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Broadband consultants collect hefty fees as they push taxpayer-supported networks

By   /   November 21, 2016  /   News  /   No Comments

Creative Commons/Bill Burris

FIBER-OPTICS: This building block for high-speed internet is also the source of a fight between public and private broadband networks. Critics warn that expensive fiber networks are costly to taxpayers in the long run, and consultants hired by cities often oversell the benefits of municipal-owned networks.

 

If you build it, they will come.

It’s not just fictional Iowa corn farmer Ray Kinsella hearing those words. More and more, local governments across the country are getting such positive feedback from consultants, who recommend the construction of expensive taxpayer- or ratepayer-supported broadband networks with promises the moves will attract businesses and improve the area’s quality of life.

But critics argue that consultants are just telling local bureaucrats what they want to hear.

“They already want to create a government-owned network,” said David Williams, president of the Taxpayers Protection Alliance, “they’re just looking for confirmation.”

He jokingly calls government broadband consulting work “Jeopardy research.”

“They already have the answer, they’re just looking for the question,” Williams told Watchdog.org.

If you pore over the various reports scattered across the web, posted by cities and counties in which consultants have researched broadband, it’s hard to find an example in which a consultant told a government not to offer high-speed internet in some capacity, whether it’s building a full-fledged utility-operated network or a fiber-optic backbone onto which providers could connect.

Peachtree City, Ga., is the rare municipality to go against the advice of its consultant. Community Broadband LLC of Midway, Ga., anticipated profits of $451,901 by year five if the city built its own $3.2 million network, but city leaders weren’t so confident. An initial survey yielded mostly favorable responses from local businesses indicating they might subscribe to a high-speed service from the city, but questions were raised about the reliability of that survey.

RELATED: Georgia town cites big demand for government-run internet, but can’t cite proof

Peachtree City leaders saw enough failures of government broadband projects that they ultimately decided to scrap the project, and contract with a local provider to serve city facilities’ broadband needs. But even though the City Council voted down the plan, it didn’t create animosity between the consultant and the city: Peachtree City spokeswoman Betsy Tyler told Watchdog the city continues to use Community Broadband as a consultant on communications issues.

Kelly McCutchen, president of Georgia Public Policy Foundation, said unlike government leaders, consultants can’t be held accountable for the results by voters.

“They’ll tell them they can do it cheaper, and it’s not based in reality,” McCutchen told Watchdog. “And taxpayers are left holding the bag.”

Photo courtesy of LinkedIn

MCCUTCHEN: Consultants, unlike politicians, aren’t held accountable for costly broadband mistakes.

“Typically these consultants are the only ones that come out good on these deals,” he said.

He points to Marietta, which sold its FiberNet broadband system at a loss of $24 million in 2004. Its fiber-optic system, stretching from Kennesaw to Alpharetta and partially into Atlanta, had all of 180 customers along its 210-mile route when the city got rid of it.

Bill Dunaway, then the mayor, who ran on a platform that included dumping FiberNet, told USA Today the city couldn’t keep up with the necessary equipment upgrades.

“That’s why we should not be in this business — you have to keep reinvesting,” he said.

Baltimore mayor-elect Catherine Pugh listed a litany of other municipal broadband failures in a 2013 op-ed in the Baltimore Sun when she served in the state Senate.

The Democrat pointed to Provo, Utah, which spent $40 million to build a network it would ultimately sell to Google Fiber for a $1, as well as Marietta and Groton, Connecticut, where taxpayers lost $38 million.

“For many local governments, the promise is seductive. A cottage industry of consultants and network builders — who stand to profit handsomely — sell the idea to misty-eyed government officials that building a municipal broadband network will spawn a local Silicon Valley microcosm that will be a monument to their incumbency,” she wrote. “But what they don’t see is that the economics of the grand venture doom it to likely failure.

“For the most part, municipally-built broadband networks have the economic chips stacked against them and, where tried, have saddled local taxpayers with a mountain of debt and half-built networks that are then sold at fire-sale prices to vulture investors,” Pugh continued.

Leaders in the field

The leaders in the consulting field are Magellan Advisors of Denver, Col., and CTC Technology & Energy of Kensington, Md., each consulting on hundreds of broadband projects. Magellan says in press releases that its staff “has planned and developed fiber optic networks in over 200 communities across the U.S.”

The company said that through its services more than $1 billion of broadband investments have resulted, “connecting more than 1,000 schools, hospital, libraries and governments and passing nearly 1 million homes with fiber.”

In Jupiter, Florida, Magellan both consulted on a municipal broadband project and helped build it.

Magellan Advisors photo

HONKER: His Magellan Advisors is the leader in the broadband consulting field.

Magellan urged Baltimore, where it earned $157,000 for its report, to pursue federal funding to connect schools to fiber, and to lease 122 miles of existing fiber that was part of a emergency responders communications network to interested providers.

CTC recently worked with Huntsville, whose Huntsville Utilities is now building a $57 million network that Google Fiber is tapping into to provide gigabit-capable speeds to homes and businesses. That firm has consulted with the public sector for more than 30 years. Its current projects include fiber-optic and wireless regional communications interoperability initiatives in the Washington, D.C., area for the U.S. Department of Homeland Security.

A lengthy list of its partnerships can be viewed here.

CTC didn’t return a call from Watchdog for comment on its consulting work. Magellan president and CEO John Honker also didn’t return a call.

Another firm, Strategic Networks Group, based in Ottawa, Canada, and Superior, Col., recently announced a partnership with the Shoals Entrepreneurial Center in north Alabama. SEC got a nearly $1 million grant from the Appalachian Regional Commission for a three-year partnership with SNG to develop digital strategies for the region. This will include the Small Business Growth Program, “a program that shows businesses the economic impacts that inspire greater Internet application utilization, grow businesses, and create job opportunities.”

SNG says it helps communities “uncover the transformative power of technology investment.”

Magellan continues to do brisk business in the government broadband consulting sector today, even nabbing two projects in Chatham County, Georgia. First, the city of Savannah paid Magellan $65,200 early in 2016 for a broadband network feasibility study, then Chatham County, of which Savannah is the seat, agreed to a similar consult for $65,500 in September.

Savannah is served by some two dozen broadband providers, but Comcast captures most of the business. That company is planning on upgrading its network to provide 1 gb speeds to residents and 10 gb speeds to businesses in the coming years.

RELATED: After paying $130K on consultants, Savannah area asks residents about broadband access.

Williams argues it doesn’t take a $65,000 study to determine the scope of the broadband market.

“When I go to talk to lawmakers about broadband, I do a Google search to see who serves an area,” he said. “And I don’t charge $65,000 for that search.”

Williams said local governments can ill afford to spend that kind of money on broadband consulting, calling it “a big waste of resources.”

“People think consultants are a mystical group of people who have all the answers,” he said. “They’re selling snake oil. They’ve found a niche for getting taxpayer money.”

Magellan was initially rebuffed this spring in Lakeland, Fla., where the city’s chief financial officer, Mike Brossart, warned city leaders against a $220 million to $270 million plan to build a new government-owned internet utility across Lakeland Electric’s service area.

Magellan’s report anticipated a quick return on investment, but its projections required that 40 percent of Lakeland Electric’s customers sign up for internet and face an annual 1.5 percent price increase. Brossart deemed that financial model too sensitive.

“It’s highly speculative and we’re not in the business of being highly speculative with the citizens’ money,” Brossart told The Lakeland Ledger.

Lakeland leaders considered building a network, but on a much smaller scale, before scrapping the idea altogether in October.

In Stark County, Ohio, Magellan recommended county leaders create a broadband authority and consider building a 130-mile middle-mile fiber-optic backbone with an estimated cost of $22.5 million. Providers could then build the last mile from the backbone to facilities desiring broadband.

Nearly all of the homes and businesses in the county that were randomly sampled are already able to subscribe to broadband-speed services at reasonable prices.

RELATED: Ohio county with plenty of broadband looks to build its own network

Magellan noted in its study that if the county built the backbone, many of its cities could use it to plan their own networks.

“An additional benefit of the middle-mile fiber backbone, is that it would provide political sub-divisions the ability to develop their own fiber initiatives,” Magellan wrote in its report.

And if those municipalities need any consulting work in planning those networks, Magellan is just a phone call away.

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Johnny Kampis is National Watchdog Reporter for Watchdog.org. Johnny previously worked in the newspaper industry and as a freelance writer, and has been published in The New York Times, Time.com, FoxNews.com and the Atlanta Journal-Constitution. A former semi-professional poker player, he is writing a book documenting the poker scene at the 2016 World Series of Poker, a decade after the peak of the poker boom. Johnny is also a member of Investigative Reporters and Editors.