News Story

Hasn't Opened Yet, And Traverse City's Government Broadband Needs Surprise Loan

Private sector competition is ‘not going to just roll over’

Traverse City is seeking to borrow an additional $800,000 to expand the first phase of a government-financed high speed internet network, despite lingering questions about whether the original plan — already behind schedule — is financially sustainable.

Traverse City Light and Power’s governing board earlier this month approved a proposal to seek a loan from a city economic development fund.

The money would be used to build out fiber optic internet capacity to around 1,000 more potential customers. It would come on top of the $3.3 million committed to the first phase of the project in 2019.

Officials at the municipal utility told the Traverse City Record-Eagle that approval of the expansion is a “low cost solution” that will maximize potential revenue in the project’s first phase.

But critics of the project say adding additional costs before the first phase is completed, and before utility officials get some sense of whether their initial cost and revenue projections are realistic, would be a mistake.

Gerald DeGrazia, a Traverse City resident and retired telecommunications industry executive, is critical of the city utility’s original forecasts, calling them inaccurate and opaque. The forecasts include questions such as when the system would be activated, how much it would cost and how much subscriber revenue it would generate.

When the venture was authorized in early 2019, local residents were told they would be able to sign up as early as that fall.

The timetable was then repeatedly pushed back, and the utility has only just begun to sign up subscribers in the last month. It is not clear whether any of those accounts have been activated, and utility officials did not respond to a request for comment from Michigan Capitol Confidential.

DeGrazia said he also believes projections about market penetration relied upon by the utility (about 40%) may be wildly inflated.

Traverse City is already served by several private industry internet providers, he said. And the number of people willing to pay for a government service that may offer only a marginal technical advantage is unlikely to be vast, he said.

“It’s a very competitive situation. There are at least three companies providing (broadband) service now in most places,” DeGrazia said. “They’re not going to just roll over and let the city take their customers. It’s just not realistic.”

DeGrazia said he has also sought, but not received, more detailed financial information about the project from the utility. He said it is “hard to be sure how much they’ve actually spent . . . on the original plan.”

A 2017 study published by the University of Pennsylvania law school found that only two of the 20 municipal broadband projects it reviewed earned enough revenue to cover their costs.

Traverse City utility officials have repeatedly emphasized the cost of the system will be borne by “ratepayers” not “taxpayers.”

DeGrazia said those statements may be technically accurate. But, he said, if the fiber network system flounders financially, ratepayers will have foregone the benefits the utility could have provided had it invested in improvements elsewhere, citing the city’s electrical grid as one example.

Additionally, a loan from the city’s economic development fund comes more or less directly out of the pockets of taxpayers, he said.

A city hall spokesman said the city commission plans to review the loan request on Sept. 8.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.