Today, Citizens Against Government Waste (CAGW) President Tom Schatz and
Utah Taxpayers Association Vice President Royce Van Tassell published an
opinion piece titled "Municipal
Broadband Is No Utopia," which was highlighted in both The Wall
Street Journal's print and online editions. The op ed reads as
"Like most utopian dreams, the Utah Telecommunications Open
Infrastructure Agency, or Utopia, hasn't panned out. Utopia, a
consortium of 11 municipalities to build a fiber-optic network, was
initially financed in 2004 with a $185 million bond; it was supposed to
be completed in three years and have a positive cash flow in five. The
project is a prime example of why governments should not be in the
business of building or operating broadband networks-and why the federal
government should not be in the business of cheerleading for them.
"In 2006, Utopia received an additional $66 million loan from the
Agriculture Department's Rural Utilities Service. Two years later all
but $21 million of the loan was suspended, when the agency determined
that the project needed to improve its financial situation and develop a
new business plan.
"Today Utopia has about 11,000 subscribers, less than one quarter of the
49,350 projected to be on board by September 2007. Its failure to
attract the anticipated number of customers has caused a spectacular
financial failure. Utopia has lost at least $3 million and as much as
$13 million annually. As of July 1, 2013, Utopia had negative net assets
of $146 million. And last November voters in Orem, part of the Utopia
network, decisively rejected a hike in local property taxes t pay some
of the city's costs for participating in the network.
"There is a bailout plan, under which Macquarie
Capital, a private investment firm based in Australia, would
complete the network. But it means new debt obligations for Utopia
cities and residents as high as $1.83 billion over the next 30 years,
excluding the $355 million in debt already incurred by Utopia.
"All households in those cities would have to pay a new mandatory
utility fee of $20 a month, whether or not they subscribe to the network
or can afford to pay. And the cities will have the power to cut off
water service to those who do not pay in full or on time every month.
"By rejecting higher taxes to pay for this white elephant, the good
citizens of Oren, Utah, were pointing out the obvious: Those services
are already being provided in a competitive manner by private businesses.
"Nevertheless, in April, Federal Communications Commission Chairman Tom
Wheeler said he believes that the FCC can pre-empt state laws that
prevent municipalities from building broadband networks-even if the
locality already has them. He gave no statutory basis for this power but
claimed that the 'competition' municipal broadband could provide is
being stymied by the states.
"This is an astonishing assertion of federal power. States, in Mr.
Wheeler's view, cannot prevent their legal subdivisions-including
counties, cities and towns-from imposing unnecessary and burdensome
costs on taxpayers.
"In 2001, there were only 16 government-owned networks in nine states.
By 2011, largely due to post financial crisis "stimulus" spending, that
number had increased to 108 projects in 33 states. Today, there are
nearly 400 communities nationwide that used taxpayer dollars to build
"The record of these projects is decidedly mixed. In a 2012 study
of government-owned broadband networks, Widener University's Joseph Fuhr
Jr. concluded that 'Many cities and municipalities have entered into the
broadband market with disastrous results.' The failed networks, he said,
'have neither the resources nor the expertise necessary to provide
consumers with reliable state-of-the-art broadband connections.'
"No wonder, 21 states have taken action to prevent much of this wasteful
spending by restricting municipal broadband build out. Their laws range
from requiring a taxpayer referendum or mandate and evidence the system
can be self-sustaining, to complete prohibitions on telecommunications
services if a private company or companies already provides such
"Mr. Wheeler would have the FCC overturn these laws and stop the other
29 states from adopting similar restrictions. He should reconsider.
Otherwise, taxpayers will all be living in states of dystopia."
Against Government Waste is a nonpartisan, nonprofit organization
dedicated to eliminating waste, fraud, mismanagement and abuse in
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