Think About That for a Minute

Commentary by Steve Effros MUNICIPAL WASTE Do you know what the "Quantum-Confined Stark Effect" (QCSE) is? I didn’t either until this week’s announcement that scientists have apparently figured out how to manipulate laser light 10 times faster than before. Will it make a difference in the cable and broadband business? Don’t know yet. But some folks in Iowa are being asked to vote this coming week to allow lots of money to be spent to build municipally owned broadband systems. Think they know? It’s a little depressing that I have to write this column every few years. It’s always the same message: municipal officials should do what they do best, and not spend public (tax or bond) money on speculative telecommunications systems out of either the conviction (or hubris) that: 1. they can do it better than anyone else; 2. it’s "cool" and will theoretically attract business to their communities; or 3. it will lower cable consumer prices for broadband services. Those justifications have all proved totally wrong in the past. There is every reason to think they will continue to be wrong. We went through this in the mid- and late 90’s when communities, particularly those with municipal power and telephone companies, decided they could build cable systems as easily as they put up the wires for those utilities. What they didn’t understand was that broadband, unlike telephone or power at the time, was a technology moving so fast that by the time anything was built, it was already obsolete and needed to be rebuilt. The cable industry’s stock prices have suffered for a decade as investors fretted over the billions of dollars we’ve had to spend constantly upgrading our systems. The municipal utility builders built a system. Yes, it worked. Sure, they sometimes established artificially low prices and things looked great. But then reality hit, and studies have shown time and again that the pricing was too low, the "utility" was not really a "utility" but a discretionary purchase that not all members of the community wanted, that they had to deal with programming contracts, indecency disputes and government mandates like "must carry." In short, this wasn’t as easy a business as they thought! Then the bills started coming due. Forfeitures started happening. Taxes were increased to try to pay for the millions spent building the original system (that didn’t account for the millions more needed for upgrades). The ultimate result: sell the system at a loss, a big loss. It happened then, it’s happening now. A town near Atlanta just heard the bad news. The system it spent nearly $14mln on (and raised property taxes to try to maintain) has failed to receive a bid of more than $5mln from private companies willing to take it off their hands. Think those companies know something about this sort of thing? Iowans of all people should know about this reality. They have several municipal systems in the state that, upon close examination, are bleeding red ink and certainly won’t have the finances to keep up with technology, whether the "next thing" is QCSE or something else. The promoters of municipal systems tend to be dreamers, managers of far more static utilities, or folks who will profit from a "yes" vote. That’s a bad combination. This is a tough, competitive business and most of the services are already available or are coming – usually from more than one source. For local government to jump into that competitive fray can only be described as municipal waste.