The City of Lebanon announced recently that it is in discussions with Cincinnati Bell to sell the city-run cable television and Internet business. As a recent Buckeye Institute report pointed out, the Lebanon telecommunications system is a burden to the taxpayers of the city. This latest news is a good way for the city to extricate itself from a business that should never have been started.
The Lebanon experience is also a lesson for other cities considering entering the business of selling technology. Governments simply do not have the resources and ability to compete in these areas, and these efforts end up harming both taxpayers and consumers. While Lebanon finally realizes this, other cities seem intent on going down the same path.
The city of Lebanon has been in the cable television and Internet business since 1999, competing with private businesses that offer the same services. Since then, the city has used its power to threaten the rival cable television provider and use the taxpayers of Lebanon to subsidize its ill-conceived business venture.
While its former city manager thought that the city could garner 90% of the cable television market in the town by offering lower prices than Time Warner Cable, the city now has less than 60% of the market and its prices are higher than Time Warner’s. Because the system has failed to live up to unrealistic expectations, the city now has $9.8 million in debt.
The failure of Lebanon’s telecommunications business illustrates why governments should not compete with private enterprise. When Lebanon was considering this venture, there was no indication that the city had the expertise or resources necessary to compete with a large multi-national corporation like Time Warner Cable.
The city’s grand plans looked good on paper, but the government soon found that the market demands results that the city could not deliver. So now the city is sitting on a telecommunications system that loses money every year and is $9.8 million in debt.
The city may realize that with advances in technology, the market for providing video services will soon become much more competitive. Phone companies are poised to enter the market with video services over their fiber optic lines. This means consumers will see more choices and lower prices through increased competition. The city-run system in Lebanon was struggling when it competed against just Time Warner. The prospect of more competition would be disastrous for that system.
Lebanon defends its venture by pointing out that cable television prices were lowered by the entry of the city-run system into the market. While cable prices are indeed lower in Lebanon due to competition, these lower prices have been subsidized by the taxpayers of Lebanon. Competition is indeed good, but this competition should not be subsidized by taxpayers.
If Lebanon is successful in selling its cable and Internet business to Cincinnati Bell, it will end a seven-year business that should never have been started. While it would have been much better for Lebanon taxpayers if the city had never become involved in this business, if the city can extricate itself now then taxpayers will not be forced to carry the burden of this ill-conceived venture any longer.
Both taxpayers and consumers in Lebanon will benefit from having two privately-run cable systems competing for their business. Competition is great for consumers, but as Lebanon has shown, when the government competes with private enterprise both consumers and taxpayers lose.
Marc Kilmer is a policy analyst with the Buckeye Institute for Public Policy Solutions, a research and educational institute located in Columbus, Ohio.