With many local governments confronting severe fiscal
difficulties, you'd think they would be content to just focus their attention
on trying to deliver essential public services in an efficient, economically
sound manner.
You might think so.
But some cities and counties, and in some instances states,
can't resist the temptation to get into running businesses that are much better
left to the private sector – like building and operating telecom and broadband
networks.
These government telecom ventures rarely turn out well.
Take, for example, the Utah Telecommunication Open
Infrastructure Agency, with the once touted, but now unfortunate, acronym
"UTOPIA". UTOPIA is a
decade-old government-run fiber optic project that is supposed to provide
broadband services to eleven Utah cities.
In truth, UTOPIA ought to renamed DYSTOPIA.
Like most municipal communications networks, from the outset
UTOPIA's promised benefits have fallen far short. On the other hand, UTOPIA's
burdens on the public fisc – and the taxpayers – have far exceeded government
projections, even as these burdens have been revised upwards on an ongoing
basis.
Utah's Office of Legislative Auditor General recently
prepared a lengthy report
for the Utah State Legislature concerning UTOPIA's performance to date. Here
are some of the key findings:
"[S]ince 2003, UTOPIA has had nine consecutive years
of operating losses. These annual deficits have caused serious damage to the
agency’s financial position. At the end of fiscal year 2011, UTOPIA had total
net assets of negative $120 million."
"UTOPIA originally planned to build a broadband
network in three years and to achieve a positive cash flow in five years.
However, it has not met that schedule. Instead, the cost of financing and
operating the network increased before UTOPIA could provide a substantial
number of customers with service. As a result, revenues have not been
sufficient to cover its costs. Year after year, as operating deficits have
accrued, the agency has developed a large negative asset balance."
"Most of the bond proceeds have been invested in
poorly utilized and partially completed sections of network. As a result, the
network is not generating sufficient revenue for the agency to cover its annual
debt service and operating costs."
"The use of debt to cover the cost of operations and
debt service is symptomatic of an organization facing serious financial
challenges."
"In addition to UTOPIA’s problems with poor planning,
mismanagement, and unreliable business partner performance, a lack of
sufficient customers is also a cause for the agency’s slow progress."
The Auditor General's Report is
filled with facts and figures, almost of them dismal – or dystopian – if you
will. You can read through the report and draw your own conclusions.
Here is what Utah's leading
newspaper, the Deseret News, concluded
in an August
3 editorial following the release of the
legislative audit:
"Early projections presumed that UTOPIA's massive
broadband network would be profitable within its first five years and have a
subscriber base of 49,000 by 2007. Yet as of April 2012, it has a paltry 9,300
subscribers, and profitability is nowhere in sight."
"This is causing an impossible strain on the local
municipalities that pooled their resources to make UTOPIA possible. The
participating member cities have to scrounge up $13 million a year in sales tax
revenues to keep UTOPIA going. Adverse economic conditions make that money a
lot harder to come by than it was when the project was on the drawing board.
Clearly, there are far more important civic priorities that ought to take
precedence over the UTOPIA boondoggle. This constitutes an inexcusable waste of
valuable public resources."
"UTOPIA's network duplicates more innovative
projects taking place in the private sector. The free market recognizes the
need for a robust communications infrastructure, and it has been able to
provide customers with these services in a timely and cost-effective manner.
Private enterprise doesn't have the ability to dip into public monies when
their operations don't produce enough cash — they either sink or swim on their
own merits. That's why the state should sell UTOPIA assets to the companies
that would be in a position to use them profitably."
I have never taken an
absolutist position that there might not be exceptional circumstances under
which it may be appropriate for municipal governments to build and operate
telecom networks. But UTOPIA's unfortunate experience, along with that of other
government-run networks, provides a cautionary tale that such instances should
be extremely rare. And a precondition for considering government ownership must
be that no private providers are offering service in the area and none have
indicated an intention to do so. Even then, of course, governments should
proceed with the utmost caution. For there likely are good reasons, from an
economical and practical point of view, why private operators are not yet offering
service.
The cities that comprise
the UTOPIA venture could do their citizens – and perforce their taxpayers – a
favor by getting out of the telecom business. Indeed, they have an obligation
to do so. History has shown that running a telecom network is a highly capital-intensive and complicated business
much better left to private enterprise.
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