Broadband Blunders in the Beaver State

By Vince Vasquez

The development of municipal wireless broadband networks has been popular with local government officials across the country, including the city of Portland. However, a closer look at a southern Oregon city reveals “Muni Wi-Fi” could be the latest losing gamble for taxpayers.

Lauded by thespians and patrons for its Oregon Shakespeare Festival, Ashland has been at the forefront of the performing arts scene for more than seventy years. But in the last decade, city officials have set their sights to be at the forefront of telecommunications, laying miles of fiber-optic cable in a rash attempt at job creation and economic diversification.

In 1998, the Ashland City Council voted to create the Ashland Fiber Network (AFN), a telecommunications network run by the local electric utility to provide wholesale data transport, as well as cable and broadband service to residents. Financed by $5.8 million in bank loans, AFN began operations in 2000. However, government planning quickly spiraled out of control, as original estimates for network profitability had to be drastically redrawn just a year after AFN’s launch.

As the Associated Press reported in May 2001, AFN “boosted its request for loans from other city departments from $1.6 million to $4.5 million,” as cable and broadband subscriptions failed to meet expectations. A report released to the City Council later that fall showed that AFN would bleed $6.6 million over five years, rather than make a $3.8-million profit network managers previously projected. Moreover, the cost-shifting utility subsidies needed to prop up the languishing network were estimated to continue until 2014, a red flag for fiscal hawks. After widespread public concern over the excessive borrowing to cover the network’s budget shortfalls, the City Council refinanced AFN’s debt, taking out $15.5 million in bonds. But when revenue was still not covering operating expenses, local government officials took drastic action.

In 2005, the City Council passed a controversial measure to tax electricity users to pay off AFN’s debt and operating costs. Facing a whirlwind of public outrage over AFN mismanagement, city officials rescinded their electricity tax, but in 2006 they continued to seek out additional ways to make AFN debt payments, including higher property taxes, a tax on utility bills and a “ticket tax” on theatergoers. Not surprisingly, the city transferred control of the AFN cable division to a private company in fall 2006, which may soon become the first piece of an entire network sell-off.

Ashland’s experience with the telecom business is all too common throughout the country. This February, the Pacific Research Institute (PRI) released a major study that reviewed more than fifty government-run telecommunications networks that compete against private providers in the broadband, video and telephone markets. This analysis demonstrated that these public systems are overwhelmingly financial disasters. Many received their initial funding through suspicious means, including insider loans at special rates. Muni networks are revenue-hungry, demanding constant reinvestment; the ones in PRI’s sample have raided more than $840 million from taxpayers and utility ratepayers over twenty years. Analysis of the total track record of these municipal systems shows that 77 percent of the time they don’t pay their way, and often unfairly undercut private sector competitors in attempts to monopolize the marketplace.

Many local governments have learned their lesson after fiddling with fiber optics, but will sadly endure the same woes with Wi-Fi technology. Because revenues have often not come in at the high rates Muni Wi-Fi operators expected years ago, they now seek virtual exclusive use of local unlicensed radio spectrum through special government agreements, thwarting a competitive marketplace by degrading the quality of rival services. Furthermore, wireless network providers habitually require local governments to agree to become their indefinite customers of “anchor tenant” services, committing millions of future taxpayer dollars to use what many industry experts now consider to be an obsolete technology.

Though the business models and technologies of municipal telecom networks may be different from city to city, the results are the same: distorted market forces and over-reliance on political forces to raise revenues and maintain marketplace control. Rejecting big-government solutions and adopting market-friendly policies is more likely to solve the policy problems Muni Wi-Fi and fiber networks are intended to address. Moving forward, Portland officials should weigh the merits of suspending local red tape such as rights-of-way restrictions, franchise taxes and pole fees to encourage new investment and competitive choice in the broadband market, which can lower prices and increase the quality of services in a more sustainable way.

Oregon consumers are right to expect greater high-tech investment in their neighborhoods, but they shouldn’t expect taxpayers to pick up the bill. When telecom businesses are allowed to freely thrive and compete in the marketplace, all Americans will be brought into the digital frontier.

Vince Vasquez is the Senior Policy Analyst with the San Diego Institute for Policy Research, a free-market think tank. Mr. Vasquez is also a co-author of Wi-Fi Waste: the Disaster of Municipal Communications Networks and an adjunct scholar at Cascade Policy Institute, Oregon’s free-market think tank.

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Posted by at 06:00 | Posted in Measure 37 | 10 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Jerry

    When will people ever learn?? NOTHING is free. NOTHING. And if anyone says it is, then you already know it is not.

    NOTHING local government runs is ever better than the private sector.

    If the private sector is not doing it, then government should not attempt it.

    From the tram to the overpriced SMART cars, PDX has one of the most corrupt, stupid, immoral, lazy, and feckless city governments in the nation. PERIOD.

    These examples are just the tip of the iceberg – there are thousands of government programs that don’t work – it is just that no one cares and few report on them.

    PS – Who really cares when Americans are brought into the digital frontier, as you say??? They will come when they want. No sooner. Any attempt to rush things will end in failure, like this stupid stuff.

    Man, who alive could not see this coming?? Did anyone actually think it would work????

    Portland officials need to weigh only one thing….their colossal mismangement of everything they touch.

  • Britt Storkson

    Funny how governments are “gung ho” about “economic development” when it’s their economy they try to develop. Never mind about the poor working stiff stuck with all of the bills.
    Funny how governments are never concerned about where or how much money they spend when that money is taken by force (taxation) from other people who earned it.
    How about taking the money to fund all of these “economic development” projects from those pushing these projects in the first place?

    • Jerry

      Right On Britt. How about they just give us our own money back. Most consumers are far smarter than these idiots.

  • John Fairplay

    Government and technology simply do not mix. From water billing systems to Dept of Motor Vehicles computers to Wi-Fi, taxpayers end up with a system that does not work, at 10 times the private sector cost. I think we’d be better off – and the bureaucrats would work harder – if we outlawed computers at government offices and made them go back to hardcopy recordkeeping only.

  • Bob Clark

    Maybe folks running government should have to put up equity in the government enterprise projects they propose. If the project is profitable as they project, then they get a share of the profits in proportion to their equity stake. If the project is a loser as frequently the case, then their equity shrinks in proportion to the losses. This way the government enterprise folks have some real skin in the action, and not some obscure political linkage that can be covered over by the more sophisticated politician.

    This comes to mind when hearing about the profitability of Metro’s proposed convention hotel.

  • Jerry

    Nothing Metro does will ever be profitable. You can count on that for certain.
    These people could not survive in the private sector in any way.
    I feel sad for them and their abject stupidity, but as they are wasting my money, my saddness is not as great as my anger.

    I think we should have free water taxis – using electric boats – so that people who want to get from one point on the river to another can do so without driving. We could fund the whole thing with a tax on cigarettes and cigars.

    These people truly are morons. What other explanation can there be for such idiotic stuff being done over and over and over again with the exact same results – FAILURE every time.

    Man, what a bunch of losers.


      Coming Next : subsidized Rental Bikes…….let paint them green!

  • John Fairplay

    They tried that, only the bikes were free for anyone to use and were painted yellow. All of them were stolen or destroyed in about 2 weeks.


      but it’ll work this time as long as we subsidize it, they do it in Paris….

  • Jerry

    Or maybe the bikes just weren’t the right color.

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