News Story

In Traverse City, less interest than expected in public broadband

Costs skyrocket as the public displays little interest in the broadband utility in northern Michigan

When Traverse City announced plans in 2017 to provide a government-run broadband internet service, the city was warned that it could turn into a financial boondoggle.

New numbers for the project are out. Traverse City Light and Power, the public utility which took on the project, is facing low take rates, private sector competition, and substantially higher costs than the previously projected $4.2 million.

Two studies on 20 municipal broadband projects across the country were already published when Traverse City announced the project. The studies showed that only two of the 20 were expected to recover their projected costs within 40 years. Traverse City went forward anyway and pursued a publicly owned broadband service provider.

The contractor hired by Traverse City Light & Power said it would need 40% of residents in currently served areas. The predicted take rate, or the rate at which potential users sign up, was 50% by year two. Years later, only 753 out of the 2,974 potential customers, or 25%, have signed up for the city’s broadband service.

The projected costs were also too low. The cost to roll out the publicly owned broadband has now ballooned to $28.2 million.

Traverse City commissioners voted in April to provide a public notice that the city intends to borrow an additional $10 million to pay for the buildout of its smart grid, according to The Ticker. The city, it appears, will continue to expand its fiber internet access, even with low take rates.

The project also has been approved for $18.2 million in funding, which comes from a $14.7 million United States Department of Agriculture loan and a a $3.5 million capital improvement bond, according to The Ticker.

The city is home to a competitive internet service market. When officials originally considered the project, they said it could offer the same service as private competitors for little cost. The utility owned fiber offers customers packages from $60 to $90 per month. Charter Spectrum also offers high-speed internet for $50 to $90 per month.

“The original business plan,” said local resident Gerald DeGrazia, was “flawed with overly optimistic customer assumptions and lower than required capital outlay assumptions.” DeGrazia is a retired telecommunications executive who created business plans for fiber networks.

“The (fiber to the home) project, to date, has not met the assumptions of the original business plan,” DeGrazia told CapCon. “However, (the utility) and the city continue to borrow funds to invest in a project which will not be able to repay its debt.”

Traverse City commissioners did not respond to requests for comment.

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.