Confirmed: Macquarie tips its hand on details of the upcoming proposal

macquarie_logo_2638After hearing some of the rumors about the Macquarie deal, I’ve been watching skeptically to see how much of it is wishful thinking and rumor-mongering. I’m now seeing that almost all of it is completely true. Macquarie had a representative answering questions at the most recent Brigham City city council meeting (skip to 43:30) and he confirmed a lot of what I had previously reported.

Macquarie wants a 30-year contract with the cities to expand and operate the network. There would be no transfer of ownership of the network and the cities would retain the title to all of the assets. Their purpose in doing this is to secure low-risk (in their words, “boring, stable”) investments with a moderate rate of return for pension funds and life insurance pools. Their view is that because they don’t have the typically myopic view of most of the telecom market that requires a very fast, very high return on investment, they can approach differently and see the long-term effects. Macquarie is committed to building out every home (165K of them by their count) to a “service ready” state. I assume that means including all portals and needed cabling so that getting service is as easy as a phone call.

In exchange for the contract, Macquarie would assess a per-address fee to the cities. While they recommend a utility fee with waivers for the financially indigent, the cities are given full latitude to determine how this fee would be collected. They can’t quote specific numbers yet since they’ve just started to receive proposals in response to their RFQ, but I’ve heard numbers between $15 and $25 per month.¬†Macquarie would commit to providing the connection to every address and service providers would offer a free “basic” level of service comparable to high-end DSL or low-end cable. The service providers would not be charged a fee for access to these customers and would only incur the customer service costs. Word is that they view this arrangement favorably since this gives them a way to market 100Mbps and 1Gbps services to those customers.

Cities are actually going to get a pretty sweet deal on those upgraded customers too. Macquarie wants to make sure the cities keep almost all of the funds paid by the upgrading customers. These funds will help pay off the debt service and could be used to reduce the utility fees. I personally also like that the cost of UTOPIA will become a transparent thing. Brigham City is planning to leverage this universal buildout to switch to smart meters that will pay for themselves within 2 years and greatly reduce the operating costs of the city electrical utility.

Macquarie is doing a good job at keeping their ear to the ground locally. They were on top of Sen. Valentine’s attempts to amend SB190 from the floor and worked vigorously behind the scenes on both that and the original ill-conceived bill. They’re keenly aware of the perception of UTOPIA being forced on city residents and want to focus on showcasing the benefits of the network. They also took a moment to slam some of the woefully uninformed comments from the previous meeting by pointing out that they’ve been doing business in the US for two decades and have over 5,000 employees here.

The devil is always in the details, but so far this looks like a very solid proposal that’s win-win. The cities get world-class infrastructure and money to pay the bonds, the citizens get at least a free baseline of Internet service (with cheap upgrade options), and the rest of the state gets the potential to get gigabit everywhere else too. Macquarie also gets their toehold on what they believe to be a great long-term investment for low-risk portfolios, potentially spurring other companies into an overbuilding gold rush. I have yet to see anything giving me pause.

PS As a bonus, note that Ruth Jensen spends most of the council meeting continuing to concern troll on both smart meters and the free tier of service. She also comically states that DSL and cable are “good enough”, parrotting the standby line of the “you’ll take it and like it” incumbents. Jensen also goes so far as to insinuate that people actually LOVE their existing options, apparently unaware of how poorly they have been performing in customer satisfaction rankings for well over a decade. Her near-automatic gainsay reminds me way too much of the Monty Python argument clinic sketch.

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27 Responses to Confirmed: Macquarie tips its hand on details of the upcoming proposal

  1. Carl Woldberg says:

    I paid the $2750 UTOPIA connection fee upfront to avoid any monthly charges. Will I now be hit with these new monthly utility fees?

    • Jesse says:

      I’ve been hearing that it would be applied to the utility fees, but that’s not confirmed nor have I heard on how it would be applied. It could be that anyone who paid up-front will not have a utility fee, or it could be that it would be applied towards the utility fee (i.e. a $20 utility fee would be covered for 11+ years).

  2. Carl Woldberg says:

    Further listening indicates that there might be a cash refund of the $2750 I paid. So I suppose I’d then be stuck with the utility fee. Would rather be “grandfathered in” and continue to own my connection but I’ll be OK either way.

  3. Carl Woldberg says:

    This must be driving Comcast and CenturyLink crazy. It will be a fundamental change to the way citizens receive communications services. In a city where every home receives some minimum level of Internet service (and probably enough to support VOIP) what would CenturyLink have to offer? Comcast could continue to offer TV but would eventually see a significant decrease in the number of customers that purchase telephone and ISP services from them. And I expect telephone and ISP services are very profitable for Comcast.

    • Jesse says:

      It’s strongly disruptive. A service of 5-6Mbps may not sound like much, but it’ll have the same <1ms latency as its gigabit big brother. VoIP, gaming, and other latency-sensitive applications will perform swimmingly on those free connections. Comcast and CenturyLink may have to resort to literally giving away low-level service to have the same marketing opportunities.

    • Richard says:

      We plan a grand Bon Voyage party. I for one will switch moments after a connection is offered. I will be polite, but swift.

  4. Paul Larsen says:

    Carl, I also paid the $2750 up front (which I consider one of my best investments.) That issue has been recognized, and UTOPIA and Macquarrie have indicated that there would be an equitable solution. Not sure exactly what that would be, but it might come in one of several forms. After talking to them, I’m confident that we will be treated fairly. And yes, it is driving the incumbents nuts as they scramble to figure out how to kill this and make sure it doesn’t spread beyond UTOPIA’s member cities. It’s no coincidence that HB60 an SB190 emerged this session, both of which would have been a preemptive strike against Macquarrie. Thanks to Jesse’s hard work, both of those bullets were dodged.

  5. Charles Hart says:

    “Jensen also goes so far as to insinuate that people actually LOVE their existing options, apparently unaware of how poorly they have been performing in customer satisfaction rankings for well over a decade. ”

    Isn’t this true for 70% of the public passed by Utopia? If everyone passed by Utopia subscribed Utopia would be profitable wouldn’t it?

    • Jesse says:

      We don’t know either way. I don’t think anyone has bothered to ask people why they haven’t signed up and what would change that. UTOPIA needs some lean startup principles in play.

      It is, however, easily provable that incumbents are almost universally loathed. Just google “ACSI Comcast” and you’ll see what I’m talking about.

  6. Charles Hart says:

    “The service providers would not be charged a fee for access to these customers and would only incur the customer service costs. Word is that they view this arrangement favorably since this gives them a way to market 100Mbps and 1Gbps services to those customers.”

    If this product positioning works why isn’t it already done in areas passed by Utopia? Utopia’s problem has always been the fact that only 30% of the passed homes subscribe. Why not test this in the already covered areas before spending more money on expansion?

    [Note: I asked Orem city to implement this strategy 2yrs ago.]

    • Jesse says:

      It would only be feasible for homes already connected to the network but not currently taking service. There are very few of those right now, not enough for it to be a major component at all. Hooking up any “free” customers, even where the fiber is on the curb, would require a substantial amount of capital that UTOPIA does not have.

      • Joshua Lee says:

        I’m one of those. The house we are looking at had a legacy account that they disconnected back on 1/22. It’s been more than 30 days and now if we buy the house they want the install fee.

  7. Joshua Lee says:

    Jesse, how soon do you think this deal can happen? Is this something 3, 6, or 12 months+ or no way to tell? Do we have any past examples where Macquarie has announced something and then a time frame of starting to implement? Thanks

    • Jesse says:

      I hear the costs will be figured out by April and city council votes by June or July. From the sounds of things, Macquarie wants to be building before the ground gets a hard freeze. This could move very quickly.

      I don’t know much about the company’s construction history, only that they have operated some telecom systems in South Korea and (I think) Malaysia. Since the right-of-way is a given, the primary bottlenecks would seem to be lining up contractors and supplies (conduit, fiber, electronics).

  8. Jared says:

    Jesse,
    Are there any plans for this buildout to extend to the non-pledging cities (Riverton?)

    • Jesse says:

      I’ve heard nothing so far. The discussions with Macquarie involve primarily UIA cities (which is pledging cities other than Perry and Tremonton). I’d imagine that non-pledging cities would need to adopt the utility fee in order to get in on the action. Start lobbying your city council and/or mayor now.

  9. Kate says:

    So can someone explain in simple terms how utopia and smart meters are connected? They seem to be coming up combined and I thought they were two separate issues. I would just like to see it explained simply with no agenda. This looked like a good place to start.

    • Jesse says:

      You’re correct: they’re separate issues. The smart meters proposed would use the UTOPIA network for connectivity (as opposed to SCADA, wireless, or some other method), but that’s the end of the relationship. The people trying to tie the two together have a poor understanding of the issue and, quite frankly, are on the one-way express train to Crazytown.

  10. Kate says:

    Thanks, I was told I needed to research this better because I had no idea what I was talking about when I said I thought they were two separate issues. I think that the engineers of the Crazytown train are getting all the press and the wrong info is getting published on a regular basis. So Utopia is the delivery method of the smart meter info but we are not going to get radiated when we turn on our computer and tv, right?

    • Jesse says:

      Correct. Fiber, unlike copper and wireless, has zero RF emissions and is not subject to RF interference. That said, the amount of RF generated by wireless communication and copper is negligible at best. As someone pointed out at the Brigham City meeting, the power lines in your house emit more than any smart meter ever would. It’s also non-ionizing radiation that poses little-to-no health risk unless it’s delivered in a high enough dose to literally cook you.

  11. Kate says:

    So have you ever done an interview with BENJ? You would be a great spokesperson. Do you follow the BC Smart Meter Awareness FB page? I started there to get some info and found it entertaining but not enlightening.

    • Jesse says:

      I’m not familiar with BENJ.

      I just looked at the page and you’re right: great entertainment. Much cheaper and more convenient than picking up a copy of the Weekly World News. And why am I not surprised to see Ruth Jensen as a member?

  12. Kate says:

    Box Elder News Journal.
    And yes, a diverse group. It’s really a good way to see what’s being passes as gospel.

  13. Jon C. says:

    Jesse, thanks for your research and information. Concerning the utility fee set at $20 to $25 dollars. Does this not strike you as a little steep based on the fact that Provo is charging a $5.40 utility fee? Or, did the fee change with the google fiber take-over? Thanks.

    • Jesse says:

      I’ve heard speculation of the cost being as low as $15 per month. We won’t know for at least a few more weeks what the actual cost will be. Provo’s utility fee was priced into three tiers: residential, commercial, and industrial. This was done so that residential utility fees would be noticeably less on the bills, but it averages out to about $8 per address. It’s worth noting that this cost is for a complete network in Provo, a geographically compact area. Macquarie would still need to build out about half of the network in pledging UTOPIA cities, is spending 4x per address what Google has had to, and must cover cities spread over 130 miles. It’s necessarily more expensive.

      That said, you’re getting advantages of open access (even on the free tier), a faster free tier, and revenue sharing that could potentially reduce the utility fee in the future. There’s more skin in the game, but with a greater potential reward.

  14. Pingback: Utah Taxpayers Association Launches Sophmoric “uNOpia” Site Opposing Macquarie Deal - Free UTOPIA!

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