News Story

Traverse City’s Government Broadband Scheme Falling Short, Yet Marquette Wants To Do The Same

Residents’ electric bills go up when municipal utilities’ broadband adventures can’t meet their debts

The city of Marquette is looking to follow Traverse City’s municipal utility in offering broadband cable TV and internet service. Residents who get their electricity from the city’s municipal electric utility could end up footing the bill, however, should the endeavor fail to meet its boosters’ glowing promises.

Marquette’s city commission approved $89,000 to the utility for a private vendor’s study in January 2021. Its purpose was to determine if the Marquette Board of Power and Light has the infrastructure necessary to sell high-speed internet service to local residents and businesses.

At a July 12 meeting, the Marquette City Commission discussed a motion to allow the city utility to provide broadband service. The sponsor of the motion cited Traverse City’s efforts as a model. But the municipal utility there has not come close to enrolling the number of customers needed to break even, much less turn a profit.

The Traverse City Light and Power board has approved two taxpayer-funded loans, totaling $4.3 million for the project. It first offered internet service in October 2020. Traverse City and its municipal utility have also applied for an $18 million loan from U.S. Department of Agriculture, which extends loans to expand service into rural areas.

The latest numbers show the Traverse City public utility falling far short of its goals. It has only 536 active or scheduled customers, which is only about one-third of its projected goal. The project is also earning less than 30% of the projected $1.5 million in revenue.

Gerald DeGrazia, a local resident who developed and managed international and domestic fiber networks for Time Warner Cable, offers an explanation for the meager response. Traverse City households, he says, already have three competing private broadband companies to choose from.

The city and its utility probably failed to recognize that residents are mostly satisfied with their current service and see no need to chase faster internet, he says. He warns that if the utility’s broadband revenue falls short of the amount needed to service its debt, its electricity customers could get stuck with surcharges.

Utility expert Theodore Bolema, of Wichita State University’s Institute for the Study of Economic Growth, sees Marquette’s municipal utility customers in line for such a fate.

“When cities with electric utilities offer broadband, we see over and over again that when the broadband operations miss their targeted take rate or otherwise don’t meet their financial projections, the city keeps its broadband price low while raising its rates for electricity. That is because the broadband customers can switch to a private provider when broadband rates go up, but the electricity customers have nowhere to go when electricity rates are increased.”

Marquette is also served by a variety of internet service providers, and gigabit service to the home is available. City commissioners did not respond requests for comment. They were set to discuss the project at a recent council meeting, but it is unclear if they did.

Marquette’s City Commissioners did not respond to questions seeking 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.