risky venture for private providers and even more so for a local government -- a far cry from providing water or sewer services, where there is no other option for consumers.

Consider the following two examples:

•In Burlington, Vt., a publicly financed network -- described by Mitchell in another publication as "one of the best examples" of municipal broadband -- has borrowed $17 million from the city. Overall debt on the project has increased to more than $50 million, and one plan being proposed by the city manager calls for refinancing for 20 years at more than $60 million. When interest and principle over the life of the bonds are included, total costs exceed $100 million. Recently, Burlington's bond rating was lowered, primarily because of its telecommunications business, making it more expensive for the city to borrow money.

•In 2008, the city of Provo, Utah, sold its money-losing iProvo network to a private provider. According to newspaper reports, between 2001 and 2005 the city transferred $13.5 million to keep iProvo afloat, and the operation had been expected to lose another $15.6 million over five years if it wasn't sold.

Local governments ought to embrace the two-thirds-approval law, not seek its elimination. We don't need Minnesota cities facing the same financial problems other communities are dealing with.

Tom Steward is investigative director for the Freedom Foundation of Minnesota.

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