Municipal broadband has great allure by letting a city or town take control of its own broadband destiny, but a new Pennsylvania Law study reveals that these networks rarely produce a favorable return on investment (ROI).
In their paper “Municipal Fiber in the United States: An Empirical Assessment of Financial Performance” (PDF), University of Pennsylvania Law School professor Christopher Yoo and co-author Timothy Pfenninger revealed that 11 out of the 20 fiber networks assessed do not generate enough cash to cover their current operating costs. Additionally, the authors found that only two out of the 20 are on track to recover their total project costs during their 30 to 40 years of expected useful life.
Five out of the 9 cash flow-positive projects are generating returns so small that it would take more than a century to recover project costs. Another two of the nine cash flow-positive projects would have a recovery period of 61 to 65 years, which exceeds the expected useful life of a fiber network.
However, the researchers found that 2 of the 20 projects studied earned enough to expect to cover their project costs during the useful life of the networks. One of the networks is an outlier that serves an industrial city with few residents.
In the paper, the researchers included case studies on seven municipal broadband networks, including Chattanooga’s Electric Power Board, which gained attention for delivering a mix of 1 Gbps and later 10 Gbps services to local residents and businesses.
These case studies delve into the financial and operational impact of different approaches to municipal broadband and look at what is a recipe for either success or failure. The financial analysis and case studies offer what the researchers say is an analytical road map for local officials considering such investments.
This study comes at a time of continuing debate at the local state and federal level via the FCC. Missouri’s SB 186 bill, which was introduced by Senator Ed Emery, R-Lamar, seeks to limit the power of municipalities to provide competition to entrenched incumbent service providers, for example.