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Muni WiFi Subsidies = Financial Disaster
By Larry Hendrick | April 23, 2007
Financial Disaster is the conclusion of this ninety page report from a study on municipal Internet initiatives. That seems fairly clear.
This study looks at all the forms of municipal broadband Internet access, including self-financed WiFi, and private/public partnerships, such as Earthlink and name any city.
It contains too much information for me to even comment on, but if you want a real picture of what this is costing cities around the United States, head over and read the article.
Fifty-two municipal broadband systems have soaked up $840 million in taxpayer money over the past 20 years while providing little benefit, according to a study released in February.
Wi-Fi Waste: The Disaster of Municipal Communications Networks, by Sonia Arrison, Dr. Ronald Rizzuto, and Vince Vasquez, published by the Pacific Research Institute, represents the latest round-up of municipal broadband financial performance.
The report confirms again what past studies have shown: Municipal broadband systems invariably cost more and deliver less than promised. They rely heavily on loans and transfers from established municipal utilities such as electricity and water. Even with the power of the public purse, 77 percent of the time municipal networks can’t pay their way, the report observes.
The survey examined 52 government-owned networks that compete in the cable, broadband, and telephone markets. It concludes the government-owned systems are “financial disasters.”
A PDF of the 90 page study is available for free from this location on the Heartland Institute website.
Here is the opening paragraphs from the Executive Summary just to give you a feel for the content.
An effort in some localities to build government-run communications systems, or “muni telecom networks,” has blundered its way through the marketplace, eroding private investment, slowing high-tech innovation, deceiving consumers, and serving the interests of politicians.
Muni telecom networks have been sold to the public as the answer to everything from municipal cash-low problems, to high cable prices, to the “digital divide” between “Internet haves and have-nots.” But as government officials rush to show leadership and take credit for delivering the goods, they often trade these short-term political benefits for serious long-term financial problems: cost overruns, mounting debt, and tepid profits. The numbers clearly show that muni telecom networks are a risky gamble, regardless of the technology or the business model.
The Pacific Research Institute commissioned this review of 52 major muni telecom networks that compete in the cable, broadband, and telephone markets. This analysis demonstrates that these public systems are financial disasters. Many received their initial funding through suspicious means, including insider loans at special rates. As many as 19 were originally financed with questionable non-interest-bearing loans from public utilities. As of 2004, long after the initial start-up phase, 13 were still shamelessly dependent on these schemes and were unable to break even financially. Muni networks demand constant reinvestment; the ones in our sample have raided more than $840 million from taxpayers over twenty years. Analysis of the total track record of muni systems shows that 77 percent of the time they don’t pay their way.
Here is a chart of the 10 worst money pits from the Municipal movement. Is your city on the list?
Topics: WiFi |
April 24th, 2007 at 7:37 am
Latest news from Grand Rapids: Sprint is planning their own max-fi service here, regardless of what the city government is contracting to do.
Surprise, in a meager market, competition has come to ruin any hopes of a successful launch, IMHO>
April 24th, 2007 at 8:17 am
I believe you’re right, Dave. When the finances are right, private enterprise will step in and provide the services.
Now we just have to wait for the competition to adjust the pricing on some of the newer services.
Then there is the news that Sprint may be a take-over target for at&t or Verizon. That could change a lot of Sprint’s future plans. I’m not sure where that might lead.
I’ll have to do more research.