This op-ed was originally published in Daily Herald on January 17, 2024.
Herriman is the latest city in Utah to consider building a multimillion-dollar broadband fiber network. The idea of offering cheaper and faster internet while modernizing a city’s facilities and infrastructure is appealing on the surface. But the cold-hard reality, often overlooked by many of the cities that have attempted the same thing, is that municipal networks struggle to break even, much less turn a profit, without the help of taxpayer funds.
Herriman’s broadband project kicked off in 2021 when the city sent residents a survey inquiring about their satisfaction with existing internet providers. Although only about 4% of its residents responded, the city concluded that speeds were fast enough, but residents wanted cheaper subscription costs as well.
Over the next two years, the City Council deliberated over projections and feasibility studies to find a way to build a fiber network that could offer capped subscription rates, fast speeds, reliable connections and access to multiple internet service providers to create competition. Learning from the mistakes of other cities like Provo, Herriman also put up some guardrails, the most important of which was a commitment by the city that it wouldn’t build a network if it required the use of taxpayer funds.
In an effort to stay within these guardrails, the city’s latest proposal is to create a utility company that’s a separate entity, not funded by the city. This independent company would take on the burden of raising investment capital, paying back investors and maintaining the network. To the city’s credit, the plan stands in stark contrast to other city-owned networks that are supported by tax revenue pledges.
However, the fundamental flaw in Herriman’s proposed plan is that even if the city creates a separate entity, the network still faces a steep uphill battle in reaching solvency. Just like taxpayer-funded networks, the ultimate goal is to reach self-sufficiency. But that’s a feat that the majority of cities are unable to pull off without an injection of taxpayer funds. The frequent failure of municipal broadband networks to reach solvency on their own isn’t just a phenomenon local to Utah either.
A study of 15 different municipal broadband networks across the U.S. from 2010 to 2019 showed that only two projects (13%) were on track to reach self-sufficiency. The other 87% of those municipal broadband projects, including Provo, not only couldn’t generate enough cash flow to reach solvency, but they required cash injections from other internal taxpayer funds to supplement operational losses. Further, a little over half were expected to never break even, and the remaining 47% were only expected to do so if they made operational improvements.
Herriman’s broadband network utility faces the same bleak financial outlook.
Before the City Council decides whether to move forward later this month, there are two questions the council should consider. First, the council should consider whether a separate utility, presumably still owned by the city and subject to the city’s control, can really be separated from the city as a legal entity when it comes to paying back investors. Second, in light of the daunting financial outlook, the city should consider whether it really wants to create an entity that may not be able to make good on its promises to investors.
Herriman City Council’s long deliberations, rigid safeguards and accessible public meetings attest to its careful consideration of all the variables involved in this project. To that end, there may be more to the story that has yet to be revealed. But from the outside looking in, the proposed project looks like a new take on a familiar tale.
This op-ed was co-authored by Pablo Garcia Quint, Technology and Innovation Policy Fellow at Libertas Institute.
