This paper provides evidence that municipally owned and operated cable television enterprises are financially viable and provide large rate savings to their communities. The findings contradict allegations in Costs, Benefits, and Long-Term Sustainability of Municipal Cable Television Overbuilds, a 1998 paper authored by Ronald J. Rizzuto and Michael O. Wirth, that such enterprises are likely to be poor investments for cities. The authors claim that analysis of financial histories of the cable enterprises in Glasgow (Kentucky), Paragould (Arkansas), and Negaunee (Michigan) “clearly indicates that [they] have been poor investments from a pure business perspective.” They are pessimistic about the fourth, Cedar Falls (Iowa). The authors contend that these enterprises “have not generated [or will not generate] sufficient cash flows to cover their out of pocket cash needs.... None ... [is] currently sustainable over the long run.” However, by the incorrect criteria and analysis that Rizzuto and Wirth use, few new enterprises—public or private—would pass financial muster. The authors further contend that the only reason these utilities have been able to remain solvent is because of various subsidies, personal and property tax transfers, or interest-free loans. Rizzuto and Wirth’s conclusions are not surprising since their paper was partially funded by Telecommunications, Inc. (“TCI”), the private, incumbent cable television provider in Cedar Falls at the time the city was creating its municipal cable enterprise. Although Rizzuto and Wirth’s paper was published seven years ago, critical review of it is timely and important. Formation of municipal cable enterprises is a major public policy issue; private broadband providers have been successful in having several states bar or place crippling limitations on the formation of such enterprises. The time that has elapsed since the paper was published provides a good perspective for checking the authors’ predictions about the financial viability of the four municipal enterprises. Most importantly, however, Rizzuto and Wirth’s paper is often cited currently by those who oppose municipal entry in the cable television industry and related broadband industries. Their paper is widely quoted in reports of other organizations that oppose formation of municipal cable enterprises.
This report is basically a snapshot of how Community FTTH systems were doing as of early 2008. Deployments by municipalities were among the first FTTH systems operating in the United States. Though, in aggregate, they do not approach the number of FTTH subscribers of a Verizon – which currently accounts for two-thirds of all FTTH deployments in the U.S. – municipal systems do have a significant percentage of all non-Verizon subscribers. Further, they represent an important aspect of national FTTH deployment, namely, the option and opportunity for local elected officials and civic leaders to upgrade local connectivity - when private enterprise will not take on the job.
In the case of muni systems, which are not-for-profit enterprises, one measure of “success” is defined as the level of their “take rate” – that is, the percentage of potential subscribers who are offered the service that actually do subscribe. Nationwide, the take rates for retail municipal systems after one to four years of operation averages 54 percent. This is much higher than larger incumbent service provider take rates, and is also well above the typical FTTH business plan usually requiring a 30-40 percent take rate to “break even” with payback periods.
Municipal broadband has been a success for those communities that have begun offering service. It is no surprise. Historically, local government has always corrected market failure by providing essential services. The driving force for efficiency in these networks is not profit maximization, but public service. The money saved through cost reductions stays in the community. Public networks have increased broadband competition, not reduced it, and they have resulted in lower prices. The propaganda maligning municipal systems is nothing more than industry-sponsored folklore.
Municipal and industrial organizations that want to take advantage of the significant benefits of large-scale broadband infrastructure face the option of whether to build, own and operate their own infrastructure or “rent” services from incumbent cellular providers. In this paper we lay out the substantial business and technical benefits that are associated with organizations opting to own the latest generation of outdoor wireless networks.
This paper is targeted primarily at municipalities and discusses how a wireless infrastructure can benefit public safety, fire and EMS, and city departments such as water and building inspections. Other wireless utility applications such as Advanced Metering Infrastructure (AMI) or Automated Meter Reading (AMR) are also presented. This paper also examines wireless applications for mobile workforces engaged in industrial applications, such as port operations, construction and mining.
Registration required for downloading.
In studying the role of municipalities in broadband infrastructure deployment, it is important to remember that municipalities act with a public motive and not a profit motive. Municipalities invest in schools, roads, hospitals, senior centers, marinas, airports, and convention centers, all assets that positively differentiate one community from another. In those areas, direct investment by municipalities is accepted and indeed often encouraged, even though private firms can (and do) build private schools, hospitals, health clubs, marinas, and conference centers that coexist with municipal infrastructure.
Critics also charge that municipalities only succeed due to tax exemptions and subsidies -- but Florida municipalities return as much, if not more, funds to public treasuries that private telecom firms. And as for subsidies -- well, incumbents themselves have received direct subsidies of nearly $390 million in the last five years to provide service in Florida.
A new report by the Institute for Local Self-Reliance argues that a publicly owned information infrastructure is the key to healthy competition, universal access, and non-discriminatory networks.
“Localizing the Internet: Five Ways Public Ownership Solves the U.S. Broadband Problem” notes that high speed broadband is becoming ever more widespread. But, it argues, the way in which that broadband is introduced may be as important as whether it is introduced.
Many telecommunications companies are offering to build a citywide wireless or even wired network at little or no upfront cost to the city. That arrangement is especially attractive to local elected officials who fear that government lacks the expertise to manage a high tech network and who worry about the possible impact on their budget. “This is an excellent time to remember to look that gift horse in the mouth,” maintains Becca Vargo Daggett, the report’s author and the director of the Institute’s Telecommunication as Commons Project.
“Even deals framed as coming at no cost to the city require the public sector to enter into extended contracts to pay millions for their own services over the new privately owned network. Cities owe it to themselves and their citizens to carefully evaluate the costs and benefits of public ownership.”
Ms. Vargo Daggett also notes that cities that own infrastructure like roads and water pipelines should not fear owning the physical information network. “Concerns about obsolescence are overstated. Fiber optics is the gold standard, with essentially unlimited capacity and a lifespan measured in decades. Wireless technology is rapidly evolving, but its price is low and the payback period is short.”
Moreover, unlike investments in traditional infrastructure, an investment in information networks can generate a significant return. “The investment will not only pay for itself, but can generate revenue that can pay for other important municipal services.”
Municipal systems do not “crowd out” private providers any more than the New York City Subway “crowds out” private taxi cabs and car services. To the contrary, studies and anecdotal evidence repeatedly show that where municipal systems take on the expensive task of building network infrastructure, the number of private providers increases.
Media Access Project, Consumer Federation of America, and Free Press co-authored a white paper entitled “Connecting the Public: The Truth About Municipal Broadband.” The paper argues in favor of supporting the right of municipalities (local governments) to deploy broadband networks.
From the Executive Summary:
From fiber optic communications between medical offices and hospitals in and around Leesburg, to advanced services for schools, students and a business park in Quincy, to a wireless “Downtown Canopy” in Tallahassee, cities and towns throughout the State of Florida are taking charge of their futures by investing in new, exciting and innovative broadband technologies that attract businesses, educate the young, and improve the quality of life. For many communities, the availability and affordability of broadband services is just as important to their future as roads, schools, water systems, airports and convention centers have been in the past. Unfortunately, legislation has been designed to restrict or inhibit the ability of Florida’s municipalities to provide these vital public services to their communities which puts millions of Floridians at risk of being left behind in the digital revolution.
The Florida Municipal Electric Association does not have this paper on its site anymore.