Last month, city
auditors issued yet another warning to the municipal broadband system in
Lafayette Louisiana, LUS Fiber. Rstreet.com reported the details of the recent
advisory, published an in-depth case study on the Lafayette system, and noted that
Lafayette auditors have voiced concerns about the network in each of their
reports over the past two years. LUS Fiber is the just the next in a long line of government-owned broadband networks
that have fallen far short of expectations.
According to
the city’s financial reports, LUS
Fiber reported $23 million in operating revenues, compared to $36.7 million
that was forecast in its feasibility study for the fiscal year ended October
31, 2013. According to LUS Fiber’s original plan, the operation was projected
to produce a profit of $902,000, but instead the system incurred a $2.5 million
operating loss for the year. But the most telling number is LUS Fiber’s deficit
of $47 million at the end of FY 2013, up from $37.1 million the year before.
LUS Fiber has tried to downplay these
results by publicizing that the network is “cash-flow positive.” But that just
means that LUS Fiber is taking in more than it’s spending on a day-to-day
basis, but it does not properly acknowledge the network’s substantial long-term
debt liability. The failure to produce promised-profitability puts taxpayers on
the hook for LUS Fiber’s debt, which increased a staggering 27 percent
from 2012 to 2013 according to Coalition for
the New Economy.
And unfortunately for local taxpayers, data shows that municipal
broadband systems like LUS Fiber are unlikely to find relief for their
ever-increasing debt. LUS Fiber and other municipal broadband networks that
offer landline broadband services and rely on the triple-play package – phone,
cable, and Internet - to produce revenue are betting on a dying model. Based on
a report from ISI Group, an equity research firm, BusinessInsider.com reported
that nearly 5 million cable TV subscribers cut the cord in the last five years.
The number of cable TV-only subscribers remaining could fall below 40 million
next year, as the graph from ISI Group shows.
The weaknesses
of LUS Fiber are regrettably common among municipal broadband networks. Free
State Foundation scholars have tracked the failure of many government-owned
networks, including Burlington Telecom’s February $10 million settlement with
Citibank over loans to its ailing system. Other examples of municipal “broadband busts”
include Mooresville and Davidson,
North Carolina, Utah’s UTOPIA
network, Chattanooga, Tennessee’s Electric Power Board (EPB)
network Provo, Utah, Lafayette, Louisiana,
and the
N.C. Eastern Municipal Power Agency.
Municipalities should view the
consistent failure of government-owned networks as confirmation that the
private sector is best suited to develop and manage broadband networks. Absent
compelling evidence that private sector broadband providers will not make adequate
service available in the locality, local governments should refrain from
building out their own networks in order to protect their taxpayers from the high
costs and high risks of broadband network deployment.
If local governments want to increase
competition in their broadband markets, the best way to do so is to remove
existing, costly, unnecessary regulations. This will incentivize private
investment, remove barriers to broadband deployment, and promote the continued
growth of today’s competitive communications environment.
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