A little town in Tennessee is one the verge of making a very big mistake. It’s a blunder being made by well-meaning local officials across the country.
The mistake is building a government broadband internet network that cost taxpayers millions of dollars, while producing little or no benefit at all
Newport Utilities is considering building a $21.9 million municipal broadband internet service to serve the City of Newport and parts of Cocke County in East Tennessee. According to city officials and outside consultants, the high-speed fiber-optic internet, cable TV and telephone business is a wise investment that will connect more residents to the internet and jumpstart the area’s economy.
The plan sounds great, except for one small problem: All the promises are a lie.
Of the more than 200 taxpayer-funded municipal broadband projects built in America, not a single one has managed to live up to expectations.
They cost residents millions of dollars, harm municipal bond ratings, unfairly compete against existing private companies, fail to draw the expected number of customers, and are unsuccessful at creating jobs and stimulating the economy.
In Memphis, for example, taxpayers and electric customers spent $32 million on a broadband network that was sold for just $11.5 million to avoid bankruptcy. Provo, Utah, sold a network that cost $77 million in combined construction and operations costs for $1.
A regional municipal broadband effort in Mooresville and Davidson, North Carolina, loses about $6 million annually, and area taxpayers now owe more than $60 million in outstanding loans borrowed to bankroll a government-owned internet, cable TV and telephone company. The government internet project in Lafayette, Louisiana, loses up to $45,000 per day.
Even Chattanooga, Tennessee’s government-owned municipal internet project, which is hailed by some as a great success, has been a tremendous boondoggle. The network cost federal, state and local taxpayers a total of more than $500 million, including interest, but there’s no clear evidence that all that money has drawn a single investment dollar or any new jobs to the city.
These harsh truths will come as a surprise to supporters of the Newport proposal who correctly point out that a study by Newport Utilities and Magellan Advisors determined the project will be a godsend for the area.
That’s because the study was rigged from the start. Magellan has never seen a taxpayer-funded internet proposal it didn’t love.
In reality, Magellan is a consulting firm that also just so happens to be in the business of helping to build municipal broadband projects. Simply put, Magellan often pockets additional money by telling a town to build a taxpayer-funded internet schemes.
There’s a better chance of a mechanic saying there’s absolutely nothing wrong with a car than for Magellan to tell local lawmakers not to build a municipal broadband project.
Not surprisingly, some of the findings in the Magellan study are a little far-fetched. Compared to government broadband networks in similar areas, the report appears to inflate the number of people who will use the service, lowball the cost to operate the network, and wildly exaggerate the economic benefits of the project.
The study also claims Cocke County residents are starving for internet access. But nearly every person in the county already has internet services available to them – and 64 percent of residents have access to internet that is 3 times faster than the national average.
The report would get an “F” as a high school research paper; it doesn’t even provide any methodology for how it came up with its shady numbers. It’s certainly not something the Newport Utilities Board or the Newport Board of Aldermen should use as justification for taking millions of dollars from the pockets of hardworking area residents.
Newport Utilities officials say a fiber-optic network is needed to manage a Smart Grid that would reduce power outages, prevent the waste and theft of electricity, and identify ways to quickly restore electricity to customers. But a fiber-optic platform isn’t the only way to provide a Smart Grid.
Wireless Smart Grids are just as effective as fiber-optic versions, and they are generally 40 percent cheaper than fiber.
The only thing a wireless Smart Grid can’t do is be used to facilitate a shady, socialist-style cable, telephone and internet company that allows the government to compete against existing private providers.
Newport and Cocke County leaders should be commended for trying to ensure more residents have access to fast and reliable internet service. But getting the government involved in the internet business is the wrong way to do it. Instead, local officials should work with existing internet providers to find ways to create a more welcoming environment for private investment in internet services.
As the saying goes, “Those who do not learn from history are doomed to repeat it.” Members of the Newport Utilities Board and the Newport Board of Aldermen would be wise to remember that quote before spending $21.9 million of tax dollars and electric customers’ money on a government broadband boondoggle that has never worked anywhere else and is destined to fail there.
Drew Johnson, a native East Tennessean, is a Senior Scholar at the Taxpayers Protection Alliance.