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Salisbury, NC Municipal Network Not Really Profitable

August 2, 2017

In July The Salisbury Post ran a series of articles examining the city’s experience with government-owned broadband. (Salisbury, located in North Carolina, operates a system called Fibrant.) Below are the lowlights from just one part of the series. We’ll examine the other parts of investigation later this week.

  • For years city leaders, including council members, “believed” Fibrant was profitable. But, according to reporter Josh Bergeron, “In reality, Fibrant drained more than $3 million per year from the city’s general fund.”
  • “City staff made Fibrant look profitable on paper,” Bergeron reported, by moving “Fibrant’s costs … into other areas.” City manager Lane Bailey “compared the city’s arrangement of Fibrant’s finances to a doctor telling a patient to consume a bitter-tasting pill as a cure without revealing the fact that the person has cancer.”
  • The scheme appears to have started about five years ago. Before then, the network was operating at a loss. In 2009, records showed a $700,000 deficit. In 2010, the gap was up to $1 million. Then, according to Bergeron, “The broadband services fund’s deficit increased to $3.4 million by the 2011-2012 fiscal year.” Revenues for that year were $1.5 million lower than projections. After 2012, the network started to show a profit.
  • When asked about the rapid turnaround, Bergeron said “former council members offloaded responsibility for analyzing the city’s financial statements to staff members.”
  • The network hasn’t helped the local economy. In 2011, the year the city launched Fibrant, its poverty rate was 21.5 percent. Six years later, the poverty rate is more than 23 percent.
  • City officials estimated 4,800 households would subscribe to Fibrant by 2015. Today “Fibrant’s current customer base includes 430 commercial subscribers and about 2,800 residential subscribers.”
  • Some city officials blamed state opposition to municipal broadband for Fibrant’s failures, but, according to Bergeron, the city failed to finalize “Fibrant contracts with public schools, local government entities and health care facilities before launching Fibrant” and also hasn’t “marketed the service properly.”
  • The city doesn’t expect to be able to pay off Fibrant debt until 2029.
  • Some city councilors said if they’d known the truth about Fibrant they “would have looked for a company to purchase, lease or manage the city’s fiber optic network before now.” (The city is now in talks to sell the network.)

Bergeron noted in his story that it is “common among cities with municipal broadband networks to intermingle expenses …” Based on the Salisbury Post’s report, it’s a practice that needs to stop.