To those longing for more competition and choice than that provided by incumbent carriers, the case of Grant County, Wash., offers an age-old warning: Be careful what you wish for.

In 2001, amid complaints that the area was too sparse to warrant broadband deployments from incumbent carriers, the Grant County Public Utility District began extending its own fiber network to the county’s 37,000 homes and businesses. As state law permitted the utility to offer wholesale, but not retail, telecom service, the PUD did just that--perhaps too successfully. At one point, 35 Internet service providers were using the network, overcrowding the market.

“None of [the service providers] could make money,” said Jim Baller, a Washington, D.C. attorney who often represents municipalities with broadband initiatives. “They were all killing each other because there was no differentiation between them in the public’s mind. When those providers began falling in arrears of payments, the muni system was stuck because it couldn’t either get them off the system or charge others rates to cover the deadbeats.”

In July 2004, the PUD commissioners voted to, as they put it, “stand pat” on their network plans, slowing, and in some cases halting, network deployment. At the same time, the PUD raised its wholesale rates, some as much as 80% to 100%. Just last month, the PUD proposed another rate increase, to cut the project’s deficit from $3.7 million to $2.7 million.

Today about 25 ISPs serve about 4200 retail customers on the Grant County network. With connections to 10,000 premises, that represents a 42% take rate. But the price increases could cut the number of competitors down further. One ISP told a local newspaper the proposed rate increases would be “a bloodbath” for ISPs on the network. “It will take the profit away,” he said.