The Tennessee EPB Failure is Looking to Expand to Georgia

David Williams

July 29, 2014

Earlier this month, the Chattanooga Times Free Press reported the city-owned utility system, the Electric Power Board (EPB), wants to expand its gigabit Internet offering beyond the city limits. According to the newspaper, EPB may even move across state lines, into Georgia.

Under current Tennessee law, EPB “is only allowed to offer fiber optic service to customers who also get their electricity from EPB.” In other words, the scope is responsibly limited.

The EPB can appeal to the Federal Communications Commission to go around that law, and did just that last week. A decision by the FCC to circumvent the law would be bad for taxpayers, could harm the local economy and would also go against state lawmakers’ clear preference that EPB concentrate on providing service to the citizens of Chattanooga.

EPB’s plans are the height of hubris. By all accounts, the utility has attracted only a relative handful of subscribers to its gigabit service – perhaps because when it set the original sky-high price of $349.00/month for the service, President Harold DePriest said EPB chose the rate simply “because we can.” So, instead of market studies, business modeling or product testing, EPB just did things because they could. That could very well be the same mentality at play now. Is there any indication that consumers in surrounding cities want EPB’s service or does EPB just want to expand because they think they should be allowed to?

The commercial gigabit service has been an even worse failure. EPB has failed to deliver on its promise to revolutionize Chattanooga with economic development opportunities and new jobs resulting from the government-owned fiber optic service. The gigabit service has a total of only 11 business customers. What makes EPB think businesses outside of its service area would want gigabit Internet when almost no one within the city does?

In addition, there are serious policy, taxpayer and economic consequences to expansion.

Including bond interest, the infrastructure required to build Chattanooga’s socialized Internet scheme cost taxpayers and electric customers a total of $552 million.  Expanding the service will drive that cost higher still.

If the FCC approves EPB’s proposal, the Times Free Press reports “the utility will consider expanding to any community that requests access to gigabit Internet…” Again, it’s not clear who would do the asking – consumers in those cities or policymakers judging on high – but it would mean local taxpayers in those communities could be on the hook to pay for that expansion. Cities and counties are still struggling to balance their budgets in a weak economy: they will either have to take funds away from other priorities like roads and education or ask their residents to pay more in taxes to finance this expansion. (The cities, of course, also could take on more debt. Not a great option when you already can’t balance the books.)

The expansion could also hurt the local economy. From the folks at the Tennessee Watchdog, it’s been reported that small private providers have opted not to expand in Chattanooga because of the EPB/government-owned network. That would be a disaster for the free market is that happens in other cities. It will mean less competition and fewer telecommunications jobs because private companies that already service those communities will have to compete with a government-owned behemoth that enjoys all the rights and privileges of being both regulator and competitor. (As the Times Free Press says the utility “enjoys certain advantages,” including a significant infusion of federal taxpayer money.)

Finally, if the FCC rules in EPB’s favor it is a clear violation of states’ rights. It should be noted that EPB could also appeal to state policymakers to change existing law, so why isn’t it?

Because Tennessee lawmakers are, rightly, more skeptical about government-owned broadband networks than the current makeup of the FCC. For example, Tennessee policymakers have enacted laws that ensure government-owned broadband companies operate on the same playing field private providers do. Chattanooga’s petition to circumvent state law would come at the same time it’s asking the FCC to overturn those laws. Indeed, the Times Free Press says EPB has judged the FCC’s openness to its position on that matter as a clear indicator that the Commission would be receptive to its expansion plans.

Supporters of government-owned broadband networks often vilify private companies, calling them anti-competitive and, at worst, greedy. EPB’s lobbying of the FCC to protect and expand its interests shows those accusations are grossly misplaced.

For the sake of federal, Tennessee and Chattanooga taxpayers, I hope the FCC will reject EPB’s plea.