Taxpayers and taxpayers are responsible for this potential mess
For more than a decade, Traverse City’s electric utility – Traverse City Light & Power – has operated a small data network connecting some of its public entities. Public officials thought they could speed this up to provide high-speed internet access across the city at little cost to taxpayers.
But they were wrong. So far, by deploying its own government-owned network, the city and its contractors have missed almost every projection. And millions of taxpayer dollars are at stake.
In May 2019, the TCL&P contractor said it would take 40% of residents in the covered area to sign up for the effort to break even. The most realistic scenario, he said, called for a “turnout rate” of 50% by year two. With that number of customers, the operation would bring in $1.2 million, which would cover operating expenses and utility debt repayment.
This does not happen. In its latest documents from March 2022, the government entity shows that it has only 640 active customers – residential and commercial – for internet, telephone and bundled services. That’s less than half the number the city expects to break even.
Income is also insufficient. The public broadband network brings in about $586,000, or 39% of its annual revenue target.
There are several reasons why the system did not reach its initial projections. Even before the COVID-19 pandemic, the rollout was delayed for a year (from fall 2019 to fall 2020). Then, in August 2020, TCL&P applied for an additional $800,000 loan from the Traverse City Economic Development Fund. In the fall of 2020, local media reported that businesses were fleeing downtown Traverse City. He cited high rents, high taxes and a lack of parking. One of the companies that left had been pushing for the new network, which was supposed to attract businesses.
In January 2021, the municipal entity then requested an $18 million loan from the United States Department of Agriculture to expand the network. The utility was approved and accepted a loan of $14.7 million in March 2022. This loan, however, cannot be used to cover the last network link to a customer’s home or business, from so TCL&P says it needs to borrow an additional $3.2 million to cover those costs.
Local Traverse City watchdog and former telecommunications company executive Gerald DeGrazia is skeptical of the plan.
“The problem is… how are they going to repay these loans if they don’t have customers?” DeGrazia said.
The most likely reason why the government-run broadband network did not meet its forecast is that the city already has ample internet coverage. TCLPFiber offers Internet plans for $60 per month (with download speeds of 200 megabytes per second), $70 per month (400 MBPS), or $90 per month (1 gigabit). That’s comparable to, or worse than, what residents can get from Spectrum, which is priced at $50 per month at 200 Mbps and the same prices for other speeds.
This less-than-favorable price comparison meets a prediction DeGrazia made in August 2020, even before the government-owned network launched.
“It’s a very competitive situation. There are at least three companies providing (broadband) service in most places,” DeGrazia said. “They’re not just going to turn around and let the city take their customers. It’s just not realistic.
The difference? The three private companies are not backed by tens of millions of dollars in taxpayer funding. If the utility goes down, the Traverse City ratepayer or the energy ratepayer is responsible.