Tacoma loses money on muni cable, won't go all in on broadband to make up the difference

25 November 2014 by Steve Blum

Tacoma, Washington has a municipal broadband network that started out offering cable television service and then later added broadband. The system grew out of a fiber network that was originally installed to support the city-owned electric utility.

Called Click, the hybrid fiber-coax system was upgraded to DOCSIS 3 standards a couple of years ago. It competes with Comcast head-on, and with CenturyLink in the broadband space. Like any small cable system, Click has struggled with increasing programming costs. But since it’s run by a public agency, its ability to raise subscription rates are constrained by political factors as well as economic ones.

Overall, the system has lost money, something like $2 million a year according to a presentation prepared a couple of years ago when the city council was considering a rate increase. A recent article in the Tacoma News Tribune by Sean Robinson confirms that trend continues, with electric customers picking up the short fall…

Some of Click’s fiscal woes are structural, [public utility director Bill Gaines] said: As a public entity, Click is bound by union contracts and personnel expenses that private outfits don’t face. Lacking Comcast’s massive market share, Click has a tougher time negotiating programming rates.

In the big-picture sense, the $353 million utility can easily absorb the cable expense overruns with minimal impact on electrical ratepayers — the subsidy amounts to slivers of fractions of pennies on the dollar — but it’s still bad business.

“Right now, this thing (Click) is being subsidized to a degree by the electric power customers because it’s not recovering all of its costs,” Gaines said. “That will get worse over time, and that’s really not fair. It’s not fair to the electric power customers — so we’re trying to get out of that box.”

According to the article, it’s the cable TV side of the business that’s losing money; broadband is said to profitable, at least on an operating basis. But it wouldn’t be a money maker if TV service was axed: broadband cash flow alone won’t cover fixed expenses.

One option that’s being considered is selling the system off and getting out the business completely. Another is to double down on broadband.

Like other publicly owned power systems in Washington state, Tacoma runs an open access network. It sells broadband connections to private ISPs at wholesale rates, which in turn set their own prices and re-sell to consumers. It’s similar to how the Provo, Utah system was run before it was sold to Google for $1, because the revenue generated couldn’t keep up with operating expenses and bond repayments.

To claim the full share of Internet revenue, Click would have to start competing with ISPs at the consumer level, as it already does for commercial and industrial-grade accounts. Not surprisingly, the idea has generated considerable push back from those ISPs, which has been sufficient to stall the idea.

For now, Click remains in a holding pattern, while city officials consider their options.