The pursuit of government-owned broadband networks (GONs) remains a rarity in the U.S. Less than 1% of municipalities – about 600 communities out of a total of 89,000 local governments – have sought to build a GON. In most instances, these networks have been built in markets already served by private ISPs; few, if any, have been deployed in truly unserved areas. As a result, many GONs have struggled or failed in the face of fierce competition from nimbler private counterparts. Numerous others have not delivered the benefits promised by their promoters. This poor track-record, coupled with the significant complexities and costs of building, operating, maintaining, and upgrading dynamic broadband infrastructure, have rendered GONs too risky for most local governments. Another critical factor is that private ISPs are delivering what customers want and need. Sustained private investment – over $700 billion since 2012 – has yielded vastly increased speeds at lower prices. Gigabit connectivity is now available to about 90% of all U.S. households.
The following examples highlight the myriad risks involved in pursuing a GON.
In 2001, Provo decided to begin building a municipal open access fiber-to-the-home (FTTH) network. The city’s mayor, who was among the most enthusiastic boosters of the project, touted the GON as a driver of economic development and an enabler of advanced services like telemedicine and remote meter reading. All told, Provo invested $60 million in its FTTH network, which went live in 2004. By 2006, however, the system was already in financial trouble. Tepid demand, due, in large part, to the availability of multiple offerings from private ISPs, resulted in slow revenue growth, which negatively impacted the ability of the system to cover its debts. As a result, the city used several millions of dollars of taxpayer money to prop up the system. In 2013, Provo finally decided to sell off its failed GON. Google Fiber purchased the system for $1, leaving the city – and its taxpayers – to pay off about $40 million in remaining debt.
In 2002, 16 cities joined together to build a FTTH GON. It was initially estimated that it would take three or four years to complete this ambitious and expensive project. From the start, however, the project was a financial disaster driven by unrealistic hopes and overly optimistic take-rate and revenue projections. Nevertheless, the cities continued to move forward, racking up debts and pushing out the completion timeline further and further. By 2016 – 14 years after its launch – UTOPIA had yet to turn a profit, had a negative net value of $100+ million, and owed about $500 million in interest payments through 2040. In recent years, the project has finally begun to find sturdier financial footing, but only after changing its business model. Deployment in unserved areas is not a priority. Significant debt remains, and some residents in the original partner cities won’t be able to subscribe to the FTTH service until 2023 – 21 years after the project launched.
Fort Collins recently added broadband as a utility service that it is offering to residents after receiving positive results in feasibility studies developed by Magellan Advisors and Uptown Services. Launched to much acclaim, this system has struggled to acquire customers and complete its deployment on-time and on-budget. Indeed, the city recently announced that the GON’s construction budget will run over by at least 16%. At the same time, the city has slashed its expected take-rate from 45% to 28%. As a result, the GON’s operating expenses continue to exceed its revenues, resulting in negative net income.