BY DON C. BRUNELL
Some local governments, including a few in Washington state, are considering entering the cable TV and telecom business. That's a bad idea. One only has to look at what's happened in Ashland, Ore., as an example, of why local governments should stay out of the cable TV and telecom business.
Ashland is known for its annual Oregon Shakespeare Festival. Each year, thousands of tourists flock to this charming southern Oregon city deep in the Siskiyou Mountains during the warm summer months to enjoy a play in the outdoor Elizabethan Theater.
The city already provides electric, water and sewer services. But a few years ago, city leaders decided to go into the telecom business, as well.
While they correctly identified that the city's future economic development hinged on high-speed internet access for homes and businesses, they should have let private providers risk their money to furnish the service. Qwest, for example, is a telecom company with deep roots in southern Oregon. Instead, the city formed the Ashland Fiber Network (AFN) as part of Ashland's electric department and built its own fiber-optic network.
Unfortunately, its customer base and monthly charges didn't cover the construction and operating costs and the city found itself mired in debt. For several years, the city borrowed money from other city departments to cover AFN's shortfalls. Then last year, Ashland took out $15.5 million in bonds, but AFN has not generated enough revenue to make the payments on the bonds. So far this year, the city has borrowed $1.5 million from its sewage and electric department reserves to prop up AFN.
In 2005, the city council voted to impose a $7.50 fee on electric ratepayers to subsidize AFN, but repealed the fee before it took effect over concerns about its impact on low-income residents.
Recently, the council considered several unpopular options to deal with AFN's $15.5 million debt, including increasing property taxes, assessing a $1 fee on entertainment tickets, diverting revenue from the hotel/motel tax, or adopting new city taxes on gasoline, sales or personal income. Another option would have been to sell off AFN entirely.
In the end, the council decided to keep the Internet and cable TV service, while allowing private businesses to provide telecommunications services on AFN's fiber-optic network. The council also voted 5-1 to impose a monthly fee of $10 on residential electricity customers and $21 on businesses for basic service. Approximately 1,000 low-income households would be exempt from the fee.
Critics question whether businesses would actually pay to use AFN's network, and some residents are circulating a petition to allow voters to decide whether the city should be in the telecommunications business at all.
They have a point.
The most logical option for the city would have been to stay out of the business in the first place. Local governments don't have the experience or expertise to compete with private business in this high-tech arena, and instead of using taxpayer money on such ventures, they should concentrate on basic social and safety services and let the private sector risk its own money to provide Internet, cable TV and telecom services.
Ashland is a prime example of why government should not try to compete with the private sector. Hopefully, other cities will look at what happened in Ashland and look before they leap into a service they have no business being in.
Don C. Brunell is president of the Association of Washington Business.