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Government-Owned Broadband Review of the Week: Provo, Utah

September 5, 2014

mom and girl 2Today the Coalition for the New Economy (CNE) continues its look at a recent study of government-owned broadband networks (GONs) from New York Law School‘s Charles Davidson and Michael Santorelli by examining their case study on Provo, Utah.

As Coalition for the New Economy readers will recall, Provo sold its network to Google for $1. The sale still left Provo taxpayers with a $40 million debt to pay off and, when all is said and done, Davidson and Santorelli say the municipal broadband experiment will cost taxpayer $60 million, or about $516 per Provo resident.

What happened?

In a typical failure for a government-owned network, the service failed to attract as many subscribers as supporters promised it would.

Here is the background: after it deemed a pilot program involving 300 single family homes “successful,” the Provo City Council approved $39.5 million in tax revenue bonds to build an open access network that the council said would be complete by 2006 and profitable by 2008. In 2005, only 2,400 residents subscribed to the Internet service, but within a year that figure fell to 1,600. By 2007, the network was signing up just 16 new customers per week. Perhaps because bundled packages that included Internet started at about $90 a month.

The city sold the network in 2008 – the year it was supposed to be profitable – but the company that bought it was eventually put under by the city’s debt and in 2011 defaulted on its agreement with the city. According to Davidson and Santorelli, the city settled with the company and “leased the network back to the company while it looked for a new buyer” but at the same time also charged “$5.35 a month on residents’ power bills to pay the bond payment.”

It took two years, but the city found a new buyer: Google. Unfortunately for Provo taxpayers, Google paid as close to as it could get to nothing for the deal.

To read more about Davidson and Santorelli’s study, see our previous posts on their top 10 arguments against government-owned broadband networks, Chattanooga, Tenn., Bristol, Va., Cedar Falls, Iowa, Danville, Va., Groton, Conn., Lafayette, La. and Monticello, Minn.