Cable Group Says EPB Plan Illegal, Revenue Estimates "Astonishingly" Off
posted September 21, 2007
The EPB board voted unanimously on Friday morning to approve the ambitious $210 million program that would put the city-owned agency in the cable TV business.
Harold DePriest, EPB president, said, "We've heard resoundingly - the people want this built."
He added, "This has been very extensively debated and discussed. The people are very much in support."
Mr. DePriest said 22 of 23 speakers at a public hearing were in favor, and all but six of 164 who sent comments were positive.
EPB board member Harold Coker said, "I knew the present suppliers were not well-liked, but I didn't know it was this bad."
He said, "I really believe this will be the economic generator that will make this area jump with jobs and propel this community."
Joe Ferguson, board chairman, said he was impressed with the young entrepreneurs who favor the program. He said, "They know that second-generation broadband is so important."
Mr. Ferguson said the message from the community was "this is something we've got to do. Let's get it done."
Mr. DePriest said the City Council is due to vote on the issue on Tuesday, and it will take a two-third majority for approval.
He said the City Council could decide on calling for a public referendum. He said that process would take about two years.
Mr. DePriest said if the City Council gives the go-ahead, the EPB board will vote in October on issuing the bonds. He said it then will need to go back to the City Council for approval of the bond issue.
The approval came a day after the executive director of a statewide cable TV association said in a letter that the EPB fiber optic plan is illegal and its revenue estimates are "astonishingly" off.
Stacey Briggs, executive director of the Tennessee Cable Telecommunications Association, wrote the letter to EPB Chairman Ferguson.
The letter says:
Dear Chairman Ferguson:
From newspaper reports, it appears that you will likely vote this Friday to approve the EPB cable and Internet business plan submitted to the Comptroller on August 17, 2007. Please consider the information contained herein before you take any such action.
In 1999, my organization, the Tennessee Cable Telecommunications Association, worked with Tennessee’s municipal electric distributors, including EPB, to craft the laws pertaining to municipal entry into the cable and Internet business. The laws that resulted are intended to protect the public and to ensure that public assets are not misused. As I mentioned in my remarks at your September 5th public hearing, financial experts and academics were reviewing the EPB business plan. Independently, the four experts who looked at the plan identified flaws that warrant serious concern. Notably, the aggressive revenue projections are an astonishing $80 million off area industry standards.
The experts have concluded that there are also undeniable cross-subsidy issues in the current EPB Plan. The plan calls for the use of electric ratepayer money to build the cable and Internet infrastructure. Using electric ratepayer money to subsidize the cable venture is strictly forbidden by Tennessee law. Such blatant violation of law cannot be tolerated.
While EPB’s plan lacks meaningful risk analysis, please know that public cable ventures in Tennessee and elsewhere in the country have routinely failed to meet market projections and fail to repay their bonds and interdivisional loans. Venture after venture have proven to be an enormous waste of public time and money. Many municipal ventures are forced to sell at a tremendous loss. Just recently Memphis Networx left taxpayers on the hook for over $25 million and an investigation is pending. We believe Memphis is just the beginning of the end for the handful of Tennessee cities who have taken this tremendous risk in a volatile industry. Unfortunately, EPB has chosen to lead Chattanooga on the same road to financial failure. The attached financial findings by Dr. Ron Rizzuto, a renowned expert in competitive municipal overbuilds, should be taken as a warning.
A more prudent approach for EPB and Chattanooga would have been to learn from the due diligence of the Metro Nashville Task Force on Telecommunications Innovation. For seven months, the Task Force evaluated public and private interests; industry experts, business leaders and public officials regularly made presentations; and vital issues such as the competitive broadband market and attracting new business to Nashville were cautiously considered. In the end, the final decision of the Metro Nashville Task Force, as per their recently published findings, was to embrace the private sector, and work with existing providers to recruit business; incenting private industry, as needed, to continue to provide state of the art facilities, such as the fiber-to the node system which Comcast has in place in Chattanooga today.
It is not apparent that EPB has fully considered these policy and legal concerns while preparing to take on a significant financial risk. I would urge that you take a more cautious approach to this risky venture and at a minimum amend your existing business plan to come into compliance with Tennessee law before moving forward.
If you have any questions concerning this, please do not hesitate to contact me.
Sincerely,
Stacey B. Briggs
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