We are in the first stages of the broadband revolution. But revolutions are risky, and the broadband revolution is no exception. Billions are being spent rolling out various technologies and various bundles of services to different markets, but not every network or business model will be successful. There will be losers in this competition, and it is very likely that companies that comprise the S&P 500 today may have their assets sold at fire-sale prices in a few years, as the losers in the broadband business become apparent.
Into this swirling vortex of enormous risk marches a new breed of risk-takers--an intrepid band of county councilmen, city administrators, and mayors pro tem, elected from previous careers entirely unrelated to broadband, who are convinced that they can better navigate the rapids of broadband rollout than can the broadband companies themselves.
All over the country, cities are getting into the broadband business. Their potholes remain unfilled, their schools are failing, but local governments have for some reason become convinced that the way to reinvigorate their communities is to have a city-owned or city-financed broadband network.
These municipal leaders are doing an enormous disservice to their constituents. They are putting them needlessly at risk, and are risking the credit ratings of their cities and counties.
Financially, these municipal networks are failing. Marietta, Georgia, has had to sell its municipal network at a substantial loss. The city spent $34 million of its taxpayer’s dollars on the network but sold it for $11 million—a loss of $23 million taxpayer dollars. In Ashland, Oregon, millions of dollars in cost overruns have forced the city to borrow from other city funds in order to cover the overruns.
If local officials want to become broadband entrepreneurs, they should resign their elected offices and start a network company. Then they can assume the financial risks themselves with voluntary investors, rather than playing at broadband with taxpayers as their underwriters.