Traverse City Light & Power’s troubled internet service provider business continues to be a source of financial distress for the city. At a recent meeting, the Traverse City City Commission approved a plan to let TCL&P borrow money from city-controlled funds intended for other purposes to help the city-owned utility finish building its internet network.
TCL&P Chief Financial Officer Karla Myers-Beman’s explanation for the borrowing scheme should have raised alarms with the City Commission, which nonetheless approved the borrowing plan. “So in theory,” Myers-Beman told commissioners, “the more customers we have, the more revenue, and the more we can invest into operations and assets of the fiber fund.”
It is hard to argue with that logic. But the problem is that six years into the project, the city-owned network has not attracted enough internet customers and keeps resorting to more borrowing.
As we have pointed out before, TCL&P has repeatedly moved the goalposts. At its 2019 presentation seeking approval for the internet project, the utility projected that the fiber network would be profitable by 2021, bringing in $1.2 million in revenue. But instead, the project has experienced losses ever since. TCL&P also projected in 2019 that the internet system would attract 50% of all potential customers, but at the most recent City Commission meeting, the utility claimed it is hoping to get to 40%.
Cost overruns have plagued the project. In 2019 TCL&P’s consultant presented three scenarios for building the system, saying the most expensive one would cost $4.4 million. The City Commission approved the project based on those cost scenarios. Yet at the latest commission meeting TCL&P said, “Bids came back far lower than anticipated, with a total price tag of just over $14 million.” That financial slight-of-hand came from comparing the current $14 million price tag to a higher cost estimate TCL&P discussed in 2023. The relevant comparison should have been the $4.4 million price tag the city committed to in 2019.
Most city-run utilities operate in markets like electricity, water, and sewage services where they are the only provider in town. In these monopoly markets, any utility expansion extends or improves services to their customers. But internet service is anything but a monopoly in Traverse City. Spectrum, Cherry Capital Communications, and AcenTek all provide superfast internet. Other companies, including Verizon, and T-Mobile, and Brightspeed, offer faster speeds than most customers need.
Thus, when TCL&P says that its goal is to sign up 40% of the potential customers in Traverse City, it engages in predatory entry as it tries to convert customers of private companies into customers of the government-run utility. That does not add new services to the market; it only uses government resources to shift customers around. If utility’s product was better, that might add something to the market, but its internet is more expensive than the superfast internet offered by the main private competitors.
Moreover, these private competitors pay taxes, pole fees, permitting fees, and fees for rights-of-way on government-owned land. When government-run internet replaces private internet providers, those tax and fee revenues are lost, even though they don’t show up in any of the calculations of how much the government-run network will cost.
TCL&P also said it could borrow from the federal government but will instead save itself some trouble by getting money from the city. This approach, it said, would generate $240,000 in interest for the city treasury. But that is nothing more than interest paid from one city-run entity to another city-run entity, with no money actually changing hands. There is, however, a cost: the forgone benefits the city could have received if the borrowed money had been used for its intended purposes rather than to bail out a struggling internet operation.
Traverse City is borrowing from Peter to pay Paul, shifting funds to solve an immediate problem without addressing deeper underlying ones. Perhaps it is time for Traverse City to follow the example of other governments, including the city of Norway, Michigan, that are selling off their government-run internet networks to private companies that can run them better.
