Provo Broadband Stumbles

Steven Titch (2.1.07)
http://www.heartland.org/Article.cfm?artId=20537

After only two years, the municipal broadband system in Provo, Utah has begun to show the pattern of losses and declining net asset value experienced by other cities that have mounted expensive fiber optic networking projects, according to a report published by the Reason Foundation in December.

iProvo, the $39.5 million system launched in July 2004, has had to request $1 million in additional funds from the Provo electric utility to meet its costs.

The report made four principal findings, all of which tend to be endemic to municipal systems:

• iProvo is behind on its business plan and being forced to borrow more money.

• iProvo’s wholesale plan attracted only one retail partner, HomeNet Communications, in its first year of operation. That relationship proved a disaster that ended with HomeNet pulling out of the market in July 2005 and declaring bankruptcy.
  

• Cable and Internet prices charged by iProvo partners are not significantly lower than pricing from Comcast or Qwest.

• There is little evidence to suggest iProvo has generated any significant growth in broadband usage or penetration in Provo.

While iProvo pointed to revenues of $2.1 million in fiscal year 2006, numbers that were available after principal research had been completed on the Reason report, it did concede losses “were larger than expected.” The municipal utility lists several reasons for the shortfall, stating that processes took longer to set up than anticipated, construction began later, transport fees were lower than expected, the retail partner failed, and the customer mix did not meet forecasts.

Municipalities, however, tend to run into these factors, in part because they function as an arm of local government, not under the market demands of a commercial company. Seven issues that are likely to be significant in municipal provision of Internet service are price competition, performance competition, the pressure for continuous improvement, technological change, obsolescence, risk, and uncertainty.