UTOPIA's New Model: Kill It to Save It?

The news is out: UTOPIA is undergoing some radical changes in the near future as it copes with lower than expected take rates and cash flow issues. What kind of changes you might ask? For starters, it's going to concentrate new deployments only on areas where a large number of users will commit to service. (My sources say around 40% will be the requirement.) You'll also have to shell out around a grand for the installation costs which could later climb to $2,500 or more depending on the circumstances of the installation. It's also going to use most of the leftover money from the re-bonding to cover operating costs for the next several years instead of accelerating deployments.

Not all is bad news, however. Part of UTOPIA's plan will be to consolidate advertising within the organization and more heavily market UTOPIA to the areas with existing deployments. This will likely lead to a surge in take rate that will be used to finish up the fiber rings within the cities. Since the network meets current operating expenses with a 18.4% take rate and iProvo has been able to get into the mid-to-high 30s, it seems likely that this is a temporary setback rather than a permanent one.

Most importantly is the takeaway from UTOPIA's first years. For starters, they grossly underestimated the reaction from Qwest that halted construction and put the project very far behind where it needed to be. They were also unprepared for the numerous occasions where access to utility poles was illegally blocked and the USDA's fast one on the RUS money. The delays have left a lot of residents and city council members highly frustrated, even though some of them understand the uncontrollable nature of these events.

We've also learned an important truism: there's no such thing as a free lunch. Cities were all too willing to bet that the network would be a risk-free proposition and didn't even consider just directly financing the construction of the network from their coffers. Without these external events, it probably would have happened. They're now being given the option to try again for the free lunch and approve the new bonds to give UTOPIA some breathing room.

I think it would be better for the cities to assume their respective shares of the bond debt, retire it on their own and extend funding to cover the miscellaneous expenses still looming. The network is currently paying for operations and with a slightly higher take rate, will have operating income to complete the build. Is that a tough sell to voters? Maybe. It seems that the comments sections of the major papers are filled with UTOPIA supporters just itching to have the network come to their homes and businesses. Since nobody has bothered to do a poll to gauge public support for UTOPIA, this anecdotal evidence is the best I can offer.

You can read more on these big changes in the Salt Lake Tribune.

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10 Responses to UTOPIA's New Model: Kill It to Save It?

  1. w. says:

    As usual, the Trib’s upcoming article on these changes is making a point to avoid the silver lining. As part of this package change, UTOPIA service will be *lower* than it is even now to mitigate the long term loan payments on installation fees.

    Remember, too, that there are already numbers on paper that show having fiber in your home adds to your home value. While its not the original vision, the new model is still economically valid.

    Here are the other numbers the Trib held back:

    Qwest FTTN:
    12 Mbps/896kbps* : $57.99/mo
    20 Mbps/896kbps : $107.99/mo

    Comcast (Next gen DOCSIS3.0)
    50 Mbps/5Mbps** : $149.99/mo

    15Mbps/15 Mbps : $40/mo
    50Mbps/50 Mbps : $55-60/mo


    *yes, Qwest’s new FTTN technology has an upload of 896k on all services. Also, the 40 Mbps bonded option mentioned in the Trib is, literally, years away, and is not even in active development. More importantly, only a tiny fraction of homes that qualify for FTTN will have the 20 Mbps service available to them. And finally, Qwest is refusing to allow third party ISPs to host service on FTTN. You will be restricted to Qwest.net/MSN for this service.

    **based on test market pricing in Minneapolis/St. Paul.

  2. luminous says:

    I have to feel that the $1k install fee is a mistake, in my neighborhood that will stop alot of people from switching their service that otherwise would have,

    and where is the lower priced tier in this new model a 1/1 megabit line for 20-25$ a month would be a good shoe in to sell extra services (tv/phone) to those that don’t need/want ultra high speed net.

    qwest has a 256k dsl that alot of people buy even know 1.5m is avaliable in most of the same area’s. The low price consumer is a valid market to.

    their are a number of people who cant get dsl on other side of my street who are stuck with comcast (50$month basic net + 15$ pleasure of not having basic cable fee). they would switch in a heart beat

    the utopia guys installed big orange conduit just down the street from us in november/october last year and havent touched it sense, really biten at the bit to get it.

  3. Luke says:

    I have a feeling the “heft upfront installation fee” will kill most people who would otherwise sign up for services.

  4. rmwarnick says:

    This morning’s Trib had not one but two articles heavily biased against UTOPIA. The main hit piece starts off by quoting chairman Alex Jensen on the $1,000 to $3,000 installation fee, only later explaining that it will probably be pro-rated.

    Even if UTOPIA does have a viable business plan, what is the plan to survive relentless attacks from the news media?

  5. luminous says:

    I suppose I should pay less attention to the tabloids =). So pro rated? Does that mean their is going to be some sort of term contract for a utopianet connection in the soon future? qwest and comcast both have contract options so i do beleave that would be accepted by the market, cant wait for my 50/50 connection.

  6. Jesse says:

    W: Thanks for that perspective. The $90/mo difference with Comcast works out to a net savings with UTOPIA after just a year, even with a $1000 install cost factored into the price. Given that Comcast/Qwest frequently lock you in for 2 years, it seems like UTOPIA is still the winner on price.

    Since you still don’t have any service contracts with UTOPIA and you can roll that install cost from one provider to another, it’s still a winning deal. The problem is going to be marketing it properly. Letting the press get away with framing it as a “pay us now” cost will require some slick marketing and proper discussion on the true monthly costs to get customers on board.

  7. w. and luminous are right. In 2 years, you would already start to save money using Utopia.

    Utopia (Broadband and Home Phone) at $50.00 a month

    1st year total – $1,600 – $600 + $1,000 installation
    2nd year – $2,200
    3rd year – $2,800
    4th year – $3,400
    5th year – $4,000

    Comcast / Qwest (free installation) at $100 a month for comparable broadband and phone features (3 way calling, voice mail, call forwarding, etc.)

    1st year – $1,200
    2nd year – $2,400
    3rd year – $3,600
    4th year – $4,800
    5th year – $6,000

    Utopia would be smart to actually allow home owners that sign with a 2 year contract free installation!

  8. w says:

    The final Qwest pricing for FTTN is live now, and differs a tad. As they have before, they rely heavily on 12 month promotional pricing for their ads:

    $36.99 bundled with phone/12 mo promo
    $41.99 internet only 12 mo promo
    $54.99 full price after promo/month-to-month

    12 Mbps/896k
    $46.99 bundled with phone/12 mo promo
    $51.99 internet only 12 mo promo
    $64.99 full price after promo/month-to-month

    20 Mbps/896k
    $99.99 bundled with phone/12 mo promo
    $104.99 internet only 12 mo promo
    $114.99 full price after promo/month-to-month

    Note that Qwest today also raised the price of traditional DSL roughly $3 per line.

  9. w says:

    Oh, clarification, those numbers are the FTTN portion only. Phone service starts at $25.99 on top of those costs, which does not include any long distance.

  10. Jason says:

    If it ever gets installed, I’ll buy the services. How can I help Utopia survive if they never get here. And they should advertise better … its such a better deal than the greedy monopolies that currently exist.

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