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Watchdog Wire: Failing Government-Owned Networks Examined

Monday, December 03, 2012

Fiscal pitfalls with government-owned networks are well-known here in Florida.

In 2003, the City of Quincy, Florida spent $3.3 million to build a fiber optic network known as NetQuincy. The system brought in $415,000 in 2005, less than 60 percent of its $710,000 in expenses. The City of Orlando experienced similar trouble with its free, public Wi-Fi program created in 2005. Built to support a mere 200 users, a scant 27 people actually used the service each day. The city kept the system running for 17 months – well passed the planned six-month trial period – and eventually decided the low usage rates did not justify the $1,800 per month price tag to taxpayers.

The latest Coalition for the New Economy report outlines past failures and questions the economic implications of GONs for taxpayers.

The Coalition for the New Economy today released a micro study by Dr. Joseph P. Fuhr Jr., professor of economics at Widener University in Chester, PA, that examines MI-Connection, a failing government-owned network in North Carolina.

“Five years ago, despite concern and skepticism from other nearby communities, the cities of Davidson and Mooresville, N.C. purchased a broadband network,” explained Fuhr. “Today, at the very point the system was to be profitable, officials in Davidson and Mooresville are contemplating how to get rid of the network, which has been a significant drain on the town’s resources and has piled loads of debt upon taxpayers.”

In the last three years, Davidson and Mooresville have provided $14 million in subsidies to MI-Connection, which Dr. Fuhr points out, has been a significant drain on the towns’ other priorities. For example, officials in Davidson have admitted the town cannot achieve financial stability until its commitment to the network has been reduced. Meanwhile, Mooresville officials have said they will have to tap the city’s general fund balance to meet its obligation to MI-Connection – which could mean fewer dollars for everything from education to public safety.

“This network represents some of the basic problems with government-owned broadband systems,” Fuhr said. “Government officials generally have zero experience running such sophisticated networks, which means they overestimate the revenues cities will receive from them and underestimate construction and maintenance costs. In 2007, officials in Troutman, Cornelius and Huntersville, N.C. realized these pitfalls and opted not to obligate themselves to MI-Connection. Their caution was the correct approach, which is why today Davidson mayor Laurie Venzon is on record saying other towns should not make the same mistake her town did.”

The MI-Connection micro study is the first in a series of three by Dr. Fuhr. In the coming weeks, CNE will release papers on the UTOPIA network in Utah and Burlington Telecom in Vermont.

The micro study can be viewed in its entirety on the CNE website.

The Coalition for the New Economy (CNE), which commissioned Fuhr’s study, is dedicated to ensuring that all Americans have access to innovative technologies and that policies are fair, fiscally responsible and will allow for increased access and adoption.

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