Golden Hammer: Chattanooga chokes on too much fiber

Chattanooga’s government-owned fiber optic cable, telephone and high-speed Internet scheme has been hailed as a revolutionary example of publicly-funded broadband. The Internet service, which officials claim can reach speeds of a gigabit-per-second, even led Chattanooga officials to attempt to rebrand the town as “Gig City.”

But critics are already calling the effort, known as The Gig, a “socialist-style boondoggle” that has allowed a taxpayer-funded government electric utility to compete against private, existing cable, satellite, telephone and Internet providers. The results, skeptics say, have given federal taxpayers and Chattanooga residents little cause for celebration.

The infrastructure necessary to get EPB, the city-owned electric utility previously known as the Electric Power Board of Chattanooga, in the cable, telephone and Internet business will ultimately cost federal taxpayer and local electric customers a total in excess of half a billion dollars.

There appears to be little to show for all of that money.

Promises that the lightning-fast Internet service would generate economic development and create jobs in the southeast Tennessee city have never materialized. The service has also failed to meet projected subscriber goals.

EPB has even rubbed the community the wrong way as it moved forward, according to Chattanooga resident Ethan Greene.

“Many Chattanooga residents are outraged at EPB’s behavior, and they have a right to be. EPB officials have bullied local media outlets to prevent negative coverage and prevented citizens from receiving public records,” said Mr. Greene, a research fellow at the Taxpayers Protection Alliance. “Now EPB is even facing a series of lawsuits because it apparently overbilled municipal governments for electric services.”

Despite these opposition, EPB is now petitioning the Federal Communications Commission to bypass state laws so the electric utility can expand its fiber services beyond its current footprint and in to neighboring states.

Because of the extreme cost and heavy subsidies of EPB’s fiber-optic services, the Chattanooga electric utility has earned the Golden Hammer, a distinction given weekly by The Washington Times to examples of waste, fraud and abuse of taxpayers’ money.

The electric company’s foray into fiber-optic Internet, video and phone business came to fruition as a result of a $112 million stimulus handout in the name of energy conservation. EPB promised federal officials it could create a state-of-the art electrical grid capable of cutting wasted energy and shorten power outages.

This grid could have been achieved through a wireless network. EPB, however, chose to build a much more expensive fiber optic network. That allowed the electric utility to provide high-speed Internet, cable and phone services, in direct competition with private companies.

Building the fiber network came at extraordinary expense to taxpayers, as well as Chattanooga electric customers.   

Once the interest on the taxpayer-funded stimulus handout is paid and costs associated with a government bond to help fund the project are calculated, the final tally for EPB’s fiber optic infrastructure is estimated to top $550 million.

Federal taxpayers are on the hook for the $112 million stimulus grant, plus an estimated $46 million in interest. EPB’s electric customers are footing the bill for more than $390 million in bond payments to help cover construction costs related to the fiber network.  

Defending the spending

EPB officials have justified the spending by insisting the high-speed Internet would turn Chattanooga into the Silicon Valley of the South; luring high-tech businesses to the city, creating jobs and spurring an economic windfall, as a result. City officials hope to attract high-tech firms and jobs offering Internet speeds as 1 gigabit per second – about 50 times faster than the national average.

“We believe that access to true high-speed Internet connectivity is critical infrastructure needed for economic development and, ultimately, quality of life,” according to Danna Bailey, head of corporate communications for EPB.

But the bet hasn’t paid off: Few new companies have been lured to the city by the faster Internet and, according to publicly available records, only 11 commercial customers used the service as of January of this year.

Chattanooga shouldn’t expect things to get better in terms of its ability to draw high-tech companies to town because of its gig-speed Internet.  Businesses now have many more choices. Twenty-four U.S. cities now offer gigabit Internet, according to PC magazine.

“There’s nothing that makes Chattanooga‘s gigabit Internet stand out from other places that also offer a gig,” Mr. Greene said. “The only difference is the ridiculous amount Chattanooga’s Gig project cost taxpayers.”

EPB’s fiber service faces resistance from the general public, as well.

Before the fiber optic network was built, EPB officials claimed in a 2007 annual report that 72,500 total business and residential customers were expected to take advantage of the fiber services. Actual customer numbers this year have fluctuated between 58,000 and 64,000, well short of the initial projections.

Part of the reason EPB’s customer numbers have not been up to par may be related to its rocky relations with local government, the media and Chattanooga residents.

EPB is currently embroiled in a pair of lawsuits alleging that the utility billed Chattanooga and two other nearby towns a total of nearly $2 million.

The Tennessee Coalition for Open Government, a government transparency watchdog group, slammed EPB after it was revealed that the utility took three months to adequately respond to a request for public records. When EPB finally did respond to the request, they demanded a $1,767 fee to view the records, even though the state’s Office of Open Records Counsel determined that the records should be made available at no cost.

Finally, EPB, concerned about unflattering coverage about the cost and performance of its fiber service and the overbilling allegations, issued ultimatums to a number of Chattanooga media outlets stating that if negative coverage persisted, the utility would stop advertising with them.

EPB went through with the threat in at least two cases. The newspaper and a talk radio station both lost thousands of dollars as a result of continuing to report about EPB’s failures.

Ms. Bailey defended the tactics, stating, “The press is free to write stories about the topics of their choice. We are free to make business decisions regarding our advertising purchases and strategy.”

“EPB represents government at its worst,” said Mr. Greene. “The agency used tax dollars to build itself a socialist-style, government-owned cable and Internet company, which turned out to be a gigantic boondoggle for taxpayers. Then, when citizens and the media try to hold EPB accountable, EPB responded by abusing its power, threatening the media and trying to sidestep government transparency rules.”

“EPB should be ashamed of itself.”

Despite the criticism of its behavior and the cost of its fiber service to taxpayers, EPB says it will continue with its effort to lobby the FCC to allow it to expand beyond its legal boundaries.

“We believe that access to true high-speed Internet connectivity is critical infrastructure and that communities should have the choice at the local level to find ways to make this infrastructure available to their residents and businesses,” said Ms. Bailey.

Critics, however, fear that expanding EPB service area would only spread the boondoggle even further, putting more tax dollars at risk.

“EPB’s fiber optic project has wasted money and failed to produce the benefits it promised in Chattanooga,” said Katie McAuliffe the executive director for digital liberty at Americans for Tax Reform. “I don’t see why it would be any different outside of Chattanooga.”