A study of three Iowa cities by a University of Denver finance professor says municipal-owned cable and internet services may not be the best choice for a community. Ronald Rizzuto studied the systems of Cedar Falls, Muscatine and Spencer and says their operation should send out a warning. He says if you’re going to make the investment and it doesn’t pan out or has losses, then the taxpayer is going to pay for it. He says it’s a lot different from running an electric utility which is a monopoly business. Rizzuto says his study has found that none of the three municipal-owned broadband communications systems was making money on their own. He says that’s because they aren’t run as an independent business. He says they don’t know what their costs are, or price their services below cost. He says since they’re municipally owned they have the luxury of borrowing money from the electric utility, so he says they don’t bring the same business discipline to it that a private business would. Rizzuto says you end up having part of the community subsidize the cable and internet services of others.He says everybody takes electric service since it’s a monopoly, but not everybody take cable or high-speed data. He says that pulls subsidies out of the pockets of electric customers. Rizzuto says Cedar Falls looks to be in the best position to make it’s system profitable. He says if they run the service like a business and don’t charge rates below their cost, then he says they could probably make a go of it. Rizzuto says it’s “theoretically possible” that rate savings and service improvements for cable, Internet, and telephony customers in the three communities may offset some or all of the deficits. But he says such rate savings “would have to be huge” to offset the deficits he’s found the operating reports. And Rizzuto says any such rate savings are probably offset by rate overcharges for electric, water, and natural gas utility customers. To see Rizzuto’s study, surf to www.heartland.org.
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