Over the next six months, Idaho Falls will spend more than $1.4 million to lay a trial fiber-optic network for internet. This will be done despite the lessons learned from cities across the country that municipally-owned fiber-optics networks almost always end in fiscal disaster.

The city of Idaho Falls intends to lay a fiber optic network to provide high-speed internet throughout city limits. The network will be similar to what other municipalities have done. Private internet providers will be able to offer internet plans using the public fiber optics network. Area residents will be able to choose if they want to use the fiber optic network or not. If they opt-in, they pay a fee and then receive access to the faster connection speeds on the network.

Though the city of Idaho Falls doesn’t currently plan to provide Internet service, it will spend a great deal of taxpayer money to set up the infrastructure in hope that providers will offer internet service on the network and residents will buy into fiber. Other cities have tried building similar networks and have had devastating outcomes.

In 2006, Burlington, Vermont, the city took a $33.5 million loan from Citibank to pay for their network. Eight years later the network wasn’t able to pay back the loan and fell $16.9 million in debt. The city ended up selling it to a local businessman who privatized the network

In 2004, Provo, Utah, faced a similar predicament. The city issued $39 million in bonds to cover the costs of its broadband network. Nine years later, Provo could not keep up with the bond payments and sold the network to Google for $1, stiffing the taxpayers.

In 1996 in Marietta, Georgia, the city spent $35 million to build its network, then only had 180 customers join in the first eight years. By 2004, the then-mayor said the city couldn’t keep pace with the expenses and the city ultimately sold the network at a $20 million loss. Again, the taxpayers suffered.

The list of cities that have tried, but failed, to build a profitable fiber optic network, is long and includes: Memphis, Tennessee, Groton, Connecticut, Cedar Falls Iowa, Tacoma, Washington, Monticello, Minnesota, Lafayette, Louisiana, and Mooresville & Davidsville, North Carolina.

There is simply not enough demand in the communities attempting to begin the fiber networks and the cities are not driven by the proper incentives, such as profit, which private businesses are driven by. As long as the fiber optic network can be subsidized with public money, municipalities do not have to turn a profit with the network or surrender the project if it is clear they will not make a profit. Instead, taxpayers remain on the hook.

Brennan Platt, a Brigham Young University economics professor and critic of the failed-Provo fiber optic system, explained the failure of municipal fiber-optic systems this way: “ If fiber speeds aren’t being offered in Idaho Falls, there’s only two possible reasons: (1) there aren’t enough people willing to pay to make it worth setting up a fiber network or (2) there is some monopoly power preventing a business to set it up themselves.”

Here in Idaho Falls, the one thing that could make this network viable is if enough customers switch to fiber plans to cover the costs of installation. However, residents might not want to switch to a new plan that might be more expensive, because they are happy with their current plan. Or, Idaho Falls residents may turn to new technological advancements, such as the 5G networks that carriers such as T-Mobile and Verizon are installing, instead of fiber, making it hard for fiber to obtain a sufficient number of subscribers.

The city has no need to experiment with fiber optics. If enough residents demand fiber optic services then private companies will come into the city to provide those services. The city of Idaho Falls does not need to saddle its residents with the burden of subsidizing this network.

 

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