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The Financial Viability of Government-Owned Networks

June 11, 2012

Several weeks ago, we reported that LUS Fiber, the government-owned fiber optic network in Lafayette, La., was losing $45,000 a day. Imagine our surprise when, last week LUS Fiber’s director reported the system had reached profitability two years before it had been expected to.

A deeper dive shows this news may be the result of some questionable accounting. The Shreveport Times notes, “The positive cash flow argument hinges on taking depreciation and amortization out the equation …” To show profitability, administrators excluded “about $2.7 million of depreciation costs and nearly $418,000 in imputed taxes.” This calculation was probably used, the Times explains, to take “some of the debt remaining from its inception” off the books.

In fact, Lafayette Consolidated Government’s financial officer pointed out the profitability was due to the fact that some debts had not yet come due. According to the financial officer, while LUS Fiber “had a positive cash flow during the second quarter of the 2012 fiscal year, officials did not have to repay any internal loans from the Lafayette Utilities System during that time.”

LUS Fiber’s director argued if only “everyone” would subscribe to the network then its, and the parish’s, finances would be fine. Perhaps this is true, but these networks cannot – and should not be allowed to – compel members of the community to subscribe. Consumers are best served when they have multiple choices for broadband.

Still, some municipalities seem surprised when city consumers choose other service. In Minneapolis, the Star Tribune recently reported “The city’s Wi-Fi network is falling far short of its initial revenue projections.” The paper says “competition” from the private sector has meant subscribership is only half of what was estimated. The CEO of the wireless network said proponents of the system “could not foresee” such competition when plans for it were devised about six years ago. If planners can’t envision competition for private sector providers, what does that say about their ability to foresee more obscure bumps in the road?

Certainly, government-owned networks provide vital services in areas where private providers do not yet operate. But in areas where private networks do exist, it’s disturbing that those who operate the government-run alternative view consumers as cash cows who should be forced to fund their networks. In places like Minneapolis and Lafayette, government-owned networks are only one of several choices for consumers.

Those who run the networks shouldn’t see them as anything more.