ON PAPER, it may sound like the perfect side business for municipal governments: a city-owned broadband system that can offer high speed Internet access to citizens while bringing in revenue to city coffers.
But all that glitters isn’t gold, and city leaders with visions of dollar signs in their heads should consider the reality of owning and maintaining a municipal broadband system before committing money from Savannah taxpayers to such an enterprise.
Savannah officials currently are working with a group of consultants, Magellan Advisors, to figure out if a municipal broadband network is the way to go for the city. Savannah has already paid Magellan tens of thousands of dollars to explore the issue.
City officials usually have already made up their minds that they want a municipal network before employing such consultants, and typically, Internet consultants tell city politicians what they want to hear.
But, here’s the trick: when a municipal network fails to turn a profit and ends up bleeding cash, as is usually the case, it’s not the consultants who risk being voted out of office. It’s the politicians who bear that burden.
They should proceed carefully. Cautionary tales about municipal broadband networks abound.
Consider the situation in Marietta, the sprawling suburb northwest of Atlanta. Marietta started its own municipal network that stretched along a 210-mile long route. After spending $35 million to build out the network, Marietta earned a grand total of 180 customers.
The then-Mayor said the city couldn’t keep pace with the expenses associated with the constant flood of technology upgrades required to manage a broadband network. The city ultimately sold the network in 2004 for a $20 million loss.
Pacific Research Institute, in a report on municipal broadband, found that “Mariettans had decided that they would rather take a $20.33 million loss than continue to subsidize a municipal telecom venture that was sucking their city dry.”
Marietta may be relatively close to home, but it’s not the only example. Provo, Utah spent $40million to build its network, only to sell it to Google Fiber for the princely sum of $1. In Groton, Connecticut, taxpayers lost $38 million.
City leaders need to consider the downside risk to municipal services if and when the broadband network fails to attract customers and generate case. The shortfall has to be made up somewhere. Where will the money come from? Tax hikes?
Budget cuts to basic services or to the police or fire department? Try explaining that to voters come election time, especially if the crime rate is on the rise.
According to Kelly McCutcheon, President of the Georgia Public Policy Foundation, typically the consultants are the only ones who come out good on these deals. It would be a bitter pill to swallow by Savannah citizens and city leaders alike.
Let’s dig into some of the specifics on Internet needs in Savannah. Of the 280,000 residents in Chatham County, only 6,000 residents do not have access to wired Internet of any kind. About 90% of Savannah residents can choose from two or more wired Internet service providers (ISPs).
The city’s current residential providers offer speeds up to 105 mbps, and its twelve business providers offer speeds that are generally between 100 mbps and one gigabit, which is considered to be very speedy in the Internet world.
Private providers also are making big new investments in the area. Last year, Hargray Communications announced a plan to offer one gigabit speeds to Lowcountry customers. In March, Comcast announced its intention to offer 10-gigabit speeds to city businesses. Last month, AT&T said it also would begin offering incredibly fast capacity to Savannah entrepreneurs.
Clearly, the City of Savannah and Chatham County at large are well attended to by private Internet service providers. It’s easy to understand why city leaders would be seduced by the idea of starting a municipal broadband network.
Public officials may be dreaming of a legacy item – a monument to their incumbency. But, a municipal network is, poised to be, at best, a vanity project -- and at worst, a major boondoggle Savannah taxpayers simply cannot afford.