PROVO — When the city of Provo launched an ambitious $39.5 million fiber-optic network and gave it a hip, digital-age name, city leaders joined national groups trumpeting iProvo as an example for other cities around the country.

On Tuesday, a Los Angeles think tank with a history of promoting free-market ideals released a study that says iProvo is a bad example and should serve as a warning to other cities interested in creating a government-owned network to provide cable TV, phone and Internet services to residents.

The Reason Foundation report criticized early iProvo decision-making and concluded iProvo's financial problems were inevitable and will only get worse.

Provo leaders and others strongly rejected the study's conclusions. They said iProvo continues to add new subscribers — the latest figure is more than 8,100 — and is meeting targets set in March that would result in 10,000 subscribers by August 2007. They also said the study was one-sided, incomplete and contained little new information.

The study's author, Steven Titch, told the Deseret Morning News the city should try to sell its iProvo assets before its debts grow any larger.

"Currently, liabilities outstrip assets by $2 million," the report states. "This gap will widen and it will become increasingly difficult for iProvo to ever pay off the debt on its system or realize full value of its investment."

Marietta, Ga., invested $35 million in its network and sold the assets for $11 million.

Mayor Lewis Billings questioned the report's integrity, saying late Tuesday that it appeared Reason did not contact any city employees in preparing its report, a sign, he said, of "a weak process" that was inadequate and subjective.

"I'm not fazed at all by a flimsy paper like this," said the third-term mayor, who tied his political future to the project, testifying before Congress and serving as a spokesman for city broadband projects with the American Power Association. "This is a Chicken Little, sky-is-falling paper that I believe set out to try to discredit the iProvo project. We know this isn't a project for the faint of heart, but it is a project we want to go forward and make successful."

In March, the Provo City Council approved a $980,000 loan from surpluses in its electric utility to the iProvo project. The loan was necessary to make the first payments on the $39.5 million bond approved by the council nearly two years ago. The loan initially was interest-free, but the City Council added 5.38 percent interest after Qwest Communications protested.

The council also set aside another $2.1 million in this year's budget to make up for expected shortfalls this year.