Broadweave the Sequel? FirstDigital appears completely unqualified to make a pitch to Orem

insidelogoA company you’ve never heard of makes a pitch to take over a municipal fiber network despite no track record of providing residential services or network construction on a large scale. If this story sounds familiar, it’s because it describes Broadweave’s pitch to Provo that ended in a disastrous devaluing of the network that allowed Google to take it over for the price of a Coke at McDonald’s. Suspiciously, it’s also beginning to sound a lot like a proposal from Salt Lake City CLEC FirstDigital being made in Orem as a competing offer to Macquarie.

So who is FirstDigital? Judging from their very spartan website, it appears they provide services to business customers with a heavy focus on T-1 lines and old-school analog phone lines. There’s no evidence that they have experience with managing fiber infrastructure on their own or have any idea how to provide services to residential customers. A search of their employees seems to indicate as much. To say that this company would be in way over their head is a huge understatement.

Based on some third party notes about meetings in Orem, it appears that FirstDigital is trying to keep as many details of their proposal under wraps as possible. They’re meeting with one or two council members at a time to avoid open meeting requirements, a tactic that sends UTOPIA critics howling. What has come out in the public meetings has been concerning at best. The biggest issue is that FirstDigital wants to employ the Google Fiber “fiberhood” tactic, a plan where they only build out areas that are financially justified. This buries any promise of ubiquity under a rock in no time flat. Given that much of the remaining areas of Orem are very expensive to build (thanks to the infamous “Orem potatoes” rocky soil), it’s likely they wouldn’t build out much more of the city at all, but we already know that the half-finished network doesn’t break even. Macquarie is proposing to complete building the entire city, not redline those areas where they can’t make a quick buck.

I’m also going to immediately question the financial situation of FirstDigital itself. Broadweave had a bankroll of tens of millions of dollars to take over a completed network in a city of the same size and failed miserably. FirstDigital would be taking over a half-finished network with no NOC, no video headend, and no transport outside of the city. This is a project that requires a much larger sum of money than Broadweave had available and is unlikely to reduce the financial burden on the city any more than Macquarie would. Hoovers estimates that the company has a scant $900K/year in revenue and just 11 employees (though LinkedIn shows at least 20). For comparison, Macquarie manages at least $140B in assets and is bringing the top international names in network engineering to the table.

While many details are still shrouded in mystery, I feel pretty confident in saying that this looks like a small company about to get in way over their head. I asked FirstDigital for an interview, but they have failed to respond. Oremites, make sure your council knows that this apparently ill-equipped suitor should be kicked to the curb.

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

Provo Approves Veracity Proposal

As I predicted yesterday, Provo’s Municipal Council signed off on the proposal from Veracity to merge with Broadweave and float some of the bond payment for 10 years. (I also totally called Steve Turley voting against the proposal.) I’m not surprised at all given the political climate surrounding the network. Iin a worst-case scenario where Veracity gives the network back, Provo will have had more time to come up with a Plan B and the willingness to execute it.

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

Provo's Decision Tonight

Tonight, Provo’s Municipal Council will likely make a decision on the proposal from Veracity to float part of the bond payment for upwards of 10 years. I’m not going to delude myself or any of you: the meeting and vote is mere formality. The Council will, amidst some grumbling, approve the proposal. Steve Turley will vote against it knowing it will pass so if something goes wrong later, he can wash his hands of any responsibility. (Prudent politics, Steve, but how about owning something for a change?) Given the options that have been presented by the mayor, I don’t know that the municipal council is being given much of a choice.

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?

Veracity Customers as Collateral: Where's the Skin in the Game?

The Salt Lake Tribune wrote up an article on Tuesday’s decision to delay the vote on accepting Veracity’s offer and it brings up interesting points on how the loan from the Energy Department’s reserves will be secured. The plan is to have existing customer accounts and any new accounts on the network act as collateral as well as Veracity’s customers on iProvo. Veracity, however, is not required to include any customers not on iProvo included in that total.

I think this raises important questions about how much skin Veracity has in this game. If Provo ended up having to seize the collateral after a default, what can they do with it? They’re legally barred from selling the services to those customers and the customers themselves will have little value of their own without the network. In that scenario, the network would be quite distressed and wouldn’t be able to fetch the same sale price as it had before. It would also be hard to convince another provider to buy the customer list.

I also have a problem with the appearance that Veracity has structured a deal that insulates them from almost all risk. If there’s nothing contractually stopping them from doing so, they could switch their customers back from iProvo to Qwest transport just before defaulting and lose nothing in the deal. If that is the case, Veracity has nothing to lose and everything to gain.

I think Veracity is a great company providing great services, but my inner skeptic says that this needs additional scrutiny. I’d feel a lot more comfortable with this proposal if I felt that they had more risk involved.

Delayed: Provo Punts For Now

Just a head’s up that Provo’s Municipal Council had to delay the vote and discussion on the proposal from Veracity and Broadweave until another day. Some of the language in the final resolution needed a bit of tweaking and I’m sure it didn’t help that a council member was absent. I’ll be sure to let you know when it gets rescheduled.

Provo Municipal Council to Consider Broadweave/Veracity Deal Tomorrow

Provo’s municipal council will meet tomorrow to discuss and vote on the proposal from Veracity and Broadweave to ease up on payments for a few years. The meeting will be at 7PM in the council chambers at 351 W. Center St. I’d encourage everyone to show up and share your thoughts with the Council.

As an aside, the Herald’s editorial board sees what I do: the choice between two options, neither of which is terribly palatable. I still don’t know that I favor one option over the other. Despite being a loud proponent of open networks, the management that Provo picks hasn’t exactly shown competency in the area. It’s hard to tell if Provo has more of a stomach for either extending their risk or doing the work that is necessary to make the network work under city control. In either event, I want to make sure that the council has considered their options and is making their decision based on facts and rational thinking, not fear.

An Evaluation of the Broadweave/Veracity Merger

I’ve spent the last week rolling over the proposed merger of Veracity and Broadweave as well as their proposal to Provo City upon which it is contingent. I’ve gotten  more information from Veracity and Broadweave on their position and talked to other people who’ve been keeping an eye on things. I’m still not sure if the deal is in the city’s best interests, but I don’t know that it’s necessarily rotten or the only option either.

Veracity’s proposal to the city is, for all intents and purposes, a loan of $1.5M over the next 18 months to reduce the bond payments to be paid back over the seven years following that at 5.1% interest. (Ironically, this is the amount Provo City would have paid on the bond had they kept the network.) Veracity has said it has pursued private financing for the deal and has been unable to secure it, though I imagine the terms were also not as favorable as what’s being proposed to the city. Under the proposal, Provo would use the energy reserve fund to make the payments, money that would have been earning 1% interest. Taxes wouldn’t increase to finance it nor would other budgets be cut into.

So why does Veracity want a loan to reduce the payments? They’re looking to buy time to move their Provo customers onto iProvo to slash costs and improve operating efficiencies. Not only does that cut Qwest transport out of the picture, but they can also sell services that would not have been easy to provide given the wholesale rates that Qwest charges. Moving those customers will cost a fair amount of money, so Veracity needs time to get it done.

Given Veracity’s financial state, I have my doubts as to whether or not they could secure private financing for this deal. They reportedly operate debt-free with a very healthy cash flow and I would hope that they presented the council with scenarios under which they use private financing combined with current revenues to accomplish the same ends. They have been opening the books to the city council and some staff for their review, but there also needs to be a Plan B. Right now, the proposal feels very “take it or leave it”.

This isn’t to say that I doubt Veracity’s capability. They’re an exceptional company offering exceptional service that I use in my job every day. Their management team is full of smart people and Broadweave has done a much-needed sweep of almost all of its management team. My reservations hinge on asking the city to extend their role in the financing of the sale.

So what’s the alternative? Broadweave is fast-approaching the date where the network will have to be returned to the city since investors aren’t willing to put any more money into it. If that happens, Provo will have several months of the reserve to use for paying off the bond while they regroup. It sounds like a worst-case doomsday scenario, but I don’t think it’s quite as dire as even I would have once predicted. Provo will still have a couple of options at their disposal.

The first option would be to resume control of the wholesale side and allow Broadweave to continue as the main retail provider. This option would only work if, after being relieved of the wholesale obligations, Broadweave would have sufficient funds to find new customers and finance install costs. There’s also the problems of re-staffing the NOC as a city department and relocating Broadweave to another office. It may also be very difficult for a single retailer to secure enough customers to cover the wholesale side of the operation

The second option would be to bring in new retail providers to compete with (or replace) Broadweave. If Provo entered into some kind of reciprocity agreement with UTOPIA that allowed a provider from one network to participate on the other, it would secure the residential contract on UTOPIA that Broadweave wouldn’t mind having and bring in a half-dozen new providers to Provo to scoop up new customers. This would also mean that at least two different head-ends on both networks would be competing for customers, a win-win for served residents. New providers, however, may be leery of making a deal with Provo after the way that they threw Mstar under the bus. Granted, Mstar wasn’t paying its bills and didn’t have much goodwill to cash in, but they were also bullied into the deal they got. In either scenario, Provo would have several months of lead time to figure out what to do and find a way to make the payments once again.

Provo isn’t necessarily locked into the merger option. If the council still wants to get out of the business, they believe that Veracity is good for the money, and they don’t have qualms about extending some more financing, they can go with the merger. If they want city money to result in a city asset, don’t have heartburn about doing the work to fix iProvo (now that we’ve seen that a private company wasn’t able to), and don’t think this is the last time they’ll be asked to extend their risk, there’s options for taking the network back.

No matter what happens, this should be an example of how difficult it is to try and undo the decision to get into the business of telecommunications. We’ve seen that a private company operating a closed network is not necessarily any more successful than a public entity operating an open network when in an overbuild scenario. We’ve also seen that self-financing means you aren’t really out of the business until the last red cent of the bond has been paid off. Any city thinking about jumping ship would do well to consider that it’s not an easy way out like the Reason Foundation and Utah Taxpayers Association claim it is.