The end of the road? It’s Macquarie or bust for UTOPIA

utopia-logoPart of the visit with UTOPIA was figuring out how they’re moving forward and assess the financial health of the operation. Unfortunately, it looks like despite hitting a number of financial targets, they’ve fallen short financially. Right now, they’re still running a deficit on operations (I hear around $150-175K-ish a month) and it’s not closing as quickly as they need to meet the home stretch of the UIA plan. Right now, break even is about three years out as they concentrate on business customers. Given that subsidizing operations isn’t an option, that puts them in an operational pickle.

They were pretty candid with me when I asked questions. The switch from focusing on homes to focusing on businesses came at the explicit request of the cities. Business accounts cost about the same to get hooked up as residential, but they generate about four times the revenue. Even small businesses are worth about two homes a pop. With limited resources, they have to focus on those specific areas to at least try and cover operating expenditures.

The biggest barrier to most businesses is the brand name. Despite offering great speeds at great prices and excellent SLAs, their PR kind of bites. (Shocking, right?) The limited deployment means it’s much harder to serve multi-location businesses, though service providers have been creative in using UTOPIA where it can be had. Small businesses are challenging because many of them want the reliability of UTOPIA over cable and DSL, but there’s not a cheap enough product offering for them.

There’s some bright news, though. They’re signing up about 60-70 new accounts per month without doing much marketing or direct sales. There’s been a marked increase in high-dollar products like gigabit and even 10Gbps circuits. Most of the cities (including Layton, West Valley City, Murray, Orem, Brigham City, and Tremonton) are using the network extensively for city operations and reducing their own internal costs. If you’re in a completed footprint, you can pay to get hooked up. If you already have the wire on the side of the house, they don’t even have to roll a truck to do it. And operational costs are much closer to being covered than they ever have been.

And yes, the silver lining is pretty thin right now. Despite all of the good things UTOPIA has done (building to ~95K homes with ~11.5K taking service, offering cheap gigabit, 17 service providers, etc), money matters. I support UTOPIA, but the stark reality is that without any money, it’ll die on the vine. It’s here because the early problems, including an illogical build plan, the Qwest right-of-way lawsuit, and constant legislative meddling, tripped things up right out of the gate

I’ll be blunt: either the Macquarie deal happens or we could be waiting decades for fiber to get to more homes. UTOPIA is pretty fortunate to be negotiating with a company that’s bringing a lot of mutual benefit including the cities retaining ownership of the network. If it doesn’t pan out, though, I think we’re hosed.

Confirmed: Macquarie tips its hand on details of the upcoming proposal

macquarie_logo_2638After hearing some of the rumors about the Macquarie deal, I’ve been watching skeptically to see how much of it is wishful thinking and rumor-mongering. I’m now seeing that almost all of it is completely true. Macquarie had a representative answering questions at the most recent Brigham City city council meeting (skip to 43:30) and he confirmed a lot of what I had previously reported.

Macquarie wants a 30-year contract with the cities to expand and operate the network. There would be no transfer of ownership of the network and the cities would retain the title to all of the assets. Their purpose in doing this is to secure low-risk (in their words, “boring, stable”) investments with a moderate rate of return for pension funds and life insurance pools. Their view is that because they don’t have the typically myopic view of most of the telecom market that requires a very fast, very high return on investment, they can approach differently and see the long-term effects. Macquarie is committed to building out every home (165K of them by their count) to a “service ready” state. I assume that means including all portals and needed cabling so that getting service is as easy as a phone call.

In exchange for the contract, Macquarie would assess a per-address fee to the cities. While they recommend a utility fee with waivers for the financially indigent, the cities are given full latitude to determine how this fee would be collected. They can’t quote specific numbers yet since they’ve just started to receive proposals in response to their RFQ, but I’ve heard numbers between $15 and $25 per month. Macquarie would commit to providing the connection to every address and service providers would offer a free “basic” level of service comparable to high-end DSL or low-end cable. The service providers would not be charged a fee for access to these customers and would only incur the customer service costs. Word is that they view this arrangement favorably since this gives them a way to market 100Mbps and 1Gbps services to those customers.

Cities are actually going to get a pretty sweet deal on those upgraded customers too. Macquarie wants to make sure the cities keep almost all of the funds paid by the upgrading customers. These funds will help pay off the debt service and could be used to reduce the utility fees. I personally also like that the cost of UTOPIA will become a transparent thing. Brigham City is planning to leverage this universal buildout to switch to smart meters that will pay for themselves within 2 years and greatly reduce the operating costs of the city electrical utility.

Macquarie is doing a good job at keeping their ear to the ground locally. They were on top of Sen. Valentine’s attempts to amend SB190 from the floor and worked vigorously behind the scenes on both that and the original ill-conceived bill. They’re keenly aware of the perception of UTOPIA being forced on city residents and want to focus on showcasing the benefits of the network. They also took a moment to slam some of the woefully uninformed comments from the previous meeting by pointing out that they’ve been doing business in the US for two decades and have over 5,000 employees here.

The devil is always in the details, but so far this looks like a very solid proposal that’s win-win. The cities get world-class infrastructure and money to pay the bonds, the citizens get at least a free baseline of Internet service (with cheap upgrade options), and the rest of the state gets the potential to get gigabit everywhere else too. Macquarie also gets their toehold on what they believe to be a great long-term investment for low-risk portfolios, potentially spurring other companies into an overbuilding gold rush. I have yet to see anything giving me pause.

PS As a bonus, note that Ruth Jensen spends most of the council meeting continuing to concern troll on both smart meters and the free tier of service. She also comically states that DSL and cable are “good enough”, parrotting the standby line of the “you’ll take it and like it” incumbents. Jensen also goes so far as to insinuate that people actually LOVE their existing options, apparently unaware of how poorly they have been performing in customer satisfaction rankings for well over a decade. Her near-automatic gainsay reminds me way too much of the Monty Python argument clinic sketch.

Why is it so hard to get TV on UTOPIA? There’s no money in it

Sourced from Wikipedia

Sourced from Wikipedia

Earlier this week, I sat down with UTOPIA to discuss the Macquarie deal and their general operations. One great part of these sit-downs is that I can get candid answers to some of your common questions. Some of you have asked more than a few times about TV service. Right now, only Beehive Broadband and Brigham.net sell video service to new customers using UTOPIA’s headend and Veracity is using their own. Most providers sell satellite packages to plug the gap. Why? Because video doesn’t make money.

Yes, it’s true. Video is a break-even product at best. Look at the numbers from any cable provider and you’ll see the same story: video and voice make data customers more “sticky”, but it’s the broadband that pays the bills. They’ve quickly become commodity products that help the revenue side but don’t do much on the profit side. The consensus at FTTH conferences is that video isn’t something that most of them want to do.

So what does this mean for you? Right now, you’ll have to fall back on satellite TV or pick one of the providers that does video service. Since Brigham.net is sticking to Brigham City, that means Beehive or Veracity. This doesn’t mean that all hope is lost, though. UTOPIA has been talking to its video partners about an over-the-top live TV service to plug the gap. It would be sold Netflix-style, but it would have all of your favorite TV channels and possibly some good on-demand stuff too. It’s a ways out (I’d guess years), but it’s where we’re all headed anyway.

BREAKING: Todd Marriott Steps Down as UTOPIA Executive Director

In a surprise move, UTOPIA Executive Director Todd Marriott has stepped down and is no longer with the agency. The press release is light on details, but I can only assume that with the Macquarie deal in the works and UTOPIA meeting its financial targets under its five year plan, he may have felt like he’s completed course-correcting the ship.

Below is the press release. I’ll see if I can find out more.

UTOPIA Marriott Press Release_ 1 29 14.doc

UTOPIA Goes for Cheap Gigabit

Remember the rumblings about UTOPIA’s upcoming announcement last week? Well, it’s here, and its’ huge. Starting today, seven providers will be offering gigabit service for as low as $64.95/mo. If you’ve already paid off the connection fee, this makes it the same or less than Google Fiber in Provo on six of them. Here’s the full price list:

Of note is that UTOPIA has added another provider, WebWave. They’ve been using UTOPIA for backhaul to wireless towers in Davis County since May and are now going to be a full-fledged ISP on the network. With nine total providers to choose from, UTOPIA’s offering more competition for your business than ever.

If you’re content on the lower-priced tiers, SumoFiber and XMission have already switched all customers to 100Mbps. Are you planning to pony up a little more for 10x the speed? I know I would.

Feeling the Google Heat: Comcast will bump speeds to 250Mbps/50Mbps in Provo

Competition is good, and Comcast is just now proving it. I spoke with one of their sales guys who confirmed that Comcast will be offering a package of 250Mbps/50Mbps for $70 starting in September, but only in Provo. (Sorry, everywhere else.) This is in direct response to Google Fiber coming to town and will include a new modem with a built-in 802.11ac router to take advantage of the speed bump. It’s unknown if this speed tier will land in any other cities in the future.

This is yet another story proving that having a fiber network in your town benefits everyone, not just subscribers.

XMission Gives UTOPIA Customers a Free Speed Bump

If you’re using XMission on UTOPIA, you probably noticed a nice little bonus last night: all 50Mbps customers got a bump up to the full 100Mbps for no extra charge. There’s a few people left to be switched, but it should be done within a couple of days, tops.

One thing to note is that if you aren’t seeing those speeds, you may need to upgrade your router. Most routers, even newer ones, don’t include a 1Gbps WAN port which often serves as a bottleneck. Older 802.11 a/b/g routers also create choke points on the wireless side. All said, that’s a pretty nice problem to have, isn’t it?

A Cooperative Experiment

I’ve been living in White City Township for over 7 years. Less than a year after moving here, I found out about UTOPIA and started kicking myself for not buying a house in a member city. About that time is when I started FreeUTOPIA to try and improve broadband policy in this state. Most of my effort has been focused on municipal efforts since that’s about the only place to see the kinds of drastic improvements I think are needed.

Living in an unincorporated township, I didn’t really have many options to push for UTOPIA membership. Between a combination of legal limbo and unwillingness to extend themselves on more municipal services, pursuing any kind of municipal option here is and likely will always be a dead end. It’s time to take matters into my own hands. To that end, I’d like to announce that I am forming the White City Telecommunications Cooperative. It will be a privately-funded subscriber-owned fiber optic network covering the township and adjacent properties. I don’t know how I’ll do it, and I don’t know if I’ll be successful, but I do know that I’m tired of waiting for better options.

Does this mean I’m going to be neglecting FreeUTOPIA? To be honest, I kind of have been for a while now. UTOPIA is doing a better job of actually communicating what’s going on over there. I’m up to two kids and can’t really spend as much time going to every single council meeting to rehash the same arguments. The blog sees so little traffic these days that I sometimes think I’m just shouting into the void.

Am I quitting FreeUTOPIA? Not even a little bit. Broadband Bytes will still go out. I’ll still be posting periodic essays on telecommunications policy. And I’ll be (somewhat selfishly) working on getting broadband for myself instead of just facilitating others. I’ll be sure to keep you up-to-date on how it goes.

The long knives come out: Tribune articles on UTOPIA

Bad news sells, and the Tribune seems to think that business is good. Over the weekend, they published a long series of articles on UTOPIA that follow the all-too-standard pattern of raking the network over the coals with many of the same rehashed arguments from years past. Four of the nine articles make reference to network debt in their headlines (often spuriously), and eight of them use negative references there. Despite the overly negative tone of the coverage (no doubt fueled by the opinions of the editorial staff), there’s a few pieces of useful and interesting information to be gleaned (not to mention corrections to be made). Continue reading

Local groups whipped Oremites into an unhinged frenzy

Tuesday night, the Orem city council approved a property tax increase to plug some budget holes. A lot of the people present (some council members included) chose to pin the blame squarely on UTOPIA even though that’s less than accurate. I wasn’t there, but the recap from Twitter made it abundantly obvious that the crowd had a lot more anger than information.

Who do we blame for creating an unhinged and uninformed angry mob? Precisely the people who tried to walk away with a non-chalant whistle: The Sutherland Institute and Utah Taxpayers Association. Both groups have been painting a picture of apocalypse from the tax increases while trying to pin the entire thing on UTOPIA. Neither of them discussed the shift from sales to property taxes that dozens of cities are currently involved in, nor did they try to inform the public with alternatives to raising taxes. This purposeful attempt to leave citizens uninformed created some of the wackier and downright dangerous suggestions of the night, things that both organizations need to now own as a byproduct of whipping the citizenry into a fenzy.

And what were these suggestions of fiscal suicide? Some people suggested either that the city wasn’t directly responsible for the bond or that they should just stop paying it. Anyone with any financial know-how knows that you can’t unilaterally declare that you don’t owe money on a loan or that you’ll just stop paying bills you don’t like. If the city chose to do that, it’s credit rating would be worse than junk and it would be a true financial catastrophe for the city. More than a few people suggested that the city declare bankruptcy over it. They obviously don’t know that UTOPIA’s payment comprises a scant 3.2% of Orem’s total budget, nor do they seem to get that the consequences would be roughly the same as not paying the bond. It would be akin to burning down the house because you found a piece of rotten timber.

Another popular suggestion is to sell the network, but this, too, is divorced from financial reality. At the end of the payments, the cities (and presumably the subscribers who paid for installation) end up owning the network free and clear. The only way a sale makes sense is if the sale price would exceed the estimated value of the network at the end of the payments. Anything less would mean a wider loss, and there is no sale that will cover the price of the bond. Evidence suggests that a sale would go poorly anyway. American Fork “sold” AFCNet, but the company that “bought” it hasn’t been current on its interest-only payments and will likely not have the required $500K lump-sum payment when it comes due in a few months. Provo tried to sell iProvo twice without success. Both of those networks cover their respective cities whereas UTOPIA does not have a contiguous service area. Odds are good that any sale would result in a substantial loss of value.

The core problem is that both UTA and Sutherland (the latter of which I expected better from) presented cherry-picked facts and fabrications designed explicitly to incite anger. This was done in lieu of presenting a full slate of facts (like the trend in dozens of cities of moving from sales taxes to property taxes), their proposed solutions, and a rationale for the conclusion. When you take that approach, you create a mob mentality problem rather than seeking solutions. When you call them on it, they back off with a weak “well, we didn’t mean that” which comes off as trying to weasel out of the situation they created.

You can see an obvious common thread from the suggestions and actions. None of them actually think through the full consequences of the actions proposed, they’re “shoot from the hip”, and they’re emotional responses to try and undo a decision that’s over, done with, and now has to be owned. These folks (citizens and think tanks alike) could learn more than a few things from mayors like Mike Winder and John Curtis who, despite not supporting municipal broadband, have accepted that their job is to make the best of the situation.

(You can read more from the Daily Herald here.)