By Kelly McCutchen
For centuries, too-good-to-be-true deals have snagged investors with promises that they can ignore past failures because “this time it will be different.” Peachtree City’s leaders appear to have been told a similar story.
The Peachtree City city council approved a resolution last month to build out a government-owned broadband Internet network for municipal buildings and local businesses. The project will require a 10-year, $3.2 million bond issue to pay for the cost of laying fiber optic lines along the right-of-way of the city’s many golf cart paths.
For those who don’t know their Georgia geography, Peachtree City is not a small, rural hamlet in the-middle-of-nowhere Georgia with limited broadband Internet access. It is located just 30 miles south of Atlanta in Fayette County, which is officially a part of the metro Atlanta region.
The area is served by multiple broadband providers who have miles of fiber optic cable already in the ground, which begs the question of why the city government feels the need to compete with the private sector. More importantly, why move forward without even soliciting bids from multiple vendors to price out installing and operating the network?
Beyond the ideological argument that telecommunications is not a core function of government, especially in a state and nation that prides itself on limited government, the history of government-operated telecommunications networks across the nation is one of failure after failure. And Georgia has had its share; Marietta, Tifton and Acworth come to mind. Even Chattanooga, now cited as the model of success, required $111 million in federal subsidies.
City officials say they think the network will help their economic development efforts and will be a source of ongoing revenue. But that extra revenue is dependent on signing up private customers, something that doesn’t seem very promising.
In fact, the project could lose money without sufficient commercial revenue. Even the city-funded feasibility study warned “the profitability of this venture is highly dependent upon achieving enough market-share to support the costs related to operate and maintain the City’s Broadband Network.” In other words, if the City can’t sign up business customers, taxpayers will be left holding the bag.
That’s exactly what worried one city council member, Eric Imker. Chris Butler of Watchdog.org reported that Emker “said things may not go as planned, especially when competing against the city’s two private Internet providers. ‘If we don’t get the customers by year two, that’s where the whole thing falls apart.’”
The City’s paid consultant told the City Council before the vote they had nothing to worry about. After claiming to have talked to 76 business owners in the area, he stated, “It’s a surprise to me that the demand was so great, and that the existing customer base out there was so positive about becoming a user. From a pure business standpoint, that gave me a lot of confidence to come in and say I believe we can hit this number and I believe we can exceed this number.”
The consultant now admits, as again reported by Watchdog.org, that “he never really measured business demand for the city’s $3.2 million [network] – an about-face from his public claims that ‘100 percent’ of businesses he surveyed said they were unhappy with cable service from private-sector providers.”
It’s also unrealistic to assume that the private providers currently serving these local businesses will lie down without a fight. Competition will likely either limit the number of commercial customers the City can sign up, or will cost the City revenue from price concessions.
All in all, this seems like a risky and unnecessary bet with taxpayers’ wallets.
The fact that Peachtree City is rushing into this decision raises even more serious questions. Why the race to indebtedness? What harm could there be in putting this out to bid? The prudent step would be to follow former Indianapolis Mayor Stephen Goldsmith’s yellow pages test: “If the phone book lists three companies that provide a certain service, the city probably should not be in that business, at least not exclusively.”
Feasability Study: City of Peachtree City Fiber Network Initiative
Watchdog.org articles: “Despite warnings, Georgia town goes full throttle on municipal broadband,” September 21, 2015; “Georgia town cites big demand for government-run Internet, but can’t cite proof,” October 1, 2015
Kelly McCutchen is president of the Georgia Public Policy Foundation, an independent think tank that proposes market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.
© Georgia Public Policy Foundation (October 23, 2015). Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.