Google Lands Sweet Deal, Taxpayers Are the Suckers

Google Lands Sweet Deal, Taxpayers Are the Suckers
April 24, 2013

Jim Lakely

Jim Lakely is director of communications at The Heartland Institute, co-director of Heartland’s... (read full bio)

This piece in the Heartlander, "Google Goes Shopping at a Dollar Store" by Randolph May of the Free State Foundation makes for some infuriating reading.

It is probably the best example I’ve ever seen as to why municipal broadband systems are a bad deal for citizens of cities with the hubris to think they can compete in the digital economy by offering "free" and "cheap" Internet service.

May's report on what's happening in Provo, Utah, would be very hard to top — though we should expect to see it repeated again and again. He cites this Associated Press story from April 18:

Google Inc. will pay $1 for a municipal fiber-optic system that cost $39 million to build, according to terms of the Internet company's agreement with Provo. ... Even as Google takes ownership of the municipal network, Provo will have to pay off loans for its construction for another dozen years, according to agreements released Thursday by city officials.

So ... one of the most heavily capitalized companies in the history of civilization swoops in and purchases a $39 million state-of-the art fiber-optic “muni broadband” system in Provo for one dusty sawbuck. Google will maintain that network (and maybe improve it) via access fees they will charge the good citizens of Provo, while offering a "free" service that is so slow, no one would likely use it. (My now-dinosaur 3G iPhone 4 probably downloads stuff faster than the "free" network every Provo resident pays to keep afloat).

And, here's the kicker [emphasis mine]:

Even as Google takes ownership of the municipal network, Provo will have to pay off loans for its construction for another dozen years, according to agreements released Thursday by city officials.

For nearly as many years, households have been paying $5.35 a month on their utility bills for a system that provides Internet, television and phone service — whether they use it or not.

But Provo officials say Google's deal is a good one for the city and its residents because the system hasn't been able to support itself. Google Fiber will offer residents something in return for the utility fee — basic Internet service at no charge if they pay a $30 hookup fee.

Got that? Provo's taxpayers will be paying off the loans and interest on the $39 million network they hardly used — because it offered such poor service and was incompetently run by the city — until 2025. Hell, I'll bet Google's $1 that by 2025 the whole system will be obsolete, and another $5.35 Google will have bailed out on the whole project by then. The time between now and 2025 is an eternity in the digital economy. To put that 12-year time frame in perspective, Google was still run out of a garage just 15 years ago. Now it earns $3 billion every quarter.

"But, Jim," you say. "Google will give the good folks of Provo free Internet after they pay a $30 hook-up fee." Whoop-dee-doo. The "free" Internet will be just as unused as the network run for "free" by the city because those speeds are already obsolete. From the story:

In Kansas City, Google charges $70 a month for a gigabit connection, which is 1,000 megabits per second. Google's free Internet service will run at 5 megabits a second.

For another $50, Kansas City customers can sign up for Google Fiber TV, which features 200 channels, many in high-definition and featuring mainstays such as ESPN, Nickelodeon, FOX News and MTV, as well as recent newcomers HBO and Cinemax.

Wow! 5 megabits a second! Is that a joke? Like I said. If you like the speed of 3G phone for your entire home Internet experience, this is the deal for you. If you don't, and you shouldn't, it'll cost you — in this case it'll probably cost residents of Provo $70 to $120 a month on top of the taxes and fees they'll pay to settle that $39 million "free Internet for everyone" investment by the city.

And it's not like Provo is some underserved backwater that the city had to drag into the digital age. A metropolitan area of more than 500,000 people is a great market for broadband, and Provo is already being served by every high-speed broadband competitor in the business. Now Google gets to enter the market for free — and on the backs of taxpayers who did the hard part: building the infrastructure.

Let's sum this up:

  • Colossal investment in "free broadband" by a municipality? Check
  • Poor management of the network due to lack of expertise? Check
  • Few customers for the “paid” service, and few piggy backers on the crappy “free” service? Check
  • Ultimate failure of the project, but taxpayers still be forking out money to pay it off for decades? Check

How lucky is Google?! They don’t have to invest a single dime into building the infrastructure, but get to own it for $1, and then turn around and charge the public that paid to build it a fee to get on its network at market speeds. That’s like taxpayers forking over the money to build me a restaurant and stock it with food and a great staff. Then I buy the place for a buck and start running the joint and collecting all the profits.

That’s not exactly “crony capitalism,” but … what … “sucker capitalism”? “Dummy capitalism”? As I was expressing my outrage about this via email with various Heartlanders, Sam Karnick emailed me to call it "last-ditch capitalism." Any of those monikers will do. Where do I sign up to get some of that?

One last quote from the story; one last kick to the taxpayers of Provo:

"Clearly, we think there's a good business opportunity here," Google Fiber spokeswoman Jenna Wandres said Thursday.

No kidding.

Check out some of Heartland's extensive, years-long work fighting back at these muni broadband schemes at PolicyBot. Can't say we haven't tried to warn folks, including people in Utah.

Jim Lakely

Jim Lakely is director of communications at The Heartland Institute, co-director of Heartland’s... (read full bio)