Liveblogging the Government Competition and Privatization Subcommittee: September 26, 2007

Sorry about the late entry, folks. Bad traffic and worse parking conspired to make me late today. I’ll be catching up as I can.

5:23PM Meeting is over!

5:21PM They’re planning on meeting on both the 15th and 25th at 9AM for all-day meetings. Mark those dates?

5:17PM I guess we’ll have to wait for Jerry Fenn. Qwest asked to speak at another meeting. Rep. Frank indicated that this might not be feasible.

5:16PM A representative from Qwest is now speaking during the comment period.

5:15PM Sen. Stephenson is claiming that the Spanish Fork network has had no economic effect. That seems to run counter to the anecdotal evidence currently being offered.

5:13PM An employee of Venture Data brought up that their company will be staying in Murray because of UTOPIA and that he knows plenty of people moving to UTOPIA cities because of the services. He also mentioned that Murray currently has three city council members running opposed. I guess that’s a heck of an endorsement, eh?

5:10PM Just got off the stand from my own public comment. I brought up the high costs associated with non-UTOPIA providers and the significant difference in pricing between UTOPIA and Comcast.

5:06PM Sen. Goodfellow caught Mr. Van Tassel off guard when pointing out that UTOPIA and iProvo aren’t retail operations as he alleges.

5:05PM A Mr. Van Tassel from the Utah Taxpayers Association is now commenting. As expected, he’s blowing serious smoke. Apparently he thinks that UTOPIA just can’t compete and they should have expected to be sued by Qwest, expected to be blocked from legal access to poles and expected to have significant delays in the RUS funds. That’s just plain crazy talk.

4:59PM Pete Ashdown has delivered some top-notch comments to the committee on the economic benefits of telecommunications networks.

4:57PM Qwest was a no-show for their spot. How about that.

4:56PM Sen. Stephenson was corrected again about financing that none of the funds secured by pledging can be used with non-pledging cities. Any of us who have actually read the white paper know that the non-pledging build out will be when the project goes “revenue positive” which is slated for 2012. Mr. Shaw also specified that no construction of capitalization has happened in non-pledging cities. I have this suspicion that certain members of this committee haven’t read even the basic documents concerning UTOPIA. Their portion of the meeting is now complete.

4:53PM Sen. Stephenson has been bringing up comparisons between the system in Bristol VA and UTOPIA. Mr. Shaw rightly reminded the Senator that UTOPIA is a wholesale model whereas Bristol uses a retail model. He also reminded Sen. Stephenson that UTOPIA has been meeting its milestones. Mr. Black also interjected that some neighborhoods have take rates as high as 65%, much greater than the system-wise 18%.

4:47PM Mr. Baller points out that online services are moving towards video and other high-bandwidth applications that only fiber can supply.

4:42PM Sen. Stephenson is demanding when to see results that differentiate UTOPIA cities from non-UTOPIA cities and wants to know when that will be. (I use demanding because that was a rather harsh tone to use during questioning.) He’s being a bit rude too. I think he’s trying to reverse the good fortunes this presentation has already enjoyed. Mr. Baller won’t take that bait and predicts we’ll see substantial differences within 3-5 years. Maybe Sen. Stephenson needs to talk to a real estate agent and ask how many of their clients ask about UTOPIA, I recommend hom to talk to a mls vancouver agent they are the best.

4:38PM What? Senator, are you serious? Sen. Stephenson is suggesting that universal service is not that big of a deal. What the deuce?

4:36PM Sen. Stephenson asked why a public network is required when there’s more capital now than there was during the time that electricity was being rolled out. Mr. Baller has responded pretty thoroughly that the amount of private funds required to build an adequate network has too long of a payback for most investors with that kind of money. See the 10-15 year payback figure on most such systems.

4:30PM Mr. Baller did a great job repsonding and detailing how the promises of the Act of 1996 have failed to be delivered on.

4:27PM Rep. Cosgrave is now asking some great questions concerning the $200B cop-out under the Telecommunications Act of 1996, in particular how legislation with such lofty goals has failed us so miserably. I can’t wait to see how Jerry Fenn, President of Qwest Utah, will respond to these same questions.

4:23PM Mr. Shaw makes the point that cities should be allowed to experiment and have not asked for anything from the state other than the ability to move forward on the decisions made by the city councils.

4:20PM Another good point. If local governments ask the private providers to provide a service and they refuse, then cities are justified in doing it themselves.

4:16PM The situation in Louisiana sounds very interesting. The governor told BellSouth (now AT&T), Cox and the city of Lafayette to sit down together and come up with a mutually-agreeable bill. As part of that, the incumbents had to justify every restriction and demonstrate that they had the same restrictions. That’s a great way to get their input and ensure that capricious requirements aren’t put into the bill.

4:12PM Mr. Baller makes a great point that cities should be free to determine what they want to do with their telecommunications infrastructure. Interestingly enough, Verizon is looking at abandoning most of New England because they don’t feel it’ll be profitable enough when they roll out FIOS. As a side note, I’ve been informed that Roger Black is now semi-retired and teaching part-time in Cedar City.

4:09PM Sen. Niederhauser seems to support UTOPIA only in rural areas where private companies won’t go. That’s a big mistake. Cities also need the higher speeds offered by UTOPIA in order to retain jobs and stay competitive as well.

4:04PM David Shaw has clarified that the big difference between tax-funded networks in other states and countries and UTOPIA is that UTOPIA has only planned to use tax revenue in a worst-case scenario and clarified that cities are not entirely on the hook for the full bond amount. He also clarified that UTOPIA is not intended to be a profit-maker. That’s consistent with how they plan to build out in non-pledging cities in the future. After all, that money has to come from somewhere, right?

3:58PM It sounds like this presentation is allaying the financial fears of at least Rep. Morley. Rep. Frank asked how options in other nations were financed. Mr. Baller explained that the national governments there had stepped in to work with local governments and businesses to build them. These publicly financed systems were also required to be open systems.

3:51PM Roger Black mentioned that the private partners failed to deliver the expected marketing, AT&T in particular. He praises the other members of UTOPIA though mentions that they had to operate at a disadvantage since AT&T didn’t spread the UTOPIA publicity as expected.

3:48PM UTOPIA expects to be at a break even by 2008 and profitable by 2012 as mentioned earlier. Mr/ Shaw clarified that monies paid by the cities are put into an i
nterest-bearing account as a reserve fund and that pledge amounts have not changed at all. He also clarified that “externalities” refers to the delays caused by the RUS grants, attaining federally-guaranteed pole space and the Qwest lawsuit. In other words, a lot of this is incumbent obstructionism. Typical.

3:45PM Rep. Morley asked what the new break-even point will be for UTOPIA in light of how long private projects often take to achieve this point. David Shaw jumped in to answer. As a side note, apparently Roger Black is no longer COO and is now a consultant for UTOPIA. Huh.

3:40PM I’m glad that Mr. Baller is showing how a comparison of WiFi and fiber is comparing apples and oranges. Trying to claim that wireless projects are representative of fiber projects is just plain dumb.

3:33PM Oh wow. Financial analysts say that private broadband systems take a good 10-15 years to achieve profitability. Compare that to a projected break-even for UTOPIA within 5 years of inception. Huh. How about that? Private companies are basically raiding the other divisions to sink money into their money-losing systems resulting in higher phone, cable and cellular rates. How many subscribers would like to have their rates lowered instead of subsidizing the construction of their new sub-par networks? That’s what I thought.

3:27PM Ouch. Jim, good show. He’s demonstrating that when using accepted accounting methods from the private sector, almost all of the projects Titch criticizes are actually financially sound. I guess that journalism degree didn’t grant him any accounting skills. Titch’s figures also don’t take into account the net effect of such systems. Example? Bristol, VA built a fiber optic network that revitalized the town after a major failure of the agriculture and coal industries. Now the town is a significant player in the tech world. Maybe we’ll see the next Durham, NC on our hands?

3:22PM Spot on! You can’t expect any project to be immediately profitable and the incumbents cross-subsidize network construction from cash cow sectors like phone and TV services.

3:20PM It’s true. Municipal networks are used for everything from law enforcement to traffic control to economic development. Mr. Baller is doing a great job deconstructing the snow job that Mr. Titch pulled out last time. He’s going for the throat too, citing a significant number of factual errors and a bunch of obvious bias in the paper. I’m glad to hear that pay-for-play hack being taken to task.

3:17PM No surprise here. Qwest solicited data from UTOPIA for the purpose of spinning the numbers, not opening up some kind of meaningful dialog.

3:16PM Baller, not Ballard. Thanks to Cory from PacketFront (used to be DynamicCity) for the correction.

3:13PM How right you are. Qwest won’t offer anything higher than 7Mbps. Honk Kong won’t offer lower than 25Mbps. How’s that for a comparison?

3:11PM And now we have some data on Utah’s rankings. Our average is 499Kbps, significantly lower than the national average and much more so than most other first-world countries.

3:10PM The population density myth has just been shot down by comparing us to other countries. I mean, seriously, trying to claim that Canada is more densely populated than the US? What? He also brought up that dense cities like New York, Chicago, Boston and Los Angeles have no broadband options comparable to Seoul or Tokyo even though the population densities are similar.

3:07PM Mr. Ballard presented good data on how we pay 20x as much per megabit while enjoying about 1/10 the maximum speed.

3:05PM I’m going to nickname this guy The Burninator. He brought up the failed presidential promise to improve access and speeds in the broadband market by this year. Of course, it ended up being an empty campaign promise.

3:03PM The visual representations should help legislators realize that the services currently offered by Qwest and Comcast are not only insufficient for our needs but nowhere near competitive internationally. He also pointed out that the UTOPIA and iProvo infrastructures can easily support the move to 100Mbps and 1Gbps with simple electronics swaps but the incumbents will have to scrap and rebuild.

3:00PM Burn again! Mr. Ballard brought up the terrible statistical reporting of broadband by ZIP Code and the potential for new requirements to use ZIP+4 in the future.

2:59PM Ooo, burn. Now we find that the FCC used to have broadband at 200Kbps bi-directional. They created the new “high speed” designation so that cable companies could scrimp on us and provide only a 128Kbps upstream. That’s in addition to the drop from 45Mbps to 200Kbps.

2:54PM Great follow-up on how we’ve been falling behind internationally in terms of available broadband. It’s also a good point to raise that broadband positions us to be in a position to capitalize on future knowledge-based jobs.

2:50PM Apparently Mr. Ballard’s research shows significant parallels between the early days of electrification and the current slow roll-outs of broadband systems. When communities weren’t getting served by the power companies, they built their own systems. The ones who didn’t build their own systems often went into recession and became ghost towns. There’s a scary story for you.

2:47PM Mr. Ballard has 15 years of experience working on municipal telecommunications project. He brought up that UTOPIA and iProvo have been models internationally for public-private cooperatives for next-generation telecommunications.

2:44PM A rep from UTOPIA will now be speaking. My bad on Steven Titch being here; Jim Ballard (?) looks a LOT like him.

2:41PM I don’t have a copy of these handouts so I can’t follow along with all of this data. I’ll see if I can snag some before I leave the capitol complex. Otherwise we’ll all have to wait until they get posted on the subcommittee website in a few weeks.

2:40PM There’s some data on the bonding in here. The $85M bond issued in 2004 was designed to be paid with some of the bond money through 2008 with a projection to have the bond debt taken over by subscriber revenues by 2009. There was a second bond in 2006 for $30M with a $37.6M bond in 2007 for the RUS grant.

2:36PM Now we have data on the projections. The original break even was 2006 and has been pushed back to 2008. This is about the amount of time they had to wait for the RUS grant. The positive cash flow was originally projected in 2009 and is now projected for 2012. Again, credit the slow-moving feds and their grant processes. Annual revenues have been increasing steadily based on figures from 2005-2007. Net income has been decreasing (from $10.7M this year to $17M next year), but that’s no surprise as they ramp up construction in more cities.

2:32PM Well… that was totally softball. It skipped over the scam that the teclos pulled on us. Now there’s a report on UTOPIA financials.

2:28PM Mr. Elder is quoting from a FCC report in 2004 saying that 200K broadband was being deployed in a “reasonable” manner. As to how it’s reasonable to redefine broadband from 45Mbps to 200Kbps and call it a win is beyond me.

2:24PM Hey Qwest? Didja hear that part about providing universal service to rural areas? Just how many rural areas can get DSL? That’s what I thought.

2:22PM Sweet! There’s a present
ation of the Telecommunications Act of 1996 as requested by “members of the committee.” I imagine this has to do with the data I sent to Rep. Cosgrave last time. This should make Qwest sweat during their later testimony.

2:20PM The meeting now moves on to broadband policy again. Staffer Leif Elder will be presenting.

2:18PM Wow. Actual private citizen comment. Who’d have thunk it? She’s pushing for further study to make sure that public buildings aren’t trying to supplant private meeting halls and the like.

2:12PM This is going to be a pretty short discussion. The subcommittee had no discussion on the topic. Roger Tew of ULCT clarified that many fees for using public buildings is often to just cover costs, not make money.

2:09PM Looks like they’re bumping that agenda item and will now discuss using public buildings for private functions. Sen. Stephenson will be speaking on this topic.

2:05PM The meeting will now focus on local government budgeting in relation to competition with the private sector. I just noticed that Steven Titch is here again though he’s not on the speaking schedule.

2:01PM Sen. Goodfellow just made a great funny. He asked Rep. Frank if he learned his upside-down skateboarding skills because of his membership at Gold’s Gym. I think only about a third of us here got the joke.

1:55PM Lincoln Schurtz from ULCT delivered a public comment questioning the bundling of a feasibility study and an impact on the private sector. He brought up that this could get our of hand and start encompassing core functions like police and fire.

1:49PM Whoa now. The discussion took a nasty turn and Sen. Stephenson is proposing to turn the interim subcommittee into a standing commission to police what areas municipalities can or cannot get involved in. This sounds like another effort at top-down rule in the state of Utah.

1:47PM There’s now some legislation on the table to tighten up the definition of core government functions. This is going to be one to watch as there could easily be something snuck in about telecommunications or other utilities.

1:40PM Sen. Jenkins is making a lot of good points on recreation centers, golf courses and pools. I fear, though, that they’ll be extended improperly to public utilities.

1:34PM Seems like the meeting started late like last time. All I missed was the call to order and approval of the minutes.

1:32PM Sen. Scott Jenkins is currently speaking on government competition with private entities. Right now the discussion is centered on golf courses.

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4 Responses to Liveblogging the Government Competition and Privatization Subcommittee: September 26, 2007

  1. pathenry says:

    Great blow-by-blow, Jesse! I had to leave ca. 4:30 so missed the public comment. I would especially have liked to hear what Pete Ashdown had to say.

    My favorite moments were:

    #1) Hearing what the French get for 30 euros ($41) a month … like true highspeed broadband connectivity, HDTV with 200 channels, telephone service with unlimited long distance, free equipment upgrades;

    #2) When Craig Frank commented “I’ve never been to France. Do they hold free elections there?” Us peons in the peanut gallery were cracking up. If we start down that slippery French slope, pretty soon we Utahns will be required to eat snails and Utah Men will be carrying purses!

    I thought Mr. Baller did a fabulous job handling our conservative, free-market legislators. We really do need to play catch-up ball if we’re going to stay competitive. He convinced me.

    Don’t forget to look at his website: http://www.baller.com

    This is an issue that concerns all of us. As Mr. Baller said, Utah and UTOPIA have been among the leaders and we can be proud of that.

  2. Jesse says:

    Whether or not Utah man carry purses depends heavily upon which part you’re in. 😉

    Mr. Baller did a masterful job before the committee. It’s like I got to hear everything I’d been saying and more bursting forth in a fantastic truth-laid-bare fashion.

  3. christopher says:

    Great coverage Jesse! I’ve been enjoying your blog. Is this hearing available anywhere in video or transcript?

    I just published a case study on Burlington Telecom – they are an open access system in Vermont. You might enjoy it.

  4. Jesse says:

    The audio is already available on the subcommittee home page though the minutes will take a couple of weeks.

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