Wednesday, May 11, 2005

It's working in a little town in Pennsylvania

I've tracked Kutztown before; it's a nice little town not far from my last posting at the University of Delaware and I have a soft spot for the Amish region in which it is located. Kutztown was one of the first towns to build its own fiber-optic system and has been regularly and unfairly presented in telecom company-sponsored propaganda as an example of how such builds have failed. (For Kutztown's reaction to this treatment, see the section on Kutztown in the TriCities "Broadband Failures" page.)

The current story looks like it started out as a color piece on a nice place to spend the weekend for the Pittsburg paper. I suspect the writer found a little more than he was bargaining for. It turns into a pretty incisive piece of economic reporting.

On the savings enjoyed by the residents:
Service Electric, began offering high-speed Internet access only after Kutztown unveiled its own network. To Kutztown residents, the high-speed service costs $25 a month. But if your home is just a foot over the Kutztown borough limits, the cost rises to $45 a month.
That's what you save by going with the private provider--close to half price. In our case, think Cox. Here's the story on the borough's own offerings:

And so grows Kutztown's customer roster, month by month, student by student, business by business. Nearly 800 subscribers out of 2,200 homes and businesses -- that's a market penetration of 35 percent for the utility. Jaymes Vettraino, borough manager, hopes market share will eventually grow beyond 40 percent, which would allow Hometown Utilicom to begin turning a "profit" by 2009.

Hometown Utilicom's prices -- as low as $15 a month for 2 megabytes per second of transfer speed, $16 a month for cable TV -- have saved Kutztown's customers $400,000 over the last three years. "Private companies may view it as $400,000 left on the table," he said, shrugging.

"Hometown Utilicom" is true to its name. It doesn't need to make a big profit. Only pay for itself and return value to its citizen-owners.

Here's a bit more economics -- this with an historical awareness:

In taking matters into its own hands, Kutztown would appear to be a technology maverick. But it's also a bit of a throwback. Before big electricity companies came along, many small towns ran their own electric generators, providing juice for townspeople.

Three dozen towns still do that in Pennsylvania, and Kutztown is one of them. It's the fee-based model of taxation -- provide a utility that your residents would use anyway, charge for it, and if your business model works, other taxes stay low.

It's worked in Kutztown, at least on the electric side of things, as the local property tax rate hasn't risen in seven decades. Vettraino hopes Kutztown's Internet experiment will pay off the same way, by attracting more businesses like Lapic's, and more student customers like Vaculi and Maga, and by eventually contributing to the town coffers instead of draining them.

Now, as regular readers will note, I think the writer confuses "taxes" with revenues--a confusion shared by some folks around here, but do pay attention to the basic idea: electrical revenues are a proven way to keep taxes low. And telecom can serve the same role. (And yes, this is similar to my claims about LUS' in lieu of taxes; there's nothing new or odd about the logic.)


GumboFilé said...

for another perspective,

Virtually all the local governments that have entered the telecom market have done so using a municipally owned electric utility as a base. These utilities enjoy a number of preferences. They are exempt from paying federal, state and local income taxes as well as property and other taxes. They raise most of their capital through issuance of bonds that are both tax-exempt and guaranteed by the local governments. They own the utility poles and rights of way. All of these factors give the municipalities artificial advantages vis-à-vis their private competitors.

In a 2001 PFF study, Jeffrey Eisenach asked whether government belonged in the telecom business and concluded that such entry was "not likely to produce desirable results." This paper builds on the earlier effort by examining the performance of a group of municipally owned telecom entrants.

John said...

David Hays,

Lordy, lordy, half truths and little deceptions...its infective. And like a push poll kinda of effective...if you've not got access to the facts.

Fact 1: LUS and most municipal utilities pay more back to the community in "in lieu of taxes" than private industries are supposed to...much less actually do. In our fair state it is the law. BellSouth lobbied hard to make sure that LUS can't give you back all of the in lieu of tax that it pays local government. Before last summer they could. Now, thanks to BellSouth's "fair competition law" they will never be able to. There’s absolutely no advantage to LUS in this and the implication that there is or can be is deceptive.

LUS isn't going to get off easy. And consequently neither will you.

And you can thank BellSouth.

Fact #2 The Progress and Freedom Foundation. Wasn't one of their guys at the "Broadband Academic Forum" telling little falsehoods about never lowering their prices to compete with municipals? Isn't that one of the well-known corporately funded think tanks like the Heartland foundation that seems to come out with a new retread faux academic study every time the corporations need one? Tis. Tis the very same.

Fact #3 This particular study is bogus. It's a third generation retread of the study demolished in this paper:

If you go to the link that David provides you’ll find a long list of towns that this group of “scholars” has been dumping on since that first study. It might occur to you that such a long list of failures and no successes is really sort of surprising. It is, especially since almost all on the list that actually do provide telecom services are well-liked and valued by their community. ONLY the likes of the Progress and Freedom Foundation (and their paymasters, the teleco’s and cableco’s) think they are failures. The communities in which they are located think of them as valuable assets.

Do not be mislead.

Luckily a nice summary of all the ways that the Progress and Freedom Foundations case studies are wrong is to found at:

GumboFilé said...

It used to be called equal time.

Statement on Municipal Broadband Reports

Written By: Joseph L. Bast
Published In: News Releases
Publication Date: April 12, 2005
Publisher: The Heartland Institute

(Chicago, IL) On April 11, three liberal advocacy groups released two new reports claiming to make a case for allowing local governments to build broadband networks in competition with private companies and nonprofit organizations. The three advocacy groups are called the Media Access Project, Free Press, and Consumer Federation of America. Their reports are titled “Connecting the Public: The Truth About Municipal Broadband” and “Telco Lies and the Truth about Municipal Broadband Networks.”

The following statement can be attributed to Joseph Bast, president of The Heartland Institute, a national nonprofit organization based in Chicago, and author of two Heartland Policy Studies on municipal broadband.

Neither of these studies adds anything new to the debate over whether there is a genuine need for municipalities to get into the business of offering commercial broadband services. Instead, they simply repeat the rhetoric put forward by municipalities in the past.

The authors claim many municipal broadband systems recover their costs or are even profitable, yet their analyses invariably ignore the cost of repaying debt. According to municipalization expert Ronald Rizzuto, professor of finance at the University of Denver, virtually all municipal broadband systems serving residential customers today are costing taxpayers money, even when the benefit of lower rates for cable television is included in the calculation.

The authors of today’s reports seem unaware of data comparing private and public costs for a wide range of public services, which show conclusively the benefits of privatization. This isn’t a “sweeping assumption,” as one study claims, but the result of hundreds of studies by independent scholars over the years. To imagine that broadband is an exception to such a well-documented rule is dishonest or naive.

Finally, the authors fail to mention data showing rapidly falling prices and rising levels of broadband penetration and service levels (bandwidth), which contradict the notion that broadband markets are uncompetitive. Monopolists do not cut their prices and invest billions of dollars in new facilities and services, yet that is precisely what cable, telecom, and wireless broadband providers are doing. Without monopoly, there is no case for municipalization.

Rapid changes in information technology are creating competition and choice in an arena once ruled by government-regulated or -owned utilities. It is no surprise that municipal officials, seeing their power diminished by the entry of new competitors, view municipal broadband as a way to retain their status. But taxpayers and consumers will be hurt, not helped, if this power grab is allowed to occur.

Bast’s latest policy study on municipal broadband is available online at For scores of objective reports on municipal broadband, visit The Heartland Institute’s Web site at, click the PolicyBot™ button, choose “Telecommunications” from the topic list, and then “Broadband: Municipal.”

GumboFilé said...


The Progress & Freedom Foundation Blog
Tuesday, April 12, 2005

More on Muni Ownership

This debate is quickly degrading into name-calling, with any free-market argument now dismissed out-of-hand as coming from "sock puppets." This is unfortunate, because a lot is at stake in the debate, not the least of which taxpayer dollars.

The king of the sock puppet line, Glenn Fleishman, faults our latest studies on municipal ownership, which is hardly a surprise given his track record on the subject. What is surprising, and disappointing, is that he declines to take on any of the substantive economic arguments presented in the studies by Tom and Adam.

Deeming your opponents' views unworthy because of their disclosed sources of support is convenient for two reasons. First, it relieves you of actually having intellectually to engage the substance of their argument. Second, it appeals to species of moral vanity that holds only you are pure and principled in your views and any opponents are irredeemably compromised -- call this the "Diogenes the Cynic" syndrome. I am honest; my opponents are charlatans. I am sure that position gives one comfort, but it does little to advance the substantive debate.

Glenn does, as he has in the past, acknowledge that we disclose our funders. Yet I suspect Glenn doesn't praise us for that because he views it as a reflection of our intellectual honesty, but rather because it makes it that much easier for him to tar us with the sock-puppet brush. I won several journalism awards in part by highlighting funding in policy debates, but I knew that sometimes organizations are paid to say things, and other times organizations are paid because someone likes what they're saying. All the difference in the world lies in that causal chain. And, not to disparage our efforts in this area, but it is hardly surprising that a pro-market think tank opposes government disruption of markets.

Indeed, PFF makes a poor corporate stooge on this issue. The High-Tech Broadband Coalition, which includes 6 trade associations, is spending serious coin pushing municipal broadband buildouts. Thus, they're on the opposite side of us in this debate. Yet looking at the HTBC trade associations' member lists, I counted 13 companies that are PFF funders, including Intel, the most prominent proponent of HTBC's agenda on this issue. If we write for our funders why are we on the opposite side of Intel and the twelve other funders? I should note it is in Intel's and HTBC's corporate interests to do what they're doing, and I respect them for that; more hotspots mean more routers and more use for Celeron chips. Glenn doesn't write about this money, but I'm not asking him to, because just as PFF scholars don't write their views based on corporate funding, I don't believe the so-called consumer advocates push municipal broadband because they're partnering with corporate interests.

This debate will continue. Corporate money will be spent on both sides. Reports will be issued by both sides. It's my hope that everyone looks critically at the data available and avoids name-calling. That's my view as a taxpayer, anyway.

posted by Patrick Ross @ 6:26 PM | Municipal Ownership
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John said...

David Hays (I really wish you'd just start leaving your name--here and elsewhere.)

A matter of style, which you will no doubt find offensive: I'll leave these long reposts of other people's opinion up but in the future I will not allow people to repeat the words of others as a substitution for speaking for themselves. That's not what commentary is for. If you can't own it it isn't your commentary and doesn't belong here.

I view this as allied to the practice of speaking anonymously. We are speaking publicly here and in our own name. Hiding behind anonymity or the voice of another misuses the function of commentary. Your voice. In reaction to what you've read.

Quote someone for authority or interest. Fine. Leave a link to the full article. Good also. Read the whole article into this space. No.

I understand that you are seeking to use the success of this website to redirect people to yours an to get an audience for your views. If you'll check across the web you'll find that injecting your url explicitly into posts is considered, well, bad form. It leaches off the success of others.

And I understand that you don't think you're being heard where you are currently posting. I agree that you are right about that. You ought to think more deeply about the reason.

But what is happening here is that you are not engaging in commentary nor in discussion with the person who responds to the content of your original messages. You are trying to simply repeat what you believe again. More loudly. In someone else's words.

It's a further misuse of my hospitality and the purpose of commentary

Some of the abuses I tolerate. But not reposting long stretches of other people's words which are necessarily not responsive to the ongoing conversation.

Please comment in your own voice. In response to what you've read here.

John St. Julien

John said...

When Bast above makes his argument he is explicitly relying on the same studies that have been discredited in the links I gave early in this commentary.

His argument also relies on the fundamentally mistaken idea that monopolies don't invest so investment is evidence that any company isn't a monopoly. Investment, in fact, has nothing to do with. The railroad monopolies of the Robber Baron era in fact fueled huge capital investments as the robber barons sought to extend their monopoly control into regions that were as yet unserved. And they did it using the monopoly prices they were able to charge.

Cable is just the same. They are investing in delivering new services, in extending their reach into new things for which they will be able to charge monopoly prices. Its a smart and guaranteed investments and what monopolies always do. That Bast does not realize this or write as he does disregarding this simple historical and economic fact rasies serious scholarly questions.

It is surely a distraction to claim that monopolies have anything to do with reinvestment. Monopolies are about haveing monopoly control of a market so tight that no competitor can drive the price down.

Ok. Now that is the way to respond to _points_ in a post. In your own voice. So as to engage in honest conversation. Now that is in response to somebody who is actually not even speaking here.

It would be nice if folks would use this commentary space to actually respond to the points I raised. (In my own voice.)

GumboFilé said...

In my own voice, you really need to get over the name thing. You and everyone else know my real name, therefore I'm not anonymous. Furthermore I'm not the first person to use a pen name. I won't insult you with examples. Regardless, no matter what I call myself, you still don't know me so why is it such a big deal?

As for long reposts of others opinions, this is a first for me at this site so spare me the lecture. It's the only way I can match you in number of words used. I also thought it an appropriate way to respond to "Lordy, lordy, half truths and little deceptions...its infective. And like a push poll kinda of effective...if you've not got access to the facts" and "Luckily a nice summary of all the ways that the Progress and Freedom Foundations case studies are wrong is to found at:", since it was the actual response of those disparaged in the article you linked to. I was allowing them to defend themselves in their own words. I posted the entire text to make more certain that it would be read. I won't do it again.

Regardless, it doesn't matter who the words belong to, you've shown that even when I agree with you you're going to respond as if I called the Pope a whore. You pro LUS folks need to learn to handle disagreement in a more civil manner.

As for success of this website, don't flatter yourself. Besides you and me I don't see a lot of evidence that anyone actually reads this.

As for hospitality, your entire post was a patronizing insult. You've called me a liar and told me to shut up. Is this how you teach? What you should call me is stupid for sticking around.

If anyone besides me actually reads this site you can follow the link below and see that, not only do I post a legitimate alternative perspective on this issue, I also post links to all the pro LUS sites, and I don't insult them or call them liars. I think it's only fair to allow both sides to be heard. Apparently I'm the only one. Maybe others don't have confidence in their ideas or in the intelligence of the readers. If I have to be a leach to accomplish this, so be it.

It would be nice if folks would use this commentary space to actually respond to the points you raise, but they have to show up first. I'm here in spite of your abuse of me. You should be grateful. I must be crazy.

David Hays,
non-resident of Lafayette,
liar extrodinaire speaking on things about which he has no knowledge or right to speak

aka, GumboFilé

aka, leach

John said...

David Hays,

Now that was in your own voice.

I don't want to abuse you. I do want you to own your own work. And present your own work, not the work of others.

About anonymity. People here know your name through my efforts. I doubt if that is true in any other forum you participate in--includng the ones you sponsor. I'm willing to bet that you understand that anonymity is a large part of what has gone wrong with Fiber411. Anonymity lets people get away with floating ugly things they'd never say if people knew it was them. It also lets folks, probably without real malice, do little things like implicitly claim to be members of a community in which they don't reside. I never liked the practice and I've grown to like it less since I've been involved in this work.

Believe it or not I would actually like to know you. I suspect that you're pretty easy to talk to face to face. (That is part of my point about anonymity.)

This site hasn't fallen below 250 unique visitors a day in a very long time. Good days run above 600 and days where there are email runs containing our URL soar above 1000. That's not huge numbers, I readily grant, but its pretty good given the topic and the fact that those most interested live in the city limits. (And the fact that I am so wordy.) I don't trumpet numbers because that's not the real point of the blog. (And I don't want to tempt myself to do sensational things for the numbers hit.) The real point is to effect the larger conversation. And I see every evidence that that is happening.

I still haven't told you to shut up. Quite the opposite: I was asking you to speak. Mostly because I'd like to improve the quality of the conversation; or rather, that I'd like it to actually be a conversation which is what the comments are for.

Here's something I'll concede: I wish there was more actual conversation here. My guess is that you and I doing blocking moves on each other is pretty boring and discourages participation by others. I doubt you'll believe me but my attempt to discourage certain kinds of posting comes as much out of my teaching experience as out of pique. There are types of posts that shut down online discussion and types that encourage it. I've tried to study it as part of my work in ed tech. The sort of posting that reposts the words of others ends discussion strings.

But back to actual points about which conversation might be possible: when Bast says "Monopolists do not cut their prices and invest billions of dollars in new facilities and services, yet that is precisely what cable, telecom, and wireless broadband providers are doing." I still think him attempting to cloud the issue. In fact pushing huge investments into dominating and expanding a monopoly market is what history shows has always happened. (Again I refer you to the huge investment poured into railroads during the robber baron era.) And it makes rational economic sense as well. If you’re making a greater return on investment there than elsewhere (and this is the benefit of monopolies for owners) then it is only sensible to reinvest the profit in the same place. It is closer to being evidence of monopoly than evidence against it. This is precisely the sort of psuedo-scholarship that so irritates me about the writings of Bast and his allies. It appears to be sensible on first glance but falls apart on any, even momentary, examination.

GumboFilé said...

Whatever you did before posting this response (yoga?, drink?), I suggest you do more of it. Your tone is much more civil. It's not just anonymity that encourages uncivility, it's also the medium, possibly plus the fact that we've never met, which I guess is functionally equivalent to anonymity. I don't know that using a real name makes that much difference if that's all you know of somebody.

To encourage more interaction I suggest you try to condense the content of your posts and replies. It can be frustrating trying to reply to a multitude of points in a single post. You'll notice I normally keep my replies short unless I'm trying to cover all your points.

I would like to meet you someday and talk about anything but this. A single shared handshake and beer can go a long way to promote civility. Look for me to walk up to you at DTA one of these days (after my wife and daughter get through graduation). I'm somewhat iconoclastic on many issues but who knows, we might agree 80-90% of the time if we aren't talking about this. There are many issues I take more seriously but there aren't many that I can have much influence on. A letter to the editor isn't going to bring the troops home from Iraq.

David Hays
aka, you-know-who

GumboFilé said...

PS, Don't use the lie word so much. It's ok to call someone a liar if (as has been the case) that person is caught in a public contradiction, but much of what you call lies are simply matters of debate.

I've managed to avoid calling you and your allied policy centers liars, even though I think that some of your conclusions are incorrect. In other words, I think that some of the things you say are not true, but that doesn't make them lies and it doesn't make you a liar, unless you know them to be verifiably untrue.

When parties with dissimilar biases reach opposing conclusions based on those biases (which data are relevant?, which data are reliable?), neither party is necessarily lying, unless that party is intentionally overlooking data in order to reach a predetermined conclusion. Unless you have the power that none of the rest of us have to read minds and hearts, you cannot make that determination.


John said...


Didn't drink a thing...I did "sit on my pen" for most of the day. :-)

You're right about length. That is also something that discourages interaction and I could tell you so from my own research :-) . I have thought seriously about trying to cut back on length but that works against other things I am trying to accomplish--like laying out complete arguments for folks to take away and use. (Oddly enough having complete arguments also mitigates against further conversation...there are trade-offs that no one likes.)

My guess is that we could talk about this too...over one beer anyway. More might be dangerous...

I am still serious about speaking in our own voice. And I am still serious about Bast and his backaswards reasoning about monopoly that serves to distract from the actual issues of monopoly power.

John St. Julien