January 14, 2015
President Barack Obama is in Cedar Falls, Iowa today to discuss access to high-speed broadband and to highlight Cedar Falls’ government-owned broadband system (GON).
CNE blogged about the city’s network last year after Charles Davidson and Michael Santorelli included a review of it in a report they wrote for New York Law School on GONs. Davidson and Santorelli said, “Over the last decade … The system rarely generated revenues to cover its total costs,” but now that the system has added a gigabit offering (it added this service in 2013), its operating expenses are growing significantly while revenues have not kept pace. Indeed, according to Cedar Falls Utilities,while operating revenues at the utility were up $1.4 million in 2013 costs were up by more – $1.7 million. The communications portion of the utility also owes other divisions at least $2.4 million. (Additionally, it has a long-term debt totaling $14.7 million.)
The problems are not recent. A September 2005 article in the Waterloo Courier said the Heartland Institute found “Cedar Falls’ communication utility is a poor investment for taxpayers and should serve as a warning to other municipalities considering offering similar services.” (That report is available here. It also contains information on two other GONs in Iowa, one in Spencer and another in Muscatine.) Despite the ongoing issues, the utility received nearly $1 million from President Obama’s 2009 stimulus bill to expand its service into rural areas.
The utility has been unable to get on its feet despite the fact that its prices are not any more affordable than private sector offerings. A relatively slow 3 mbps download speed costs residential customers $30 a month while the gigabit offering costs $135 a month for home subscribers and $895 a month for businesses. (The gigabit offering has just 450 subscribers.)
The Cedar Falls experience also highlights the opportunity costs of government-owned broadband networks. While Cedar Falls has spent heavily on its GON, it’s also raised local taxes in order to pay for road improvements.
Unfortunately, Cedar Falls is not the only story of its kind.
Want to learn more about Cedar Falls’ experience with government-owned broadband? We encourage you to check out the full report from Charles Davidson and Michael Santorelli here. The two looked at ten GONs throughout the country, including Cedar Falls.
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