Study Shows Fiber Optic Projects Can Be Financially Risky

Study Shows Fiber Optic Projects Can Be Financially Risky

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.”

9 Responses to "Study Shows Fiber Optic Projects Can Be Financially Risky"

  1. IT professional and lib here.

    You are not going to generate industry by running fiber this late in the game. 5G will greatly reduce the market (incoming 1-2 years) and then the next wireless technology (5-6 years) will further eliminate the need.

    Mobile internet is evolving too quickly for fiber to be relevant outside of large businesses who are already served by existing providers. Pro tip: Google Fiber just pulled out of Louisville because it’s unsustainable and they see the wireless writing on the wall.

    1. Thanks JayC!!!,
      Curtis “I dont see a cloud” Richardson and the 2 other senior commissioners see this as a right now way to award contracts to local insiders who will respond in kind with generous campaign contributions for their next election cycles.
      That Marlow dude and the other newby commissioner have not yet had the time on the job to develop such nefarious relationships. And appear to the sheep to be bucking the local pay to play historic way of doing business in our fair city.
      I would think Curtis and the other 2 seasoned commissioners are not very pleased right now with you trying to expose their scam with correct and indisputable facts pertaining to your professional knowledge of all things “IT” related.
      Thank you again JayC.

  2. If there is a need private business will provide it. The City needs to stay out of it they will only screw it up and charge more.

  3. For $280 Million we can bury power lines along two or three major high density corridors. Bury them under the median so as not to damage the roots of trees. Rather than study fiber optics, why not commission a study to examine burying power lines. Identify the key corridors and costs and prioritize them. Start doing a corridor every couple of years. We have had three hurricanes in three years. Thank god Michael did not hit us head on or we would still be with out power in many areas.

    We better hope that central or south florida doesnt get hit with a storm while we are getting hit up here.

    1. Bingo!
      If News Maven ever ran for office, that would be one of my top 2-3 platform issues!
      Another: buying the Democrap building and demolishing it to build TPD’s new HQ. I mean, they’re not using 90% of it anyway.
      They should BEG the city to buy it, put them out of their financial wormhole, and relocate to one of the many right-sized strip mall locations that are already vacant.

  4. “Can Be Financially Risky”? It WILL bi Financially Risky. In fact, if the city (or County) get into this Business, expect it to cost 3 to 4 TIMES what it SHOULD cost.

  5. Steve, please check your sources. As per wikipedia, this school producing this study is the Center for Technology, Innovation and Competition, which was founded by Cristopher Yoo.

    This is from his Wikipedia page:

    “Cristopher Yoo came under scrutiny in 2014 while testifying in favor of Comcast’s $45 billion merger with Time Warner Cable. During testimony, Yoo claimed that the merger likely would not hurt customers. David Cohen, a Comcast executive, is chairman of the trustees of the University of Pennsylvania where Christopher Yoo teaches, which is a potential conflict of interest for Yoo. Additionally, Yoo serves as the founding director of the Center for Technology, Innovation and Competition which performs independent research aimed to shape the way legislators think about technology policy.  This organization has also been criticized for existing primarily to further the agenda of large technology corporations. Among the list of companies that donate to the organization are: AT&T, Comcast, Facebook, Google, Intel, Microsoft, Qualcomm, Charter Communications, and Verizon.”

    1. Thanks for the comment Scott. We checked the source and feel the report – which we provided a link to in our story – stands on its own. We will add an update about the potential conflict. Please understand, given the flow of money in research, it would not be wise to discard all research because of funding questions. However, it is important, when possible, to acknowledge possible conflicts. Again, thanks for your comment.

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