Anchorage Should Avoid Broadband Over-Stimulation

But before embarking on this seemingly visionary agenda, local governments should take a closer look at municipal forays into the world of telecommunications. For if they do, they might find that history littered with cost overruns, debt and rapidly outdated systems. And if they look under the hood at what self-interested consultants are selling them, they are likely to find the kind of creative accounting that marked Wall Street’s recent collapse.

In 2004, when the City of Philadelphia first embarked on building a citywide wireless broadband network, I warned that such a project could lead the city down the road of Boston’s now infamous “Big Dig.” The Dig, a $2 billion highway project when it was first proposed to taxpayers, turned into a $22 billion boondoggle as overruns, delays and damages plagued the endeavor.

Wireless Philadelphia swelled from a promised $11 million to $17 million for a naively Pollyannaish plan that was supposed bring low-cost Internet service to underserved Philadelphians. Wireless Philadelphia, now on the ash heap of municipally financed telecom networks, ended up requiring twice the amount of wireless hardware than what was initially budgeted and generated so little demand that EarthLink, the city’s private partner, abandoned the network last summer.

Part of the reason for the early death of Wireless Philadelphia was the unrealistic accounting of bureaucrats that have little experience in managing vast telecom networks. But at the heart of the problem was a simple fact: the economics simply didn’t work. To come close to breaking even, municipal systems need to attract sufficient numbers of low-dollar subscribers to help offset the ever swelling capital costs of building such a network and the even more exploding costs of maintaining and upgrading them.

The recently passed stimulus bill requires the National Telecommunications and Information Administration to distribute some portion of the funding to “underserved” areas – an amorphous term yet to be defined. In defining the term, NTIA has the option of limiting the funds to those mostly rural areas where there are no current providers of broadband service where the economics could theoretically work.

But if overambitious bureaucrats allow these funding of taxpayer- financed networks where there is already broadband service, then they will invite the kind of boondoggle and waste of Boston’s Big Dig that President Obama has foresworn.

The math is simple. Any wireline or wireless broadband networks will cost, conservatively, tens of millions of dollars in initial investments. On top of massive start-up capital required for construction, broadband networks require huge annual operating costs to pay for administrative staff, customer service, repairs and maintenance. Then you need to have enough capital available for equipment upgrades every four to five years, costing potentially tens of millions more dollars. To offset these costs, municipal systems would need to attract thousands of local subscribers by either drawing subscribers away from commercial providers or by persuading non-broadband users to sign up.

That’s easier said than done. Commercial providers generally offer more reliable and faster service – few of their subscribers are likely to switch to a slower municipal service to save a couple of bucks. And, as the Pew Internet & American Life Project has found, broadband non-users don’t see relevance of the technology in their lives, making it unlikely that a taxpayer-subsidized network would suddenly change their minds.

That is certainly the lesson learned elsewhere. Provo, UT, whose iProvo public fiber network was the talk of the town while in its planning stages, sold the network off at a $7.4 million taxpayer loss. Lompoc, CA sunk $3 million on a wireless network that attracted far fewer subscribers than necessary to break even, and today the venture loses hundreds of thousands of dollars just on its operating budget. A Wi-Fi project in Portland, OR failed to meet its own coverage requirements, prompting the city to abandon the network in favor of a new WiMAX infrastructure. Other cities like Chicago cancelled their municipal broadband projects altogether.

Anchorage knows full well the lessons learned in these towns, having withdrawn participation in its own citywide Wi-Fi project after a promised “free” downtown service came with a $90,000 annual price tag.

What's really needed is not a utopian dream bound for fiscal bankruptcy, but rather a true national broadband policy that stimulates interest in the high-speed services that will give the nation’s mayors the resources for low-cost computers, digital training, local technology centers, and resources for creative non-profits and other third parties to generate targeted on-line content that will foster greater interest in broadband by non-users. When Wireless Philadelphia failed, we did just this with the Digital Inclusion 2.0 program and as a result, more low income residents are on line in our city than ever before.

This is the kind of imagination the Feds now need in order to make sure that the stimulus doesn’t become another Big Dig.

Frank Rizzo is a councilmember-at- large for the city of Philadelphia.