Sun Prairie sale ends costly experiment

The sale of Sun Prairie, Wisconsin’s municipal broadband system, completes a failed experiment that left ratepayers on the hook for years of financial losses.

TDS Telecommunications Corporation recently announced it had completed the purchase of the telecom assets of Sun Prairie Utilities. The network was bought for $2.88 million, slightly more than the city’s outstanding debt on the assets, Wisconsin State Journal reported.

The private provider will now begin building a fiber network capable of 1 gigabit-per-second download speeds to serve the area’s residents. Madison-based TDS will offer cable and phone service, as well.

“To deliver these new advanced services, we will be investing significant private capital,” said Jim Butman, chief operating officer of TDS.

The utility built a network that lost money – often significant amounts – during the majority of its years in operation, Watchdog.org reported.

Sun Prairie Utilities first built a fiber ring in the late 1990s to connect municipal buildings and schools, using a $600,000 loan from the electric division.

The network later expanded to offer fiber-to-the-home to residential areas and businesses. The broadband network connects slightly more than 500 homes and apartment buildings and about three dozen businesses.

That was a penetration rate of only about 4 to 5 percent of the homes in Sun Prairie, which evidently were not enough customers to turn a profit as the network lost money in at least 10 of its 16 years in operation. Watchdog reported the broadband division posted losses around $450,000 in each of 2001 and 2002, losing money every year until 2006. The division saw profits in 2006-08, but lost money in 2009 due to a $212,000 investment into the network. After three years of gains from 2010-2012, the division went into the red again, posting three straight years of losses, including $166,000 in the hole in 2015.

The network made Taxpayers Protection Alliance Foundation’s map of “broadband boondoggles,” a map of failed municipal networks built on the backs of taxpayers or ratepayers.

Tom Struble, tech policy counsel at R Street Institute, noted that many communities build these networks not to be profitable, but to service residents they feel are underserved. The question is at what cost is hemorrhaging money worth it.

“More often than not, these networks are unprofitable,” he said. “If it were a normal business it would be a failing one.”

City officials say the sale is less about unloading the debt and more about the ability for a private provider to expand the service quickly. City administrator Aaron Oppenheimer told Wisconsin State Journal the city had received estimates the tab would be $27 million to expand the high-speed internet to all residents of Sun Prairie and require hiring 20 more employees.

While TDS’s fiber expansion will hit most customers who are now unserved, it’s not guaranteed to provide service to every home. A stipulation of the contract allows TDS to bypass areas if the per-unit cost to connect exceeds $2,000.

The city’s taxpayers will benefit beyond having the debt load removed: If TDS reaches a customer penetration level of 25 percent Sun Prairie will get part of the revenue for the next five years. City facilities and schools will also get discounted internet service as part of the deal.

Struble said Sun Prairie was wise to essentially enter a public-private partnership rather than use more local money to try to expand the network, and noted the contract also seems fair to TDS, which would likely pay well more than $2.88 million to build out the assets it will obtain in the purchase agreement with the city.

“It sounds like a rational decision on both sides,” he said.

Rival Charter Communications opposed the sale, saying it was now at a disadvantage because the city would help TDS market the network, but city aldermen pointed out to Charter that had the company offered to buy the municipal network they would have considered its offer.