December 5, 2012
Coalition for the New Economy Releases Second Micro Paper on
Government-Owned Networks (GONs)
INDIANAPOLIS, IN – The Coalition for the New Economy (CNE) today released a short case study by Dr. Joseph P. Fuhr Jr., professor of economics at Widener University in Chester PA, that examines the Utah Telecommunications Open Infrastructure Agency (UTOPIA), a government-owned broadband network (GON) in Utah. The paper is the second in a series of micro papers released by CNE that highlight the negative budgetary and economic side effects of GONs.
“The UTOPIA network is a good example of what can happen when municipal lawmakers take on a project for which they have little expertise,” said Fuhr. “A series of missteps, beginning with a faulty business plan, have driven this GON to the point that it has to pay more than $500 million in debt obligations. Taxpayers in the participant cities are now being forced to pay higher property taxes to atone for UTOPIA’s missteps.”
The Utah Telecommunications Open Infrastructure Agency was created in 2002. Eleven cities joined the network, promising it would be built within three years and profitable within five.
“Salt Lake City was one of the cities that considered joining UTOPIA,” Fuhr noted. “However, the city’s mayor, Rocky Anderson, decided not to move forward, noting the ‘unacceptable risks to taxpayers.’ Mr. Anderson was right: the profits promised by this GON were nothing more than imaginary.”
An August 2012 audit to the Utah Legislature revealed UTOPIA has never had a profitable year. In fact, in no year have revenues been enough to cover operating costs, much less debt obligations. UTOPIA lost $18.8 million in fiscal year 2011; has a negative net value of $120 million; and owes interest totaling $500 million until 2040. In fiscal year 2013 alone residents of the 11 UTOPIA cities are scheduled to pay nearly $13 million for debt services.
“The state audit questions whether UTOPIA’s business model – providing broadband infrastructure at wholesale prices to independent content providers – can ever be profitable,” Fuhr said. “This micro paper, the previous one on MI-Connection in North Carolina, and CNE’s longer study of GONs released in early 2012, show that the model is rarely, if ever profitable. The telecommunication sector is too fast moving – government bureaucrats simply do not have the expertise to efficiently, effectively, profitably – provide broadband. They should stay out of the business, and save taxpayers’ money.”
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