David Rodeback's Blog

Tuesday, April 25, 2006

To Have or not to Have Municipal Broadband: That Is the Real Question

This first in a series of articles about American Fork's municipal broadband system, AFCNet, sets the stage for considering a variety of related questions in more detail.

Note: This article is the first in a small series of articles discussing the merits of community broadband systems, particularly American Fork's AFCNet.

The administration of American Fork Mayor Heber Thompson inherited several large messes which must be cleaned up in the near future, before they swallow the City whole. For example, the police force is seriously underpaid, which impedes recruitment and retention of the most able and experienced officers -- which in turn contributes to expensive lawsuit settlements related to alleged police misconduct. Millions of dollars of capital equipment purchases and much maintenance have been deferred, contributing both to preventable expenses (repairing equipment that should have been replaced) and to neglect of some functions which depend on equipment which cannot be repaired, for budgetary or other reasons. Less tangibly, the expectation at City Hall (figuratively) that department heads will engage in long-term planning, five and ten years at a time, is a new expectation -- which boggles the mind.

As if that were not enough, City officials and staff are also hard at work trying to produce a reasonable business plan for AFCNet, American Fork's municipal Internet broadband system. Purchased in 2002, the system includes the hardware and cable which deliver services to homes in American Fork, plus about 60 miles of fiber optic cable between Salt Lake City and Spanish Fork, for connecting to the rest of the world. Much of the fiber is currently unused, and some -- about 20 percent -- has recently been sold as surplus.

AFCNet currently serves about 1500 residences in the city (roughly 25 percent), plus a very few businesses. The bulk of the system's purchase price and much of the operating cost thus far have been defrayed by a 2002 bond issue of appoximately $6 million. This was a revenue bond, not a general obligation bond, and thus did not require a public vote. (I would have voted for it.) Now the bond money is nearly gone, the system is still running at a substantial loss, and inadequate management has put the system's future ownership and even existence in question.

You'd think there would have been a good business plan in place from the beginning. You'd think there would have been an aggressive attempt to market the system to American Fork residences. You'd think that a major focus would have been extending the service to large, medium, and small businesses, where much of the system's potential revenue lies. You'd be wrong on all three counts. The former administration was happy enough to borrow $6 million to buy and run the system, but would not pay to extend the system or to staff it at a sufficient level (in terms both of head count and professional expertise) to accomplish these obviously necessary tasks. The result of this in-for-a-pound-but-not-for-a-penny approach is that, as I said, Mayor Thompson inherited a mess in January. Meanwhile, as the borrowed funds have dwindled, the few original nay-sayers have become more numerous. The system was a major topic of discussion during last fall's campaigns for city offices, and it wasn't all cheerleading.

The City is exploring a range of options, including potentially profitable partnerships with private interests. (The current ISPs on the system are private companies, but the arrangement isn't very good for the City, since some of the ISPs are routinely delinquent in their bill-collecting and their payments to the City.) Another possibility (among several) is selling the system outright. Some interesting suitors have presented themselves, and the courting proceeds apace.

It is possible that the City will soon have at least two substantially different offers from which to choose. If so, or even if there is only one offer -- or even if there is none -- sooner or later City leaders must face a basic decision: Will the City have a municipal broadband system or not? Is it just another asset, with its present and future questions solely of direct costs and revenues, or are there other, indirect benefits to having a municipal system?

When funds are particularly tight, as they are now in American Fork, some are inclined to look purely at direct costs and revenues. In this view, if the system breaks even or turns a profit, the City should keep it. If it doesn't, City should sell it or simply shut it down, if it cannot be sold. If this approach were taken with the city's Recreation Center and parks, we would have no recreation center or parks. You could say the same of roads, for that matter.

A simple balance sheet does not do justice to the notion of municipal broadband. It ignores the city's need to compete globally for residents and businesses -- for jobs and tax revenues, that is. The county, state, and nation face a great and growing need to compete in the world at large. Besides historic competitors such as Europe and Japan, populous nations such as China and India are only just now entering the modern economic world with full force. This is something Governor Huntsman clearly understands.

But American Fork needs to compete locally, too, with Lehi, Spanish Fork, Provo, Orem, Pleasant Grove, and other Utah County municipalities. Despite the City's recent lethargy in the arena of economic development, there is reason to hope that Mayor Thompson and at least some of the City Council members appreciate this. Their decisions about AFCNet will be a clear indicator whether they really do understand the new century.

We already have a major airport nearby and a well-educated, multilingual, and hard-working populace. A third key to competing in the 21st Century -- both locally and globally -- is connectivity, meaning available and affordable broadband connections to the world. This third key is new enough that we can forgive the balance sheet crowd for not appreciating its importance initially. Let us hope they begin to appreciate it soon, or at least that their view does not cost us our broadband system. If that happens, it might seem like a small thing, perhaps even a good thing, now. But it will likely be somewhat harder to forgive that decision 10 or 20 years down the road, when it becomes clear that in our decade American Fork's government lacked the will and foresight to compete economically in the long term.

Future articles (here is the next) will consider at least the following questions in more detail:

• Does widely available and affordable broadband actually make a city more attractive to businesses and residents (both current and potential)? 
• How big an issue is -- and will be -- telecommuting?
• Is AFCNet's wired technology already, or about to be, obsolete, in an increasingly wireless world?
• What good has AFCNet done us so far?
• Does broadband at home and at school significantly impact education?
• Would some big company simply have swooped down and offered us a city-wide broadband system at no cost to the City, as Google appears to be offering San Francisco -- if, that is, we hadn't rushed out and purchased one?
• Could we have had the current system without paying for it, if we had simply been patient enough to wait for the previous owner to go bankrupt?
• Where would the money come from to run the system at a 20 to 30 percent annual loss, like we run the Recreation Center?

Would you care to share your opinion? This and every other post here at the blog feature a link at the end which you can use to send me your comments, which I will publish, if they meet the stated criteria. Agreeing with me is not one of the criteria.

Next Article: Broadband's Economic Impact: Haves vs. Have-Nots

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Copyright 2006 by David Rodeback.
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