More communities who decided to build their own broadband networks are having a change of heart and are pulling out of the broadband business after losing taxpayer money, freeing up funds for more important priorities.
At least three government-owned networks (GONs) have recently been sold or are in the process of being sold, according to news reports and requests for proposals on city websites. Broadband Breakfast reported that Bardstown, Kentucky, has reached an agreement to sell Bardstown Connect to Charter Communications, largely due to a flagging market.
This phenomenon is not new. The Taxpayers Protection Alliance (TPA) has reported extensively on the failure of GONs, including in its two reports specifically focusing on taxpayer-funded networks. Taxpayers in Salisbury, N.C.; Bristol, Va.; Burlington, Vt.; Groton, Conn. and Crosslake, Minn. suffered substantial losses on the sale of their GONs.
In particular, Bristol Virginia Utilities OptiNet network was sold for a $80 million loss, while Salisbury’s Fibrant was leased to a private provider with taxpayers on the hook for an estimated $32 million.
Bardstown Connect is losing cable and broadband subscribers due to increased competition from online streaming services and internet service providers. The cable division has lost roughly 2,000 subscribers in the past three years, reducing its subscriber base to 5,000. Bardstown’s Chief Financial Officer Aaron Boles said the city GON now faces competition from several different fronts, including AT&T, T-Mobile, Verizon and Starlink, and has shed internet subscribers. He noted that the broadband market “has changed drastically.”
“We don’t see cable and Internet service as being a viable option for a municipality of our size,” Boles said on local radio station WBRT of the city of about 18,000 residents. “We’re a little fish in a big pond, and we’re getting eaten up by the big fish.”
Boles said the city decided to sell now before choosing to potentially make costly upgrades to keep up with current broadband technology. The revenue from the sale will be used to help pay for $80 million in water and sewer projects in Bardstown.
“It’s very difficult for a government entity to try to take on a private entity. The revenue is just not there,” he said. “Meanwhile, expenses continue to climb because running fiber isn’t a cheap endeavor.”
“The city is having difficulty competing against the larger companies that have an endless amount of money to market their product, send people door to door [and] advertise on all networks,” Boles continued. “A city is most adept at dealing with legacy utilities – things that don’t change very much. No private entity wants to be in the sewer business.”
Boles told TPA in a phone interview that Bardstown Connect was initially a local cable provider that the city bought 40 years ago. He wasn’t sure how much the city initially paid or its total investment into the network.
“When the city bought it, it was just a fledging cable company and the city has invested millions upon millions into it,” he said.
Boles told TPA that he hopes the deal will be finalized by May 1 and the city isn’t releasing sales numbers until then.
In December, Charter began the process of buying the GON of Norway, Michigan, for an estimated $5 million, Cord Cutters News reported. City Manager Dan Stoltman said upgrading and maintaining the cable and broadband network was too costly. To continue on with the GON, the city of just 2,800 residents would have had to borrow money and raise subscriber rates, he pointed out.
“The thought was, ‘As a city, should we be in this business?’” said Stoltman. “Do we have enough people to manage the telecommunications systems? With just 1.5 employees to handle cable operators… we don’t have the expertise.”
Stoltman did not return a call from TPA. An employee who answered the phone at Norway City Hall said she wasn’t sure how much the city had invested into the network.
Norway’s GON top download speed was just 50 Megabits per second, according to Cord Cutters News, but Charter plans to offer symmetrical 1 Gigabit service within two years of taking over operations.
In Louisiana, Ruston Mayor Ronny Walker announced in February that the city had sent out a request for proposal to solicit bids for a private operator to take over the city’s GON, Lincoln Parish Journal reported.
In 2009, Ruston began offering fiber services to local businesses, recently planning to expand internet options to residential areas. Ironically, city officials decided to sell the GON when competing taxpayer dollars became available through the federal Broadband Equity, Access and Deployment (BEAD) program.
“The feds started coming out with all of this money for fiber throughout the United States,” Walker said. “The State of Louisiana is getting over $2 billion to provide internet to every home in our state. This changed the whole landscape.”
Walker told TPA that the network was built in 2009, six years before he took office, so he was unsure how much the network initially cost to build. He anticipates that the network is likely to sell for between $4.5 million and $6.5 million.
The mayor told Lincoln Parish Journal that the city should get out of the internet business if it can’t be one of the top two providers in Ruston.
“Fiber is not our strong suit. We don’t have the (manpower). We depend on contractors,” he said. “Before the government got into it, we were in pretty good shape. But when the government started throwing out (money) to provide fiber throughout the state, we backed off.”
Putting aside the humor in Walker not acknowledging that his office is also a form of government, it is positive to see him and the leaders of Norwich and Bardstown see that they should focus their efforts (and taxpayer money) on more essential city services. These examples show that GONs often do not turn out as rosy as consultants and city leaders tout.
Johnny Kampis is director of telecom policy for the Taxpayers Protection Alliance