Siloam Springs Considering Cable Business Venture

The city of Siloam Springs is considering providing fiber-to-home internet, cable television and telephone services, which would put it in competition with private enterprises already operating there.

The board of directors voted August 1 to pay Uptown Services up to $50,000 to perform a phone survey of community residents this week to gauge support. Uptown is expected to provide the analysis in three or four weeks.

According to Sandy Luetjen, Siloam Springs director of marketing and development, the city is considering adding the service as a revenue generator, economic development tool, and local amenity. City revenues have declined recently, but did rebound this past month. The city also operates a water/wastewater utility and levies a one-cent sales tax.

“The city is in very good, positive financial shape, but not being a business but rather being a government, our job is to create the best environment for the city, and we hope to be able to offer more and better services as we move forward,” she said.

MIXED SIGNALS
Act 1050, passed by the Legislature this year, made it illegal for government entities to provide voice, data, broadband, video or wireless communication services unless that entity, like Siloam Springs, owns an electric utility or television distribution system.

Michael Render, president of RVA Market Research, which follows the industry, said of the 90 or so municipalities that offer such services, “Most of these have beaten their projections for take rates, and there’s been some good results in terms of economic development, helping bring additional business into the area and also helping encourage home-based businesses and so forth with the extra bandwidth available.”

There are high-profile exceptions. Burlington, Vermont’s Burlington Telecom, approved by voters in 2000, is deeply in debt, according to a Washington Post report on Dec. 5, 2010. In Lafayette, Louisiana, the city-owned LUS Fiber is still losing money on its internet, telephone and television service, which it has offered since February 2009. According to an August 10 story from theadvertiser.com, city-owned utilities soon will be subsidizing the service, at least until it can start turning a profit.

Provo, Utah also experienced a public setback from its effort to enter the fiber market. It contracted with a private provider to start up a city-supported network, but revenue projections came nowhere near the needs to support the effort. Provo is upside down on a $39 million bond issue used to finance the start-up and this summer, city leaders floated a tax on residents and businesses of $7.65 per month for the next 15 years to pay the bonds back.

FULL STEAM AHEAD AND TREPIDATION
Siloam Springs officials have contacted other cities and personally visited two: Sallisaw, Oklahoma, and Highland, Illinois. Steve Ferguson, operations manager at Highland, a town of about 10,000, told Talk Business that since going online in February, Highland Communication Services has signed up about 150 customers, mostly businesses, giving it about a 40 percent market penetration in that part of the community. He expects the residential base to grow once television starts being offered in October. It needs about 900 customers to pay its bills and meet its obligations on a $7-$8 million bond issue backed by the city’s electric utility.

Ferguson said he is pleased with the growth of the customer base so far. Highland’s fiber optics service was approved during a 2009 voter referendum. Luetjen said the idea of asking Siloam Springs residents to vote on the issue has been discussed, but not yet decided upon.

Cox Communications and Century Link provide broadband, cable television and telephone services in Siloam Springs, though not fiber-to-home services.

Luetjen said she recognized the philosophical issues involved with city government competing with private companies. But she said a city-owned service would be an economic development tool and would allow city residents to spend their money locally for those services.

It’s early in the process, so opposition to the idea in Siloam Springs hasn’t jelled. Mike Kenney, who represented the area from 2002-08 in the Arkansas House of Representatives and then lost a close election for mayor, questions whether the city should get involved in the broadband business while facing other needs such as a major upgrade of its water and wastewater facilities. He said he didn’t want the city to get stuck with an ongoing money loser after paying millions for the initial outlay.

“It is advancing and changing so rapidly,” he said. “You could buy something, put it in place, and in less than a few years, it could be obsolete, but yet you’re still having to pay off that bond issue or whatever type of funding that you’re going to have to put together.”

Steve Brawner is the author of this article. He can be reached by e-mail at [email protected].