Lessons learned from iProvo and Google Fiber
I think the residents of Provo are uniformly thrilled that Google is taking over iProvo. I anticipate excellent service from them, and finally Provo will be out of the TelCom business. But this is also an important teaching moment about the proper role of government. Provo should never have sponsored this network, and we have paid a hefty price for this misadventure. This is not mere hindsight. Members of BYU’s Economics Department specifically warned against the project during its inception. Their concerns were dismissed, yet history vindicates every point.
First, the market for Internet service, while not perfect, was competitive; it’s not like there was some huge cache of potential customers waiting to join the Net. The city was laughably optimistic about the number of subscribers, and also over-estimated what fraction of subscribers would sign up for more than basic service.
Second, while fiber is cool, it is clearly not “future-proof,” as claimed at the time. Exhibit A is that Google will spend $20 million to upgrade the system that runs the fiber. Consider also how technology has evolved in the decade since the project was conceived; wireless networking has greatly increased its speed and range, and cellular data has moved from a novelty to a mainstay of most cell phone plans. In the long run, it’s still unclear whether and how long wired internet connections will be relevant. It was remarkably presumptuous of the city to make that bet.
Most importantly, Internet service is far outside the essential role of government. We clearly need government to establish and enforce laws which protect us and our property rights. There’s an argument for regulation to restrict monopoly power or limit harm to bystanders, as with pollution. We may see a role for charitable care through the government. But one would have to be a contortionist to stretch any of those to include internet access. In spite of the city’s reputation of having a highly conservative population, I ask where were our political principles when we needed them?
And so I say, thank you Google for buying our network at the appropriate price of $1. I should note that two years ago, BYU economists advised Mayor Curtis to sell the fiber at ANY price, so as to end the open-ended commitment of pouring money into the network. Now we have clear evidence of what that system was worth in its current state ($1) and how big that open ended commitment could have been ($20 million). I, for one, applaud the Mayor’s actions in explicitly making the city’s obligations apparent and diligently finding the best possible exit strategy.
Let’s just remember, this one dollar’s worth of fiber actually cost $40 million from subscribers, business failures, and ultimately, resident fees. Indeed, each utility customer will continue paying a $5.35 “telcom debt charge” per month for years to come. Please, let your monthly utility bill stir thoughts about the proper role of government. If this reflection somehow prevents citizens and politicians alike from future misadventures into private enterprise, it just might be worth it.
• Brennan C. Platt is an Assistant Professor of Economics at Brigham Young University. This reflects the author’s personal opinion, who does not speak for Brigham Young University or the Church of Jesus Christ of Latter-day Saints.