News Story

Traverse City Public Broadband System Has Way Fewer Customers, Money Than Predicted

Taxpayers and ratepayers are on the hook for this potential boondoggle

For more than a decade, the electric utility in Traverse City — Traverse City Light & Power — has run a small data network connecting some of its public entities. Public officials believed that they could ramp that up to provide high-speed internet across the city at little cost to taxpayers.

But they were wrong. So far, in rolling out its own government-owned network, the city and its contractors have missed almost every projection. And millions in taxpayer dollars are on the line.

In May 2019, TCL&P’s contractor said it would need 40% of residents in the covered area to sign up for the effort to break even. The most realistic scenario, it said, predicted a 50% “take rate” by year two. With that number of customers, the operation would bring in $1.2 million, which would cover the utility’s operating expenditures and debt payments.

It didn’t happen. In its latest documents from March 2022, the government entity shows that it has only 640 active customers — residential and commercial — for internet, phone and bundled service. That’s less than half the number the city predicted would be needed to break even.

Revenues are also falling short. The publicly run broadband network is bringing in about $586,000, or 39% of its annual revenue goal.

There are several reasons why the system has not met its initial projections. Even before the COVID-19 pandemic, the rollout was delayed by a year (from fall 2019 to fall 2020). Then, in August 2020, TCL&P asked for an additional $800,000 loan from Traverse City’s economic development fund. In fall 2020, a local news outlet reported that businesses were fleeing downtown Traverse City. It cited high rents, high taxes and a lack of parking. One of the companies that left had pushed for the new network, which was supposed to attract companies.

In January 2021, the municipal entity then sought a loan of $18 million from the United States Department of Agriculture to expand the network. The utility was approved for and accepted a $14.7 million loan in March 2022. That loan cannot, however, be used to cover the last link of the network to a customer’s home or business, so the TCL&P says it needs to borrow another $3.2 million to cover those costs.

Local Traverse City watchdog and former telecommunications company executive Gerald DeGrazia is skeptical about the plan.

“The concern is ... how are they going to repay those loans if they don’t have the customers?” DeGrazia said.

The most likely reason why the government-run broadband network failed to meet its projections is that the city already has plenty of internet coverage. TCLPFiber offers internet packages at $60 per month (with 200 megabytes per second download speeds), $70 per month (400 MBPS) or $90 per month (1 gigabit). That’s comparable, or worse, than what residents can get from Spectrum, whose rates are listed at $50 per month at 200 MBPS and the same prices for the other speeds.

That pricing less-than-favorable comparison fulfills a prediction DeGrazia made back in August 2020, even before the government-owned network was launched.

“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.”

The difference? The three private companies aren’t backed with tens of millions of dollars in taxpayer funding. If the public network fails, it’s the Traverse City taxpayer or energy ratepayer who is on the hook.

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.