Now a year late on delivering MS2, most people have assumed that the Macquarie deal is dead and buried. With no real news (other than the leak of the draft MS2 proposal from earlier this year), there’s been no evidence that the deal is alive at all. So is it dead? No, but it’s not exactly moving forward either.
As part of the deal, Macquarie wants a binding public vote on the MS2 proposal. This makes a lot of sense over a council vote. Some of the shenanigans in Orem with public referenda probably woke Macquarie up to how an irate minority can put their thumb on the political scales. A public vote can’t be overturned in a similar fashion.
Unfortunately, it’s also something that can’t be done. State law does not currently allow for a binding public vote on the city entering into a contract. The legislature has also not been in much of a hurry to change this. No action was taken in the previous legislative session, and there’s unlikely to be any action in the upcoming one. I can’t help but imagine that Comcast, CenturyLink, and their Utah Taxpayers Association lackeys have worked hard to shoot down the idea.
The short version is that if you want some finality on the deal, you need to bug your legislator to come up with some kind of fix allowing a public vote. Until that happens, this deal is effectively dead.
Centerville 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.
Murray joins Payson and Lindon in declining to move forward with the proposal from Macquarie. The council voted unanimously to pass despite not really having any other workable options on the table. Of course, they’re now in a heck of a pickle: Murray has attracted numerous businesses to the city (including a new location of the Moran Eye Center) with UTOPIA, but they’re running the risk of the network going dark if they won’t cover any operational shortfalls.
Centerville is also taking a vote tonight in a special council meeting. I’ll post when I have results from there.
Orem Mayor Richard Brunst
In what can only be described as an outrageous disservice to the citizens of Orem, Mayor Richard Brunst outright lied about XMission’s intentions to participate in the basic 3Mbps level of service. When asked about it, XMission founder Pete Ashdown had this to say:
I’ve personally also heard or seen statements from SumoFiber, Veracity Networks, and WebWave that they have no problems providing the basic tier, a contractual requirement to remain a service provider on the network.
The mayor also accused XMission of redlining poor neighborhoods which also elicited an angry response:
It’s no secret that Mayor Brunst is a likely no vote against the Macquarie deal, but outright lying about a well-respected local company to try and convince others to do the same is a new low. The Mayor owes everyone at XMission a huge apology for simply making crap up.
In a somewhat shocking move, Comcast has recently released a rate table showing that it’s giving every one of its customers in UTOPIA cities (and just UTOPIA cities) a rate hike just days after the deadline to respond to the Macquarie deal. With several cities still set to vote, you have to wonder what they would have to gain by underscoring UTOPIA’s points about a competitive marketplace. You may recall they slashed rates to the bone in Provo when Google Fiber moved in.
One theory is that they may be trying to lock customers into long-term contracts in exchange for lower rates. If that’s the case, it’s the same way they’ve tried to starve out competitors in other markets Standard Oil style. This only underscores how grossly anti-competitive the telecommunications market is.
Here’s a full chart of the rate increases:
In a move surprising precisely nobody, Payson’s city council voted 4-1 to pass on Macquarie’s proposal to UTOPIA. You may recall that this is the same city that passed on rebonding in 2008, didn’t join the UIA in 2011, and didn’t bother to show up to board meetings with any consistency since 2009.
From a fiscal perspective, it’s easy to see why they made the decision. Since joining the network, the population has grown by several thousand, so there are a lot more homes to cover. At this point, there’s less than a decade of the original bond payments left for them to make. I’m sure they’re figuring that the cost to pay off the bond and walk away from their share of the network is less than taking the deal. Unfortunately, it also means that the city probably has little chance of seeing an open-access fiber network. Anyone who’s using the network in Payson is probably also looking at going dark Real Soon Now(TM).
In what is not a terribly surprising move, Lindon has decided not to move forward with Milestone Two from Macquarie by a unanimous vote. This makes them the first (and so far only) city to not move forward on the proposed deal to complete the network. While Lindon could reconsider sometime in the next nine days, it seems very unlikely.
Sources tell me that the council listened very closely to intense efforts by Councilmember Caroyln Lundberg to put the deal on ice. It just so happens that her husband, Dean Lundberg, is Vice President of Operations at Vivint Wireless. You may recall that Vivint is working on doing a pilot program of wireless mesh home Internet access here in Utah, so it appears that they, in a very CenturyLink-like move, have used inside connections on a city council to derail potential competition that would ruin a multi-million dollar investment.
Of course, Lindon is going to be in for a very rude awakening in the coming months. They will still be on the hook for the bond, and they will have to cough up their share of the operational shortfall to keep the network running or face the very real possibility of turning off Internet access to 45% of their residents. Though 70% of Lindon residents residents are reportedly not fans of the utility fee, I’d bet a similar percentage doesn’t want to face the ugly fiscal realities of the other options left on the table.
Surprising precisely nobody, it appears that CenturyLink VP and long-time UTOPIA opponent Eric Isom is a member of the Utah Taxpayers Association’s Executive Committee. Per their June 2014 newsletter, he’s currently serving as the Secretary. You may recall he also was roaming the halls during meetings on HB60. If it isn’t crystal clear now why the Utah Taxpayers Association is astroturfing for CenturyLink, I don’t know what it’s going to take.
Of course, CenturyLink has a lot to lose. With the announcement in West Valley City that Ooma will be giving away the hardware for free landline service, they could shed as many as 40,000 access lines and several thousand vanilla DSL customers who opt for the basic 3Mbps service. While that fits their moves to abandon residential wireline service entirely, it also cuts into the highly profitable business products they’ve been focused on for the last few years. CenturyLink could lose tens of millions of dollars per year if Macquarie completes the buildout of the network.
So what can you do to help?
I don’t think most people realize just how deeply CenturyLink is embedded in the Utah Taxpayers Association. Bring it up at every public meeting. Share this post on every piece of social media you can and do so often. Once more people realize the uNOpia effort is just CenturyLink protecting its turf, the tide will change.
As if the hyperbolic uNOpia site wasn’t light enough on facts, the Utah Taxpayers Association also commissioned a report that repeats many of the same mistakes. Apparently the hope is that by repeating the same lie over and over, it’ll end up being true. In this case, it appears that Doug MacDonald, who prepared the report, chose to merely parrot what his client asked him to. Let’s go through section-by-section and find the glaring errors and omissions, shall we?
Number 1 (pg 2)
- Doug is making the same error of insisting on using inflation figures rather than constant dollars. This is misleading and no reasonable economist would dare do this. Constant dollars are the bread-and-butter of all economic analysis. Someone with his experience should know better.
- The report shows 149K households, but Macquarie’s Milestone One report makes it clear that they intend to build out 163K households.
- Macquarie will be contractually obligated to build, operate, and maintain the network for 30 years, but the report raises the impossibility of them abrogating the contract and still collecting the utility fee. He also hints that a future city council could attempt to break the contract, yet that would open the city up to massive liability. Apparently contract law is not a strong suit.
Number 2 (pg 3)
- Doug claims that cities have considered not making existing bond debt payments, but there is zero evidence of this. No city in their right mind would default on any bond obligation.
- Macquarie is assessing the utility fee to the cities who are free to figure out the most equitable way to collect it. The report, however, claims that the fee is mandatory for every resident. This makes no mention of Provo’s utility fee which is scaled so that businesses pay more and residents pay less or the planned waivers for indigent households.
- The report makes the absurd statement that anyone who doesn’t have UTOPIA either loves their existing service or doesn’t want any kind of telecommunications service. This is despite the readily available evidence that consumers absolutely hate incumbent providers. There was apparently no effort made to do any kind of survey, scientific or otherwise, to back this claim.
- The waiver for the indigent has been falsely characterized as a general opt-out provision. That is completely false.
Number 3 (pg 4)
- Macquarie has committed to investing around $300M in building out UTOPIA, yet the report hand-wrings that it will be very difficult, if not impossible, to find the money. Macquarie is an investment bank with $140B in assets, so I’m pretty sure they’ve got the money around there somewhere.
- The take rate figures provided in the report are completely inaccurate and measure the entire city as opposed to areas actually passed with fiber and able to be hooked up. There’s also no comparison to iProvo which achieved a 35% take rate with no install fee, a ubiquitous build, and terrible service providers.
- The “break even” mentioned in the report is way off. A wash on the Macquarie deal is around 35%. Covering all of the existing bond service as well is in the 55% range.
Number 4 (pg 5)
- Every ISP has committed to participate in the included basic tier of service, yet the report spreads more fear, uncertainty, and doubt about their participation. It’s obvious that Doug didn’t talk to a single one of them about this. I know for a fact that XMission, SumoFiber, Veracity, and WebWave are on the record with being strongly in support.
- Of the ISPs on UTOPIA, most of them do not provide services over other methods of transport. Those that do are often looking to get away from doing so. XMission converts DSL customers to UTOPIA. Veracity has gone so far as to build their own fiber to CenturyLink cabinets to get off of their transport. The idea that they will sell their service over competing infrastructure is not based in reality.
- The utility fee covers connecting the network to each address. The $50 reimbursement to ISPs is to cover any installation costs beyond that. ISPs do not have to front any money to hook up basic service customers.
- Doug again asserts that cities may choose to default on their existing debt obligations, a scenario that no city in their right mind would ever attempt.
- Macquarie has experience with telecommunications systems in Asia and is partnering with some of the biggest names in fiber optics such as Alcatel Lucent and Fujitsu. This is not going to be a project run by rank amateurs.
- The report cites a failed toll road project in San Diego to try spreading fear that Macquarie would walk away from a project, but the details, as usual, are much more complex. The project went through a Chapter 11 filing in which Macquarie had to write off their interest in the road, yet the road continued to operate.
Number 5 (pg 7)
- Macquarie has never stated that people will not need premium services. Even if lines will not be fully utilized, there is a huge demand for service provider alternatives just to get away from the terrible service provided by incumbent operators.
- Again, the utility fees are assessed by Macquarie to the cities and it is up to the cities to determine who pays what. Provo has already implemented a model where businesses pay a lot more than residents. Concern trolling to scare residents isn’t serious research at all.
Number 6 (pg 8)
- Evaluating the cost to sell or shut down the network is a farce. In either event, the bond reportedly becomes callable meaning that the entire amount is due immediately. Treating that as a realistic option doesn’t even make any sense.
- No evaluation of the probable value of the network was done. Instead, Doug pulled two numbers out of a hat: the $1 “sale” price of iProvo and the $86M in assets reported by UTOPIA.
- The “sunk cost” argument depends heavily on the fabricated “needed investment” and fallacious take rate estimates from number 3. As such, it can’t be considered a serious argument at all since the underlying assumptions are bad.
Number 7 (pg 9)
- The debt amounts cited in the Econowest report do not appear anywhere in the Milestone One report, yet it claims that they do. In fact, the Milestone One report makes it very clear that the principal and interest currently totals around $500M. This amount is in line with $185M of bonds over 30 years at a nominal interest rate. How that gets inflated to $335M is beyond me.
- Doug again screws up by claiming that UTOPIA debt is 69% of the level of state debt, yet the state debt of $35.7B works out to almost ten times the amount he claims. This is something easily discoverable with Google in about 30 seconds.
Number 8 (pg 10)
- Just like the auditor’s report it cites, this one fails to draw any distinctions between current and former management.
- Doug completely fails to consider any argument on the economics of utilities and trots out a “private sector” argument with no supporting evidence. I’ll just leave this piece on why he’s wrong right here.
This report is sloppy and unprofessional, something that should be embarrassing for someone of Mr. MacDonald’s experience. There’s ample concern trolling and FUD on points that have been settled. Basic figures are completely incorrect and unsourced. Absolutely no effort was put into doing research to back up the conclusions. This amateurish work doesn’t read at all like it was completed by a professional.
If this is really the best that the UTA can come up with, I’m going to have a hard time believing that opponents of the deal are going to make much headway.
Wondering how the uNOpia site sprung up so quickly and with so much funding? Wonder no more. I have inside information that the payments for the entire operation come directly from CenturyLink itself. This isn’t too surprising since they rarely directly involve themselves in politics anymore, preferring to launder the money through hatchetmen like the Utah Taxpayers Association (who, of course, is heavily promoting the uNOpia site). Given how much CenturyLink stands to lose in the residential and commercial wireline market should this succeed, it’s no wonder they’re willing to spend thousands of dollars to try and upend it.
This isn’t anything too surprising after the confirmed involvement of the Utah Taxpayers Association in HB60 and the suspected involvement in SB190 earlier this year. Incumbents will stoop to any low in order to protect their turf and keep prices artificially high.