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Provo, Utah, shows how government's "good" intentions end up costing taxpayers millions
By Steven Titch
City officials in Provo, Utah, are still scratching their heads over the persistent low revenues and high subscriber turnover from iProvo, the city's municipal broadband network.
iProvo, the $39.5-million wholesale fiber-to-the-premises network, is halfway into its fourth year. In December, Provo Municipal Council Chairman George Stewart, told the city council that the operation is still behind on its business plan in terms of revenues and number of customers. After receiving nearly $1 million in extra funding last year, iProvo asked the city to budget and additional $1.2 million to cover expected losses for the current fiscal year, which ends June 30, 2008. In its December 2007 report, iProvo said losses from July through October 2007 totaled $214,000.
What can't iProvo gain traction? To understand why, let's start with the reasons for its creation.
At heart, iProvo was supposed to assure local residents and businesses would not be left out of the so-called digital economy. But from a practical policy perspective, iProvo's experience, which tracks with most other cities that have mounted similar attempts at large-scale municipal broadband, including Ashland, Oregon; Lebanon, Ohio; and Marietta, Georgia, to name three, shows that simply building a municipal broadband network does little for the wider adoption of broadband services. All cities do is waste resources when they go this route.
Construction and expansion of a broadband network is purely a matter of physical and capital resources, all of which can be obtained through a variety of means. The City of Provo chose to finance and build this infrastructure itself. It did this in direct competition with commercial providers and just as the private equity market was beginning to fund commercial projects.
This was the city's first mistake. It called on its own citizens to shoulder the cost of building and financing a network that private shareowner capital was available for. Provo, like many other cities, did so with eyes wide open. Comcast executives told city officials in 2003 that by 2007—now—they would have broadband service available not only in Provo, but the entire Wasatch Valley, a schedule it has made good on.
That brings us to the second mistake Provo and other municipal broadband systems make. To achieve their goal of wider availability of broadband service, they force themselves first to create a successful cable TV franchise. This all but guarantees that after borrowing or allocating millions to build the infrastructure, municipalities will have to keep on borrowing and spending millions just to stay competitive with other providers.
Right now, iProvo isn't so much a broadband network provider as an ailing cable TV company. Stewart admits that iProvo's financial struggles stem from lower-than-expected take-up of the triple-play combination of phone, cable and Internet. And while iProvo's retail partners are signing up customers at a rate of 260 a month, those gains are offset by a monthly average of 140 customers who drop service. Unlike overruns that occur on an infrastructure project of fixed duration, say a highway expansion, which are most often related to time and materials, iProvo's losses stem from marketing problems and subjective consumer perceptions about quality of service. They will be difficult, if not impossible, to contain.
For several years, Reason Foundation and like-minded policy think tanks were warning that cities were basing municipal broadband plans on market misperceptions. The past year has seen cities that were once enthusiastic about the idea back away because the growing number of muni failures can no longer be ignored or explained away.
What cities are learning, however, is that local non-profits and neighborhood-level technology programs can be highly effective at addressing the digital divide. Agencies such as New York's NYCwireless, Cleveland's Computer Learning in My Backyard (CLIMB), One Economy Miami and SimHouston all help provide broadband access, equipment, training and technology assistance to inner-city areas. Many are funded by private sector companies and rely on little or no government money. Since they are managed by focused and motivated personnel, these initiatives stand to achieve greater digital inclusiveness than multimillion dollar government infrastructure projects.
If it truly wants inclusive broadband in Provo, the city should treat the commercial sector as a potential partner, not an antagonistic competitor. It should see beyond Comcast and Qwest. Apple, Cisco Systems, Google, Intel and Microsoft are just six major companies that have an interest in the spread of broadband. Rather than working against the industry, iProvo should work with it to identify and encourage grassroots initiatives aimed at educating individuals who feel cut off from the digital revolution. It's far less grandiose than a fiber-to-the-home network, yet it would be a far more responsible use of taxpayer money and yield a far more gratifying result.
Steven Titch is a telecom policy analyst for Reason Foundation. An archive of Titch's work is here and Reason's telecom research and commentary is here.
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