MADISON, Wis. – News stories of the looming sale of Sun Prairie’s debt-heavy broadband service included every salient detail but two: The public cost to build and maintain the system.
INSIDE BROADBAND: The City of Sun Prairie is looking to get out of the municipal broadband business. Is it because the system is carrying nearly $2.9 million in debt and has struggled to make money over its 17-year run?
TDS Telecommunications Corp. and Sun Prairie Utilities have signed a “non-binding letter of intent,” with hopes to “hammer out terms of the agreement and finalize it” by the end of this month, according to a story published Feb. 6 in the Wisconsin State Journal.
Missing from the story was the nearly $2.9 million in estimated debt the municipal broadband communications service carried at the end of 2016.
The city-owned internet service provider has lost money, often significant amounts, in at least 10 of the 16 years in operation, according to financial records obtained by Wisconsin Watchdog through an open records request.
Sun Prairie’s municipal utility in the late 1990s constructed a fiber ring connecting Sun Prairie Utilities’ main office, wells, towers and electric substations with city buildings and the Sun Prairie Area School District. That was the start of a city broadband service that today includes 324 multi-dwelling unit internet customers, 201 residential single-family customers, 35 business customers and a handful of Wide Area Network-based subscribers.
According to records, Sun Prairie’s electric utility floated its Telecom division a nearly $600,000 loan in 2000 to build the fiber ring.
The broadband service finished with a loss in each of its first six years in operation, nearly $454,000 in the red in 2001 and more than $452,000 in 2002.
Losses continued until 2006, when the city service took in $92,612 more than it spent, thanks to a growing customer base.
The broadband provider had three straight up years between 2006-08, finishing with a loss again in 2009 in a year that saw a $212,000 investment in Wide Area Network.
Following three more consecutive years of gains, the municipal broadband network posted three straight years of losses, including a $166,000 loss in 2015 following a significant expansion to Sun Prairie’s burgeoning Smith’s Crossing neighborhood.
Rick Wicklund, utility manager, said he doesn’t believe Sun Prairie is looking to get out of the municipal broadband business because of the network’s debt load.
“Debt doesn’t have [anything] to do with it,” he said. “The city is looking at it from the standpoint of, if someone is willing to build essentially an identical network and build it in a third of the time we were willing to build it, that’s a win-win.”
The sale may be a win for Sun Prairie’s taxpayers, consumers and the free market in the long run, too.
Wicklund insists taxpayers are not on the hook for the costs to build and maintain the municipal broadband service, that ratepayers are paying back the various loans on the system. But he acknowledges the city — and its taxpayers — are ultimately responsible for the loans, should the internet utility default.
The loans, according to utility documents, include $624,000 from the Bank of Sun Prairie, a loan issued in 2015, and a $700,000 State Trust Fund loan issued last year.
Ted Chase, chairman of the Sun Prairie Utilities Commission, knows the “operation and expansion of such a business comes with significant risk.”
GETTING OUT: Sun Prairie took on a lot of debt for its city-owned broadband service. What will the return on investment be?
The goal is providing an important service to Sun Prairie’s citizens, while considering the bottom line.
“By transitioning our network to TDS, more households and businesses will have access to fiber internet at no risk to the utility,” Chase said in a written statement to the Wisconsin State Journal.
Madison-based TDS Telecom told the newspaper it plans to invest in the Sun Prairie network over the next two years, including the addition of high-speed fiber optic connections to most of the city.
“We plan to expand the network to launch 1-gigabit broadband speeds, as well as phone service, and our industry-leading IPTV (internet protocol television) solution, TDS TV, to residents,” Drew Petersen, TDS vice president of external affairs and communications, said in a statement.
The city broadband system currently serves an estimated 4 percent to 5 percent of Sun Prairie’s single-family homes, according to Wicklund.
Sun Prairie Utility recently made the list of “broadband boondoggles,” according to a national report by the Taxpayers Protection Alliance Foundation, a nonprofit free-market advocacy organization.
The “Municipal Broadband Failure Map” indicates “publicly funded internet projects are a universal failure,” TPAF asserts in the report.
Government broadband networks cost U.S. taxpayers “billions of dollars” each year while “failing to stimulate economic growth, falling short of projected customer and revenue numbers, struggling to keep up with advancements in technology, and using tax dollars to compete against existing private companies” the report states.
“The truth is out, taxpayer-funded broadband is a failure and a waste of valuable resources,” said TPAF president David Williams. “This map shows exactly where government internet schemes are located and how much taxpayers are on the hook for these projects.”
Sun Prairie officials take issue with the report and the city-owned broadband network’s place on it. Unlike the private sector, Sun Prairie government representatives insist, municipal-owned utilities offer “local control.”
“Local control means decisions and policies will be made for the benefit of Sun Prairie Utilities rate payers,” SPU’s website states. “Local ownership means we are operating for the benefit of Sun Prairie Utilities rate payers and not for stockholders.”
“We’ve proven we can do it successfully, that we can make money at it with a large customer base,” Wicklund, the utility director, said. “I don’t get the sense that the mayor and the Common Council are looking at the debt like, ‘Oh, my gosh, this is horrible.’ They’re looking at it like this is a really good start. We’ve got infrastructure that’s going to prosper on a go-forward basis.”
“We’re sitting less than $3 million in debt. Any private company would say, ‘You did good,’” Wicklund added.
Free-market advocate Brett Healy isn’t so sure.
Healy, president of the Madison-based MacIver Institute, wonders why Sun Prairie, after years of talking about the importance of city government getting into private business, is looking to get out.
“While the SPU vehemently disputes their place on the list, there is no dispute that taxpayers deserve to know what exactly is going on behind closed doors as the city decides if it should get out of the private broadband service,” Healy wrote in a column for Sun Prairie’s newspaper, The Star.
BROADBAND BOONDOGGLES: The Taxpayers Protection Alliance Foundation recently released its Municipal Broadband Failures Map. Sun Prairie’s network made the list.
“Sun Prairie met in closed session, out of the public’s view, in early January to begin discussions about selling the taxpayer-financed network. Even though there is now a LOI, taxpayers are still waiting for basic information about the potential sale of the network and, more importantly, what sort of rate of return will taxpayers see if the sale goes through.”
Healy wrote that he doubts the city will “make back” the money it put into its “misguided attempt to build a private business.”
“If you were the private company looking to buy it, why would you pay full price? Now that the city is looking to exit, the private company will be looking for a good deal to buy the network. The private company is not in this for charity,” he wrote.
He called on the city to be more transparent in its deliberations with TDS, so that taxpayers will clearly know the return on investment for the municipal-owned broadband network.
M.D. Kittle is bureau chief for Wisconsin Watchdog and First Amendment reporter for Watchdog.org. Contact him at mkittle@watchdog.org