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2009-0831

Provo Municipal Council to Consider Broadweave/Veracity Deal Tomorrow

14 Comments[Author: Category: News ]

Provo’s municipal council will meet tomorrow to discuss and vote on the proposal from Veracity and Broadweave to ease up on payments for a few years. The meeting will be at 7PM in the council chambers at 351 W. Center St. I’d encourage everyone to show up and share your thoughts with the Council.

As an aside, the Herald’s editorial board sees what I do: the choice between two options, neither of which is terribly palatable. I still don’t know that I favor one option over the other. Despite being a loud proponent of open networks, the management that Provo picks hasn’t exactly shown competency in the area. It’s hard to tell if Provo has more of a stomach for either extending their risk or doing the work that is necessary to make the network work under city control. In either event, I want to make sure that the council has considered their options and is making their decision based on facts and rational thinking, not fear.

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2009-0829

Broadband Bytes for 2009-08-29

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2009-0824

An Evaluation of the Broadweave/Veracity Merger

21 Comments[Author: Category: Essays, iProvo ]

I’ve spent the last week rolling over the proposed merger of Veracity and Broadweave as well as their proposal to Provo City upon which it is contingent. I’ve gotten  more information from Veracity and Broadweave on their position and talked to other people who’ve been keeping an eye on things. I’m still not sure if the deal is in the city’s best interests, but I don’t know that it’s necessarily rotten or the only option either.

Veracity’s proposal to the city is, for all intents and purposes, a loan of $1.5M over the next 18 months to reduce the bond payments to be paid back over the seven years following that at 5.1% interest. (Ironically, this is the amount Provo City would have paid on the bond had they kept the network.) Veracity has said it has pursued private financing for the deal and has been unable to secure it, though I imagine the terms were also not as favorable as what’s being proposed to the city. Under the proposal, Provo would use the energy reserve fund to make the payments, money that would have been earning 1% interest. Taxes wouldn’t increase to finance it nor would other budgets be cut into.

So why does Veracity want a loan to reduce the payments? They’re looking to buy time to move their Provo customers onto iProvo to slash costs and improve operating efficiencies. Not only does that cut Qwest transport out of the picture, but they can also sell services that would not have been easy to provide given the wholesale rates that Qwest charges. Moving those customers will cost a fair amount of money, so Veracity needs time to get it done.

Given Veracity’s financial state, I have my doubts as to whether or not they could secure private financing for this deal. They reportedly operate debt-free with a very healthy cash flow and I would hope that they presented the council with scenarios under which they use private financing combined with current revenues to accomplish the same ends. They have been opening the books to the city council and some staff for their review, but there also needs to be a Plan B. Right now, the proposal feels very “take it or leave it”.

This isn’t to say that I doubt Veracity’s capability. They’re an exceptional company offering exceptional service that I use in my job every day. Their management team is full of smart people and Broadweave has done a much-needed sweep of almost all of its management team. My reservations hinge on asking the city to extend their role in the financing of the sale.

So what’s the alternative? Broadweave is fast-approaching the date where the network will have to be returned to the city since investors aren’t willing to put any more money into it. If that happens, Provo will have several months of the reserve to use for paying off the bond while they regroup. It sounds like a worst-case doomsday scenario, but I don’t think it’s quite as dire as even I would have once predicted. Provo will still have a couple of options at their disposal.

The first option would be to resume control of the wholesale side and allow Broadweave to continue as the main retail provider. This option would only work if, after being relieved of the wholesale obligations, Broadweave would have sufficient funds to find new customers and finance install costs. There’s also the problems of re-staffing the NOC as a city department and relocating Broadweave to another office. It may also be very difficult for a single retailer to secure enough customers to cover the wholesale side of the operation

The second option would be to bring in new retail providers to compete with (or replace) Broadweave. If Provo entered into some kind of reciprocity agreement with UTOPIA that allowed a provider from one network to participate on the other, it would secure the residential contract on UTOPIA that Broadweave wouldn’t mind having and bring in a half-dozen new providers to Provo to scoop up new customers. This would also mean that at least two different head-ends on both networks would be competing for customers, a win-win for served residents. New providers, however, may be leery of making a deal with Provo after the way that they threw Mstar under the bus. Granted, Mstar wasn’t paying its bills and didn’t have much goodwill to cash in, but they were also bullied into the deal they got. In either scenario, Provo would have several months of lead time to figure out what to do and find a way to make the payments once again.

Provo isn’t necessarily locked into the merger option. If the council still wants to get out of the business, they believe that Veracity is good for the money, and they don’t have qualms about extending some more financing, they can go with the merger. If they want city money to result in a city asset, don’t have heartburn about doing the work to fix iProvo (now that we’ve seen that a private company wasn’t able to), and don’t think this is the last time they’ll be asked to extend their risk, there’s options for taking the network back.

No matter what happens, this should be an example of how difficult it is to try and undo the decision to get into the business of telecommunications. We’ve seen that a private company operating a closed network is not necessarily any more successful than a public entity operating an open network when in an overbuild scenario. We’ve also seen that self-financing means you aren’t really out of the business until the last red cent of the bond has been paid off. Any city thinking about jumping ship would do well to consider that it’s not an easy way out like the Reason Foundation and Utah Taxpayers Association claim it is.

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2009-0822

Broadband Bytes for 2009-08-22

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2009-0818

Take 2: Veracity/Broadweave Merger Back On

14 Comments[Author: Category: iProvo, News ]

After a failed attempt at merger around a year ago, Veracity and Broadweave have decided to give a merger a second shot. The new company will be named Veracity Networks with Veracity’s Drew Peterson as CEO. Broadweave CEO Dave Moon will remain on the board.

So what’s the new company’s first step? To go to Provo’s city council to ask for a “restructuring” of the bond debt to lower payments by $82K per month for 18 months. I’m not sure how exactly that will work out without the city basically floating the difference during that time frame (an action surely to come under fire from both incumbent providers), but I’m hoping Broadweave will take a new tack with being a bit more open as to what the heck they’re doing. After all, a significant amount of public money is still on the line and if they ask Provo to dip into the till to keep things going, citizens deserve to know what they’re getting for what may be an interest-free loan.

Broadweave was gracious enough to invite me down to their offices to inform me personally. After the sharp criticisms I’ve had for the company, I was surprised they extended the olive branch. I suppose that’s one of the many positive side effects of an almost total refresh of company management. All the same, the visit was very cordial and felt very much like a press release event rather than a heart-to-heart. (I’m still sure that my picture is on more than a few dartboards around the office.)

I see the merger as a bit of a mixed bag. Veracity brings a lot to the table including large corporate customers, experience competing against and working with incumbents (they offer services on Qwest’s network), a stable cash flow, and significant technical experience. They also bring potential access to UTOPIA for Broadweave via their existing contracts.

On the other hand, asking for another hand-out from the city instead of making it on their own will likely rankle a city council that thought they’d managed to wash their hands of the deal. If the council doesn’t go along, it begs the question as to where additional funding will be found from. Not knowing what Veracity’s available cash flow is, it’s hard to tell if that side of the equation would be able to staunch the flow of money from the surety enough to allow Broadweave/Veracity to sign up more customers. At the very least, this makes iProvo even more of an election issue than it was before for all sitting council members as well as the mayor.

For the time being, I’m content to watch from a distance and see what happens. My opinion of Broadweave hasn’t yet been changed, but I’ll willing to give them a second chance and benefit of a doubt.

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2009-0815

Broadband Bytes for 2009-08-15

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2009-0808

Broadband Bytes for 2009-08-08

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2009-0808

UTOPIA Backhaul Brings FuzeCore Wireless to Garland

10 Comments[Author: Category: Cheers, News, UTOPIA ]

Several months ago, FuzeCore said it was looking into using UTOPIA lines in Tremonton to serve the neighboring town of Garfield Garland. Looks like as of 6 weeks ago, they started doing it over a 6-mile radius that includes the neighboring towns of Elwood, Collingston, Fielding, Bothwell, and Deweyville. (Seriously, I don’t know how I missed the press release and Google Alerts only just now picked it up.)

Per the conversation we had at that time, FuzeCore was planning on connection speeds upwards of 10Mbps up and down with VoIP service. The website shows that they’re advertising 8Mbps+, so this is in about the right range. The best competitor Frontier can do is 3Mbps DSL with no mention of their upstream speeds or if their onerous caps will be making a comeback.

Wireless backhaul is one of the markets that I’ve been hoping UTOPIA would chase since it can greatly extend the reach and revenues of the network. Hats off to FuzeCore for using their wireless expertise from Idaho to make it happen!

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2009-0804

The Over-the-top Genie is out of the bottle. Now what?

12 Comments[Author: Category: Essays ]

Capt. Video and I had a discussion a few weeks ago about how service providers handle over-the-top providers such as Vonage. Service providers are in a sticky situation as many of these services may compete with their existing products. Vonage and Skype take away phone customers. Hulu and iTunes take away video customers. So what should a service provider do about it? I see only three options open to them.

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2009-0801

Broadband Bytes for 2009-08-01

7 Comments[Author: Category: Broadband Bytes ]

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