Out of Control Policy Blog

Study shows municipal broadband services failures

A new report looks at the track record of city-owned broadband serivces in Iowa, and the findings should set off warning bells for any city looking at this idea.

The study looked at three cities and found:

--Cedar Falls' municipal communications system has operated with a negative annual free cash flow to equity in all but one year. Its internal rate of return is –7.24 percent, meaning it has been a poor investment for taxpayers and ratepayers.

--Muscatine's municipal system increased its total debt from $20.30 million in 1998 to $36.49 million in 2004. It is $25,554,984 below its payback point after seven years of operation, and its internal rate of return is –84.7 percent.

--Spencer's communications utility appeared to achieve positive annual free cash flow to equity in 2003 and 2004 after four years of deficits, but it has received large subsidies from Spencer's electric utility. Adjusting for these subsidies eliminates Spencer's surplus. The combined investment by the two utilities is $18,286,703 below its payback, and its internal rate of return is –45.79 percent.

Yikes!

Adrian Moore is Vice President, Policy


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