Two men work in the EPB Fiber Optic control room Thursday following an FCC decision that allows gigabit Internet service to expand beyond the Chattanooga area.

A pair of taxpayer watchdog groups are claiming that municipal broadband systems like what EPB offers in Chattanooga are fraught with risk for taxpayers and such services should be left to the private sector.

But Chattanooga city leaders say EPB is proving to be a national model for improving broadband service and boosting high-tech startups in the self-proclaimed "Gig City."

In its annual "Tennessee Pork Report" released today, the free market think tank known as The Beacon Center of Tennessee said two thirds of Tennessee's government-owned telecom networks lost money last year even after taxpayers have pumped $194 million into the ventures.

"Over the past several years, cities and public utilities have fancied themselves savvy Internet providers," the Beacon Group said in the Pork report. "But they have racked up massive costs in the process."

The Beacon Group and the Taxpayers Protection Alliance blasted EPB for taking more than $111 million in federal stimulus funds five years ago to help build out its fiber optic network for its smart grid and gigabit-per-second telecom connections.

But EPB insists the investment is paying off in Chattanooga, which has build a growing tech startup community based upon the "Gig City" and "Gig Tank" fostered by EPB's high-speed fiber optic network. EPB's smart grid and fiber service has cut power outages and provided the first citywide gigabit-per-second Internet service of any city in the Western Hemisphere.

As the Chattanooga City council prepares to vote today on issuing $251 million of refunding bonds for EPB, city leaders insist EPB is paying rich dividends for Chattanooga.

"EPB is unquestionably and indisputably a leader in telecom and broadband expansion for the entire country," said Chattanooga City Councilman Chris Anderson, chairman of the council's economic development committee. "We're a model for the nation and I'm proud of it."

Anderson likens broadband today to essential municipal services like water, sewer and roads.

"Today, with education and communications being what they are, I would argue that Internet access is just as important as telephone access or other public utilities so government certainly has a right and an obligation to provide broadband service to its citizens."

Anderson and Chattanooga Mayor Andy Berke have touted the advantages offered by EPB's fiber optic service to top officials in the Obama White House. EPB is now the nation's largest municipal telecom system in terms of revenues and national recognition.

"We've seen tremendous economic growth because of EPB," Berke said. "It has made us a leader in the innovation economy. When I talk to people around the country, we're the envy of mayors and citizens all over the United States."

Having faster and more reliable Internet connections offered by EPB — "at no extra cost to the city," Berke said — has helped the Scenic City gain global attention for technology and entrepreneurship.

But in a speech to a black business group in Memphis last week, the head of the national Taxpayers Protection Alliance warned Tennesseans against building more government-run cable and other telecom systems like EPB.

David Williams, president of the taxpayers watchdog group and an expert on government waste, said government-owned networks often end up being costly to taxpayers and stifling to innovations from private companies since municipal monopolies remove incentives for private network infrastructure investments. He noted that Memphis taxpayers lost $28 milllion on the ill-fated Memphis Networx in 2007 when that city tried to start a broadband telecom service.

"We're concerned that taxpayer money is being used to fund these new broadband programs and we're just not seeing the return," Williams told the Times Free Press. "We just don't think that government should build broadband networks which can and are provided by the private sector."

EPB insists that it has upgraded telecom services for Chattanooga and spurred investor-owned cable and telephone companies to improve rival services.

EPB's chief financial officer, Greg Eaves, projects the telecom businesses at EPB will generate about $131.1 million this year and help funnel about $24 million back into the $564 million annual electricity system revenues, plus generate a $16.6 million net income.

"The cash flow from our telecom operations are a huge benefit for our electric system," Eaves said.

Contact Dave Flessner at or at 757-6340.