Heartland Institute: Muni HFC networks not making money

The Heartland Institute today announced the findings of a study on three Iowa municipal hybrid fiber/coax networks--Cedar Falls, Muscatine and Spencer--showing that all three had to achieve any meaningful return on their investment.

That the group, which is partially funded by Bell operating companies, would find fault with municipal networks is not surprising. However, according to the analysis by Ronald Rizzuto, a professor of finance at the University of Denver, these same muni networks have little hope of developing a positive return in the future due to increasing costs.

“The communities failed to recognize that they have to cover their costs,” he said in a conference call today. “They don’t run it like a business. It’s painful to run it like a business because as your costs increase people are unwilling to increase rates.”

That’s particularly true in situations where the network is providing video service because the cost of programming continues to rise. In some instances, such as Spencer, cities are borrowing money from local utility operation, making their finances more difficult to decipher.

Rizzuto said he chose the three cities because they are the largest ones in the state and offered the best ability to show true economies of scale. All three cities also have opted for HFC networks. The same results may not translate to those pushing a fiber-to-the-home architecture.

Additionally, the study does not take into consideration some more difficult to measure benefits such as the amount of economic development created by broadband networks.

“We haven’t measured that because the data is not available,” he said.