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Thursday, February 23, 2006
It's Crunch Time for American Fork's Broadband System, Part II

Part Two looks at indirect revenues and economic development -- and why AFCNet doesn't necessarily need to be revenue-neutral in the long run -- and why that doesn't help in the short run.

In the previous post, I did my best, based on publicly available information, to describe the current pickle American Fork City is in with its broadband system. In my mind, it's an open question whether newly-elected Mayor Heber Thompson and the partly-new City Council have come, with their businesslike approach to government, in time to save a system I like very much.

Initially, if memory serves, the City thought that AFCNet would actually bring in revenues. It hasn't so far. During the recent election campaign there was some talk of AFCNet at least needing to be revenue-neutral, in terms of direct revenues (which would meet the costs).

Here's why I disagree.

Indirect Revenues

They won't be online soon enough to help the City clear the immediately hurdle I described in the previous post, but I suspect indirect revenues could more than pay for the system's shortfall, assuming good management and marketing.

I wonder: Is anyone at the City taking a serious look at how much the existence and availability of the system is likely to help attract new businesses and their employees -- and therefore tax revenues and jobs? How many new businesses would have to come to American Fork because of AFCNet in order to defray uncovered direct costs with tax revenues? Does anyone see this system as a key component of an aggressive, long-term economic development strategy?

I see AFCNET as key infrastructure (in case you hadn't noticed), like paved streets and fire protection. Asphalt doesn't bring in direct revenue at all, but just try to attract residents and businesses without it! I'm not aware that the fire department brings in direct revenue, either, but we have to have one. Here's one reason: Businesses have to be insured, and for that to be affordable there really needs to be a fire department. If it's not affordable, businesses will tend to locate elsewhere.

We could say the same of parks, too. They are important, necessary, etc., but bring in little direct revenue to defray their considerable costs. Speaking of parks, how about using AFCNet to extend wireless, unencrypted broadband to city parks? It would be great advertising, if nothing else. If it were filtered properly, we might even be able to keep the local pedophiles at home, rather than further encouraging their frequent presence where our children play. (Yes, I know. this would cost money.)

How Is AFCNet Different from the Rec Center?

The conventional wisdom about municipal recreation centers is that they should be expected to meet two-thirds to three-fourths of their costs through their own revenues, which leaves the local government to subsidize the remaining one-third or one-fourth. This subsidy is routinely justified on the grounds that it improves the quality of life in the city, which I suppose is true, even if there is a lot of overlap with the private sector.

But I have some questions:

  • If we divide the Rec Center's annual subsidy by the number of American Forkers who use the Center (out-of-towners don't matter in this calculation), what is the annual subsidy per resident user?
  • If we divide, shall we say, a half-million-dollar subsidy for the AFCNet by the number of resident users, what is the annual subsidy per user? For better or worse, I derive far more benefit from AFCNet than from the Rec Center, and so does the rest of my family.
  • How does high-speed municipal broadband compare to a recreation center, in attracting economic development? (I don't know -- and neither does the City, because it hasn't marketed itself or AFCNet well to businesses.) Which is more likely to attract stable residents?

However . . .

Here's the problem; it's the same as in the previous post. If the bond money is about to run out, and if the City can't or won't continue to subsidize the system for at least another year or so, there is no time to wait for economic development or any other indirect revenues.

There are now some pretty smart folks running the City, including, specifically, in terms of business acumen and experience. I'm hoping they'll come up with something. Admittedly, my motives are partly selfish: I don't want to lose my broadband service. The alternatives are decidedly inferior and, without AFCNet's competition, will be somewhat more expensive.

Beyond that, however, I believe that a well-run, well-publicized municipal broadband system is desirable infrastructure, a quality-of-life issue, and a needed advantage in the competitive world of economic development.

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