Last week, the Tallahassee City Commission voted 3-2 to move forward with a study to determine the feasibility of building a citywide, fiber optic utility. More specifically, the votes means that city staff will now begin developing an RFP for the study.
City Commissioner Jeremy Matlow was supportive of the idea and is interested in determining if the city has a role in providing a service which has become so vitally important to all people.
In contrast, City Commissioner Curtis Richardson spoke against the project because of the high cost and the deviation from the city’s priorities.
Richardson was also against getting into a business to compete with already existing private industry.
Currently, Tallahassee’s Internet Service Provider (ISP) market includes at least 16 providers guaranteeing varying levels of bandwidth for up to 100 percent of city residents. Two of those providers, Century Link and Comcast, represent the largest share of the local market and advertise 97 and 98 percent coverage across the community, respectively.
Across the state, multiple municipalities own and operate broadband networks that provide internet service, among them are the City of Ocala (since 1995), the City of Gainesville (since 1995), the City of Palm Coast (since 2005), and the City of Fort Pierce (since 1994).
City staff estimates initial capital requirements for installation of fiber in the City of Tallahassee to be approximately $280 million. However, supporters argue the cost can vary depending on the services provided.
A study by two professors from the University of Pennsylvania analyzed the financial results of 20 municipal broadband operations, which provide information that is separate from their electric power operations, and found financial concerns.
The examination covered the five-year period from 2010 to 2014 and found that of the 20 municipal projects, 11 generated negative cash flow.
The authors report that “unless these projects substantially improve their performance, they will not be able to cover the costs of current operations, let alone generate sufficient cash to retire the debt incurred to build the project.”
For the nine projects that are cash-flow positive, seven would need more than sixty years to break even. Only two generated sufficient cash to be on track to pay off the debt incurred within the estimated useful life of a broadband network, which is typically projected to be 30 to 40 years.
The authors state that these “results suggest that municipal leaders should carefully consider all of the relevant costs and risks before moving forward with a municipal fiber program.”
Also, from the report:
“Under-performing projects have caused numerous municipalities to face defaults, bond rating reductions, and direct payments from the public coffers. In addition, troubled municipal broadband ventures take a toll on community leaders in terms of personal turmoil and distraction from other matters important to citizens.”