September 11, 2014
Today 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 Utah’s UTOPIA network, a GON with which CNE readers are very familiar.
Plans for UTOPIA began in 2002 when 16 Utah cities agreed to build a fiber optic network. The first phase of the plan was finished in 2005 and in 2006 the network won a $66 million loan from the federal government. Just a few months after the first tranche of federal funding was released, however, the federal government cut off future funding until UTOPIA “improved its financial condition and developed a new business plan.” UTOPIA was able to gain financing elsewhere and did receive $16.2 million from the 2009 federal stimulus.
The total cost of UTOPIA, at $500 million, rivals the cost of Chattanooga, Tenn.’s gigabit network. UTOPIA carries $205 million in liabilities and runs a $13 million deficit each year.
Taxpayers are on the hook for the outstanding debt and the mounting deficits. Davidson and Santorelli report, “Member cities are obligated to use taxpayer money to continue funding the network and servicing its debts until it is able to generate profits sufficient for these purposes.” At least one city increased taxes to cover its share of UTOPIA’s costs and taxpayers will likely face other increases if finances don’t improve or if UTOPIA can’t sell to a private company or get a bailout from one.
Network administrators are considering both options.
Davidson and Santorelli remind readers UTOPIA cities are considering one plan under which an Australian company would help finish and finance the network. Unfortunately, that plan would also require residents to pay a $20 monthly utility fee to support UTOPIA, regardless of whether they use its services. Davidson and Santorelli say the potential deal fails the transparency test as well: before the cities started talks with the Australian company officials had to sign non-disclosure agreements.
A key reason for UTOPIA’s persistent deficits is that the network does not provide service to as many households as supporters predicted and planners also overestimated the percentage of consumers who would subscribe. Davidson and Santorelli report, “UTOPIA has not met its goals for deployment and adoption. In 2007, UTOPIA made service available to 37,160 addresses, less than one-third of its original goal. Moreover, the take-rate was disappointing as well. UTOPIA expected to have 49,350 subscribers in 2007, but only had 6,161.”
Davidson and Santorelli call the UTOPIA experience “a cautionary tale” and say the “consensus” is “that UTOPIA suffered from over-ambition, wasteful spending, poor planning, and ineffective leadership.” They conclude the “enormous costs” of the network “overshadow” any benefits it’s brought to the 11 communities that financially support it.
UTOPIA’s failure has had an impact on the local political landscape as well. Davidson and Santorelli report at least one mayor was elected, in part, because of his opposition to UTOPIA.
That fact should be a cautionary tale to elected officials everywhere.
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., Monticello, Minn. and Provo, Utah.
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