Policy Documents

WiFi Waste: The Disaster of Municipal Communications Network

Sonia Arrison, Dr. Ronald Rizzuto, and Vince Vasquez –
February 1, 2007

An effort in some localities to build government-run communications systems, or “muni telecom networks,” has blundered its way through the marketplace, eroding private investment, slowing high-tech innovation, deceiving consumers, and serving the interests of politicians.

Muni telecom networks have been sold to the public as the answer to everything from municipal cash-flow problems, to high cable prices, to the “digital divide” between “Internet haves and have-nots.” But as government officials rush to show leadership and take credit for delivering the goods, they often trade these short-term political benefits for serious long-term financial problems: cost overruns, mounting debt, and tepid profits. The numbers clearly show that muni telecom networks are a risky gamble, regardless of the technology or the business model.

The Pacific Research Institute commissioned this review of 52 major muni telecom networks that compete in the cable, broadband, and telephone markets. This analysis demonstrates that these public systems are financial disasters. Many received their initial funding through suspicious means, including insider loans at special rates. As many as 19 were originally financed with questionable non-interest-bearing loans from public utilities. As of 2004, long after the initial start-up phase, 13 were still shamelessly dependent on these schemes and were unable to break even financially. Muni networks demand constant reinvestment; the ones in our sample have raided more than $840 million from taxpayers over twenty years. Analysis of the total track record of muni systems shows that 77 percent of the time they don’t pay their way.