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.

The UTA claims that both networks need to “consider all possible solutions”. The reality, however, is that the UTA has pushed only one solution on UTOPIA: to stop existing, take a financial bath, and have absolutely nothing to show for it. Apparently UTOPIA choosing a solution contrary to “commit immediate seppuku” will, in the UTA’s mind, mean that you haven’t bothered to consider all the options. iProvo, however, can choose to pay off the bond with public money and somehow still stay on the good side of the UTA. Huh? Yeah, I don’t get it either.

They then also cite the work of fiction they published in May concerning UTOPIA’s projected and actual budgets. The problem with all of those numbers, however, is that they don’t add up. Go to the State Auditor’s Office, add up the numbers for yourself, and see how none of them match the figures that the UTA is using. Believe me, I’ve tried. I spent 4 hours pouring over them and crunching them to try and get the same totals. I even consulted an accountant to make sure that I was doing it properly. It’s as if the UTA pulled numbers straight out of thin air and nobody had bothered to question it.

There is also the glossing-over of the disastrous Broadweave years, years that left the network in a serious state of disrepair and with a heavily tarnished reputation. They mention a merger of Broadweave and Veracity when it would be better characterized as Veracity absorbing Broadweave and doing the City of Provo a huge favor (especially since the mayor and council had no idea what they were doing). Of course, a private entity running the network and experiencing massive operation problems almost from the get-go doesn’t get into their “the private market is always better” worldview, so it has to be omitted.

I’ve also noticed that they aren’t screaming “sell” at iProvo even though one of the options on the table (and likely to happen) is for the city to maintain ownership of the network and pay off the bond. You know, the same thing that UTOPIA is doing but gets criticized for. So… paying for the network in UTOPIA cities is an unmitigated disaster, but doing it in Provo is “the least bad option”. Are you seeing the same pattern I am?

The worst of it is that the UTA is acting all butt-hurt that UTOPIA doesn’t want to listen to them. On what plane of existence would they want to? They’ve gone up to UTOPIA, thrown a drink in their face, kicked them in the shins, said something nasty about their mother, and then expect a seat at the table as they scream “I wish you’d never been born”? How exactly does that jive with their “water under the bridge” attitude towards iProvo? It doesn’t and it can’t. They’ve shown no indications of being willing to be constructive, just that they’re going to criticize every single move in the most shrill tone possible. After a track record of being anything but constructive, it’s hard to swallow that all they wanted was a seat at the table. The ultimate irony here is that they shut down discussion on their website with voracious moderation, but expect UTOPIA to allow their board meetings to act as a UTA soapbox for tearing the agency a new one.

If the UTA wants to be taken seriously, they need to shut their pie holes unless they have some actual constructive suggestions (and no, selling for pennies on the dollar doesn’t count). These double standards and loads of manure only further weaken whatever remaining credibility they might have had.

(Yes, I know a lot more about iProvo than I’ve written here. I have Veracity’s side straight from the horse’s mouth and will be meeting with Mayor Curtis on Monday to get their perspective. Expect something good and meaty next week, kids.)

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

Veracity has already received a break on payments, a break that runs out in just a few months. I’m confident that they can and will (but more importantly, should) continue to cross-subsidize Provo operations from other divisions of the company. Mayor Curtis’ remarks, though, seem to indicate an expectation that the city generally will have to continue to pick up part of the bond payments. I wouldn’t have much of a problem with this if Provo were continuing to operate the network with a wholesale open-access model, but effectively subsidizing a private company gives me serious pause.

I believe that Veracity is a good company and that they’re not out to pull a fast one on anybody. That said, I wouldn’t blame them for negotiating whatever they can get from the city. It’s the same as Google: “don’t be evil” doesn’t mean you should give up your strong negotiating position out of the goodness of your heart. And right now, Veracity is holding all the cards.

Read the articles from the Daily Herald and Salt Lake Tribune for more.

The biggest surprise is that Turley claimed the sale of iProvo is a success, this in spite of voting against both the sale to Broadweave and Veracity’s subsequent takeover of Broadweave. I have a hard time swallowing Turley’s characterization given that Broadweave spent sixteen months doing a terrible job at running the network (just like I said they would) before Veracity stepped in to save their hide. Even so, Provo had to loan out more money to Veracity to make the deal work. Veracity has done a superb job at turning around operations, but they have also had to cross-subsidize the network from their other operations and may continue to do so for several years. The reality is that this is the best the council could come up with since they did not have the stomach to do what was necessary to run the network successfully as a city department. It is absolutely absurd that Turley thinks he could vote against these outcomes and still be able to claim responsibility for them.

There’s also the wildly inaccurate claim that Provo solicited bids to buy the network. That’s absolutely and patently false. (I’d go so far as to call it utter bulls–t, much like the rest of his arguments.) The sale of the network came as a total surprise to the general public, service providers, industry watchers, and even the entire municipal council. The Mayor himself, the architect of the Broadweave deal, was adamant that a sale wasn’t on the table up until a couple of months before unveiling it. This was during the time that Billings and Broadweave were busy negotiating the terms of the deal. There was no clear RFP for bids, no public bidding process, and a very short period in which to review the terms of the deal. Does that sound like hanging a “For Sale” sign to you.

Turley has also wildly distorted the cost of building iProvo. Most of the main fiber optic rings were built many years before iProvo was even proposed. (I’d say planned, but I’m sure Mayor Billings knew what he was doing the whole time.) Those rings were paid for with federal grants so that the city could monitor traffic and improve air quality. That backbone certainly didn’t come cheap and should be included in the cost of expanding the network to include service to city residents. The $39M figure also does not include the shared cost of the video headend built jointly with UTOPIA. These items could easily add $10M or more to the total cost of the network, something that Turley has intentionally chosen to ignore.

Of course, these are just the factual problems with what he has written; I haven’t even made it to his faulty conclusions yet. Based on the “evidence” Steve Turley has presented, he thinks that UTOPIA cities should follow Provo’s lead and find a private company to buy the network. Unfortunately, that’s ignoring the marketable reality of the network. iProvo is a fully-built network covering an entire municipality. By the last publicly available figures, the network should have had little trouble being self-sufficient with some modest increases in take rates and small rate increases (not to mention better accounting practices). That makes it a very attractive target for acquisition, especially since the network was ready to roll.

UTOPIA, on the other hand, has patchy coverage and needs a lot of significant investment to cover its intended service areas. It’s main asset is the fiber running from Portland to Las Vegas, but even that isn’t valued at enough to pay off the current debts. UTOPIA cities, if they sold today, would still be making most of the payments and getting nothing in return for it. Provo, on the other hand, got someone else to assume the full debt load while walking away from it. Do these sound like similar situations to you? Me neither.

He also characterizes the new $60M bond proposal as additional system debt, just like the Utah “Taxpayers” Association has been doing. This, again, flies in the face of reality. The entirety of the $60M bond would be paid for by system subscribers, not the cities or UTOPIA. Claiming that signing on to this plan creates an additional burden systemwide is uninformed drivel.

In summation, Steve Turley knows about as much about municipal broadband now as he did two years ago. Unfortunately, that knowledge wouldn’t fill a thimble. Councilman, do us all a favor and go back to your home planet. Maybe they’ll be more accepting of your Reality Distortion Field.

You probably recall the Daily Herald running an article a few months ago regarding network upgrades that Veracity had put in place. The specifics are that they have dropped in a lot of new network gear that can handle 10Gbit on the backbone and 1Gbit to individual locations. It’s a nice capacity bump and allows them to better manage the services they have. It also didn’t hurt to upgrade from Layer 2 to Layer 3 routers.

They’ve also had to do a lot of work on getting video up to snuff. The plant down there is still using MPEG-2 which gobbles up 40Mbit per stream, on average. With 100Mbit connections to each home, it’s easy to see how that can disappear very, very quickly. Something that was causing a lot of problems in this regard is that bandwidth caps for the various tiers weren’t functioning properly. It was very easy to saturate the pipe with data and cause some pretty severe video issues. And speaking of video, the customers in Traverse Mountain finally have access to it after many frustrating years.

In all of this, Veracity has put a lot of new monitoring systems in place to catch problems much more quickly. In addition to this, they can also tap directly into each distribution point to see what a customer sees without even leaving the NOC and have setup a full testbed to do trial runs on firmware updates before hitting customers with them. I also got the feeling that a lot of the Broadweave employees who stayed on are being better utilized, having previously been subject to management that didn’t know how to take advantage of an employee’s strengths.

All of the work that Veracity has done has been instead of actively pursuing a lot of new business, and that makes sense. You don’t want to sell some wine before its time because a lot of the potential customers have previously had bad experiences with other service providers. Veracity did say outright that the commercial market in Provo is pretty well saturated at this point, so they’re focusing growth on picking up residential customers. With Qwest’s nearly non-existent network investment (which will no doubt get worse as CenturyLink steps into it) and Comcast’s ho-hum product offerings, I think Veracity’s plan to make it up on volume is a winner. I obviously can’t see the books, but their management team didn’t just fall off the turnip truck. Even if they don’t have the network fully self-sufficient, Veracity will still be hanging onto it. There is plenty of revenue from other operations to cross-subsidize it and having a full fiber infrastructure ahead of the need for it is a smart move.

I’m still kind of sad that Provo didn’t follow the recommendations to make the network self-sufficient. Some relatively minor tweaks would have balanced the books and still kept an open-access network. After Broadweave’s incessant bungling, though, Veracity’s offer is probably the best the city could do. And it’s actually pretty good.

Veracity Networks Offers World-Class Service with a Local Touch

Merger of Broadweave Networks and Veracity Communications completed—network upgrades on tap

PROVO, Utah – November 20, 2009 – Veracity Networks today announced the finalized merger of Broadweave Networks and Veracity Communications, creating the premier, local provider of telecommunications services. This merger allows Veracity Networks to offer an expanded array of offerings to its more than 20,000 Utah customers. These customers will benefit from superior customer service and advanced technology platforms—including a powerful fiber-optic network—to deliver optimal Internet, phone and video capabilities.

“We are excited about the new capabilities we can now offer our customers—both in terms of products and customer care,” said Drew Peterson, CEO of Veracity Networks. “Combining our two companies will provide customers with the highest Internet speeds and the best in customer service. Because we understand local issues and needs, Veracity Networks is far more responsive than any national provider.”

Along with the completion of the regulatory and shareholder approvals, the company announced the finalization of employee, network and systems integration. “The speed of this accomplishment shows the extraordinary commitment, experience and knowledge of our employees,” Peterson said. “It’s exciting to see the momentum and synergies of the combined companies, demonstrated by our largest sales month ever.”

As a result, customers have already benefited from the outcome of this merger.

“We have already experienced great results with Veracity Networks,” said Jason Young, co-owner of Be Young Essential Oils. “The setup and install was so fast and seamless, there was no comparison to our previous provider. We look forward to building our business with continued support from Veracity Networks.”

Veracity Networks is also pleased to announce significant upgrades to the company’s fiber optic network in Provo. Over the next four months the network will be upgraded to add new data features, additional redundancy and advanced network integration—allowing greater flexibility, stability and scalability. The increase in throughput will also enable an increased number of high definition video channels for video customers.

About Veracity Networks

Veracity Networks (www.veracitynetworks.com) delivers high-speed Internet, TV and phone services to both residential and commercial customers via a state-of-the-art fiber-optic network. The company combines its advanced communications services with local, friendly and accessible customer service to save its customers both time and money while they enjoy unmatched Internet speed, high-definition video and feature-rich telephone services. With a combined leadership of more than 50 years experience, Veracity Networks executive leadership is focused on providing premium, local telecommunications services.

Want to read more? The Daily Herald and Deseret News both have their articles up.

Yes, there are options. Provo could take the network back with many different avenues for running it differently. That said, there exists no political willpower or stomach for doing so. If Provo doesn’t have its heart into running the network, it will be at least as badly mismanaged as it was before if not worse. They’re still in “run and hide” mode, willing to accept any moderately reasonable deal to keep the thing away from the city.

Several companies have expressed to me an interest in participating in an RFP process for the network. Provided that such an RFP process leaves enough time for companies to submit applications and the city to review them before having to make a “do or die” decision regarding Broadweave, it should be encouraged and acted upon to make sure that the Council is truly evaluating all of the possibilities before them. There’s nothing to lose by asking for more options.

Even with options other than approving the sale, I don’t think the council is going to consider them. Veracity has thrown Provo a decent pitch with a decent chance of success and this Council has already shown a tendency to vote with the mayor. (Despite their recent pushback, I doubt there will be any serious resistance.) Unless another party comes along with a better concrete proposal, it would appear that the best choice is what the council was going to do anyway. How’s that for the world’s most tepid and lame endorsement?