Remember back in the mid-1990s, when everyone and their mother wanted a piece of the booming communications industry?
Well, the City of Alameda was part of that crowd. But now after a decade, the City’s venture in providing cable TV and Internet services to its residents may come to an end.
According to the San Francisco Chronicle (March 25th), officials from the city-owned Alameda Power & Telecom laid out the options for the public in a presentations to the city’s public utilities board. Unfortunately, none of the options is likely to recover the $85 million the city spent to launch and operate the service.
And, if that isn’t enough, Alameda, which has a general fund budget of $80 million this year, is due to make a $33 million balloon payment next year on the original construction bond for the telecom system.
Girish Balachandran, the utility’s general manager, confirmed that a consultant has been hired to identify and contact parties interested in buying the telecom service and its 15,000 subscribers – who make up about half the cable business in the city of 74,000 residents.
“A business decision like this is not completely predictable, but our goal is to reach a speedy conclusion,” Balachandran said. “It’s in everyone’s best interests.”
There was someone who saw the pointlessness of the venture. City Treasurer Kevin Kennedy, a financial planner and stockbroker by profession, saw this train coming a long way down the tracks and warned city officials of the danger it posed.
And when construction costs to lay fiber-optic cable and build the system wound up costing more than three times the original $25 million estimate, he knew the city was in trouble.
At the time, Kennedy argued that the system would never be able to recover the infrastructure costs it paid, even if it signed up every cable subscriber in the area.
He turned out to be right.
“If there is anything we can learn, and hopefully not repeat… it’s [that it’s] tough enough to react to market changes in the private sector… [I]n a government structure[,], it can’t be done,” Kennedy said. “If you ran a hot dog stand, and the cost of hot dogs tripled tomorrow, you’d raise your prices the next day, but government can’t react that quickly.”
The City of Alameda made a big mistake, and it is going to cost the city’s taxpayers big bucks and big service-displacement headaches.
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