Bluegrass Beacon: Lessons from the high cost of high-speed failure

Saturday, March 21, 2015, 4 p.m. – While some in the Lexington Fayette Urban County Government consider it fashionable to build and operate a broadband network at taxpayers’ expense, citizens who take a moment to look at the price tag of similar outfits in other places should at least do some more price shopping before heading to the register.

They may also want to stop and “shop” in Orem, Utah, where voters decisively rejected a property-tax increase to pay their city’s costs for participating in the Utah Telecommunications Open Infrastructure Agency (UTOPIA).

UTOPIA is a consortium of 11 different cities created in 2004 to build a publicly owned fiber-optic network that promised completion in three years and a positive cash flow in five. Instead, the consortium has struggled to find funding to stay afloat and has negative net assets a decade later of nearly $150 million.

UTOPIA residents may also mention to Lexington’s “shoppers” how the public consortium has attracted only about 11,000 subscribers – less than a quarter of the 49,350 customers projected to sign up by 2007.

The Wall Street Journal’s Thomas Schatz wrote that UTOPIA’s failure to attract the anticipated number of customers has caused “a spectacular financial failure.”

When residents in the government-run service – which loses at least $3 million and sometimes as much as $13 million annually – deemed raising taxes unfashionable, a private firm offered a bailout.

However, Macquarie Capital’s offer, which includes completing the network’s construction, required residents in the participating cities to make payments for the next 30 years on $1.83 billion worth of new debt.

This would require all households in those cities to pay a new mandatory utility fee of $20 per month even if they don’t subscribe or use the services or cannot afford to pay.

“And the cities will have the power to cut off water service to those who do not pay in full or on time every month,” Schatz wrote.

Some Utopia.

Local reports indicate that Orem is withholding an operating payment to UTOPIA because it has yet to “get its fiber hooked up.”

Would a private-sector company that depends on customers for its livelihood have even a remote chance of remaining in business if it failed to complete the project more than a decade after payments started rolling in?

Supporters of government-owned networks blithely glide past the numerous failures of municipal-owned broadband – including those in the Tennessee cities of Chattanooga and Memphis – in their mystifying zealousness to condemn the very private sector that has given us some of the world’s fastest Internet speeds.

The Lexington Herald-Leader in a recent editorial pushing Kentucky’s second-largest city to move forward with making broadband a government-owned utility claimed that high-speed services currently are unavailable to citizens who want them.

It also charged that “waiting for a private company to bring this essential utility to town doesn’t make much sense.”

Does the writer really believe that the private sector isn’t the best entity to deliver high-speed services, which she rightly said made “economic sense,” when the businesses operating in that sphere utterly depend on marketing their products and services to a global marketplace?

Not only will the private sector figure out how to do broadband better, but it will do so at a lower cost because it won’t be able to fall back on collecting a share of customers’ utility payments or disconnecting their water if they don’t pay up.

What everyone from President Obama, the Federal Communications Commission bureaucrats and the Herald-Leader’s woefully uninformed editorial writer really want is to deny private providers the opportunity to offer higher speeds for those willing to pay more.

But this is how the free market – which government-takeover zealots abhor – works.

Jim Waters is president of the Bluegrass Institute, Kentucky’s free-market think tank. Reach him at jwaters@freedomkentucky.com. Read previously published columns at www.bipps.org.

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