Marc Kilmer, Buckeye Institute research associate, reports that the city of Lebanon, Ohio, is in discussions with Cincinnati Bell about unloading its municipal broadband system, which has racked up $9.8 million in debt. The system launched in 1999, Lebanon became one of the first towns to attempt to compete with the local cable TV company. Year after year, costs outpaced return.
The failure of Lebanon’s telecommunications business illustrates why governments should not compete with private enterprise. When Lebanon was considering this venture, there was no indication that the city had the expertise or resources necessary to compete with a large multi-national corporation like Time Warner Cable. The city’s grand plans looked good on paper, but the government soon found that the market demands results that the city could not deliver. So now the city is sitting on a telecommunications system that loses money every year and is $9.8 million in debt. The city may realize that with advances in technology, the market for providing video services will soon become much more competitive. Phone companies are poised to enter the market with video services over their fiber optic lines. This means consumers will see more choices and lower prices through increased competition. The city-run system in Lebanon was struggling when it competed against just Time Warner. The prospect of more competition would be disastrous for that system. Lebanon defends its venture by pointing out that cable television prices were lowered by the entry of the city-run system into the market. While cable prices are indeed lower in Lebanon due to competition, these lower prices have been subsidized by the taxpayers of Lebanon. Competition is indeed good, but this competition should not be subsidized by taxpayers.
Kilmer’s wrap-up is here. The news follows just weeks after a Buckeye report, authored by Kilmer, examining the fiscal and legal problems Lebanon’s municipal netowk has faced since Day One.