MYTH: The success of municipal communications systems should be measured the same way as private communications companies.

FACT: Different communications companies have different missions.

Private companies like the ones behind the Project Taxpayer Protection Committee and Citizens for Common Sense Solutions like to compare how municipals and private utilities operate. We reject this comparison because the mission of a private provider is so different from the mission of a municipal communications provider.

Private cable and phone companies are in business for one reason and one reason only: to maximize profits for their shareholders. To fulfill their mission, they charge the highest rate that the market or regulators will bear in order to make as much money as possible. There’s nothing wrong with the “profit motive”. It’s part of the American tradition, and one of the reasons why our nation’s economy is so strong.

Municipal utilities have a completely different philosophy to setting rates for services. Our primary mission is to maximize the total value to the community. To achieve this mission, municipal providers charge the lowest rates we can while still covering operating expenses, making necessary plant investments, and repaying long-term debt over the useful life of the plant and equipment. Most of the time, those rates are much lower than what a private provider would charge because there is no need to make a quick return on our investment.

To test this theory, let’s look at what happens when a private provider faces competition from a municipal provider. The municipal crunches numbers and figures out what revenue it will need from all of its services and sets the rate accordingly. Since there is no motive to create a profit, that rate is usually lower than what the private provider has set.

The private provider must still follow its golden rule to charge as much as the market will bear. Only now, with a municipal competitor, the market will bear less because customers have a choice. So the private company lowers its rates, usually below the municipal, in an effort to retain customers.

Municipals: Best possible service at the lowest possible price.
Privates: Highest possible price that the market will bear.