Google Fiber: The Deal That Keeps Getting Worse

landoIt’s no secret I’ve soured on Google Fiber, and I was pretty loud in saying that Provo wasn’t making a very good deal with the advertising giant for iProvo. They threw open access under the bus. They killed the prospect of public-private partnerships. They gave businesses the cold shoulder. Now they’re going one further: their boilerplate ToS bans running servers just like Comcast and CenturyLink.

This matters. It matters a lot. The point of a faster upload speed isn’t just to send pictures to Facebook faster. It would let you share content directly with other users. Most ISPs go with an asymmetrical connection precisely to dissuade you from creating content, preferring to drive you to content consumption that costs them less bandwidth. A symmetrical connection is supposed to facilitate this.

What should we expect to see? Will a small business be cut off because they decided to host their own mail server? Will a start-up be scrambling to move their site to a hosting company (with additional costs) because they setup a web server? Would someone’s home Minecraft server for their friends result in a disconnection of service? The history of other ISPs suggests that it will be enforced unevenly and without explanation.

Google seems to have a habit of altering the terms of the deal in ways that favor them. Provo, you’d going to start feeling a lot like Lando Calrissian, that the deal is getting worse all the time. Don’t let Darth Google get away with it. If you can.

Learning the Wrong Lessons from iProvo and Google Fiber: A Rebuttal

I suppose this kind of response to the Google Fiber announcement was inevitable, just as it’s completely false assumptions are. The author gets a number of predictable things wrong.

[A]nd finally Provo will be out of the Telcom business.

No, it won’t. It’s still paying for the bond, it has to shell out another $1.7M to make it happen, and there’s a provision that they get the buy the network back for $1 should Google decide to pull up stakes. Granted, that may never happen, but to say that Provo has washed its hands of the matter is patently false.

[I]t’s not like there was some huge cache of potential customers waiting for join the Net.

That’s a really funny thing to say about a network with a 35% take in spite of having multiple failed private providers and mountains of negative press. Bear in mind that Verizon was thrilled to have a 18% take rate on FIOS after two years. If anything, many people were holding out while they were waiting for a less-tainted provider to be an option.

[F]iber is clearly not “future-proof” as claimed at the time.

And here’s where an inch of knowledge on telecom gets you into trouble when you try wading into the ocean. The fiber itself is fine. Most of the work is in digging trenches, attaching to poles, putting in conduit, and running the lines. The electronics, while vital, are a relatively small portion of the overall network. It’s also worth noting that the 100Mbps electronics put in place almost a decade ago are still providing a service that neither Comcast nor CenturyLink can match or beat. That’s some pretty good longevity on any network equipment.

It’s worth noting that Google is deploying 1Gbps electronics when 10Gbps, 40Gbps, even 100Gbps electronics exist. Would the author slam Google for being behind the curve over that, making the same dubious claims over “future-proof” networks? Of course not. Any network is designed to take advantage of the best you can get for the money now and plan for upgrades in the future. It’s become painfully obvious that neither incumbent has done a particularly good job of doing so.

[W]ireless networking has greatly increased its speed and range, and cellular data has moved from a novelty to a mainstay of most cell phone plans.

Again, Mr. Platt gets in trouble by talking about technical things without any technical knowledge. Wireless almost always depends on fiber backhaul. When you use microwave backhaul like Clearwire and Sprint, you end up introducing a lot of latency into the connection which renders it unsuitable for any real-time application. Wireless also hasn’t come anywhere near catching up to fiber in terms of speed. It’s just barely starting to get to a point where a wireless ISP can offer up 100Mbps speeds.

It’s also comical to cite cellular as an alternative when, again, the speeds can’t match wireline. Even the best LTE connection can barely muster a real-world speed on par with CenturyLink’s oh-so-hard-to-find top-tier ADSL2+ product. That’s only going to drop as more LTE devices get into the hands of consumers. Most of those cellular plans come replete with very low caps, high overage charges, or some kind of throttling or filtering which makes them completely unsuitable for business use and hardly an alternative for residential users.

In the long run, it’s still unclear whether and how long wired internet connections will be relevant.

I think the preceding two paragraphs lay this one to rest. If wireline was dying, why would Verizon have poured billions into it, to the chagrin of investors, especially when they own America’s largest cellular company? Why would Google be pursuing deals in various cities to promote fiber-to-the-home? Why is FTTH so explosively popular in Hong Kong, Seoul, and Tokyo? This is yet another point on which Mr. Platt falls on rhetoric as a substitute for knowledge and comes up lacking. While companies like CenturyLink who lack the will and/or ability to upgrade their wireline networks are dying a slow and painful death, that has everything to do with being a terribly run business, not the relevance of their industry.

Most importantly, Internet service is far outside the essential role of government.

This is a common refrain, and it often comes with a big dose of selective outrage. The telecom sector has been rife with government intervention and cronyism almost since its inception. AT&T was a legally-protected monopoly right up until they were broken up in 1984. The major players in the industry got huge tax breaks in the Telco Act of 1996, the price of which has surpassed $300B. Google, on whom Mr. Platt lavishes praise, has received massive tax and financial benefits from the local governments where they plan to do business. Where is the outrage here? Or is the outrage reserved for when public money isn’t being spent on private enterprise? Sir, your principles ring hollow.

[T]hank you Google for buying out network at the appropriate price of $1.

The over-simplification of what the deal actual is shows yet more layers of gross ignorance. The network had an assessed value of $25M, and much of that had to do with the negative perception created by a string of grossly incompetent private providers (HomeNet, Mstar, Broadweave). For an economics professor, he’s not doing such a great job at following the money.

But this is where Mr. Platt’s true motivation sneaks on out in all of its ugly glory:

Please, let your monthly utility bill stir thoughts about the proper role of government. If this reflection somehow prevents citizens and politicians alike from future misadventures into private enterprise, it just might be worth it.

Translation: I’m glad that you can suffer and the taxpayers can be thrown under the bus in order to prove my ideological points. I’d do it again in a moment.

This kind of attitude is far too prevalent in the discourse about both iProvo and UTOPIA. The idea that making the projects fail in order to make taxpayers suffer so that you can be vindicated on your prediction is abhorrent at best. If you see someone with this attitude trying to get into any kind of government position, you’d do best to run in the other direction. Fast.

It’s sad that there’s no shortage of people who are confident in their lack of knowledge, nor that they spend so much time trying to get their ill-informed opinions into print. Let’s just hope that they become footnotes in the debate rather than carrying any real gravitas.

Google Fiber: The best deal Provo deserves, but not the best deal it can get

Yep, that’s my final take on Google Fiber taking over iProvo: even though you can, you’re not willing to do any better, so go ahead and take the deal.

Google is effectively getting a free lease on the network for a $1 security deposit. Yes, legally, it’s getting “sold” for $1, but Provo has the right to buy it back for the purchase price if Google either doesn’t meet its service and upgrade obligations or decides to stop providing service. That may sound like a decent deal with Google pumping $18M in upgrades into it, but Provo doesn’t have the best track record with getting ownership back, do they?

Meanwhile, Provo is left holding the debt and paying $39.6M over the next twelve years. The city seems to value the network asset at just $25M, and other offers to buy the network were low-balled at $10M. Why has so much value disappeared? It’s because of a string of poor choices with service providers. First there was HomeNet. Then Mstar. Then Broadweave. By the time Veracity came to the table, they didn’t have quite enough oomph to overcome the immeasurable brand damage done by their predecessors. A network that used a $40M bond and who knows how much in federal grants  (which is what built the initial fiber rings) has managed to lose value simply based on perception.

I think Provo can do better. My back-of-the-napkin math is that Google picks up 70% of the total subscribers in town. Half of those are likely to use the free service and pay in one-time revenues of $367K, barely anything in the big picture. Of the remaining half, I’d bet they’ll be evenly split between Internet-only and double play for an average monthly ARPU of $95 each. That works out to about $14M per year in revenues.

On the expenses side, the upgrades are costing Google about $2.57M per year over the seven-year commitment. If Google were to assume the bond payments (and let’s assume they end as soon as they leave), they would still have $8.13M annually to cover expenses related to network operations. This doesn’t even include the revenues that Google is likely to get from TV ad revenue. In short, Google could both assume the bond and do well financially.

That said, I don’t think the council is going to try pushing for those terms, even if they are a win-win. Just as with most things in Provo politics, the die has been cast by the executive and council approval is merely a formality. The short public review period of under a week makes it perfectly clear that questioning the deal is not welcome. I think this deal is a neutral as it currently stands, but I wouldn’t be surprised if there’s a bit of buyer’s remorse down the road.

I was wrong about Google Fiber, but this isn’t a golden deal for the city either

After more than a few false rumors concerning Google Fiber in Utah, I dismissed the latest one as being as equally untrue. Boy was I wrong. Like so wrong that I probably can’t express it myself. (That’s okay; plenty of you are doing it for me, some more kindly than others.) I seriously overestimated Provo’s aversion to risk, and it appears they are putting a lot on the line to make this deal work with Google. I’m not convinced that the city is getting a very good deal. I’m also worried that these important details are getting ignored in your excitement to have a big name like Google running what has been a heavily abused asset. (Seriously, you folks who put up with Mstar? My condolences.)

The basic terms of the deal is that Google gets to take over iProvo for $1, effectively giving the $50M network away. The city maintains bond payments of $3.3M per year for the next twelve years as Google will not be assuming the debt. The city is effectively giving them $90M to take over the network in a no-bid process. Google can also walk away when the seven year deal is finished, leaving the city with none of the assets and five more years of bond payments. Google has to spend a scant $18M to provide gigabit services to 35K households. If they get a take rate of just 20% for Internet-only (a ridiculously low-ball estimate), they’ve made their money back in only three years. You can bet that more than a few other companies and providers would have liked to get that deal. For all of the accusations I made of giving the network away in prior arrangements, this one makes them look fair by comparison.

In order for this to break even on the rather immense subsidy being granted, the city will need to earn an average of $12.9M per year in new tax revenue for each of the seven years. Based on the city’s 2012 filing with the State Auditor’s Office, this would equate to an almost 35% increase in total tax revenues. Given that the amount of land left to be developed in the city is relatively small, I can’t see a way in which the city actually accomplishes this. Google is making easy money at the city’s expense.

So what are you getting for your money? For a one-time fee of $30 (assuming you already have the connection in your home), you can get 5Mbps service for seven years, the length of Google’s commitment. (The standard packages of $70/mo for gigabit Internet or $120/mo with TV will be available.) City facilities get gigabit for free for the seven-year period. Each household will effectively be paying $368.57 per year in bond payments and the loss of the asset, so jack those prices up about $30.71 per month.

Is it a good deal? That remains to be seen. A lot of you are rightly excited to be getting the kinds of speeds that UTOPIA customers have been enjoying for almost a year now. But this isn’t a bailout. This isn’t a free lunch. You’re paying a pretty goodly amount for this arrangement, and you should be asking if it’s worth it. I know I am.

No, Google Fiber Is Not Coming to Provo

Update: Yep, I totally missed this one, the one time out of dozens that it actually proves to be true. Glad the troll commenters are having a good time with it.

Provo (or, more specifically, Mayor John Curtis’ office) has been hyping up an “epic announcement” for weeks now. Somewhere in the speculation came a number of rumors that Google Fiber would be swooping in to either take over or supplant iProvo. Quite frankly, that’s an absolute load of malarkey. Nothing in the history of either Provo’s handling of its fiber optic assets or Google’s launch of Google Fiber cities would suggest anything like it.

For starters, we have to consider the way in which Google announces new fiber cities. Its history has been to send out a press release at least a few days out to generate buzz and send invitations to the tech and national press. This is not a company that announced these kinds of projects without a serious amount of fanfare.

Google also has a history of liking to roll its own solutions. One of the ways it got so big so fast was to create servers based on their own custom specs, not buying expensive off-the-self servers. Google Fiber is no different. They seem to relish the idea of starting from scratch and making something uniquely theirs. iProvo would require extensive upgrades to support 1Gbps connections and an entire head-end replacement to support modern MPEG-4 video.

There’s also the point of Google’s tacit support for municipal networks. Swooping in to take over a network would undermine their unspoken support for poking incumbent operators in the eye. Their goal has always been to shame ISPs into providing better service, even if that means throwing them under the bus in favor of municipal options. Taking over a network doesn’t match up with that at all.

The kicker, though, is Google’s terms for setting up shop. So far, Google has set it up so that they can walk away from their network if they decide it’s not for them. That probably sits just fine in Kansas City and Austin where they aren’t really on the hook for much. But Provo? They’ve spent half a decade trying to run away from iProvo. Any deal that doesn’t involve them washing their hands of the network would be anathema to every single action the city has undertaken under two different mayors and a lot of different council members.

Make no bones about it: Provo is not getting the bailout it so desperately desires. Hyping up these rumors does nothing to actually fix the situation, but it does distract from real looming problems like Veracity’s lease of the network expiring in two months. Instead of trying to find a white knight savior, it’s time for Provoans to demand that their elected officials address the elephant in the room instead of continuing to punt.

PS I’ve already told you to stop daydreaming and build the same kind of network that Google is. What are you waiting for?

Legislation Alert: HB273

Some years, muni telecom gets a break. This year isn’t one of them. Rep. Keith Grover has introduced HB273 which would effectively ban Provo from using utility surcharges as a way to cover iProvo debt payment shortfalls. It’s unclear as to if this would have any effect on UTOPIA, but the bill does include some vague language concerning charging “just and reasonable” rates. Depending on how the legislation is implemented, this could prevent UTOPIA from differentiating wholesale prices depending on volume or require that they match rates with other networks.

Any way you slice it, this is a bill very explicitly targeted at removing operational flexibility from municipal networks. I highly recommend you contact Rep. Grover to urge him to reconsider.

iProvo to go back to the city, Veracity will lease for 14 months

In an unsurprising move, Veracity Networks will transfer ownership of the iProvo network back to the city of Provo as it has been unable to generate enough revenue to make the purchase feasible. Provo has already instituted a monthly utility charge to all residents and businesses in the city to pay for the current debt load on the network. Veracity will continue to operate the network under a 14-month lease agreement, paying Provo $95,000 per month plus a cut of revenue from future subscribers. Interestingly, all customer revenues are going into an escrow account that will pay the city before Veracity gets its share and the city will be responsible for all network infrastructure costs including installations.

The agreement has been framed as a chance for Provo to figure out what it wants to do, and there doesn’t appear to be anything ruled out. I wouldn’t be surprised to see new providers added to the network, or for the city to seek out new partnerships, either with another private company or a public entity like UTOPIA. The final vote will be on March 20.

Where iProvo is Going From Here

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.

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Re-writing Reality: Utah Taxpayers Association Spins on iProvo

It’s almost become too easy to pick on the Utah Taxpayers Association when they get a story so very, very wrong. The latest work of fiction is their tortured stance on iProvo, one in which they perform twists of logic to support how things have unfolded with iProvo and yet continue to vilify what UTOPIA does. As usual, this requires a point-by-point breakdown of where they lack any kind of consistency and twist or invent facts to support their weak sauce arguments.

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Provo is Serious About a Plan B

An anonymous tipster pointed out that Provo is currently soliciting Requests for Qualifications for iProvo. The RFQ itself is very specific in stating that while it’s looking for companies who could take over the network, nothing in it should be construed to imply that the city actually anticipates getting the network back at this time. Based on Veracity’s particular situation, I’d be disinclined to believe otherwise.

So what does it mean? I’m guessing that the city doesn’t want to be caught unprepared yet again (*cough*HomeNet*cough*Mstar*cough*Broadweave*cough*) should the worst happen. One bitten, twice shy. If you think your ISP has the chops to take it over should the need arise, you’ve got until February 28 to get your name on the list. For what it’s worth, I’ve asked Veracity if they had anything to add, but I haven’t heard back from them yet. If/when I do, I’ll be sure to add it up here. I’d imagine, though, that this story is about as cut and dry as it seems.

Read the RFQ for yourself: Telecom_Network_RFQ_Final