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regional
brief
Wilson’s Fiber-OpticCable Boondoggle
City Invests $28 Million in aTechnology That Could BeObsolete Before It’s Paid For
D
r
. M
ichael
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anera
anD
K
atie
B
ethune
J
anuary
2009
No. 71
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The City of Wilson’s $28 million investment in a ber-optic cablesystem for Internet, phone and television could be obsolete evenbefore it is paid for, leaving city taxpayers and electric utility users topay the balance on the 25-year bonds.City ofcials promised that ber-optic cable users, not taxpayers,would pay the entire cost of the system, but WiMax wireless Inter-net technology is rapidly leapfrogging ber-optic cable technology,making it obsolete. This would leave Wilson’s ber-optic system ata competitive disadvantage because it would provide only televisionand phone service on this high-capacity system. WiMax wireless Internet technology is similar to WiFi systemsexcept it can achieve at much faster speeds and greater distance,currently about 10 mbps (million bits per second) and 30 miles. Atthis distance, the entire city of Wilson could be covered by just one WiMax installation.Even if WiMax technology is delayed in reaching Wilson, the Wil-son ber-optic cable system is a bad idea.If the system fails to attract customers or becomes obsolete, thecity has promised to pay the outstanding balance on the 25-yearbonds by increasing property taxes and electric rates for all Wilson
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wilson’s fiber-optic cable boondoggleregional brief
residents, even for those who don’t use theber-optic cable system.Most residential users do not benet fromthe system: prices are not appreciablylower, the phone and TV quality are notsignicantly higher, and the high Internetspeeds (100 mbps) are not needed and aretoo expensive ($300/month) for the averagehomeowner. Who benets? City ofcials admitted fromthe start that the ber-optic cable systemwas an economic development (corporatewelfare) strategy to be used to attract newbusiness. Thus, large business users ben-et with deep discounts for the high-speedservice at the expense of average residentialconsumers who pay market prices for apackage of Internet, phone and television.
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acKgrounD
Since 1989, the City of Wilson has beeninterested in establishing its own cable televi-sion service to compete with private com-panies such as Time Warner and satelliteproviders. That year, the Wilson city councilset aside $4 million for the future construc-tion of a cable television system.
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In 2004,the project expanded as Icon BroadbandEngineering recommended the city constructa ber-optic cable system, which wouldprovide not only cable TV, but also Internetand telephone services to Wilson’s residentsand businesses.
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In 2006, the city councilunanimously approved the construction of the ber-optic network for its internal gov-ernmental use. They also approved addi-tional money should they decide to expandthe network for citywide use.
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CouncilwomanGwen Burton even said that not providing the technology to the rest of the communitywas comparable with “developing penicillinand not sharing it with others.”
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This plan has come to fruition recentlyas Wilson began selling services from its“Greenlight” network. By 2010, the cityexpects to have the cable installed in all areaswithin the city limits. The project has cost$28 million in initial investment,
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and the city
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expects operation and maintenance costs of $5.6 million for the rst year.
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Greenlight’s city council boosters mistakenlybelieve that ber is a cutting-edge Inter-net technology, but the wireless technol-ogy WiMax may make it obsolete. WiMax(Worldwide Interoperability for Microwave Access), a wireless Internet technology simi-lar to WiFi that is rapidly leapfrogging ber-optic cable, works like WiFi but has muchhigher speeds and longer distance. It has theability to cover a 30-mile radius, comparedto WiFi’s 100 feet.
7
Its speeds are comparablewith those of many existing cable and DSLsystems, and those speeds promise to increasedramatically as the technology advances.In October, Baltimore became the rstcity in the United States to have access to a WiMax system. Sprint is offering a WiMaxservice, called Xohm, for $30 per monthwith average speeds of 2 to 4 mbps, whilesurng speeds can reach 10 mbps. Tech-nology improvements promise to increasethese speeds dramatically. By next year,Sprint hopes to connect Chicago, Portland,Philadelphia, Washington, and Dallas/Fort Worth.
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Thus it is just a matter of time until Wilson residents have access to this advancedwireless technology. As more and more Internet users opt formobile laptop computers, they seek freedomfrom stationary cable access to the Internet,so demand for wireless connection to theInternet is increasing. This development willleave Wilson’s expensive ber-optic cablesystem, Greenlight, far behind, but the bondsused to purchase the obsolete system willstill have to be paid over the next 25 years,despite dwindling subscribership to Green-light. City ofcials have therefore indicatedthat they would have taxpayers pay for thebonds with higher property taxes and cus-tomers of the city’s electric utility monopolypay for them through higher electric rates.Greenlight’s high-capacity ber-opticsystem would be left providing homeown-ers with cable TV and phone service while
John locke foundationwilson’s fiber-optic cable boondoggle
they looked to a WiMax system for betterand mobile Internet service. As discussed indetail below, the benets of Greenlight’s highcapacity and high speeds are clearly for largebusinesses, not the average homeowner. Itwill also become clear that the primary goalof the city’s ber-optic cable system is toattract new businesses to Wilson, with con-sumers, taxpayers, and electricity consumerspaying the bill.But even if WiMax availability for Wilsonis delayed for some time, the council’s deci-sion to get the city into this highly competi-tive and rapidly changing technology busi-ness was a bad decision from the start.
W
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ayS
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Boosters on the city council and in the citybureaucracy constantly claim that subscrib-ers will pay all of the costs. City manager,Grant Goings, has said, “We said from dayone — our business plan states this; ournancing shows this — this system is sub-scriber revenued. It’s not tax dollars running ber-optic systems.”
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While it is the city’s
intent
for subscribers, not taxpayers, to pay forthe system, it is unlikely that it will work outthat way. According to the city, the systemneeds 30 percent of its approximately 18,000households to subscribe for the subscribers topay for the system.City-owned ber-optic cable systems inother parts of the country failed to attractenough subscribers to pay for their systems.Lebanon, Ohio; Provo, Utah; and Ashland,Oregon installed ber-optic cable systemsintending for subscribers to pay for the costs.These cities all have median householdincomes higher than Wilson, suggesting thatthey are better situated to attract subscrib-ers (see Table 1). All of them, however, hadproblems using subscriber revenue to payfor their systems. To cover their systems’ever-growing operation decits, they eitherhit property taxpayers or city electric servicecustomers. Unable to stem those decits, thecities all eventually sold their systems.
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If Wilson proves unable to raise enoughrevenue from subscribers, which is likely, thecity’s backup plan is to increase propertytaxes and raise electricity rates at the city’selectric monopoly to pay for the ber-opticcable system. According to the City of Wilson’s appli-cation to the State Treasurer for approval of the bonds:
Should the ber optic project not perform asexpected [i.e., attract enough subscribers],the debt service could be repaid throughother sources. For example, and electric rateincrease of approximately 1.4% would beneeded; a [property] tax rate increase of 5.6cents would be needed; or, some combina
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tion of the two could be put in place. Theserate increases are not considered by the cityto be unreasonable if they become neces
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sary.
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1. c
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City Median Household Income Population/ Households Initial Cost of Cable SystemResult
Wilson, NC$31,169 Pop.: 47,380Hld.: 18,660$28 Million Ashland, OR$32,670 Pop.: 19,522Hld.: 8,537$5.2 MillionSold cable TV andphone businessProvo, UT$34,313 Pop.: 105,150Hld.: 29,192$39.5 MillionSoldLebanon, OH$46,856 Pop.: 16,962Hld.: 5,887$1 Million*Sold* In 1997, Lebanon approved $1 million in initial construction spending. The city borrowed $3.5 million in1998, the year before the city began selling services.
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