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Municipal Broadband Financial Analysis Raises Red Flags

broadbandMunicipal broadband networks do not have a strong financial track record, according to an analysis conducted by the University of Pennsylvania’s Center for Technology, Innovation and Competition. The municipal broadband financial analysis, which looked at 20 municipal fiber projects, found that only nine were cash-flow positive and that of those, seven would need more than 60 years to break even. “Understanding how likely a project is to remain financially solvent is critical, because any shortfall would require a city either to inject additional taxpayer funds into the project or to default on its loan obligations,” wrote the authors of the report[1] titled “Municipal Fiber in the United States: An Empirical Assessment of Financial Performance.”

Municipal Broadband Financial Analysis
The Penn Law municipal broadband financial analysis focused on net present value (NPV), which according to the authors “provides a more accurate picture of the cash flowing into and out of an organization than do analyses based on a project’s operating profits and losses.” The 20 projects that were the focus of the report were selected out of a pool of 88 identified projects because only those 20 report financial results of broadband operations separately from their electric power operations. The study period for the Penn Law report was 2010-2014.

The authors caution that the study “may overlook key details that can help explain the results in particular cases” and that “the financial performance of some of these projects may improve in the future.” Their advice for municipalities considering broadband network projects? “Carefully evaluate the performance of prior efforts and assess whether differences exist that would likely lead to a better outcome.” An Opposing View
Municipal network advocate Christopher Mitchell, director of the Community Broadband Networks Initiative at the Institute for Local Self-Reliance, pointed to several flaws[2] in the Penn Law municipal broadband financial analysis.

He noted, for example that a substantial portion of the 20 networks studied were “early in the process and very small.” He also argued that the 2010-2014 study period may have biased the results, as that period included a recession and subscribership for some of the networks has increased substantially since 2014. He noted, for example, that EPB’s broadband network in Chattanooga[3] had about 50,000 to 55,000 subscribers in 2014 but has now hit the 90,000 mark. The Penn Law authors’ approach was “not the proper way to measure these networks,” said Mitchell in a phone call with Telecompetitor.

The analysis “doesn’t take into account jobs created or the impact on the municipal budget,” he said.

He argued, for example, that a municipality that previously paid £1 million annually for connectivity might instead pay itself £500,000 for connectivity on the municipal network.

Image courtesy[4] of flickr user Sean MacEntee[5].

References

  1. ^ the report (www.law.upenn.edu)
  2. ^ several flaws (www.telecompetitor.com)
  3. ^ Chattanooga (www.telecompetitor.com)
  4. ^ courtesy (creativecommons.org)
  5. ^ Sean MacEntee (www.flickr.com)

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