Sale Fail: Provo Considering Contingencies for iProvo

Found a nice little tidbit buried at the end of a story on Provo’s financial difficulties. Apparently the city is already preparing for the worst case scenario of getting the network back as Broadweave has depleted half of the reserve fund to make bond payments. Given that Broadweave is likely to lose a large chunk of reliable revenue from Traverse Mountain should they get booted out, my money is on the network being back in city hands by next year. Anyone want to give odds on this?

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15 Responses to Sale Fail: Provo Considering Contingencies for iProvo

  1. luminous says:

    I guess the question is what happens to the current customers, when broadweave goes under will they lose service leaving iprovo with no customers? broadweave kicked all of the other providers so they can’t transfer them to someone else. If that happens what is the likelyhood of any of their customers trusting them for another round.

    Will provo consider the Utopia option this next round? Utopia would get them imitate access to several service providers. Utopia already has a new headend now so what happens with the provo headend..? would Utopia even consider adding iprovo to the fold?

  2. Ben Saunders says:

    Provo has nothing left to support any “going back”. They have chased off all of their technical resources. Who is going to keep this alive Kevin Garlick? I don’t think so. They have been burning bridges faster than Saddam Hussein.

  3. luminous says:

    I don’t think the utopia option is completely off the table, and is likely a very good option for provo to go for. I wonder about rather or not utopia would want anything todo with them.

  4. Jeremy says:

    Politics and bad blood aside (which is the way all businesses should be run), I can’t imagine why Utopia wouldn’t want them. An entire city with zero build out. Just add it to their existing infrastructure and start collecting money. Sounds perfect to me.

  5. Capt. Video says:

    Given I believe UTOPIA is in MUCH, MUCH more financial trouble than Broadweave, I see no chance of iProvo EVER going to UTOPIA.

    I see turning the network over to UTOPIA as going from the frying pan into the fire. I think iProvo going to UTOPIA would be like attaching themselves to a rapidly sinking ship. Is there ANYONE that believe UTOPIA is doing much better than just covering operating costs (if they are doing that) with a $1.6 million dollar MONTHLY bond payment starting to become due next year?

    IF the network goes back to Provo City (I stress the IF here, as the Broadweave investors can simply add funds to refresh the reserve funds if they need to), I see a number of options for Provo City including (but not limited to):

    1: Provo could….Slightly altering the terms of the deal with Broadweave allowing them more time to turn the network around.

    2: Broadweave could seek to sell the network. (With Provo’s approval)

    3: Provo could….Take over operation of the network (keeping existing employees in place or hiring former Dynamic City or iProvo employees if needed). If Broadweave turned the network back to Provo City they would not keep the employees without the network so they would be available.

    4: Provo could….seek a new buyer for the network.

    5: Insert other options here…

    Unless UTOPIA could show some plan for dealing with their rapidly approaching date with disaster….I don’t believe UTOPIA would an option.

    I remember when the sale to Broadweave was announced and many on this list said Broadweave did not have the technological knowledge or ability to operate the network. Outages, poor service and great disasters were forecast. The transition actually went pretty well!

    Broadweave has shown they can operate the network and have actually made some major improvement. They have upgraded the middleware to the latest version adding many features to the video offering, I believe they will soon launch a major HDTV expansion. It appears they have grown the subscriber base.

    I have always said it is not an easy task Broadweave has before them and there is no assurance they can turn the network around, but they appear to be making some progress. I’m hoping they are successful and again call upon all Provo residents to support them.

    Both Broadweave and UTOPIA have important “decision points” coming the the next 6-18 months. Broadweave’s will come first but UTOPIA’s will come harder.

  6. Capt. Video says:

    If it were only collecting the revenues everyone would want them….Broadweave would be fine!

    But they come with a monthly bond payment.

    Would UTOPIA want that?

    If they don’t take that, what do they bring that Provo does not already have with Broadweave.?

    I believe Broadweave is operating cash flow positive…it’s the bond payment they are using reserves to pay.

    No advantage with going with UTOPIA if Provo has to make the bond payment. They can stay with Broadweave and do that or operate themselves and do that.

  7. Jesse says:

    Capt: I think you’re failing to see the entire picture here. Provo’s goal of the sale was to avoid making the bond payments. So long as Broadweave can and will do this, they have a reason to exist on the network. If the city doesn’t get the payment, the only reason to keep Broadweave around is to find someone to replace them, kind of like what UTOPIA did with Mstar. Why keep the same team around that couldn’t get it done in the first place?

    UTOPIA would bring a few positives to the table in such an arrangement. For one, they would bring a lot of providers to the table. It is easier to get your needed market share with a half-dozen companies than it is with just one. The size of the combined footprint also grows substantively. It’s been rumored for some time that if the footprint got big enough, Cox Communications and Embarq/CenturyTel would be interested in hopping on-board using a UTOPIA fiber route into/near Las Vegas. If either of them came in, you can bet that the installs would be hundreds or thousands per week. The combined NOC would also reduce operating expenses and many of the former iProvo engineers now work for UTOPIA, knowledge that can also improve operating efficiencies.

    UTOPIA would get something out of it too. Despite the lion’s share of the money having to be plowed into Provo’s bond payment, the leftover would help UTOPIA make their debt service. It would also be good for UTOPIA to attract some ILEC, CLEC, or MSO providers onto the network.

    I don’t think that a future partnership between the two networks can be written off entirely. Besides, Broadweave has another year to try and get itself together or attract more investor dollars. I’m reasonably sure, though, that they’ll end up giving the network back.

  8. Jeremy says:

    For the record, though I’m not a fan of how Broadweave did it, I don’t have any specific gripes with them… yet, but I only use them for broadband. I use Comcast for TV since they provide a better product (more HDTV channels and HD DVRs – with Firewire ports, and support for cablecard). Sounds like free market working fine to me! In fact, I don’t see why Comcast doesn’t just offer TV services over city fiber… seems like a no brainer to me.

    Which is all the more reason that I maintain that the Utopia model makes much more sense. And I hope that somehow, someway iProvo will return to being a multi provider network. After all, like I said, I’m happy with Broadweave’s internet so far, but what happens if I’m not? Can I switch fiber ISPs, oh, yeah — I can’t anymore! Sounds to me like a private network is LESS free market than an openly available city network.

    But, that’s not my main point, I guess I just look at this all much differently than everyone else. All this chat of bonds and debts, and finger pointing are beside the point. Whether we admit it or not, fast broadband isn’t a luxury anymore, it’s a critical utility (see the French ruling about this) and will only get more critical as the months and years go by. And everybody needs to start treating it as such.

    And the future of broadband is multi-providor fiber to the home, and thanks to iProvo and Utopia, Utah is quickly becoming one of the best connected states in the country (if it isn’t already)… The long term value of that is virtually incalculable.

    Frankly, I don’t know how much these bonds are, whether they are tens of millions, hundreds of millions, nor do I care, nor do I care whom they are owed to. Do you know how much our freeway system cost?? And our airports. I’m pretty sure it’s many orders of magnitude more expensive than the outstanding bonds for our fiber networks in Utah. And nearly as important, and arguably more so in the future.

    The people, the cities and the government in general just needs to buck up to the reality that fiber broadband is just another critical utility that costs money to install and money to maintain, but the benefits to society as a whole far out weigh those costs. (As I’ve said before, I’m a Libertarian, but I believe basic infrastructure should be the job of the government).

    Also as I mentioned, in the Daily Herald, this all needs to be put into perspective: Current estimates show that the I-15 re-construction project through Utah county is going to cost $7 billion! The 2006 population of Utah county is 464,760 thousand people. Let’s do some math: The cost to improve our freeway (we are talking about one freaking road here!) is $16,100 per PERSON, just to cut down on some traffic jams. Like I said, I have no idea how much Utopia and iProvo cost to build out, but just for fun let’s throw out what is probably a wild over estimate and say $500 million. Let’s say iProvo plus the Utah county part of Utopia is half of that. Some more math: $250 million divided by those same 464,760 people and we are looking at less than $600 per person – I’ll pay that right now, who do I write the check to? Hrmm… so is a freeway improvement 26 times more valuable than cutting edge broadband infrastructure. No, of course not.

    If people are too stupid or luddite to realize this fact, then they can go back to their caves and rub some sticks together. I for one plan to take full advantage of the future and what it holds, and that ain’t driving up and down a road pumping burned fossil fuels out my tailpipe.

    My point is, I don’t care who owes what to whom or how much, I’m just glad somebody had the foresight and gumption to beg/trick/cajole our cities into building these networks out. Now it’s time government, whether it be city, state or federal, to man up, pay off and expand the network for our combined future posterity.

    Am I the only person that watched Earth 2100? I think they made it pretty clear, that for the survival of ourselves, our children and grandchildren, we need to fundamentally re-think society NOW, and eliminating commuting to work everyday in fossil burning vehicles is on the top of that list.

  9. Capt. Video says:

    I too believe government should step up and make these “utilities” similar to water or roads. But we are in the minority. The open access model you like may be best for customers but it may not be best for network owners.

    Given the concerns (more so in Utah than most places) about America going “socialist” and the very powerful vested interests (Comcast, Qwest and all private telecom companies) I think it sad and very unlikely we will see successful open access networks in Utah or America anytime soon.

    While you express little interest in the financing of these networks, that is actually the crux of the issue. If these open access networks cannot show they can be financially successful not many cities are likely to build them.

    I expect the cities that own UTOPIA’s network to look to sell the network rather than pay to support the network with taxes. If the network sells, the chances of it remaining open to different provider is greatly reduced. Network owners maximize revenue by being the monopoly service provider. If the business model was better for open access networks you would see them in the marketplace today. Generally it seems only government regulations open networks, not market forces.

    The UTOPIA debt is about 1/2 a billion dollars and the iProvo debt was about $50 million. (1/10th the UTOPIA debt.) Provo has been paying the bond payments for about 2 years and UTOPIA’s 1st payment is due in Oct. of next year.

    The real shame is that the city residents will likely be paying off the bond via taxes when if they just supported UTOPIA they would be paying them off by getting fiber delivered services for their money. They are going to pay one way or another..why not get services for your money?

    FYI…taking one service as you do, is helpful, but not enough, with the cost of building a fiber to the home network being so high, I don’t believe taking 1 service is enough to keep the company in business. The business model needs the majority of the customers taking 2-3 services to generate enough revenue to pay the operating costs and the bond (which was the cost to build the network).

    It might be that every home in Provo taking data only from iProvo/Broadweave would NOT be good as the install costs could bankrupt the enterprise. 1/3 of the homes taking 2-3 services is actually much better than every homes taking a single service.

    The cost of the network in Provo was about $1500 per home to bring service to about 1/3 of the homes.

  10. Anon says:

    I also lean libertarian, and I also believe that this is one job the gov’t is best suited for.

    However, I know that there are lots of people who disagree with us. So the issue of the bonds is a very big issue, because if the services can’t make bond payments, the public servants might do something hasty as an alternative to the unpopular idea of making us pay for the bond with tax revenues. For example, they might sell the network to an unqualified and unprepared operator, for a song and a dance, with no real bidding process. Sound familiar?

    So, despite my willingness to pay my share of the UTOPIA bond, I recognize that not everyone agrees with me, and I worry what the consequences will be if UTOPIA can’t pay the bond on its own. Hopefully, we can convince more people to your way of thinking. Hopefully, the city councils of the UTOPIA member cities will have the backbone to stick to their guns (for the reasons you mention) if the bond comes due to them. But I’d rather it not even get to that point. If UTOPIA manages to make the bond payment on its own, the detractors won’t have much of an argument against it.

  11. luminous says:

    A Utopia sell would be much harder to pull off then the iprovo sale, luckily the bureaucracy of 13 city’s agreeing on such a thing would be a political minefield of epic proportions. I know that layton city would likely rather pay the bond service then sell the network. Further the likelyhood of the city’s having to pay the entire revenue service is low and if they do have to pay its likely only to be for a year or 2 at worst. Eventually the city’s will be able to leverage the network for utility monitoring services saving them tons of $$.

    Further if their are any SSA area’s the issue of ownership will further muddy the any sale of the network.

    Utopia luckily isn’t in a situation where 1 or 2 corrupt politician’s seeking to punish the city for their evil socialization experiment can derail the whole thing by preventing providers from signing on and then selling the network to a wildly incompetent company that is clearly unable to handle the obligation, while still holding all of the debt for the network while said company burns all of your bridges making a return of the network when they can’t pay the city’s debt an enormous liability that will cost them more then if they had kept the network in the first place.

    But then again such a failure would be a huge discouragement to any evil city’s thinking about committing the evil sin of trying to build their own socialized muni network. And that is what the corrupt politician’s wanted in the first place.

  12. Jeremy says:

    Captain: It sounds like we are on the same page philosophically.

    I guess that’s my point, why did the cities sell this as an enterprise from which to try to profit from their citizens? They should have explained it as a valuable utility, and taxed it as such. I’m pretty sure the city doesn’t make a profit on roads, sewers, water, etc… Why did they conceptualize broadband as anything different. They aren’t a business they are a government agency and building/maintaining infrastructure to help general population of their city is their freaking JOB.

    But now there’s all these unrealistic expectations regarding profitability that would never have existed had it been conceptualized and explained properly. But like I said, maybe that was what it took to get short minded idiots on board. But now that we’re all floating around in this speed boat to the future, how ’bout we all admit it’s time to pay up or get out and take the slow boat to the past. (Like move to a copper only city!)

    As for the triple play thing, I also think that’s another classic example of a lack of foresight. Phones and cable TV are quickly becoming irrelevant. All that matters is the pipe. I haven’t had a land line in years and as soon as Boxee or something similar gets more usable I’ll drop cable TV too. And it’s not like it was hard to know this was the direction things would go, I’ve predicted it for over a decade (far before iProvo or Utopia was even started).

    By structuring the financial viability of these build outs based on double or triple-play adoption, was short sighted and unrealistic. Again, if that’s what it took to fool the luddites into letting them build out the network then good for them, but here we are in this speed boat again. Can’t they just sit down, do some math, figure out what the costs are based on single play and distribute that cost across all taxpayers in a given city over the next 10 years and be done with it?

    Based on Anon’s math: $1500 per home (1/3 of homes signing up), so only $500 per home if everybody was forced to pay. Calculate over 10 years, that’s $4.16 a month for 10 years, or about $2.08 per taxpayer. Big freakin deal! That’s 1/7th of what I pay in home owners association fees every month for a small patch of green grass in the median of the road in front of my house. $4.16/month is a tiny price to pay for for a fiber optic connection in your freaking home! I won’t even get into how that can easily be defrayed in gasoline savings or just not paying Comcast’s monopoly fees. I pay several times that every month in DVR rental fees alone! (Boxee’s looking more and more interesting as I type…)

    Anon: You make a valid point, but frankly I don’t give a flying hoot if backwards thinking-luddite-morons don’t recognize the value of a freaking open fiber optic connection to your HOME for a mere $4.16/ month. Force it on them, call it a future telecommunications fee or hell just admit its a tax for a valuable service. Most of them will thank us one day and the rest can get back to rubbing sticks together with additional vigor.

    Besides it’s not like money is an actual thing anymore anyway (via youtube: Money as Debt). It’s only real once it’s used for something valuable like infrastructure.

  13. Ben Saunders says:

    Capt. Video – “IF the network goes back to Provo City (I stress the IF here, as the Broadweave investors can simply add funds to refresh the reserve funds if they need to), I see a number of options for Provo City including (but not limited to):…”

    This is hilarious to think that any venture capitalist will want to throw more money at this lose lose enterprise. I am certain that the existing investors have no chance to break even – ever. This is why Esnet deposed Steve Christensen and have taken control. They are doing everything they can to protect their intitial investment which continues to be eaten by the bond payments each month in spite of their efforts. Of course they are trying to position Broadweave for a sale, but that $40 million bond debt will always be there and make a sale unlikely. There is no way to write it off. At some point Esnet will see that there is no hope of a return on their investment and pull the plug.

  14. Capt. Video says:

    I would think that Esnet (or any investor) would weigh their options and have to ask themselves if walking away (and taking a total loss) is better than investing more and trying to limit the loss.

    Is that not exactly the decision the UTOPIA cities were faced with? Shutting down UTOPIA and just writing off the loss or investing more money and hoping to limit the loss and recover something?

    Describing this business option as “hilarious” seems strange. The best decision could be to turn it back and take a complete loss, the best decision COULD be to invest more with a plan to turn it around or at least limit the total loss.

    Esnet has a track record of being smart people and making money. I’m sure they will make an informed business decision if and when the time comes.

  15. Jesse says:

    As a commenter here once said: owe the bank a hundred dollars, the bank owns you. Owe the bank a million dollars and you own the bank. I think that’s relevant.

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