Holland Going Into The Broadband Business
City plans to make its numbers by undercutting private sector competitors
Holland officials want the city to go into the internet broadband business. But outside experts in both academia and the private sector warn this could mean trouble for both taxpayers and local enterprises that have invested their own resources into providing this service.
The fiber-optic network plan is a product of the Holland Board of Public Works, which currently provides electricity, water and sewer service. It expects to have the system completed in a small portion of downtown in October. There are currently 13 commercial internet service providers in the area, two of which offer internet speeds of up to 1,000 megabits per second, one of the selling points of the city’s proposed system.
For the city to break even, 28 percent of the available customers within the service area would have to sign up for the service, according to Becky Lehman, technology director for the utility. She said the project would be considered a success if it gained 37 percent of the local market. Officials project that in four years 42 percent of the potential customers in the downtown area will buy internet access from the city rather than a private vendor.
Holland public works officials think they can succeed in part by greatly underpricing the competition. According to official documents, 1,000 Mbps internet access with special services like individual support will be offered for $220 per month. Brett Lindsey, president and CEO of Everstream, an internet provider that offers high-speed service, said similar services with less bandwidth may cost a business $650 to $850 a month.
The first phase of the project is expected to cost the public authority $789,000, which will come out of other public funds. According to Holland City Council member Brian Burch, any future expansion of the system will be covered by subscription revenues.
Local governments around the country have had a poor track record with their internet projects. Just one Michigan municipality currently sells bandwidth to residents on its own fiber network.
A recent University of Pennsylvania study showed that only two of 20 municipal broadband projects for which transparent financial information is available expect to recover their costs within 40 years.
Even if that happens in Holland, it’s not a given that the project would benefit businesses and residents. A Mercatus Center study found that such schemes “have no discernible effect on private sector employment, but they increase local government employment by around 6 percent.”
Burch believes the project is important because the demand for internet access will continue to increase, and the government has a role in providing it just as it now provides roads. “We’re creating an infrastructure that’s capable that is growing with the demands of the community,” he said.
Matt Groen, who is the executive director of the Michigan Cable Telecommunications Association, said private telecommunication providers can meet the demand. “Throughout the state, businesses have access to speeds up to 10 gigabits per second today ... and the cable industry continues to roll out 1,000 Mbps internet speeds to the home as well as deploy more Wi-Fi hotspots in public areas.”
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.