Results of a study released Wednesday by the University of Pennsylvania (UPenn) Law School highlight the financial struggles of municipal broadband networks. In the report, more than half of those studied were found to be cash flow negative. Co-authored by Timothy Pfenninger and by UPenn Law School Professor Christopher Yoo, the report follows the publication of a pair of studies last December by the New York Law School Advanced Communications Law and Policy Institute (ACLPI), which examined the progress of municipal broadband network deployment at specified localities in seven states. Highlighting its case study of a failed municipal broadband network in Bristol, Virginia and issues of construction delays and cost overruns that have impacted other municipal networks, ACLPI concluded “that municipal broadband remains a risky endeavor.”

Although it identified 88 municipal broadband projects in progress throughout the U.S. as of 2014, the UPenn study focused on twenty of those projects which report financial results separately from electrical power and other municipal operations. Eleven of the twenty municipal networks in question were found to generate insufficient cash flow to cover their operating costs. Of the nine that ranked as cash flow positive, the study found that seven would need to be in operation for at least 60 years to break even, with only two of those expected to break even within the average anticipated life expectancy of a fiber network (i.e., 30-40 years). The study further indicates that five of the cash flow positive networks are bringing in returns so small that “it would take more than a century to recover project costs.”

Emphasizing that such networks must generate sufficient cash flow to satisfy required debt payments on municipal bonds that are typically used to finance network deployment, the study also spotlights the risks of default, which would trigger reductions in bond ratings and thereby drive up costs for roads, schools and other essential projects. While acknowledging that prospects for improved financial performance do exist, the authors said the results of their study nevertheless suggest “that municipal leaders should carefully consider all of the relevant costs and risks before moving forward with a municipal fiber program.”