Notes from the iProvo Hearing

Last night, Provo's municipal council heard presentations from Broadweave, Veracity, the energy board and the telcom board on the proposed sale to Broadweave. There was a bit of new information and a lot of council skepticism. I don't have a play-by-play so much as some random thoughts.

  • Both the energy and telcom boards are eager to cut and run as fast as they can. Energy doesn't want to be forced to cross-subsidize from their own funds in the face of an increased need for additional power generation capacity. Telcom, it seems, is unconvinced that the city can effectively run the network and expressed frustration that their suggestions and feedback were rarely translated into action. While I can understand the position of the boards in terms of their own self-interests, I don't necessarily agree with them.
  • MSTAR is seriously cheesed off about the lack of an open RFP and made some not-so-vague intimations that it planned to sue to stop the sale should it be approved. They also expressed a lot of frustration that their own proposal to lease the network as the wholesale operator was turned down despite having lined up financing sources to bring them current and provide a significantly larger chunk of surety. One of the reasons MSTAR was denied was concern over not maintaining the open nature of the network. Irony much?
  • Broadweave plans to raise prices. Most triple-play and Internet customers can expect a $10-15/mo bump in pricing to maintain their current level of service. This is something I've previously suggested at the wholesale end to be passed on to the retail customer. The annual shortfall of $2M annually worked out to around $200 annually per subscriber, a difference that would have been easily made up for with a small bump in pricing. I don't get why Provo didn't seek to increase fees until the network was solvent, then ease up again later. I don't see how private ownership is the only way to make this happen.
  • Broadweave plans to offer new tiers of service. Their PowerPoint showed off about 6 different Internet packages from 3M/512K for $20/mo to 60M/60M for a waller-busting $180/mo. Again, something I've been suggesting for months now, that there be a value tier for grandma to increase subscriber units and a power user tier for folks willing to pay for more bandwidth. Again, I don't see how Broadweave's plans are any different from any other smart network operator.
  • Broadweave is buying the Eagle Broadband network in Houston. They plan to pay a scant $274K to pick up the fiber connected to 4000 homes. That might sound like a deal at under $65/household, but that's fiber only without franchise agreements, a NOC, transport rights and so forth. It's also a seriously distressed asset that left a bad taste in users' mouths after suddenly disappearing without notice. The existing customers will be hesitant to sign up for services after an experience like that and it will take a significant investment to make those assets useful again, most likely through expensive network expansion. Building a NOC with a phone switch and video head-end will easily run in excess of $3M.
  • Both Comcast and Qwest have concerns about the fairness of this deal. Both companies submitted letters to the city council expressing concern that Broadweave could get more favorable tax and right-of-way treatments under this deal, though neither is in opposition to a sale.
  • Broadweave is projecting that triple-play wholesale costs will drop from $43 to $15 per month. I don't know how this would even be possible. It's common knowledge that cable TV providers barely eke out a profit on television alone, a product that retails at $40+ per month. Anyone with more experience on transport costs care to chime in?
  • Broadweave was spooked by a lot of what I uncovered. Steve Christensen dedicated a slide of his presentation to "addressing" many of the concerns and irregularities that I've brought up in various venues. He failed to refute their lack of business licenses (something I noted to the council during my public comments), downplayed the investment required for the network in Houston and didn't have much of a rebuttal beyond "gimme a break" on the HomeNet comparison. Christensen also tried to downplay the involvement of his father in Traverse Mountain while failing to note that at least one uncle, possibly two are also principles in the project.
  • Members of the council are very skeptical of this deal. Steve Turley, Sherrie Hall Everett and Cynthia Clark hit hard with lots of questions and doubts about the terms of the agreement and the RFP process. Cynthia Dayton also said that she wouldn't consider it without a close look at Broadweave's financial statements even if it took an NDA to do so. Alarmingly, she has been requesting this information for weeks without any action. Cindy Richards seemed to agree with me that pursuing networks across 6 or more states means that the council should make sure that the financial backing is there. There's also a lot of concern at the pace this project is proceeding at with Mayor Billings trying to force this through on a tight timeline. My personal prediction is a 5-2 vote against the sale with George Stewart and Midge Johnson voting in favor.
  • The RFP may have been made vague so that customers didn't get spooked and bolt. Both Kevin Garlick and Mayor Billings brought up the fiber network in Marietta, GA that sold for 30% of its initial price claiming this was because the project was advertised as being for sale. While I can see this point, it wouldn't have been an issue had a provision of the sale been to maintain an open network and honor contracts with the existing providers. Once the sale became public, many other interested parties came out of the woodwork with better terms. Too bad that the city is obligated to treat Broadweave's offer with exclusivity through September.

My takeaway is that this deal is that the council recognizes that Broadweave is getting in way over its head despite the planned acquisition of Veracity and doesn't feel confident extending long-term financing under the current proposed terms. Some folks are as skeptical as I am, others are more optimistic. With all I've seen and heard, it's obvious to me that Broadweave should stick to what it knows, greenfield developments and exclusive service areas.

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14 Responses to Notes from the iProvo Hearing

  1. snacktacular says:

    Those are great notes to the meeting. My question for you is, what worries you more, that Broadweave will fail and the city will have to take ownership of the system back or the negative impact the sale and successful transition of the network to Broadweave will have on Utopia?

  2. iprovosupporter says:

    There is one serious mistake that Broadweave is making. Their new $20 basic data plan will destroy any hopes they have of being profitable. When will these companies learn that it isn’t the number of total customers that makes you successful, but rather the number of profitable customers. Let the grandmas content with 512k uploads go be Comcrap customers. For those who want something better, they can get the fiber connection from Broadweave and pay a price that makes sense for it. Why pay for the expensive fiber infrastructure and installation only to offer a 3Mbps/512k package? You will never recover your costs with that model. This is Homenet all over again. They offered 64k and 512k packages and it was financially devastating to them. This is just more evidence that Broadweave really doesn’t have a clue.

  3. Jesse says:

    snack: Great question. I believe that Todd Marriott, UTOPIA’s new Executive Director, is going to add some new triple-play providers within 4-5 months that will mitigate these issues. I am concerned, however, that MSTAR currently uses Provo’s video head-end for video on UTOPIA and that UTOPIA doesn’t have the financial ability to exercise its first right of refusal on that asset. If the other providers were depending on that being available, it could cause some serious problems for UTOPIA. I suppose they could attempt to lease the use of the head-end from Broadweave, though it seems like prices would either go up or they would refuse to essentially aid competitors. Until that particular issue is resolved, I’m not sure which way I’d go.

    iprovosupporter: With the high student population and strong reliance on data-only plans from the MDUs in which they live, there is a distinct possibility that revenues will drop under such a plan, especially if usage on those accounts is much higher than expected and they don’t implement transfer caps. I think their strategy is to sign up enough of the high-end accounts to more than offset it. You’re probably right, though, that this strategy may result in a wash and not the increased revenues required to make payments.

  4. Jarrod says:

    I agree that the low end offerings are a risky move. The $19 internet and $52 triple play got some excitement in the room, but if too many customers choose those options it seems like that would be bad for Broadweave.

  5. Warren Woodward says:

    As we were completely ignorant of the wholesale costs behind iProvo, when we put together a service proposal we included all “perfect world” options. That included a low speed, DSL competitive tier at a $25 price tag.

    iProvo said in response that the viability of such a tier would require a separate plane of reality because startup costs would never be recovered.

  6. iLikeiProvo says:

    Jesse predicts a 5-2 vote against the deal. I’m not sure where he comes up with that. I’ve attended all the meetings that Jesse has, and then some. I expect the deal to be passed overwhelmingly. Some of the council members were asking tough questions, but I think they are just being thorough, or want to appear that way. Cindy Richards stated two weeks ago that she can’t imagine the council not approving the deal.

    By bringing the deal to the point it is at already, the city has already shot iProvo in the head. The existing providers on iProvo can’t recover if the deal doesn’t go through. There is, effectively, no plan B.

    I have iProvo. I wish they wouldn’t sell it to someone that will close it. I wasn’t impressed with Broadweave’s price list.

    I think the council members will pat themselves on the back and be glad that they have brought another Comcast into Provo to compete with Comcast and Qwest. Unfortunately this falls far short of potential value of iProvo as an open network. Sure it hasn’t been great up until now (it hasn’t been _that_ bad either). However, we’re talking about years into the future.

    Comcast was present at the meeting this week. They are in favor of the deal. Of course they would prefer to compete with a peer than an open market over fiber. I’m sure Comcast was excited about Broadweave’s price list.

    The real winners of this deal are not the residents of Provo, but Comcast, Qwest, and the Utopia communities that neighbor Provo, as those communities now look more attractive in comparison to Provo for people looking to move into the area.

  7. string cheez says:

    Utopia is next, like it or not. A new captain of the titanic would not have kept the ship afloat.

  8. itsallaboutyou says:

    In response to some of these comments; How can you people say you support ubiquitous public networks, but, low end customers need not apply? Is this personal discrimination against the less fortunate? Your speaking out of both sides of your mouth. That is not integrity. They can go to Comprap? Very intelligent comment.

  9. string cheez says:

    to itsallaboutyou….. Realize that the site is run by a tech, a tech who believes that everyone should have 100Mbps to the Internet regardless of realistic business practices. Your also dealing with the “complainers” of the general market. There are thousands of subscribers, and we here from about 7 and so we have to narrow down who is looking at and responding on the site here for validation:

    1. iProvo employees who are angry at the government for taking away their job security
    2. mstar users who currently have 50Mbps and are angry to see it leave (ohh keep in mind 10 more meg to that will cause the earth to skip out of its rotation)
    3. 90% of Salt Lake Linux Users Group (open source or die)

    Lets all keep an open mind to Internet reality:

    1.We have to have an open mind to the fact that everyone is a genius on the web. ( I read an article about how new generations getting dumber thanks to blogs and wikipedia)
    2.Anyone in lower class financially do not deserve Broadband Internet.
    3.If companies cant give our entitled generation the things they want for dirt cheap then they will be ostracized on Youtube, Myspace and the my blog.
    4.Government should not be involved with anything other than verifying tax rates
    5.FTTH is the wave of the future, only if government can run it as an open model. (oh dont go read about verizon FiOS as it will downplay that comment)

  10. Jesse says:

    itsallaboutyou: I’m not saying that at all. What I’m saying is that it is both needful and difficult to offer low-end tiers and turn a profit doing it, especially when the infrastructure is still being paid for. A part of the problem under the current model is that the wholesale pricing doesn’t allow that kind of flexibility for the providers to experiment with these options, nor has it allowed a lot of new providers to jump on. Remember that literally dozens of companies could offer dial-up access and still turn a profit; it’s not inconceivable that an open network can do the same.

    And as long as we’re on the subject of doubletalk, I find it highly amusing that string cheez spends so much time and effort checking this site to talk about how irrelevant muni fiber proponents are.

  11. luminous says:

    fios is basicly a ring network sure its fiber but when you have 600homes sharing the same 1gig GPON fiber ring how much difference does it really make?
    verizon sales higher speed connections on the fios but it has the same problem cable does eventually a neighborhood is going to run out of bandwidth.

    Don’t compare utopia and fios, yes fios is a good step forward however fios is just a short term patch. Just image what happens to the bandwidth on that fios after you have a dozen HD tv channels and 20-30 people running their favorite P2P application at the same time to say nothing of the other 500+ homes that could also be trying to use it at the same time.

  12. FGF says:

    It’s correct not to directly compare the point to point network of UTOPIA with FIOS which is BPON and GPON. However, PON is by far the most widely deployed FTTH technology worldwide and is far from a short term patch. AT&T’s FTTN is a short term patch, PON is a future proof technology second best to PTP. A typical GPON split is 32 users per port sharing 2.5 Gbps down and 1.25 Gbps up. Backhaul is, of course, a separate matter but that is true across the board. Point to point has far reaching advantages over PON especially in open access and open services networks, but PON is the FTTH solution of choice for most providers.

  13. snacktacular says:


    You are putting a lot of trust in one mans ability to improve on a system that as even you would admit is struggling. How many Directors or principles has Utopia gone through to date?

    “I suppose they could attempt to lease the use of the head-end from Broadweave, though it seems like prices would either go up or they would refuse to essentially aid competitors.” I don’t see that Broadweave is or will treat Utopia as a competitor. They aren’t competitors in the telecom space in any way right now, nor do I see Broadweave expanding outside of the Provo area. If they can get Provo right then they will have plenty on their plate to keep them busy for a while.

    You really didn’t answer my question though. Will bringing more SP’s on make Utopia successful? If Broadweave knocks this out of the park, don’t you see the city council members for all 11, oh sorry 10 minus Payson knocking on Utopias door to follow suite? With the impending bond payments lingering over their heads it will prove to be difficult to stay the course.

  14. Jesse says:

    snack: It’s a lot of trust, sure, but I’m very impressed with Todd Marriot’s ability. So far as I recall, UTOPIA has only had one other director with Jim Reams serving as an interim director while they’ve searched for a new one.

    The reason I cite competitors is because Broadwave will, though Veracity, be competing with MSTAR and XMission on UTOPIA. Why would they choose to sell video services to either company when they can clearly advantage Nuvont, a spin-off from their acquisition? I don’t see that they have any reason to continue to sell head-end services to MSTAR or consider doing so for any other future providers.

    More service providers are critical to making any open network succeed. Having just three providers marketing services is not as effective as having 20 or 30 providers doing so. You also start experiencing service providers who differentiate themselves strongly on customer service, features and products. A lot of people talk about triple-play, but that’s just the tip of the iceberg as far as what you can deliver. Transparent LAN Services is something XMission is doing for business customers to connect together remote offices and teleworkers. Security companies could offer real-time video monitoring of your home or business. Without more companies willing to get into the sandbox and start experimenting, we’ll never know the extent to which this resource can be used.

    What we’ve seen from iProvo is that the network would only support a 35-40% take rate with two service providers before things leveled off and customers started dropping off the network. Without more service providers to choose from, it’s difficult to get them back. Adding more providers ensures that customer churn on the wholesale side stays lower than the customer churn on the retail side. After all, the wholesaler couldn’t care less which retailer an end-user signs up with as long as the wholesale pipe is theirs, right?

    A lot of folks say that it can’t work, having so many providers on the network at a time, yet it seemed to work out really well in the days of dial-up. Most of them offered, essentially, the same basic service at similar pricing, but most would offer differing levels of support, differing bonus features or even limited-use plans.

    The reason iProvo has taken a beating is that they don’t treat it like an open network. They don’t easily allow new providers onto the network or allow them to offer substantially different service levels or products. They didn’t create value for the providers who in turn couldn’t create value for the retail customers.

    UTOPIA and iProvo, while using a lot of the same concepts, are very different projects. UTOPIA’s proposition was to build the backbone and rings from the ground up and finance end-user connections with system revenues (and now installation fees). That involved less risk for the member cities in exchange for a slower build-out process. iProvo decided to finance end-user installations as well to support immediate ubiquity. This is why it bled money so much faster, yet it also created more immediate value. Only time will tell if UTOPIA’s “slow and steady” or iProvo’s “do it now” approach ends up being best in the long haul.

    If UTOPIA gets to a point where they are making bond payments and covering costs, I don’t see that the cities will be in any great rush to divest themselves of it. If UTOPIA comes up short, the cities will probably be averse to doing the owner-financing game. One component to consider is that a unanimous approval would be necessary to sell the network. That’s no small task and I’d bet that more than a few cities (Midvale and Orem come to mind) wouldn’t mind chipping in a few bucks a year to maintain ownership.

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