Tue 2 Feb 2010
UTOPIA Applications for Broadband Stimulus Rejected in Round 1
Posted by Jesse under News, UTOPIA
[12] Comments
The NTIA has started sending out rejection notices to broadband stimulus applicants and has been updating its online database with hundreds of applicants that did not get approved in the first round. Among those are all three of UTOPIA’s applications. Despite rejection in Round 1, UTOPIA can still apply for Round 2 which will be less restrictive on application requirements.
That said, it’s entirely possible (and in my estimation, highly probable) that UTOPIA won’t get funding at all. BTOP seems to be focused on new projects rather than existing ones and is focusing on the most rural areas. If that’s the case, the SAA will be the only way to finance any future construction and participants will have to bear a higher cost.
(h/t: Stimulating Broadband)
February 2nd, 2010 at 2:15 pm
Considering that puppet corporations are being rolled up to make false coverage claims its no wonder that they where rejected. The whole situation with the stimulus program has been entirely farcical.
February 2nd, 2010 at 10:48 pm
While not unexpected, the rejection is sad. With UTOPIA losing money (operating costs are higher than revenues) I fear UTOPIA will have a very rough road ahead.
While SAA can pay for some new construction/expansion, I doubt it will catch on and I suspect it will be hard to use those funds to cover existing loses?
February 5th, 2010 at 1:02 pm
And the great news is we will all be paying for this failure for years to come. Thank you all to the wonderful fools on capital hill that got “Their” money out of the deal.
February 6th, 2010 at 11:04 am
Anyone know why the UTOPIA 2009 Financial Report is not available on the State Auditor’s web site yet?
February 6th, 2010 at 2:51 pm
http://www.sao.state.ut.us/lgr/special/2009/09dfutop.pdf
This what you are looking for?
February 6th, 2010 at 4:20 pm
Yes…Thanks!! That tells the sad story!
It looks like the average revenue per sub per month is $28.20?
The penetration or take rate is 13% of homes passed or 16% of “marketable homes”.
When you add the annual bond payment ($10 million+) and the annual operating expenses ($6.2 million+) together ($16.2 million)…UTOPIA would need over 48,000 customers (given the $28 rev. per sub.) to break even.
I’ll make two observations on this number:
1: Go look back in this blog and see where years ago I say they would need that many customers and no-one believed me.
and MORE IMPORTANTLY
2: UTOPIA only passes 48,000 marketable homes…so they would need every home subscribe to just break even.
There is NO light at the end of this tunnel!
I assume the SAA will not change that as the SAA will generate new customers but that revenue will have to pay for the construction costs for that area??
How does ANYONE see a business solution to UTOPIA’s problems.
They only have 8009 customers (EOY fiscal 2009) and the UTOPIA payroll costs alone eat up over 6600 of those customers, add the professional services and they have spent all the subscriber revenue and more….and they have not paid ANY other operating expenses no less a single penny of the bond payment.
I’m sad to say this noble project is dead. Do we have to wait for the corpse to start stinking before we bury it? The cities should look to cut their losses.
Am I the only one that can see The Emperor Has No Clothes?
February 6th, 2010 at 4:39 pm
Capt: I think that, in your rush to judgment, you’ve missed a few critical details.
That report is for the fiscal year ending June 30, 2009. It does not include any customers from the Brigham City SAA, customers brought on by new providers (Brigham.net, Voonami), customers using FuzeCore’s wireless products in Garland (which pay backhaul fees), the new video product sold by existing providers, new long-haul customers, Prime Time being able to start selling to new customers… the list goes on and on. While the financial picture isn’t good any way you slice it (and won’t be for some time even in ideal conditions), what isn’t included in that time period is very significant.
I think you need to step back from the doom-and-gloom and re-evaluate your position.
February 6th, 2010 at 6:37 pm
I’ve been running numbers and watching this for a very long time….I don’t think it’s rush judgment by any means.
I don’t believe the SAA will have much effect on this as the SAA money will be burned up paying for the construction in the SAA areas. The revenue per sub should also be lower for the SAA customers. I actually think the SAA excitement distracts attention from the fact that they have very little “internal growth”, growth without construction, which is exactly what is needed.
They need to add 3000-4000 new customers in the existing areas to break even just on operating. They don’t have the money to do those installs, they don’t seem to be focused on the existing 40,000 homes they pass but don’t serve as they are so excited about the SAA???
Each time a new provider has come on you have suggested that would make a difference and none of them have, you are just dividing the UTOPIA customers among more providers. The addition of no new providers seems to have increased the overall take rate. Read back thru your posts and you will see how you expected improvements now that they offer this or that service or provider….none have made a difference.
I suspect that all the improvements you mentioned could happen but it will have little overall effect as the problem is too big. They need to add 40,000 ADDITIONAL subs…after 5 years or more they have 8000??? The changes and improvements you mention are like rearranging the deck chairs on the Titanic.
I’m sorry but this ship is going down. They just need too many customers, the debt is too great.
It’s all about the numbers…I’ve been saying that for years and it remain true. Put some numbers to the life savers you are hoping for. See if you can create a business model that you think works.
Here’s the tip off that things are NOT getting better.
Back in the old days, when they were paying someone to manage the network UTOPIA was spending only 650k on salaries and the total expenses for payroll, professional services and network (cost to manage the network) were $4.3 million. Then they took things “in house” to save money, dumping Packetfront, etc.
But now they are paying over $2 million in salaries and a total of $4.8 million for the same categories they were spending $4.3 million on last year. So the move “in house” increased the expenditures.
I’m sure this will play out (somewhat painfully for the cities and citizens) for years…but I am sad to say I suspect I will be right about this.
The people at UTOPIA are well qualified, good people. But the hole they are in is just too deep. If they cut expenses and operate cash flow positive I suspect the cities are more likely to keep it operating. I can’t believe they didn’t submit a budget that would do exactly that in 2010.
February 6th, 2010 at 10:41 pm
Yes, and those customers will also be less expensive to provide service too. It’s a wash because the customer will be paying those install costs too. The only difference is that the customer is floating the money and not UTOPIA. If you collect $25/mo with $20/mo in expenses or $10/mo with $5/mo in expenses, you’ve still made $5 either way. That’s a non-argument.
Yes, there’s no money for them to front the install cost. That’s where the SAA comes in. As a commenter noted on the Centerville SAA post, UTOPIA sales staff is actively canvassing in Orem, no doubt to start an SAA to leverage the installed infrastructure. Without any operating capital, what else would you have them do?
Where’s the evidence of this, that additional providers make no difference? Brigham.net is immediately bringing on anywhere from 60-200 customers from Qwest transport. Providers like Integra, FiberNet, and Voonami need time to move existing commercial customers over, no doubt due to existing contracts. Do you have data I do not to make such a claim, or is the lack of an immediate and dramatic change equivalent to failure in your book?
Or an equivalent. UTOPIA has signed on some large backhaul clients since that statement including a little company called Mozy. (I’m sure you’ve heard of them.) They are also in discussion with a number of commercial clients that want to pay up-front for the connection cost and sign up for thousands, maybe tens of thousands of dollars per month in services.
Remember the iProvo lesson: each business had the same value as three homes or 7 MDUs. Bigger businesses are worth even more. UTOPIA is smart to be chasing those larger clients right now.
They’re also doing a heck of a lot more than they were. Yes, they can probably stand to make some cuts. When you are chasing down accounts planning to spend tens or hundreds of thousands of dollars per month, though, do you really want to show them a barebones operation? They need to spend money now to get those accounts to avoid total collapse later. That’s just good business sense.
I’ll say right now that anyone who expected UTOPIA to completely course correct in under two years was either hopelessly detached from reality or intentionally setting expectations too high in order to later malign the project. I fully expect red ink for another 3-4 years. There’s no way around it unless some miracle happens.
As I’ve said before, measuring the value of UTOPIA purely by the balance sheet is foolhardy. That implies that it only has value if it makes money. That’s pure unadulterated nonsense. It’s difficult to measure the impact of UTOPIA on competitive pricing, increased productivity, decreased costs for city agencies, economic development, increased broadband investment by incumbents, or a slew of other factors.
Do we demand that roads be paid solely by users? NO! And we shouldn’t. We make a valid assumption that everyone chips in a bit for the infrastructure for direct and indirect benefits of its presence. It’s the same thing with UTOPIA. If residents decide they aren’t getting that value, they will move. Personally, I refuse to consider any home not in a city participating in UTOPIA and will not purchase a new home without the service available.
You say the cities should bail now. HOW? If they sell right now, they get pennies on the dollar and pay most of the bond anyway. That assumes you can find someone willing to buy and operate it. Why on earth would a city both pay the bond AND have an almost guarantee of no service? It makes more sense to keep the project afloat, at least for a few more years, to see what happens.
February 10th, 2010 at 8:45 pm
UTOPIA should look into this….on the grounds that they already have much fiber in the ground and too homes?
http://www.google.com/appserve/fiberrfi/
February 13th, 2010 at 9:57 pm
I just reviewed the financials and there is no way UTOPIA is going to get into the black any time soon. The cities are now going to have to pay – and with these tight financial times other services are going to have to be cut to pay for fiber to a few homes. Pressure will be put on the member cities to do something. I heard that two weeks ago the top executives of Qwest and Comcast (in UT) had a meeting in Salt Lake City. Some of the discussion revolved around what to do when UTOPIA is put up for sale. One of the options discussed was to not bid on the facilities, bleed the customers away and punish the member cities. Of course all the original players who saddled the cities with UTOPIA are no where to be found…
February 13th, 2010 at 11:32 pm
Utopia won’t go up for sale, they would have to have unanimous consent from the all the member city’s, it would also cause it uproar from the SAA customers, and overall financially makes no sense. Utopia passed the operating revenue break even point at around 8k-9k customers a few years ago, Only reason their not above operating revenue right now is because of sales, marketing, and a number of one time expenses related to the cable offering and setting up their head end, they may also have some one time expenses related to some back haul contracts they are fulfilling, and some short term extra costs in temporary credit to do installs with.
So long as Utopia is making more then the operational break even they can pay at least a portion of their bond obligation which is a whole hell of a lot better then nothing.
Also several city’s have had business’s move operations into those city’s just for access to the Utopia fiber, for the moment at least the argument that the cost is worth it because it is attracting new business’s is easy to point out and a big plus that will win many residents of these city’s over even if not all of the residents have access to Utopia’s fiber yet.
So place take the doom and gloom else where.