Testimony Before the Cleveland Utilities’ Board of Directors

Testimony before the Cleveland Utilities’ Board of Directors
Regarding building a $72 million municipal broadband network through Cleveland Utilities
Johnny Kampis, Director of Telecom Policy, Taxpayers Protection Alliance
March 8, 2023

To the members of Cleveland Utilities’ Board of Directors:

My name is Johnny Kampis, and I am Director of Telecom Policy for the Taxpayers Protection Alliance (TPA). I urge you to reconsider a plan to build a $72 million municipal broadband network through Cleveland Utilities. The project is duplicative and unnecessary, and there are many factors that raise concerns about its viability.

TPA  has written extensively about government-owned networks, finding that very few of them prove successful in the long-term. A few factors are often to blame, including higher-than-anticipated expenses and lower-than-expected take rates.

In your business plan, you anticipate a take rate of 30 percent. What we’ve found at TPA is that expected take rate percentages rarely materialize when private providers respond to competition by adjusting pricing or services. This is particularly a concern in Cleveland, given that there are already several internet options in your city and Bradley County.  

In 2017, we warned Newport officials that their plans for a government internet network there would likely fail. Despite meeting their expected take rate of 45 percent, the project still has been unsuccessful due to spiraling expenses and instances of mismanagement. This has led to increased electric rates for customers of Newport Utilities.

Increased power rates have occurred many times in municipalities that have decided to build their own networks, as documented in TPA’s 2020 report “GON with the Wind: The Failed Promise of Government-Owned Networks.” An analysis by Phoenix Center also found that power rates tend to rise when electric utilities take on debt to fund broadband networks. The same risk exists in Cleveland by subsidizing the planned broadband division of Cleveland Utilities with a $8 million start-up loan from the electric division.

You also risk long-term fallout for taxpayers beyond potential losses from broadband. In many cities with failed GONs, credit ratings have dropped, which can result in higher interest rates for loans to pay for other civic projects. Such a downgrade recently occurred in Knoxville due to risks involved with that city’s broadband project.

Your plan to incorporate smart meters as part of this network also raises privacy concerns. The Electronic Frontier Foundation (a GON advocate) pointed out recently that smart meters pose serious risks to consumer privacy and can be a conduit for hacking.

Given the huge financial risk this government internet project brings to taxpayers in Cleveland and Bradley County, combined with the fact your area is already serviced by multiple providers offering gigabit-capable speeds, we highly recommend you pull the plug on this proposal.

Thank you for your time, and I am happy to answer any questions you may have.