BREAKING: Centerville follows Murray, is out on Milestone Two

Centerville LogoCenterville followed Murray in rejecting Milestone Two tonight, this one on a 4-1 vote. Only Perry and Orem are left to vote, but so far over half of the addresses covered by UTOPIA are opting to move forward with getting more information from Macquarie on the true cost to build, operate, and maintain the network for 30 years. Despite what you may hear, this is enough to have the Macquarie deal move forward if the Milestone Two cities accept the finalized proposal.

Most disappointing is that Centerville has 93% coverage in their city, so the vote appears to be a “we got ours” kind of statement. Tremonton and Brigham City both voted yes despite similar levels of coverage, recognizing that this is the best offer on the table and a better one is unlikely to come along.

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34 Responses to BREAKING: Centerville follows Murray, is out on Milestone Two

  1. Richard says:

    Interesting that the city would vote contrary to the recommendation of the citizen review committee.

  2. Travis says:

    Something felt off about that, they seemed to have a lot of amendments to what they were in fact voting on. I hope I didn’t leave too early. Also, they seemed to talk for a very long time about it and when it came to it, they all seemed very set on their vote.

    Maybe I’m just being a sore loser, or maybe that was just a bit weird.

  3. Justin Sharp says:

    Jesse, thanks for running this blog and keeping up to date on all of this.

    So to your comment “Most disappointing is that Centerville has 93% coverage in their city, so the vote appears to be a “we got ours” kind of statement.”:

    This was my fear when I first started parsing the deal, that cities already built would be less inclined to saddle their constituents with the utility fee. The cities who aren’t built are desperate to get something for the bonds they backed, so it’s not surprising they voted yes. Tremonton and Brigham as you say, are the surprise here. They seem to be the ones who see this as “we are in it together”.

    Help me understand some things, if you wouldn’t mind. First, the parts of the network, which are already built and operating, are owned by Utopia (or UIA) right? And that in turn is owned by the member cities? So what will happen to those member city votes in Utopia if the deal is still salvageable? Will they simply lose any rights to the network and it’s revenue, or do they have legal claim to the revenue commensurate with their percentage ownership in Utopia?

    Is this a deal where as long as a majority “ownership” of Utopia votes to do the deal, then Utopia can be turned over to the PPP and then the cities who opted out will just have to pay their obligated upkeep to the PPP?

    You say that the deal can still happen because more than 50% of the addresses are represented, but I imagine some of the revenue projections are based on potential subscribers in cities which are already built out. If that is the case, the numbers seem like they change drastically with these ‘already built’ cities opting out. Also it means that the share of utility fee for the ‘yes’ voters goes up dramatically since it was going to be the built-out cities subsidizing the completion of the not-built-out cities. 20/month I think people could stomach but if it climbed to 40-50/month for ‘basic’ service, there would be riots.

    Help my understanding, why would Macquarie choose to continue if that “instant revenue” stream is less and less available with built-out cities opting out?

    This process has been a large disappointment.

    • Jesse says:

      You have tapped right into the biggest problem of not all moving forward together. When only Payson opted out of the new bonds, UTOPIA could say “well, it’s just one small city. We can still move without them.” When Payson and Perry opted out of the UIA, same deal (even though Payson was a complete freeloaded for that entire time). Now that it’s pretty split, the lawyers are going to start arguing about who owns what and who can cut off who. It’s going to be VERY lengthy and expensive.

      I think your summary is correct. The cities that pick the PPP will move ahead. The cities that do not will get a bill for their share of operational shortfalls (including everything not paid), maintenance, and network refreshes. Some of them will not pay and will go dark. Some of them will beg to get back in on the Milestone Two option when they realize that the white knight they’ve been waiting for doesn’t exist.

      Cities who are built out still don’t cover opex. Lindon might be the only exception with it’s 45% take rate. Nobody else is even close to that high. Even if they managed to split off and lay claim to the revenues from their subs, they would have a network unconnected to any service providers… and end up with zero revenues. Good luck trying to sue for a percentage of a NOC. Or a backbone. Or any of the shared assets, really. About the best they can do is try and get a “right of first refusal” payout on those assets.

      This will be ugly, and I think the cities who turned down the deal are going to wish they hadn’t.

      • Greg says:

        Are cities who have opted out at this point able to opt back in if they like what they read in milestone two (assuming Macquarie opts to move forward with the current “yes” cities)?

        First and foremost, I want the network to be built (and the selfish part of me especially wants it built to my home); but there is a side of me that thinks, “If Macquarie goes ahead with this deal even without the cities that are nearly complete, then screw them, they missed their chance”.

        Then there is the realistic side of me that knows, “the more the merrier”.

        I’m sure the projections in milestone two won’t include cities that have opted out, so if they suddenly want back in, a new set of numbers will have to come out (causing huge delays). But ultimately, more cities that are on board means lower costs for everyone.

        • Jesse says:

          Any city can come back to Macquarie and change their mind, but it will probably put them at the back of the line for construction. I also doubt they would delay any city who opted in. Even if they opt in later, though, it will not defray their bill for operational shortfall until they accept the proposal.

  4. Ryan says:

    Most disappointing thing for Centerville residents is that, despite the fact that the city council assembled an 11-member committee from among the smartest people in the city (legal, finance, IT, business experts), the council ignored the well-researched recommendation presented by the committee. This tells me that the city council, excepting 1, is in denial of the realities of the situation.

  5. Richard says:

    I’m concerned about the vote in Orem this week. The mayor seems to think that because we have open conduit, and companies who offer fiber are around, that one of them will step in and solve the problem.

    • Jesse says:

      If companies wanted to do it, they would have already. I can’t stand the wishful thinking that if you “get out of the way”, that some heretofore unknown company is going to make it rain.

  6. Ted Laser III says:

    I was afraid that this would be the result after some of the council members responded to my Emails. At the very least in those same Emails I got some very strong indications that Centerville going dark is not really an option.

    I do have to agree with you though, this seems to be a “screw you, got mine” vote. Hopefully there is still enough there for Milestone 2 to get the go ahead.

  7. Matthew says:

    These cities councilmen are IDIOTS!!!! I am first to acknowledge how awful the building of the network has been, mismanaged, financial…the list goes on and on. I also am not a big supporter of the government competing with the private industry. But you know what I am also not a big fan of either incumbents. In Europe they have one of the lowest cable tv rates in the world because every competitor can offer cable/internet over each others network lines. This causes competition and lower prices. Here in the USA no sharing of the network except for Utopia where anyone can access it.

    Anyways back to my rant. We have this billion dollar invest….sorry investment is the wrong word. We have this billion dollar network that no company in their right mind would be interested in buying. They won’t buy it at 25% discount, 50%, I even doubt 75%. Xmission/Veracity/Infowest don’t even have the money needed to buy the network. They may be able to run if if it was given to them for free but building out the network highly doubtful will happen in most cities due to no capital.

    What I loved about the Australians offer is similar to investing in homes/apartments etc. I know absolutely nothing about screening tenants, being a landlord, etc. But if I bought a fourplex(utopia network) and keep on losing money due to not screening people and start losing money I probably should hire a property management company(Macquarie) to oversee the investment and improve the home. I get steady income stream, they do the work, I pay the property management company (utility tax) to make sure the home(utopia network) is ran at a profit.

    3 options I see all cities should do.

    1. not being an option is going dark.
    2. if going dark is your option then at least just hand over your damn network to google for $1 with provo deal. Just give up. I’m sure google would make a killing getting 11 cities fiber optic networks built out and selling service to customers.
    3. Let the property management company ( Macquarie) run the network for you. This shouldn’t even be a question. The cities don’t know what their doing..let the pros do it.
    4. run each network themselves….yeah good luck with that…Only reason spanish fork fiber is working is because spanish fork actually is allowed to advertise and compete directly with comcast/centurylink.

    what ever option there is….if you keep UTOPIA…ADVERTISE YOUR DAMN NETWORK!!!! I don’t ever see any advertising the benefits of your network over the competition. No sales agents, no tv ads, no flyers nothing!!!! This is where you guys didn’t get subscribers is you didn’t even advertise a thing!!! If google gets this network those 11,000 residents subscribing I guarantee would hit 50,000 in less than 2 years. 40,000 extra paying subscribers would be over 1 million in revenue you guys wasted away not advertising. Holy crap Lindon has a 45% take rate!!!

    People want fiber….If you want out and want to throw in the towel then just give google the network for free. I am sure they are not interested in buying it, but I am sure they are interested in getting it no charge. Helps my stock anyways.

  8. Don says:

    The analogy made to me was that Centerville City had decided that every home in the city would be better with a nice green lawn (or nice fast internet service), and then installed a sprinkler system for every home. The city then made the home owner pay for his part of the watering network, whether or not they already had a sprinkler system, or had a lawn at all, or even wanted a lawn (or fast internet service). Goes to show that there is a different view for everything, especially when money is involved.

  9. Ron says:

    Nice analogy. Although it would have better if the people understood that under the current model, the city has already installed the city wide sprinkler system, all citizens are paying for it, and most of the people paying for it do not actually have the sprinklers.

  10. Ron says:

    Of course, I already have centurylink sprinklers, and ComCast sprinklers, and I am happy to install another set, that could be the only other set I will ever need, if only the city finds a way to keep the fiber from going dark.

  11. Don says:

    Centerville’s mayor wrote me in an email that Utopia debt was already costing every Centerville household about $12 per month, and that the additional (and mandatory) $20 per month for the Macquarie deal was the sticking point with most anti-Utopia people. I agree that a different method of debt service and network operation costs needs to be found. The reality is that if Utopia goes dark in Centerville, I’ll simply go back to Comcast. But I suspect some sort of solution will turn up over the next year or so. I’ve studied a lot of business history, and know that once the infrastructure is in place, the service seldom goes away.

    • Jesse says:

      That’s how messed up the discussion is. We’re fixated on the $20/mo cost, but that’s the high end of the estimated range (probably because it’s a nice, round number) and pay zero attention to the potential income. It’s like nobody can figure out that spending this money does something. We’re not just lighting money on fire in exchange for jack squat.

      • Greg says:

        The other item on there that people aren’t recognizing, is that even with the lowest tier premium service and the Utility fee, you are still at the same price as Comcast’s lowest tier service, and just slightly higher than Century Links Lowest Tier. The “utility fee” offering from the Macquarie deal is just as good, if not better than both of the paid offerings from CL and Comcast. When you get into the higher tiers for CL and Comcast, the Utility+ISP costs for UTOPIA end up being the cheaper option…and that is with the utility fee being at the $20 price point (which it probably won’t be).

  12. Don says:

    The sprinkler analogy was in response when I said that paying for municipal fiber is like paying for paved streets vs. gravel roads, and paying for concrete curb and gutters vs. open ditches. And they are paying a private company for privilege of gravel roads and open ditches. Another person sitting nearby asked, “What if I am perfectly happy with gravel roads and open ditches in another part of the city where I never go? Why should I have to pay to pave someone else’s street?” I had no response to such tunnel-vision mentality, not wanting to school the person on the definition of a civilized society, and government for the common good.

  13. Richard says:

    I would wager that if we compared the campaign rhetoric of the city council members with their vote, they would be consistent.

    These folks got into office, or stayed in office by promising to look for solutions to the UTOPIA problem. They didn’t promise to deliver, just look.

    When you compare the shared risk solution proposed by Macquarie and the promise of some mythical white knight swooping in and taking all the risk, paying off the debt, and delivering cheap, fast internet with Unicorns and bunnies, it’s easy to see challenge.

    Meanwhile, the fact that we continue to pay for a service we cannot get is relegated to the background.

    We’re trying to convince politicians to think long term, to address an issue that has failed twice without disturbing the “no new tax” zombies from their stasis.

    And let’s now forget that the non-profit who shall not be named, the champion of the tax zombies, appears to be the new PR agency for the status quo.

    • Scott McIntyre says:

      I look forward to seeing the results of your campaign rhetoric comparison. I think you may actually find some consistency there.

      Don’t forget, these people are representatives. When the majority of citizens tell them not to proceed with the deal they listened and voted accordingly. If this issue had been decided by a city-wide ballot, it probobly would have failed as well.

  14. Ryan says:

    I think Centerville may have had a chance for a vote in favor, but an email came in the day of the vote, from Macquarie, which said something like ‘Just to be clear, a vote to move to milestone 2 is a vote to move forward with the utility fee model. No other model will be proposed by Macquarie’.

    Two of the council members that voted against, told me today that they still ‘hope’ that there will be another option coming from Macquarie which doesn’t require a utility fee.

    So, to sum up: Centerville city council (4 out of 5) believed Macquarie when they said there would be no other Macquarie model offered, which is why they voted against milestone 2.

    But at the same time they also ‘hope’ that there will be another Macquarie option/model offered despite our rejection of milestone 2…

    Seems like a pretty big bet ($17M in Centerville’s case), which they could have hedged/insured a bit, for $31,000 (the cost of proceeding to milestone 2).

    Makes you wonder what would have happened had Macquarie not sent that last-minute email…

    • Scott McIntyre says:

      It does make me wonder why Macquarie is so set on the utility fee model. They state in their Milestone 1 report that they found little appetite for the availibility payment to be paid directly by the cities. Clearly there is even less appetite for the utility fee model.
      If Macquarie gets their availibility payment either way, why would they care how it is funded?
      Could it be that the rate covenants would be harder to push on the city as a whole?

      • Jesse says:

        My guess (and I’m totally spitballing here) is that the utility payment would be needed to secure the $240M bond for construction. Macquarie would otherwise need to dig a little deeper in the couch cushions to fund this.

    • Rob says:

      Ryan, I believe you are absolutely correct. Without that email, I think the vote would have been close, but in favor of Milestone 2.

      It’s my opinion that Macquarie made an incredibly poor decision in how they presented the financing model in Milestone 1, which may ultimately ruin what could have been a mutually beneficial PPP. I fully support the idea of UTOPIA – an open infrastructure, free as in freedom. I am 100% satisfied with the quality and speed of the service with Xmission over UTOPIA, and will never willingly go back to Comcast or Centurylink. However, I can’t support the utility fee as Macquarie presented it, on principle.

      Yes, UTOPIA has had financial and management issues. Yes, Macquarie’s proposed PPP would “solve” all of those issues, and result in a financially stable and likely well managed infrastructure. However, by proposing a utility fee that was recommended to be assessed equally to all residents in participating cities goes against the values that makes UTOPIA a good thing. As proposed, residents no longer would have a choice to buy UTOPIA service. That’s not freedom. If you think the vocal minority that have been opposed to UTOPIA were loud before, if you think UTOPIA’s brand was tainted before… the aftermath of this would be a nightmare. It would likely have a negative impact on property values, where it previously had a positive impact. The take rate would definitely be negatively impacted compared to what it could be. There will be a lot of very angry residents, some of whom given a different payment model would have been happy customers on the network.

      I understand Macquarie says that cities have the flexibility to decide how to implement the fee, maybe even full flexibility in funding that fee through other means. However, presenting it in the way they did has poisoned public opinion from the start. I sincerely hope that they are able to recover from this mistake, because there are much better alternatives to pay for this than a utility fee – ways that could minimize or eliminate any additional cost to residents who choose not to use the service.

      I for one would not hesitate to pay the utility fee. I would even pay double the utility fee without a second thought. The service is that good. But, I do not support imposing a fee on my neighbors for a service unless they choose to use it. It crosses the boundary between publicly funded community infrastructure (provides freedom) and choice of using the infrastructure (restricts freedom). I like the analogy that Don made about sprinklers. I support publicly funded infrastructure to provide each residence with a water tap for sprinklers. I don’t support publicly funded sprinklers installed in everyones yard.

      • Mike Porter says:

        Sprinklers, however, are a poor analogy. A better analogy is streets or roads. We all pay for the roads, but because we all pay for the road, we all have equal access to the road. We all have access to the sewer, too. Some people still have septic systems, but they still pay for access to the sewer.

        The difference, c at least with roads, is that we aren’t assessed a specific “road free” it’s simply included in your local taxes, and in the price you pay at the pump when you fill your gas tank. You have to LOOK to find out how much you are paying.

      • Jonathan says:

        While I agree with everything you have said. As noted above the current bonds are costing Centerville citizens ~$12/month and its not giving anyone but subscribers a benefit.

        If the city had moved forward to Milestone 2 we would know for sure what the utility fee would be as well as what kind of returns could be expected to the agency (read Cities via UTOPIA) that may partially or completely defray that cost. Also Maquarie’s deal gave everyone the opportunity for service not just those subscribing to service.

        • Rob says:

          Mike, you’re right about sprinklers being a poor analogy. I think that most analogies are poor analogies, but for some reason we all love to use them – myself included. :)

          Jonathan, in regards to your points: I would argue that the view that current bonds are costing non-subscribers in Centerville ~$12/month is the most extreme figure that falls within the outer fringes of fact. Excluding the UIA bond payments, which are paid by UIA subscribers, that leaves 9.44/mo. Semantics can argue that remaining amount down, but semantics are generally a futile argument. I don’t know how much subscribers currently pay towards the 9.44 via the fees collected through the ISPs, but the most that can be pinned directly on non-subscribers is that amount. It could be argued in the other direction that we’ll still be on the hook for additional costs for maintenance or growth, but like the UIA bonds, that again may be paid exclusively by subscribers – it’s speculative.

          Onto the point of not giving anyone but subscribers a benefit… This would be a great place for an analogy, but I’ll resist the temptation. I see many benefits to non-subscribers, but only one of those can apply to nearly every resident broadly – property value. With the current costs of UTOPIA relatively low and invisible, any downward force on property value due to reduced demand is dwarfed by the increased demand from home buyers that desire a high quality fiber internet connection placing an upward force on property value. Of the other benefits I could list off, the most compelling would be increased competitive pressure on Comcast/CenturyLink that drove them to improve their network for those subscribers, and the availability of fiber infrastructure to those who do not subscribe but may choose to subscribe in the future.

          It was my understanding that the figures for utility fee and returns given in Milestone 1 were accurate but not precise. From what the city council discussed yesterday, it did not seem that they believed the numbers would dramatically change by moving into Milestone 2.

          Your last point is the one and only issue I had with Milestone 1. The deal did not give everyone the opportunity for service, rather it forced everyone to become subscribers to the service. As I described in my previous post, my issue is with moral principle in crossing the boundary between public infrastructure and forced subscription to services on that infrastructure.

          Please don’t take my response as an attack in any way, I’m just trying to explain the frustrations I have as someone who wants nothing more than for UTOPIA to succeed. I am going to try to remain optimistic that Macquarie and the cities ultimately come to an agreement that is palatable to the large majority of residents. Despite the largely negative view of how UTOPIA has been managed up to this point, the network does have real value. Macquarie knows this, and from what I see in the first proposal, they have room to make adjustments and close the deal if they choose to. If they don’t, then time will tell if Centerville regrets last night’s vote.

          One final thought to leave you all with tonight. Macquarie identified the utility fee as a high risk in their milestone 1 report: “Public reaction to the utility will likely be negative, at least to start”. By sending an email just before the vote stating “Just to be clear, a vote to move to milestone 2 is a vote to move forward with the utility fee model. No other model will be proposed by Macquarie” were they:
          a) Being honest and forthcoming.
          b) Attempting to suppress negotiations on that point.
          c) Unknowingly tipping Centerville off the boat.
          d) Knowingly tipping Centerville off the boat…

          I’m inclined to choose a or b, but option d could become very interesting over the next few weeks. I have no idea what the benefit to that move would be, but perhaps there is one.

          • Mike Porter says:

            I agree, Rob, that all analogies are flawed; however, they can be useful to illustrate a point. Some analogs are better than others, as well.

            I also agree in principle that forcing people to pay a fee is wrong, but again, we force people to pay for roads that they will never use. We force people to pay for schools. Even worse, the very people who get the most benefit from schools (i.e., those with the most children) are those that actually pay the least, and those who have no children (or have children that have graduated) pay the most. We force households and businesses in our communities to pay for sewer connection, even when they don’t use it (though by far the majority do). In Payson and Murray, electricity is provided by the city. Guess what? there’s a “basic” charge that everyone pays, regardless of usage. That basic charge comes with a limited included amount of electricity– exactly the same idea as the utility payment under the Macquarie plan, except without the possibility that the basic rate will be reduced if enough people use more. We pay for water, and most cities have a “basic charge” and then you pay extra for usage beyond the basic charge. Even those who happen to own water rights still pay the basic connection charge. Again, just like the Macquarie plan. Gas? Basic charge + usage, again. We pay for streetlights, even though many of us would prefer less light pollution. We pay for traffic lights in parts of town that we never drive through. How are these any different? Every one of those “utilities” provides some service to somebody, and the community as a whole pays for it. We recognize that it is right and proper for communities (or in some cases the state) to supply these services.

            Some would argue that there is a difference between “essential” services that “support life” or “health”, but all of those services have only been considered “essential” for less than 100 years. I can heat my house without gas, though, and I could light my house without electricity if I wanted to. People routinely did that 100 years ago. Broadband internet is quickly become (indeed many would say it is) just as essential as roads.

            My son attends school online. Granted, that’s a choice we made, but we made that choice because because the local public schools are incapable of meeting his educational needs. Many colleges offer online courses, if not entire degree programs. For many people, then, internet is essential for education, which is already a recognized “public good” worth being subsidized by cities, states, and even the federal government.

            Doctors in remote areas with reliable broadband are able to confer with colleagues, get the latest research, it’s even possible for surgeons to perform operations remotely. Thus, there is public health implications to the internet. Again, we subsidize hospitals, some communities subsidize doctors, because they’d never get a doctor to set up an office in their town. In Arizona, the state will pay for a large part of your nursing school, plus a bonus, if you agree to stay in Arizona as a nurse. So again, we have an established pattern of communities and states funding similar things.

            I could go on and on with this list of ways the internet, especially broadband internet is “essential” and thus something that is legitimately within the purview of a city to provide.

            I also disagree with you about housing prices. The appeal of fiber will not go down. It will only negatively impact property values for those who refuse to be connected. The fact that more houses are connected will not significantly decrease property values, in fact, I’d argue that it would increase them still more. If there’s a 99% chance that the house you are looking at is connected, and it’s important to you, you will be willing to pay more than if there’s a 50% chance, and you have to ask 500 people to get a straight answer.

            It’s also worth noting that Macquarie (unlike CenturyLink and Comcast) isn’t asking for easment access. If a property owner refuses to allow them to connect, they won’t be able to force the issue. I don’t use Comcast or CenturyLink, but both companies have wires connected to the outside of my house. Both companies have boxes on the outside of my house with locks on them that I can’t open. And in my city taxes, I help to pay for those cables and boxes, even though I never use them, because cities have “franchise” deals with the incumbent providers, and they offer them tax incentives to maintain and upgrade their equipment — none of which is Macquarie asking for, beyond the “utility fee”. Even more to the point, both Comcast and CenturyLink could use Macquaire’s fiber to provide their service, which would reduce their costs tremendously. Yet they staunchly oppose the idea. You can’t seriously suggest to me that they oppose the idea of saving money, so the motivation must lie elsewhere. Frankly, if I was Comcast or CenturyLink, I would be pushing the cities to adopt this so I could ditch my copper. Tear down the lines and sell them for scrap…

            As far as “forcing people to pay the fee” again, the Milestone 1 report explicitly leaves it up to the cities to determine how best to asses the fee, and how to allocate it between businesses and residents. The report only spells out what they will require from the cities. As Jesse has pointed out, if the cities are smart about their implementation, they can do a lot of interesting things. For example: assume that there’s a 50% signup rate. (I’m using signup rate rather than take rate because Milestone1 uses “take rate” to mean people signing up for a premium service). If 50% of households opt-in for “some level” (including the “free” tier) then cities only need to charge those who actually are opting in. If the city charges those who opt in, and the opt-in rate is 50%, then it will cover 100% of the fee without any need to resort to trying to calculate the percentage that the cities will get from premium sales. This approach also has the added advantage that any “discount” to be gained from those premium sales will only benefit active subscribers, which really only makes sense. Additionally, I know of very few current subscribers who would not gladly pay double the connection fee (actually, I know of none. Everyone who has cared to comment where I have seen it, has commented that they would pay 2x the rate). Even at 2x the rate, it’s STILL cheaper than Comcasts best service ( ($20×2) +35 = $75 ) and it’s still nearly twice as fast (105/20 vs 100/100) (yes, I count upstream bandwidth; in addition Comcast will not actually guarantee your throughput, and when you most want to use it, is when it’s most likely to be slow because probably most everyone else in your neighborhood also wants to use it. To say nothing of the fact that the local loop is shared, so it would be relatively trivial for your neighbor to snoop on your traffic.). Even with gigabit (40+70=110), That’s STILL less than comcast wants for their 105 Mbps rate. And it’s 10x faster and probably at least that much more reliable. Yep, I’d pay 2x the connection rate. If people are willing to pay 2x the fee, then only 25% total opt-in is needed for the city to break even. (although I can’t imagine you’d have many willing to pay $40 for 3/3 with a cap… then again, it’s about what CenturyLink can offer in this area, for only $10 more, so there might be some)

            Another alternate approach to the city utility fee is to assess the fee primarily to businesses. To get 100Mps speeds on comcast for business, you’re looking at at least $200, and that’s not 100/100 like Utopia. You can’t even GET gigabit service. Macquarie is talking about charging $40 for a basic connection? You could easily charge twice that, and still beat Comcasts offering becuase you can guarantee the rate. Again, this doesn’t begin to touch upgrade sales. CenturyLink wants something like $1500/month for Gigabit service (not counting installation!). Of course, the costs would be different for the ISPs, but the point is that there’s a lot of room to charge businesses more, while still remaining competitive.

            Of course, none of those options are going to come from Macquarie. For Macquarie to get financing, they need the commitment from the cities to pay the assessed fee. They really don’t care how or where the cities get the money from to pay the fee, so they aren’t going to throw out other models.

            Finally, one other salient point to consider: Although (again) it’s not a perfect analogy (because Costco and Sam’s don’t force everyone to pay), it’s a different way to look at the fee, even if it is being charged to everyone: Lots of people willingly pay Costco and/or Sam’s Club $55 (or more!) every year. They do this not because they NEED to buy soy sauce by the gallon, but because, at the end of the year, the amount they save by shopping there exceeds the cost of membership. We have evidence from everywhere that has put municipal fiber into place (not just Google Fiber cities, but including them) that the incumbents drop rates. For provo, for example, there’s lots of examples of people who saved $50/month. And stories of Comcast calling THEM to say “hey can we lower your rates?” When is the last time, outside of a municipal fiber city, that you heard about a cable company calling their customer to charge them less for the same channels? We know that the average cable TV bill in the US is over $100/month now. The examples I’ve seen of the $50 savings in provo were from bills that were about $200. $200/$50 is about a 25% reduction. Even if the average reduction is, say 20% (I couldn’t find any reliable statistics for this, though I didn’t try THAT hard), 20% off of $100 means that you would be paying exactly the same with the fee, as you were paying before the fee, for exactly the same service (assuming you didn’t opt in to even the ‘included’ tier). If you did opt in, then you would be getting more for the same price. And if the discount is more than 20%, even though you’d have an “extra” bill, at the end of the month, it would cost you less. Just like shopping at Costco. Would you be willing to spend $20 to save $50?

            • Greg says:

              Long read, but many excellent points. I actually bought my house because of the possibility of a UTOPIA network. I’m of the view that the internet is just as essential as roads, sewer, and electricity (among everything else). If people don’t think it is now, they must know it will be in the future. We have an opportunity to lay the groundwork for it now, and we should take it…the price to do this work is only going to go up.

            • Rob says:

              Mike,

              You make a lot of good points. This is a very complex issue, even before Macquarie came into the picture. Some of your examples of other utilities that are provided in a somewhat similar model I had not known about before, and information like that could sway some people, I imagine.

              As far as society being ready to consider this a utility, I’m just not sure. For me personally, it definitely is. So many things that I do for work, education and entertainment are intertwined with having a quality connection to the internet. However, I know there is at least a minority of people who are not ready to call it a utility. At what point does society decide something like this? A simple majority in agreement? Two thirds majority? Maybe sometime after it happens and people eventually settle into the new norm? I don’t know.

              Your examples about options that the cities could take with the fee as the Macquarie deal stands at Milestone 1 have me confused. Maybe I misunderstood something fundamental about their proposal, but the way it reads to me is this: Every address in the city must be connected, and once the demarc is installed there is a short grace period before they must begin paying the fee at the prescribed rate. It reads to me like they could and probably have calculated the exact requirement for revenue from the utility fee based on the number of addresses within each city, and currently propose to only allow raising the rate on some people to subsidize others.

              Also, according to Macquarie’s responses to Centerville’s questions, they intend to use public easements where available, which would prevent residents from legally preventing access for services to be installed. To quote,
              “The PPP will publicize the network construction schedule and hold community meetings to notify property owners about upcoming construction activities. Our intent is to use existing public utility easements and the provision of other utility services to promote connection without objections. This will be combined with incentives to support the decision to connect, for example the PPP may have discretion to charge an additional fee if the network portal is installed after connections in the neighborhood or network footprint have been completed.”
              Reference: http://www.centervilleut.net/downloads/administration/utopia_-_responses_to_centerville_s_questions_of_may_12.pdf

              Yes, the incumbent rates most likely will drop if this goes through. Even if the incumbents don’t raise rates at first to attempt to stir up public resentment for Macquarie’s speculation, it won’t change the contract that was made. Even if that happened though, they eventually would have to reduce rates to maximize their profit. Their only other option would be to pull out of offering service in those cities, but given how generously our government has subsidized their private, closed networks, it just won’t make sense since they’ll always be able to pull a comfortable profit by pricing at competitive rates to what’s offered on UTOPIA. They have huge margins…

              I also agree that they should modify the pricing structure for subscribers, maybe by stepping up the utility fee based on the tier of service they subscribe to, so that money could be directly subsidized into non-subscribers utility fee. The lower tiers that cover what the majority of people want should remain as low as possible, probably around what they have proposed, but on the “high performance” tiers (100Mbps+ today) I think a price slightly below incumbent competition would be perfectly fine. On the tiers above what the incumbents offer, a price slightly above the fastest incumbent tier would also be fine. People like me and you who want the higher performance know the advantages that make the fiber service a much better value. Symmetrical upload. Low jitter. Minimal impact during peak hours (There is always a small impact, but its practically unmeasurable. Switched ethernet is orders of magnitude better than TDMA/CDMA DOCSIS). And of course, ultra reliability. I’ve had one unscheduled outage in two years on UTOPIA with Xmission. On Comcast, I’d easily have one outage every 2 months, if not more frequently… and Comcast never tells you about scheduled maintenance, even on business class. I speak from experience on that – I was irate when my Comcast business service went down only to find out when I called support that it was scheduled maintenance. The people who want this service would largely be happy, and it would help to reduce what needs to be covered by non-subscribers.

              Maybe there’s a workable solution that will bring all the cities on board. I think we may start to see which way this is going in the next week or two. Orem votes tonight, right?

  15. Mike says:

    Rob,

    My statement about people refusing the connection is because of something I read – perhaps on this site, but it might have been somewhere else – that Macquarie had said they would be “at the mercy” of the property owner. In fact, as you point out (and rightly so in my opinion) they should be able to charge some penalty for hookup after the fact. Although there should be a way to get a waiver of the penalty under certain conditions (such as a new homeowner just moving in, who didn’t know the fiber hookup wasn’t completed by the previous owner (though it could be equally argued that this should be part of due diligence and could be a condition of the sales contract) )

    As to your understanding of the proposal, from Macquarie’s perspective, you are correct. But who is Macquarie billing? According to the proposal, Macquarie will send a bill to the city for the proscribed amount. What the city then does with that bill is entirely up to the jurisdiction of the city. If the city is flush with cash, they could just pay it and move on. Of course, these are Utah cities we are talking about, and Utopia cities at that, so that’s pretty much a non-starter, right? The cities, for their part, if this goes past Milestone2, are committing to pay the fee, but not to a specific revenue model for collecting the fee. The reason the utility fee is central to the proposal is that Macquarie is not going to be able to get financing at reasonable rates to complete the build out, unless they can show that there will be a steady stream of income, backed by the cities. This would leave them mired in the same mess that Utopia is already in: it only makes sense, more importantly, from a financial standpoint, it only works if EVERYONE is connected. At that point, everyone can choose freely.. Right now, they can’t, becuase *even if they are already connected* they have to pay the connection fee (when I bought my house, it already had the fiber connection, but I still had to pay the UIA lease or a new connection fee)

    Since the utility fee is going to be collected and administered by the city, if they were to structure the utility fee based on your upgrade package, then the city would have to know and track your package. Part of the point of the whole exercise is to streamline the process for the city, and get them out of the internet business. I don’t see a problem with a straight “on/off” for the utility fee, that wouldn’t be hard to handle, and realistically, if I could bend Macquarie’s ear for 2 minutes, I’d advocate for them (well, the Network Operator) to be able to pass that information to the cities. Obviously there will be some form of accounting set up when the cities receive their “bill”, so it should include the number of active connections for each category, as well as the number of upsold connections in each category (the proposal as it stands has three categories: residence, business (2x Res) and MDU (1/2 Res) ). If the accounting is set up to allow the cities to make the billing in an automated manner, I can see doing it on an “upsold” basis.

    However, trying to scale the utility fee payment to match the incumbents means that the city will have to track the rates the incumebents are charging, as well as the rates that each of the participating ISPs are charging, to determine what’s an “appropriate” utility fee. Also, I think we all understand that the incubents are vastly overcharging for the service they provide, so using that as a benchmark is self defeating. The answer, for the cities, lies in making a flat rate that makes sense. Frankly, in my opinion, MDU connections should pay the same connection fee as any other residence rate. Businesses aren’t getting a discount rate for being in an office building are they? This also allows cities to compete directly: come live in our city, we only charge $$ for fiber connection, compared to Orem. Or build your business here, because we will give you fiber connectivity for $$$. Now we have an evironment where ISPs can compete for internet, and cities can compete for residents and businesses. The cities then have an incentive to keep the fee as low as possible while still covering their costs, as well as to encourage people to sign up (with any ISP) for a premium service. Residents have an incentive to sign up and upgrade because with more subscribers, the utility fee can be lower, which in turn will help the city attract and keep more residents and businesses. In short, the very definition of a win-win: everyone benefits.

  16. Amie says:

    Just found this site today, thank you for the update about Centerville and other cities. I was sick when I heard that Centerville voted ‘no’. It’s hard to imagine that they would go against the committee’s recommendation, especially since the committee worked hard to make sure they were making a non-emotional decision, based on facts.

    Is there a link to the last minute email sent by Macquarie?

    Who on the council voted ‘for’ Milestone 2?

    • Jesse says:

      I don’t have a copy of that email, but it could be obtained via a GRAMA request. (To be honest, I’m tempted to GRAMA all of the cities who voted no to see how to play this out.)

      According to the Davis County Clipper, Tami Fillmore is the only one who voted in favor: http://davisclipper.com/view/full_story/25341631/article-Centerville-says–no–to-next-stage-of-Macquarie-UTOPIA-deal?instance=home_Most_popular

      • Rob says:

        From the Deseret News article, it sounds like Macquarie gave Orem the same guidance on the utility fee as they gave to Centerville. It seems they’re consistent, if nothing else.

        “I’ve always felt I needed to be more careful with other people’s money than I am with my own,” Councilman Tom Macdonald said. “A Macquarie representative told us if we cannot get our heads around the utility fee we should not vote for Milestone 2.”
        Reference: http://www.deseretnews.com/article/865605915/Orem-bows-out-of-Macquarie-UTOPIA-proposal.html

        I was at the Centerville meeting (I’m a Centerville resident), and Tami was the only vote in favor of proceeding to Milestone 2. Stephanie made the motion to vote against proceeding, and Lawrence followed immediately with an amendment and seconded the motion.

        From the discussions before the vote, I felt there were at least two others that were leaning towards Milestone 2. It was honestly hard to read any of them as being strongly opposed to moving forward to Milestone 2 for any reason other than the all-in utility fee based on feedback from residents. Even Stephanie and Lawrence, the first two in the motion against proceeding, did not come across to me a strongly opposed. They all understand the situation that we’re in with UTOPIA, and none of them want to let it go dark. They know that they’re going to have to make a tough decision in the near future, one way or another, and no matter what they do, there’s going to be upset residents on one side or the other.

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