An Ohio-based company that recently received an exclusive contract to manage Indiana’s communication network also benefited from an “unusual deal” in its home state.
Ohio’s Department of Administrative Services paid Agile Networks about $2.2 million last year to maintain the Multi-Agency Radio Communication System that carries voice and computer traffic of more than 50,000 emergency responders. As part of the deal, Agile Networks gets to sublease space on 82 towers that are part of that system.
Because the state pays the tower electric bills, as the Columbus Dispatch reported, Agile pockets money from T-Mobile, which has installed its equipment on the towers to beam its cell phone and wireless internet signals. The state told the newspaper it doesn’t know how much money T-Mobile is paying Agile for the sublease.
The publication noted that monthly tower rentals by phone carriers can range from $1,000 to several thousand dollars, which could reap up to $1 million for Agile Networks.
Why did Canton-based Agile Networks get such a sweetheart deal? So the state could avoid trouble with the Internal Revenue Service while also working toward a goal of growing internet access in rural regions of the Buckeye State.
The IRS places a 10 percent private-use limit on government property built using proceeds from tax-exempt bonds, such as those towers. So while the state can’t lease the space to providers like T-Mobile, another private company like Agile Networks can sublease that space to skirt the federal law.
Kurt Kauffman, capital finance director in the state Office of Budget Management, told the Dispatch he was unaware of other agreements like Agile’s that allowed a contractor to sublease state property for profit in order to comply with IRS regulations.
David Williams, president of the Taxpayers Protection Alliance, was appalled by the deal.
“It’s a company double dipping,” he told Watchdog.org. “Let’s be honest. This is what they’re doing. When you’re getting taxpayer dollars you need to service the taxpayers and not line your pockets in other ways.”
Agile Networks recently signed a somewhat similar deal in Indiana to manage and market that state’s communications infrastructure. It will pay Indiana $50 million for the 25-year rights to manage the network, including gaining control over the state’s cell and radio towers, fiber-optic cables and streamlined rights of way. The state said the move will help expand broadband to rural areas, but in-state telecom providers wrote a letter saying the deal “subsidized an out of state competitor and made them a middle man, increasing the barrier to growth of Rural Broadband in Indiana.”
Agile Networks spokesman Garrett Robertson didn’t return Watchdog’s call seeking comment.
Company founder and chief technology officer Kyle Quillen defended the deal in the Dispatch while also declining to reveal how much the private company makes off of the T-Mobile sublease agreement.
“T-Mobile never would have gone onto those sites without our network there,” Quillen told the publication. “Part of the rationale is that without Agile investing the money … [the state towers] would have gone underused and not help facilitate connectivity in rural areas.”
Agile Networks also pays the state about $700,000 annually to lease 146 towers on which it has installed its own equipment. The company then sells access to its broadband network primarily to resellers.
Brent Skorup, research fellow in the technology policy program at the Mercatus Center, said such public-private partnerships are relatively new but they are becoming more common. He noted Pennsylvania has a similar deal, and Kentucky recently partnered with Australian company Macquarie Group for its statewide KentuckyWired broadband network.
He sees these profit-sharing deals as pernicious in the long term.
“It seems to me when states have profit sharing they’re not going to want competition in there that could harm the state’s profits,” Skorup told Watchdog.
He noted the lack of competition is likely to keep prices higher, as companies with monopoly service lack incentive to reduce rates to customers.
“I think these deals pose real risks, not only to taxpayers, but also subscribers of these services,” he said.
And once states feed at the trough in the short term, it will be hard to convince lawmakers to dial back the deals in the future.
“I think it’s unwise for states to give exclusive deals to companies,” Skorup said. “These have to be watched closely.”