Most of you are already aware that Veracity’s reserve fund for iProvo has reached the point of potentially triggering a default. From the news stories you’ve read, odds are good that you think that Broadweave 2.0 is about to come crashing down on the city. I’ve sat down with Veracity and Mayor Curtis to get the real deal story and I don’t think it’s the apocalyptic scenario that sells papers and glues eyeballs to evening newscasts.
First off, I’ll give you Veracity’s side of things. They went into the network expecting to spend about $2-3M on network upgrades. To date, they say they’ve dropped a good $8M on fixing things up. For that investment, the network can cover both operating expenses and debt service, but there is no money left over for installations, marketing, or network upgrades. Veracity could choose to cross-subsidize the network, but that eats into their budget for expansion. The current strategy has been to try and expand to other markets to leverage the video head end and spread out the cost of the NOC, primarily through building fiber to CenturyLink cabinets, co-locating, and selling services over a U-Verse-like ADSL2+ network. If they pumped more money into iProvo itself, it stunts these growth efforts. It’s a short-term gain for a long-term loss. Neither the city nor Veracity would win under the current scenario.
This leaves the city with a few options. One is to solicit offers to sell the network outright instead of using the current “rent-to-own” program. This would result in a known total cost and end the fiscal uncertainty, but it would likely necessitate a significant discount on the network price to attract buyers. The city doesn’t want to take a bath and have nothing to show for it. It also doesn’t want the network to end up in unqualified hands.
The other option is for the city to retain ownership of the network. In this case, the city could either bring network management back in house or partner with someone to handle the wholesale side. From talking to Mayor Curtis, I don’t think the city wants to distract itself with actually running the network, and there’s not a lot of appetite to give that a go again. This means that any shortfalls would likely be assessed directly to city residents as part of their utility bill. The exact amounts are still in question (including if it would be based on property value, property type, etc.), but it would likely go towards reserving funds for installation and network upgrades.
In either scenario, there is a high possibility of adding more providers and going back to an open-access model. Veracity has found that there are many residents who simply will not take service because of bad experiences with a previous provider. They even tried offering up a week of free service to homes that already have the fiber in the ground without much luck. Fixing the problems on the network (including with the provider themselves) has proved insufficient for driving growth. Given that Veracity has a long history of competing on the retail side with wholesale customers and not being jerks about it, I think that can be done successfully in a model where Veracity is still managing the wholesale network.
I’ve got a few suggestions to offer up. First off, it’s worth evaluating the option to let existing users buy out their connection similar to what UTOPIA has done. This immediately provides a cash infusion to the network to finance additional installations and establish a reserve fund. This also gives new users the option to buy it out either up-front or over time. This could eliminate or defray any costs that have to be assessed directly to residents.
Secondly, it would be really easy to get additional providers on the network by partnering with UTOPIA. They have some very high standards for new providers (so much so that existing providers had to make some changes), have a good working relationship with Veracity, and would bring some existing top-notch providers needed to pick up the hold-out households and businesses.
Finally, Provo really needs to act like they own this network. (These apply to UTOPIA member cities too, so pay attention.) The consultants hired before the Broadweave deal had a lot of great suggestions for how to maximize its usage including remote water and power meter reading and switching all city telecom services to use the network (and pay for it). Use it to monitor traffic signals and cameras. Sell backhaul to cell towers. Lease the dark fiber along your long-haul routes. If you have unused capacity, that’s money the network is leaving on the table.
I think this is going to be a good opportunity to turn around iProvo’s fortunes and, in the process, lift the muni network boats all around.