The Bureaucratic Broadband Bamboozle
Back in 2001, a few months before 9-11, my boss, the CEO of a major public company in the telecommunications infrastructure business, called me and said. “I need you to go to a meeting at the NYC Housing Authority. There’s gonna be a huge deal. They’re talkin’ about bringing broadband to every HUD apartment - hundreds of thousands of apartments all over the city. Talk to Lee. He knows the guy inside HUD pushing this. ”
Lee was the president of one the subsidiaries within the “High-Tech Division” I was charged with turning around. We had a good relationship. He arranged a meeting with this “HUD” guy, actually a consultant, who had convinced the housing authority that broadband could be delivered to each and every home in their housing kingdom. The idea was simple. Two competing carriers, telecom or cable companies, would be awarded access to all HUD properties. Each would install optical fiber or a competing broadband service to each unit. After some period of time, the infrastructure would become the sole property of NYCHA which could then negotiate a revenue sharing/access fee agreement for use of the infrastructure with whatever carriers it might choose.
I said nothing, but later shared my skepticism with my boss: these were people who required housing subsidies; people who were by definition, poor, I argued. What assurances does anyone have that they can afford broadband? I guess I was the only skeptic.
I went to the first big “project” meeting at the HUD headquarters across from the World Trade Center. All the heavies were there – IBM, CISCO, Microsoft, Cablevision, AT&T, Southern Bell, Verizon, Cox, SBC and others, including me. It started with a speech by a very white woman (unusual as the majority of the HUD employees seemed to be women of color) about the difficulties the poor have in NYC, about the horrible “digital” divide that was growing between the poor and those who could afford the latest in home computer, communications and entertainment technology. Then the consultant took over the podium. There were more than a few gasps as he described the sheer size of the NYCHA. By itself it would be the 10th largest city in the US. HUD owned or managed over 300,000 properties with over a million residents.
Then came the pitch: two carriers will bring broadband to every unit; NYCHA expects this to be built for free; the winning bidders will be the most credible companies who hand ownership of the infrastructure to NYCHA in the least time; questions? It took a while for all of this to sink in. I was likely the only person in the room who knew in advance that this was the proposed program. I raised my hand and asked the question everyone wanted to ask: how could such low income residents afford broadband, and given that issue, would NYCHA guarantee any minimum subscription rate among residents, which, if not met, would require at least a partial reimbursement of the costs of building this infrastructure?
This question brought dead silence to the room. Finally the original white female HUD representative spoke: the marketing of broadband services is entirely the responsibility of the selected carriers; there will be no guarantees, and finally (wink, wink, so far off the record, I’ll never admit saying this) these residents have money, from, you know, the alternative, you know, so expect good participation. So ended the first meeting. A second meeting took place some weeks later and not nearly so many folks showed up. Lee’s consultant friend saw his gravy train project dying of its own arrogance. 9-11 came and the project was allowed to fizzle out.
This entire, painful experience was for me as pure a demonstration of the sheer arrogance and mind-bending power of an out of control federal bureaucracy as could ever exist. NYCHA sought to use its power and authority, its access to residents, to build and own, the tenth largest urban broadband system in the country, for free. Upon taking possession, this would create a cash flow stream for their bureaucracy that would last in perpetuity. This expansion was not envisioned to fill a legitimate demand or create wealth for shareholders. It was simply done to grow and feed the bureaucracy. The fact that this cash flow could not exist without corruption caused them no pause at all. Broadband was justified as simply another entitlement that they were meant to deliver to the “poor” and profit from.
This all occurred in 2001, and lucky for all of us, that initiative failed. But read this. The private sector may not have fallen for this bamboozle, but the Obama Administration has no such aversion. NYCHA’s quest for free broadband infrastructure it owns and controls continues. This is yet another example of the future earnings of your grandchildren hard at work, this time bringing the new entitlement called broadband to the poor to be pedalled by a subsidized housing authority near you!
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Comments:
Jun '10
Re: The Bureaucratic Broadband Bamboozle
I worked for a Baby Bell company for nearly 25 years, and all I can say is that everything Doug says is true.
As P. J. O'Rourke said, giving our money to the government to spend is like giving whiskey and the car keys to your teenage son. Creating infrastucture for non-existent demand is just as bad.
This "bamboozle" is just one example of that principle in action.
Edited on July 10, 2012 at 10:20pmAug '10
Re: The Bureaucratic Broadband Bamboozle
So gentlemen would you walk me through the free cellphone program, pointing out the pot of gold at the end of that rainbow and the probable identity of the smiling leprechaun crony ?
Apr '12
Re: The Bureaucratic Broadband Bamboozle
For a government representative to stand up in a room of private enterprise people and say that is so depressing. What did they think, you would do a quick IRR spreadsheet analysis and figure out when it was OK to hand over the cash streams? To say that government money would fund subscriptions is sad but this has been the pattern in Britain who now have families on welfare living better lives than those who work. Scary. Why does this attitude become respectable? TVs and broadband are seen as a basic human right.
Jul '11
Re: The Bureaucratic Broadband Bamboozle
I live near Burlington, VT, and a few years ago the city hatched a "progressive" plan to create it's own telecom, Burlington Telecom. A city of 55,000 people. They were going to do internet, phone, and cable, and since the idea of municipal broadband was progressive, that nasty profit motive would be removed, costs would be lower, and everyone could get services for lower than current market rates.
Well, take a guess how it went. If you guessed that BT was supposed to be turning a profit by a certain date, but instead was granted a $17 million dollar loan from Burlington's 'cash pool' because it was hopelessly underwater, well, that's a good guess. 17MM given with no public disclosure, by the way.
In other words, when it's someone else's money, there seems to be no end of good ideas in how to spend it. The reality is that for-profit companies are not still profitable by sheer accident, incompetence, or an inability to do math. They're still open because they haven't thrown someone else's money away, and by doing so, they earn a profit.
Feb '12
Re: The Bureaucratic Broadband Bamboozle
Here in Rockford IL, all of the phone and cable lines are owned by ATandT. For 3 years now they've been all over town doing some major upgrades to the lines. I wonder if all of these upgrades going on here have anything to do with a program like that?
Jul '11
Re: The Bureaucratic Broadband Bamboozle
There's a lot of money in these municipal telecoms - a lot of it sourced through the federal and state gov't, grant programs, etc., under the guise of infrastructure. It would be one thing to provide a service that's required (which I don't think this falls under) where none is available, but often it's just used to create another quasi-governmental agency that is supported by tax dollars, in one way or another.
Oh yeah - the guy who ran Burlington Telecom into the ground (with the city's help, of course), has gone on to pimp the same types of boondoggles elsewhere - like in Minnesota.
But don't worry - the people who foist these projects on a largely unsuspecting public are careful stewards with your money:
But the audit does raise some questions. It says unnamed Burlington Telecom officials were overly optimistic about its prospects and says there was careless monitoring of expenses as early as 2006.
"I couldn't swear that there wasn't some invoice that was not fully checked when I was there," Nulty said. "But the costs were absolutely in line with industry norms."
May '11
Re: The Bureaucratic Broadband Bamboozle
My favorite line from the NYC announcement:
"...benefit from greater access to broadband Internet resources, and from a variety of Internet employment training and job search skills."
As if!
Oct '11
Re: The Bureaucratic Broadband Bamboozle
I had a discussion with my father (who is very liberal) last week. He stated that the income gap had never been larger between rich and poor. I countered with the classic Thatcherian "but we are all better off" argument, and pointed out that at the trailer park that we had driven by earlier many of the residents had satellite TV, a few had swimming pools, and newish cars in the driveway, even the the trailers themselves were all decrepit. I don't know if the people living in those trailers were receiving any government benefits. I do know a guy who lives in NYCHA building who own 48" flatscreen TV, regularly attend Yankees games, and works as a doorman earning $42 an hour.
Government assistance is a boondoggle.
Jun '10
Re: The Bureaucratic Broadband Bamboozle
Chris Campion: I live near Burlington, VT, and a few years ago the city hatched a "progressive" plan to create it's own telecom, Burlington Telecom. . . .
Well, take a guess how it went. If you guessed that BT was supposed to be turning a profit by a certain date, but instead was granted a $17 million dollar loan from Burlington's 'cash pool' because it was hopelessly underwater, well, that's a good guess. . . .
. . . .[W]hen it's someone else's money, there seems to be no end of good ideas in how to spend it. The reality is that for-profit companies are not still profitable by sheer accident, incompetence, or an inability to do math. They're still open because they haven't thrown someone else's money away, and by doing so, they earn a profit. · 18 hours ago
In conservative Utah, a coalition of cities tried the same thing (ironically, they named the company "Utopia"). They did it even though the phone company and cable company provide near ubiquitous DSL or cable modem services, and there are good wireless high-speed services (all constructed with private capital). Shocking result: a huge black hole for taxpayers.
Re: The Bureaucratic Broadband Bamboozle
Doug, many thanks. This is informative.
Nov '10
Re: The Bureaucratic Broadband Bamboozle
In our city we did something similar. The city council approved the creation of a city wide fiber optic network, dark, that would initially be funded by taxpayer dollars, but would ultimately be paid for by business who bought internet service and helped fund new construction. This lasted a few years and I was one IT manager who bought into the notion, if for no other reason than it was a cheap way to get gigabit Internet speeds into my company. In the end, the city couldn't afford to continue funding it, and they voted to eliminate the program. But what to do with all the fiber in the ground? A local Internet provider bought it all and is now the only real game in town for enterprise class Internet service. He bought all the dark fiber for a song and a dance, offered cheap Internet service to existing customers, and now makes bank on new customers. At my new company I now pay more for less bandwidth. Thanks for stifling competition, government.
Oct '10
Re: The Bureaucratic Broadband Bamboozle
Senator Bon-bon Petit has heard the cry of Samuel Dring:
"The poverty in Amerkay's a pretty parlous thing."
He pushes through a bill that hooks the poor up to the internet;
Now Samuel has pornography, and Bon-bon, a new pet.