Before I left town for a jaunt to DC, Venice and Florence, I had a few questions posed to me by Rep. Steve Urquhart of St. George on my summary of the November 7 subcommittee hearing. It seems he has some concerns over the financial viability of the project and some perceived cherry-picking activities in private subdivisions and non-pledging cities. Simply trying to fully respond in the comments would not fully answer the questions posed and I think it's important that both get the time and attention they deserve. Here are the questions he posed:
(1) Can UTOPIA make it financially or will taxpayer money be used to bail it out? (Its best-possible cost/subscriber rate is north of $5,000. Companies don’t live to tell what happens in that territory; bankruptcy courts tell the story for them).
(2) Has UTOPIA departed from its very reason for being — ubiquitous service? (Yes. It originally declared that it existed to serve areas that cherry pickers wouldn’t. Now, though — as you note — it is doing the exact same thing as Qwest (cherry picking)).
For starters, I really appreciate that Rep. Urquhart participates so readily in open discussions. It helps move the political process forward and puts a human face on legislators who are often reduced to a handful of quotes in the major papers. Without that, we sometimes have a tendency to read too far between the lines and create caricatures of the people we should be working with instead of against.
Regarding the financials, he is correct that a company would not be able to survive for very long if it had installation costs of $5,000 per household for a $110/month service. This, however, does not consider what costs to date have been incurred. Phase I construction comprises two main parts: construction of the main backbone to connect all cities and construction in the Phase I cities. The backbone construction is obviously a very high cost since it needs to be able to reliably support all Phase I and Phase II cities.
Given its purpose, it seems unfair to consider the costs of the backbone in total when calculating the actual cost of installation in each household. This is like using total construction costs to determine per-unit expenditures in a half-built and half-occupied apartment complex; the unfinished buildings have no real relevance in determining how much was spent on occupied units, especially when construction is on-going.
Part of the problem here is that UTOPIA doesn't do a really good job at updating its website with current information. I understand that some of their reservations in this realm have been because Qwest and Comcast have purposefully taken and misrepresented the data for their own aims. (This says nothing of hacks like Steven Titch of The Heartland Institute.) The flip side, however, is that those of us willing to actually sit down and analyze the data can't defend UTOPIA appropriately either. Transparency always works out for the best, even with some short-term damage from the incumbents and their "think" tank hired guns. If you ask UTOPIA for data, they'll probably be willing to provide it to you. It certainly can't hurt to ask.
A large reason why UTOPIA has been so late in meeting its goals has to do with the incumbents themselves. Qwest successfully put construction on hold for several years thanks to a lawsuit and UTOPIA has repeatedly been denied access to telephone poles in violation of legal requirements. These are things that can't be predicted and were carefully calculated moves to try and sabotage the project, just like the restrictions on new membership in SB66 and the proposed new onerous amendments to the Municipal Cable Television and Public Telecommunications Services Act. These kinds of underhanded maneuvers are not something that can be planned for.
On to the second question, does UTOPIA cherry-pick? Let's take a look at some of the specific examples Rep. Urquhart has brought up.
When it comes to subdivisions, UTOPIA can only build there if construction poses no risk to pledging cities. This means that the developer must pick up the cost of deployment and that the minimum costs of operation be covered by subscriber revenues, HOA fees or a combination of the two. Without such safeguards for pledging cities, developers would have to be told to take a hike. How these costs are passed onto the homeowner is not part of UTOPIA's concern nor should it be. Their primary concern is financial viability. If a developer decides to build in the costs of construction and maintenance, that's between them and the buyer. If a prospective buyer doesn't like the deal, they can buy a house elsewhere. It seems the real villains to be targeted here are developers and the HOAs they create, not UTOPIA.
In terms of non-pledging cities, it is important to consider how construction would proceed in these cities with universal built-out requirements. With the current laws regarding universal service, UTOPIA would have to save up all of the money required to do a build-out in that town before they start construction. If they did not, they could risk running afoul of the build-out requirements if there isn't enough revenue to complete construction by the specified deadlines. What makes the most sense for them is to do incremental building as funds become available. Since this situation has not yet arisen, it's a matter of speculation as to how the build plan would proceed. It could be that they start with areas closest to the backbone. Maybe they'll start in areas with lower construction costs like new developments or neighborhoods with lots of aerial runs. We won't know until we get there.
Given the valid explanations for both situations, it seems that UTOPIA isn't looking to cherry-pick in the manner that Qwest has been. Rather, it's looking out for the financial interests of the project and finding a reasonable way to deliver services to non-pledging cities once the time comes. I'd have a hard time believing that intentional malice was at play.
Here's something else to consider on top of these two responses: why we need UTOPIA. We can look at things like how far behind we are internationally in Internet speeds and pricing, the lack of true telecommunications competition or how high-speed systems will aid in transportation and eduction policy. I think we need to look at the broken promises of the Telecommunications Act of 1996 whose provisions were supposed to be administered by the states.
Under The Act, we were supposed to see the aging copper infrastructure replaced by fiber optics to every serviceable address. This new infrastructure was supposed to be made available to competitors and be capable of at least 45Mbps. In exchange for these promises, telecommunications providers were given around $200B in increased service fees and tax breaks to make it happen. Instead, they plowed the money into long distance and cellular operations, redefined broadband to a paltry 200Kbps and raised telecommunications costs over 50% in the following decade. In Utah, the scam amounts to $1.4B in extra profits for delivering on none of the promises.
We're only got a few options to remedy this. One is to require all incumbent telecommunications providers to build the network they initially promised us with a firm "do or die" deadline. Another is to take the incumbents to court to get the money back with interest and penalties for abusing the public trust. Neither of these is palatable; they would spell certain bankruptcy for those companies and involve years or costly litigation without the assurance of the required remedy.
is a best compromise to achieve the aims of The Act without causing an economic meltdown. Qwest and Comcast are allowed to continue doing whatever it is they're doing and we get the infrastructure we were supposed to have had completed by last year. By creating an independent wholesale network with the capacity and capability to provide a 21st-century platform, it lowers telecommunications costs, increases competition and spurs additional economic activity. Qwest and Comcast don't want this; they're perfectly happy with their giant cross-subsidized vertical monopolies. To paraphrase Qwest CEO Jerry Fenn, why build a Cadillac if you can get the same price to sell a Chevy?