Expert cautions Mississippi against following lead of Kentucky broadband effort

By Johnny Kampis
March 11, 2019

As Mississippi enacts a law that will allow its electric cooperatives to offer broadband service to customers, one of the state’s lawmakers also suggested the Magnolia State should follow the lead of Kentucky and issue bonds to build out statewide fiber infrastructure.

Mississippi Wired, anyone?

Despite the fact that the Bluegrass State’s Kentucky Wired is massively overbudget and way behind schedule, Mississippi state Rep. Robert Johnson (D-Natchez) oddly pointed to Kentucky’s plan as one to emulate.

Gov. Phil Bryant recently signed into law the Mississippi Broadband Enabling Act, which sailed through the 2019 legislative session.

After that bill became law, only a handful of cooperatives indicated they are ready to move forward on high-speed internet. So Johnson told Mississippi Today he’d support a state plan to issue bonds and incur debt to build out fiber in Mississippi. The state would then lease the fiber to private providers to extend the “last mile” to customers.

“It is that important to the state,” Johnson said.

Michael Callahan, CEO of the Electric Cooperative of Mississippi, said cooperatives will soon meet with consultants to research acquiring federal funds (read: taxpayer money) to aid in the broadband effort.

Brent Skorup, senior research fellow at the Mercatus Center, cautions against the wholesale model espoused by Johnson. He pointed both to UTOPIA in Provo, Utah, a financially-troubled project purchased by Google Fiber for $1 in 2013, and Kentucky Wired, which is quickly turning into a boondoggle for that state.

“It’s only public-private in the most narrow sense,” he told the Taxpayers Protection Alliance Foundation. “Taxpayers are on the hook for that project.”

Kentucky Wired was originally supposed to be up and running this year, but recent reports indicate only 1,000 of the 3,000 miles of the statewide fiber infrastructure are complete.

Kentucky State Auditor Mike Harmon released a scathing report on the project last year, calling the plan a “bait-and-switch on the taxpayers.” Kentucky residents could be on the hook for as much as $1.5 billion after state officials switched the financing of the project primarily from the private side to the public side to take advantage of tax-exempt bonds by creating the nonprofit Kentucky Wired Infrastructure Company. But a combination of project delays and expected revenues drying up are sinking any chance taxpayers have of recouping their unexpected investment.

As for cooperative broadband, Skorup said the “devil is in the details.”

He points out that such cooperatives are historically heavily subsidized by the federal government, which could hurt the business case for private providers in those areas looking to offer service.

“That could scare off unsubsidized companies in rural areas,” Skorup said.

Another common issue is cross-subsidization between power and broadband divisions, which has been observed in cities that decided to offer high-speed internet and didn’t find the business as easy as anticipated. The Mississippi bill, however, stamps that issue out by not allowing cooperatives to use electricity revenue to prop up the internet.

Skorup said electric cooperatives’ common monopoly on utility poles in rural areas is a concern. Private providers must negotiate rates for usage of those poles for their own fiber.

“I would start to worry that this would give [cooperatives] the incentive to raise the cost of access for other broadband providers,” he said.

Despite his “yea” vote on the bill, Johnson is one of a consortium of attorneys that is suing seven Mississippi electric cooperatives, claiming in the suit that those nonprofit entities aren’t returning excess revenue to their member customers.


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