Cross subsidization of competitive lines of business by common carrier operations is a matter of decades-long interest with respect to home broadband services. It was an issue in the monopoly era of telecom as well, the concern being that lines of business outside the common carrier core not be subsidized.
Over the past two decades, the issue also has been raised with respect to common carrier electrical utilities diversifying into home broadband services.
In a detailed financial analysis of the utility-funded broadband network in Opelika, Alabama (which was recently sold after years of heavy losses), Phoenix Center Chief Economist George S. Ford found direct evidence of rate increases for the city’s electric customers to cover the broadband network debt payments.
In other words, there was clear evidence of cross subsidization. In that city, electricity rates were increased by an average rate of $5.39 to cover a $0.8 million revenue shortfall, an amount well short of the $1.4 million in annual debt service for the broadband network placed on the electric utility’s books, Ford notes.
Two of the nation’s largest utility-owned broadband networks are operated in the Tennessee cities of Chattanooga and Clarksville. The two cities also are ideally suited to an analysis of the electricity rate effects of a GON since both cities loaded most of the debt of the broadband network on the city’s electric utility, says Ford.
There is strong evidence of significant electricity rate increases in cities using the utility-funded model. The average monthly increase of nearly $12 for residential and commercial users translates into millions of dollars of cross-subsidy from captive electric rate payers to the broadband networks, says Ford.
No electricity rate increases are found for GONs funded through general obligation bonds.
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