Including bond payments, which continue for another seven years, the city is paying $1.2 million annually to subsidize the service, said Councilwoman Heidi Rodeback. The City Council is also considering upgrading the service to make it profitable, she said.

Council members discussed the issue in a meeting closed to the public Tuesday. No decision has been made.

The city sold $6 million in bonds to buy and upgrade the high-speed network, which it purchased from Switchpoint, previously known as AirSwitch, in 2002.

“It is of considerable value to us,” Rodeback said. “There is a great advantage to our economic development and to our residents. It enables home-based businesses, technology firms and all sorts of things.

“The problem is it is losing close to $1.2 million on an annual basis.”

The city has had two problems with the system — extending service to new areas of the city and promoting the system to people who live in areas where the service is available, she said.

The city hasn’t extended the service to many of the city’s businesses yet, she said. “We haven’t been able to extend the network to The Meadows, the Utah Valley Business Park or even to some along State Street. We also don’t have the ability or the staff to market it. We can’t control how the Internet service providers promote it.”

State law doesn’t allow cities to offer such services to retail customers, only to wholesalers. There are four ISPs that purchase the service wholesale from the city and provide service to residents.

Some of the four ISPs are in arrears in their payments to the city, and city officials are looking for ways to remedy that, said Councilman Dale Gunther. Only a fourth of the homes that can sign up for the service have subscribed.

Gunther said the city has some interested potential purchasers.

Mayor Heber Thompson said he’s leaning toward selling the service, noting the city would be forced to make more investments in upgrades if it keeps the system. “You would have to add capital improvements and personnel in an environment of rapidly changing technology,” he said.

If the council opts to keep the system, plans are to bring on another ISP that would specifically deal with businesses, making the product available to them, then market it to them.

“The business fees are significantly higher than the residential fees,” Rodeback said. “That is where the profit margin is.”

“Our product is far superior to Qwest and Comcast,” said city staffer Lynne Yocom.

Network engineer Dave Mills said the system is more than 10 times as fast as competitors. “Generally the fastest you can get with Qwest or Comcast if six or seven megabits. We are 100 megabits.”

“We would not be divesting ourselves of junk,” Rodeback said. “We would transfer ownership of a valuable asset to someone better equipped to manage it.”

She said if the network were sold, there would be a provision in the contract that the new owner would provide continuous service.

City-owned networks have proven tricky financially.

Provo has also seen lower than expected revenues from iProvo, which is now available to all of the city. City officials have said the first provider didn’t perform as expected and set the broadband network back on subscription numbers. The first bond payment of almost $1 million, which is due in August, will be paid by a loan from the city’s energy fund, and the city’s proposed 2006-2007 budget includes a $2.1 million loan to make the bond payments. It is expected to be completely self-sufficient, including the debt service, within the next two to three years.

This story appeared in The Daily Herald on page D1.