Free UTOPIA!

Broadweave has repeatedly insisted that the only way for iProvo to work is if it becomes a closed network with one provider operating both the retail and wholesale operations. Perhaps, then, they can explain why it is that they agreed to "provide access to alternate service providers for a fee" as part of their utility easement in the Sienna Hills subdivision near Washington City? (See SITLA Meeting Minutes of October 6, 2005, pg. 7) If such an arrangement were not economically viable, wouldn't Broadweave have walked away? It's a tacit admission that open networks can work financially.

It's also telling that as a part of their easement in Washington County, Broadweave also wanted to be awarded automatic contracts to develop telecommunications systems throughout the School & Institutional Trust Lands Administration's future projects. The board was rightfully spooked by this implication and voted against granting such a restriction. (See SITLA Meeting Minutes of October 20, 2005, pg. 25)

In their report to the city, CCG noted that there were a significant number of HR issues leading to the deteriorating customer service situation at iProvo. They noted that "almost universally the telecom employees dislike or distrust the retailers" and observed that telecom employees were also at each others throats on a regular basis and to resolve it would "require management directive". Certainly neither retailers or their customers were served by this rivalry both within the NOC and towards retailers.

So how then is it possible that Broadweave plans to take these same people who caused this problem, the telecom employees, and force them to work both with each other and employees from a retailer, Veracity, without significant operational headaches? It seems to be that the old rivalries with each other and this retailer will continue to manifest themselves, likely moreso since, according to my sources, a majority of iProvo's employees are strongly opposed to this sale.

It's especially concerning since we hear a lot about the executive team and almost nothing about the management team; we have absolutely no idea how long Broadweave will be dysfunctional as it deals with these HR problems. During that time, customers and reputation will be lost, the latter of which takes significant time to regain. I do not think a company so young and small has the experience to successfully handle this kind of integration; even giants like HP and Sprint have failed at this task.

I received a response from the Utah Division of Corporations regarding the original filing for Broadweave Networks and Lucy, they've got some 'splaining to do. According to the original filing, the company did not file articles of incorporation until June 4, 2003. (See original document.) Their website, however, indicates that the company obtained their first contract in 1999. (Link to website, screenshot in case they change it.) How can a company that doesn't exist have functioning contracts?

It's amazing that Provo's brand of "due diligence" doesn't disclose these kinds of irregularities.

Broadweave announced today that they plan to go one step further than buying out the customer lists and acquire Veracity as well. Veracity has over 10,000 clients but only a handful are on UTOPIA or iProvo. Most of Veracity's customer base is in T-1 lines or DSL services as well as business voice communications. This means that Broadweave plans to grow overnight from 1100 to over 20,000 subscribers. I seriously doubt they can handle all of that growth.

It's worth noting that Nuvont, which is still a provider on UTOPIA, buys all of its services from Veracity. XMission also has a deal to buy VoIP services from Veracity. It will be interesting to see if Broadweave will remain on UTOPIA and continue these contracts for services or pull an AT&T on us.

See more from the Daily Herald. 

I took the time to sit down with a copy of the proposed purchased agreement with Broadweave (warning, PDF) and found a number of glaring holes and deficiencies in this arragement.

• Broadweave Networks of Provo LLC is listed as the purchaser, yet no such corporation currently exists with the State of Utah. The purchase agreement is for a non-existent entity, therefore that more-or-less voids it right off the bat. (See 1st paragraph)
• Provo is offering a 2-year warranty on the fiber. That's right: Provo foots the bill for fiber repairs for the first two years! (See 3(y)(ii) and nearby definitions)
• Since Broadweave Networks of Provo LLC doesn't exist and has no valid business license, it's not a valid Purchaser per this agreement. (See 4(a))
• Anyone with access to the Utah Courts' Xchange system want to make sure that it's true that there's no pending litigation against Broadweave? I've heard several rumors that residents in Traverse Ridge have had to go months or even years without primary phone line service from Broadweave and that several lawsuits have been threatened. (See 4(d))
• I suppose that the lack of corporate existence for Broadweave Networks of Provo LLC could be construed as a misrepresentation. (See 4(f))
• Provo is asking that Broadweave make a "good faith effort" to preserve existing services. Which, really, is broad enough to allow Broadweave to do whatever it likes. (See 5(g))
• Provo's non-voting member on the board can be kicked out of meetings if they determine that there's "highly proprietary" information being discussed. Any bets that this will happen often? (See 5(c)… the second one since someone can't use ordered lists in Word properly)
• If Broadweave sells the network just before going under, the city would lose control of the network and there would be nearly nothing left to pay remaining balances if Broadweave takes the money and runs. (See 5(d), again, the second one)
• Broadweave will be bound to continue building the network to new developments, though the agreement uses a vauge "commercially reasonable time" phrasing that could easily let Broadweave off the hook. (See 5(q))
• I noticed that nothing in Section 5 gives Provo the right to keep any upgrades or other improvements done to the network in the case of a default. If they replace the existing equipment with new equipment, then auction it off in bankruptcy proceedings, Provo could be left with a crippled network.
• Now waitaminute… Broadweave gets to do its due diligence against Provo but nothing affords the city the same right. (See 6(u))
• Broadweave is claiming that its Provo operation's address is the same as the Provo NOC. Kind of cheeky considering the company doesn't even exist, eh? (See 9(b))

My takeaway from this is that Provo hasn't covered all of its bases at all, creating a lease agreement that's very much in favor of the purchaser. Any lawyer-like people care to take a crack at it?

You'd like to think that a company planning to buy city assets would have all of their paperwork ducks in a row. Seems that Broadweave, however, has neglected to file a substantial amount of paperwork required to legally do business. South Jordan, the location of the company's headquarters, has no listings for Broadweave. Draper has never heard of them before. The woman I spoke to with Washington City said they've been trying to get them to get a valid business license for a long time and will probably refer them to enforcement soon. Lehi hasn't gotten back to me yet on their license status in that city, but given the 0 for 3 record in other cities where they do business, I don't have my hopes up that they filed anything there either.

And what of Provo? Broadweave has also failed to obtain a business license from the city of Provo. They also have not registered Broadweave of Provo, LLC with the state of Utah, the business entity that was supposed to be buying the network. How can the city sign a deal with a business entity that doesn't even exist? It's not like Broadweave doesn't know how to do it; they have registrations for subsidiaries in St. George, Hurricane, Washington, Herriman and "Rosecrest".

I'm also trying to find out if Broadweave is telling the truth about how long they have been an established business. They did not register their current domain, broadweave.com, until June of 2003 though their website indicates that this company has been around since 1999. Seems odd for a tech company to go 4 years without snapping up the domain that bears their trademark, isn't it? Pending some feedback from the Utah Department of Commerce, we'll know for sure. I'm betting the company wasn't filed until 2003 making their claim of getting their first contract in 1999 patently false.

UPDATE: Lehi just confirmed that they don't have a business license in their city either. Surprise, surprise.

This kind of news is almost too good to report. After being tipped off by an anonymous source, I did a bit of digging as to who owns Traverse Mountain. Turns out that it's a Mr. Stephen Christensen, an uncle of Broadweave CEO Steve Christensen. In short, it appears that Broadweave's sole development project is the result of an inside family deal, not any kind of business acumen. This should raise a lot more questions about the viability of this provider.

It's also reported that the supposed development in Washington County that has a video head-end doesn't have an appropriate video franchise to operate it. Combined with the lack of video in Traverse Ridge, we should be asking if Provo is best served by an exclusive provider with zero video experience. Survey says "not bloody likely".

The stink on this one grows every day.

UPDATE: According to this article copied from the Deseret News, they are actually father and son. Still shady; title has been fixed.

Despite high hopes. Payson's City Council voted 4-1 against the new UTOPIA bonds citing concerns about their future revenue streams. Council Member Hancock cast the lone yes vote despite getting a second for the motion to adopt the resolution. This means that they will likely have to start paying out around $259K every year over the next 19 years to satisfy their portion of the old bonds.

I view this move as a calculated risk. Payson knew they were getting their network regardless of how they voted because it makes financial sense for UTOPIA. They also know that their pledge amount is small enough that it won't sink the deal. In short, they knew that opting to not pledge additional money would not mean they wouldn't see more of the network and decided to enjoy the benefit of UTOPIA without risking any more money. I think they also have a hope in their mind that UTOPIA may not call their bond pledge immediately or may opt not to do so at all if it can retire the old bond with the proceeds of the new bond. I hope that isn't their game because it's very unfair to other member cities. 

Talk about stretching yourself thin. Broadweave mentioned to the Daily Herald that they plan to buy a fiber optic network in Houston, Texas, likely the OEN network that went belly-up after less than a year of operations. They only manged to reach about 5,000 customers before abruptly halting service, falling far short of their goal to wire 1.6M homes. Despite the large investments from venture capitalists, I doubt Broadweave has the money to continue construction in Houston, do further roll-outs in Provo and continue to build their network in Traverse Mountain.

Wake up, Provo. This company isn't going to be around more than a couple of years and you'll still be left holding the bag.

EDIT: Almost forgot to mention that Broadweave also plans to upgrade the TV signals on iProvo from MPEG-2 to MPEG-4. This will require replacing the existing set-top boxes to support the new signals. At around $300 a pop, it would take nearly $1.8M to upgrade the existing video customers on iProvo. Yet another hunk of cash I doubt they have.

As more details about Provo's pending sale of iProvo to Broadweave surface, it becomes more and more obvious that this is a bum deal for the city.

Broadweave isn't exactly buying the network. Instead, they are assuming the bond payments from the city. The original bond, however, will remain with the city. This means that Provo can only make the bond payments if Broadweave makes their payments to the city. If Broadweave goes under, the city is still on the hook.

So how financially viable is Broadweave? Rumor has it they aren't turning a profit on their existing infrastructure in Lehi and St. George, something that should be grave cause for concern. We should also be worried that they are attempting to take over a network many times the size of what they currently manage. Time and time again, a smaller operation taking over a larger one ends up being a disaster since they can't cope with such rapid growth.

We may also see a large loss of customers. As the contracts with MSTAR and Veracity expire, those customers will be forced to switch to Broadweave, a company that has data speeds of 10Mbps/1Mbps instead of iProvo's current 15Mbps/15Mbps. Such a drop in speed with what is presumably a equal or higher price will cause massive attrition back to incumbent carriers who offer the same pricing and service levels. And Nuvont customers? Expect to get an immediate boot since that company doesn't have a contract in place.

What we're looking at is a move back to what iProvo was like under HomeNet: one retailer to rule the network that hasn't figured out how to make money either. While the mayor, municipal council and UTA are drunk on the euphoria of washing their hands of iProvo, this is nothing more than punting the responsibility to another party and setting themselves up for massive failure in a couple of years. Shame on them all for managing this city asset in such an irresponsible manner, "selling" it for much less than it cost to build and refusing to do the grunt work necessary to make it succeed. I hope the good citizens of Provo will remember this betrayal at the ballot box in 2009.

Read more from the Tribune, Deseret News and Daily Herald.