Public-Private Partnerships: An Example

In 2002 one of my companies, The Merton Group, set out to work with communities to establish public-private partnerships for the purpose of deploying municipal broadband in New England communities. We worked with over 35 towns and spent thousands and thousands and thousands in the process. We even got a multimillion dollar financing for Hanover, NH from the Rural Utilities Services (RUS). We met with selectmen, town councils, jumped through hoops and then we came upon the Franchise in Hanover, NH, home to the famous intellectual institution of Dartmouth, a bit tongue in cheek if you did not get it, and the alma mater of one Secretary of the Treasury Geithner.

What happened is most likely prologue for any and all public-private partnerships and further may exemplify the mindset incubated in Hanover NH.

After we received a RUS loan from the Department of Agriculture, and after Congressmen and Senators praised our work, we just needed a pro forma franchise as a condition precedent to closing the loan. Well, did the fun begin here. The Selectmen and Town Managers began to ask for more and more. They wanted to have us provide Universal Service. I said we have no obligation. They then demanded. I then replied that I would personally pay the bill of any household found in Hanover that qualified. It is not as if Hanover was readily open to the indigent. It is like Cambridge but with no poor people.

Then they demanded that we provide coverage to 95% of the town, despite the fact that the cable company, then Adelphia but soon to be Comcast had 45% coverage. They insisted, they demanded, welcome to a public private partnership. Soon it became clear that the cost of dealing with the town was more costly than the construction on a per subscriber basis! We eventually told the town that they had to give us a franchise pari passu with the cable company, we gave them 90 days.

Then, after no franchise, we walked. They then were furious that we walked. It was after all our money. I informed them that the Government had a 13th Amendment and that we could not be held as workers against our will and forced to pay out of our own pockets. We never took the Government money, we never built the network, and we learned a very serious lesson. Quasi intellectuals who purport to represent the people may often cause more damage as unintended or otherwise consequences.

Fortunately in this case we just wasted our time and money, we did not waste the taxpayers. I would not take that money unless I was assured that I could repay it, honor is an important virtue. At least to some.

Thus, public private partnerships like the one in Hanover, I think not!

Now I would like to make a few conclusions. This was based upon the fact that one hour after I posted this someone apparently from Comcast in Washington read this blog, I would guess because it mentions Comcast only in passing. Rather paranoid perhaps but it shows what the Internet can do. You see me and I see you.

Now to the conclusions.

1. The above experience shows that despite Washington's best intentions, in this case with RUS, there was tremendous intervention by the vested interests and this case it was the cable industry. They tried to get our RUS filing from USDA under a FOIA filing and they also lobbying the town to ensure we had a materially higher hurdle to climb over. Thus this conclusion is no matter what there are incumbents who will see whatever is done as a threat and they in turn will amass their forces to work against it. In my case above cable against any competitor. As from my 1 hour ping on a Sunday morning they seem to be still fearful. I await the next ping. Remember guys I went to MIT not Harvard!

2. Local governments have interests not necessarily aligned with the Federal Government. These interests may often be in addition to the Federal Government and to use the Galbraithian phrase they may become countervailing interests. Thus Hanover wanted total coverage and free service. A rather unstable request in the context of any economically stable system.

These two conclusions are what Geithner must face. Wall Street may have given him a hint of that but so far he has not shown it. Living outside the US while growing up does not give you a sense of local politics. Growing up on the streets of New York City may.