Traverse City Light & Power is bragging that it may finally finish Phase 1 of its municipal broadband network by the end of 2025. The utility hopes that the network will have a positive cash flow in 2026. The project has shown losses for each year since it was launched in 2019 and is expected to lose $645,000 this year.

Chief Financial Officer Karla Myers-Beman tried to put a positive spin on this poor financial performance. “If we look at the cash flow, that happens for a couple years, which is really common when you’re starting up a project like this,” Myers-Beman said recently.

That’s a very different story from the one the Traverse City utility used in 2019 to sell the project to its board. At its 2019 presentation, the utility projected that the fiber network would be profitable by 2021, bringing in $1.2 million in revenue. That puts the project four years behind. Traverse City Light & Power's record of projecting its future financial performance gives little reason to be confident that the broadband operation will reach profitability any time soon.

Myers-Beman is right in one sense, though not the one she intended. This failure to meet financial expectations is indeed “really common” for municipal broadband projects. University of Pennsylvania Professor Christopher Yoo's study of government-run internet systems found that 87% failed to generate enough cash flow to put them on track to repay their debt by the date it is scheduled to mature. Some 73% either defaulted or generated negative net cash flows that left them poorly positioned to pay off their debt.

Who pays if the Traverse City project fails to cover its costs? “TCLP is the ultimate financial backstop for the project,” the utility acknowledged in a now-deleted post on its website. That means electricity customers most likely will be stuck with the bill, in the form of higher electricity rates.

That outcome is also really common for government-run internet systems. “Once a municipal-owned network provider enters a market, they can lose money and still survive by pushing financial losses to other municipal services and to taxpayers,” said a 2017 study by the American Consumer Center for Citizen Research. “Municipal broadband providers lose money and shift costs. This means that the effective price paid by consumers is much higher than advertised.”

Traverse City Light & Power plans to rely on expanded marketing efforts to turn around its financial woes, sending postcards to potential customers and dispatching marketers to go door to door and put hangtags on doors. “And then on top of that, we have yard signs, once a customer gets hooked up and they want to help us get the word out, we have the yard signs that they can put in their yard just saying they have TCLPFiber,” said Customer and Employee Relations Manager Kelli Schroeder.

All that sounds good, but most government-owned networks fail because they overestimate their ability to market their service rather than because they are unable to build the network.

“I'll tell you right now, the problem is not generally on the cost side,” Penn State's Yoo explained in 2018. “It's on the revenue side because as anyone who's been in this business knows, especially if you're in an overbuilt situation, you're marketing the heck out of these things. You got to come up with a new advertising campaign all the time to chisel someone off who's already got service. Guess what? Elected officials were not born to do that. They're not trained to do that. It's just not what's in their blood. But they think about operating a network. That's the easy part of being in this business, and they don't realize that.”

Municipal broadband networks around the country consistently have failed to live up to the claims local governments made when they were launched. The Traverse City network appears to be following the same path. At the same time, it is difficult to see what benefits this government-run utility will offer that are not available from privately run internet providers already serving Traverse City.

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