This opinion piece was published in today's Daily Herald.
As an advocate for open-access municipal fiber optic networks, I was disappointed to learn that Provo planned to sell iProvo, the nation's largest such network, to a private entity who planned to become the sole retailer. This disappointment quickly turned to disgust and outrage as more details of this secretly-brokered deal surfaced. After attending several of the public meetings and doing some research, I am convinced that the city of Provo is about to embark on the "SS HomeNet" for a second time.
We first must question the way in which this proposition came before us. While Mayor Lewis Billings and city attorney Robert West assert that what was done was perfectly legal, such language is often a smokescreen to hide that what was done was morally wrong. The clear public intent of the original RFP was to solicit additional providers to the network. Attempting to inject new meaning into it to allow for selling the network smells like the city covering their bases, especially since we are told that there were other offers to buy the network without any idea who these other offers came from and what they were. Instead of expecting those making proposals to read between the lines, the city should have made the intent clear from the beginning.
I'm also highly skeptical of Provo's "rent-to-own" financing of the purchase. Provo will take out a loan of $40.6 million, increasing their debt load from the current $36.9 million owed on the bond, and will retain ownership of the network should Broadweave become unable to pay. While I'm sure Broadweave is all too happy to take advantage of the city's ability to bond at a lower interest rate over a longer period of time than a private bank can offer, this clearly shows municipal preference for one provider over another, a departure from the original mission to build infrastructure to promote additional private providers. We should also be concerned that should the network revert to city ownership, there will again be no retailers and new retailers would be hesitant to work with a city so willing to throw them under the bus.
The only way this suspect arrangement can pan out is if the underlying company can truly turn things around. Research shows, however, that this isn't likely. Broadweave has no more than 1100 customers, just over a tenth of what they stand to gain from an acquisition of iProvo. They are also planning to buy several other fiber networks in other states, a pace of growth that small companies traditionally are unable to handle. In particular, they are planning to buy a network in Houston that will require tens or hundreds of millions of dollars in investment to attain profitability. Sorensen Captial, their chief backer, has only $400-500 million in investment capital and surely won't dedicate such a large portion to a single venture. Additionally, none of the management team has any telecommunications experience, something that proved to be a major problem for iProvo in the past.
Broadweave's small size is compounded with a lack of experience in the competitive marketplace. Their current operations are in brand new subdivisions where they have exclusive provider status and no competition. Provo will be an entirely different game with Qwest and Comcast seeking to lock up customers in long-term contracts at attractive rates. We should also be concerned that Broadweave must increase the monthly average revenue per unit from around $36 to almost $62 to break even on debt service and operational costs, a nearly 72 percent increase. Most fiber optic networks barely reach monthly revenues of $55 per subscriber and Broadweave already has to overcome a negative public perception of the network left behind by prior providers. This new provider is likely to increase prices, cut services or a combination of the two, a tough sell to citizens of Provo.
When asked about these serious and relevant financial questions, CEO Steve Christensen has frequently dodged behind non-disclosure agreements to avoid comment. While he will hopefully be more forthcoming with municipal council members in closed meetings, the lack of public review of this data leaves us with little more than a statement of "trust us." Too bad HomeNet already ran with that line.