A More Detailed Explanation of UTOPIA's Bond Situation

I had the opportunity to go down to UTOPIA’s office today to get updated on what’s going on down there. I walked away with a much better feel of what’s going on and a better understanding of what has caused the situation with the bonds. They also comitted to do a better job of keeping me up to speed on what’s happening. Here’s the lowdown on why the bonds are being called.

The bond situation they are in is complex, ugly, and not at all their fault. UTOPIA was required by the financing bank to use variable rate bonds instead of fixed rate bonds. Variable rate bonds obviously create a lot of issues with financial planning since you can end up with drastic and sudden rate changes. As a hedge against this, UTOPIA opted to create sort of a hedge against this volatility using a second type of bond. (If I screw up this explanation, someone send Kirt Sudweeks in to fix my explanation.)

The gist of it is that UTOPIA makes payments on a bond at a fixed 5.65% in exchange for receiving revenues on a type of variable-rate bond that has, historically, been withing 14 basis points (0.14%) of the type of bond they are using for financing. Because the bonds paid to them have historically been about the same as the bonds they are paying, it should, in theory, ensure that they pay no more than 5.65% on the outstanding debt.

The problem, though, is that the short-term bond market has gone completely haywire in a way without precedent. Instead of these two bonds being very close to each other in interest rate, they have instead created a delta as big as 6%. UTOPIA’s capitalized interest for making bond payments was burned very quickly as a result and the bond rates still haven’t normalized again. Another complication is that the bank that underwrote UTOPIA’s bonds had its rating downgraded and the interest rate was driven even higher.

While I couldn’t get confirmation as to what the total shortfall will be and what it would have been had bond rates not flipped out, I’m confident that this is a temporary situation. I can’t really discuss specifics, but suffice to say that after being let in as to what they are doing and what’s being worked on, they are on an upward trend that should resolve itself in a few years and they will only need to call a very small portion of the pledges. As it stands right now, they gave the cities a year’s advance notice of their intent to call and will draw from monies that have already been set aside. In effect, pledging cities have up to two years of breathing room before new money must be made available and it will be nowhere remotely close to the full pledge amount. Another positive effect is that when they go cash-positive, they can bond against subscriber revenue instead of the cities’ tax pledges, thus absolving the cities of any liability.

So here’s the take-away in a nutshell:

  • Nobody saw what was coming in the bond market because it had never happened before.
  • UTOPIA is covering operating expenses and a significant amount of the bond and will only need a fraction of the pledges for a limited period of time.
  • There’s a strong upward trend in revenues that will bring UTOPIA cash-positive within a few years and remove substantive risk from the cities when the bond is no longer secured with sales tax pledges.

What this proves is that the “free lunch” financing model requiring little-to-no upfront capital is not tenable and will not result in ubiquitous coverage. It also proves that the artificial financing limits in place by the legislature are causing a lot more harm than good. So yes, there is short-term pain, but there is light at the end of the tunnel.

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33 Responses to A More Detailed Explanation of UTOPIA's Bond Situation

  1. Stench says:

    What I am reading here….. and maybe I’m wrong, is that UTOPIA still does not have a solid business model.

    Also, its never their fault…. right? Its always someone elses fault…..

    Don’t get me wrong, I want to see them succeed…. but they REALLY are past due with getting their act together.

    “they are on an upward trend that should resolve itself in a few years” A few years?????

  2. luminous says:

    Stench under the current economy I could agru that nearly every auto dealer, bank, retailer, car manufacture, part supplier, farmer, State government, insurance company, Telephone company, etc. All have bad business models because their not making enough money, are wildly in debt, are going bankrupt, or are losing money.

    That said I am upset that no one knew until now. I never really carried the illusion that the city’s would get off completely scott free. I said as much to the Utopia rep at the layton rebonding meeting and multiple times on Jesse’s blog here.

    Really I don’t have an issue with Utopia pulling on the bonds. I believe it is a worth while endeavor that will never come here if we don’t do it ourselves. If we have to pay a bit from tax’s to get it so be it. But i still wish that That Utopia would be more open to the public.

  3. Jesse says:

    I don’t think the business model is what’s wrong. They’ve picked up a good number of business opportunities and are talking with several dozen companies who are interested in UTOPIA’s network. If that’s not the right thing, nothing is.

    No, the financial model is what’s broken. UTOPIA cities could never bond for more than 50% of the construction cost of the network thanks to restrictions in Chapter 18, Title 10 of the Utah Code. UTOPIA was expected to build less than half of the network (the backhaul had to all be completed first), find competent service providers, sign up enough customers to cover operations and the bond, and yet somehow find additional money to keep on building, all within less than 4 years. That’s pretty damned ambitious and that they have gotten as close as they have despite lawsuits, legislation, and a crappy credit market is a freaking miracle. I’m not saying that we grant anybody a full pardon for the screwups along the way, but some credit has to be given. Most telecommunications projects and investments have positive ROI in year 10 and beyond. That they can get so close in half that time deserves mad props, especially after the first management team did such a lousy job.

  4. Capt. Video says:

    I’m going to have to side with UTOPIA a bit on this one. They lacked the ability to obtain a fixed interest rate due to their success being rather risky, so they had to accept a variable interest rate.

    Very few expected the full range of problems that slammed the credit market after their re-finance.

    So I don’t place this as their fault or something they could reasonable have anticipated.

    Between the info in today’s Daily Herald and what Jesse explained he hear it is good to see a little more solid data.

    I myself will not be happy and get off UTOPIA back until they share the business plan that shows them turning the corner.

    I’m “skeptical” of the statement that “UTOPIA is covering operating expenses and a significant amount of the bond and will only need a fraction of the pledges for a limited period of time.” Let’s have them share the total shortfall amount, define “significant” and show a plan that suggests it will only be for a short period of time.

    Some things still don’t add up? The Herald reported that they pass 51,000 homes and have 8,000 subscribers…and then say the penetration is 25%-35%? That penetration would be 15%??? (I suspect the 8000 subscribers is wrong (LOW) as they had that many a year ago and have built more cities. They would need almost twice that, 15,300 subs to be at 30%)

    UTOPIA does not have the funding to build more plant. That means they will be restricted to subscribers they can gain in existing built areas. To project their future growth in these areas we should look at their subscriber gains over the past year and not include the subscriber gain in new build areas. Then we will see how successful they are likely to be at gaining subscribers in non new build areas. Perhaps lowering the number as they will not have the funding to give many free installs?

    If those numbers suggest that UTOPIA will be cash flow positive in a decade I will stop predicting their failure.

    As a side question, did they happen to mention why a citizen would be required to submit a GRAMA request just to see their by-laws? lol

  5. Jesse says:

    Capt: The subscriber numbers are a very small part of the story here. The caliber of some of those accounts are such that their ARPU is through the roof. I can’t really go into specifics, but you and many people around the nation would know the names of some of the clients they have picked up. That’s not a lot of consolation right now to residences who could have to wait several years for service, but it means that UTOPIA will still be around in several years to deploy it.

    UTOPIA’s position on GRAMA is simple: they’re from a business background and don’t like showing any more of their hand than they have to. It’s pretty standard for any governmental agency to require GRAMA requests for any documents you want to get access to. It would have been nice, for instance, for Provo to post all of the sale documents on their website, but they didn’t have to. I had to fill out a form, drive down to Provo, and hand it to them in person. I’m not saying that it’s necessarily a Good Thing(TM), but it is both understandable and standard operating procedure.

  6. Paul says:

    Local governments, and by extension UTOPIA, are required to operate under GRAMA rules because that’s what the legislature has mandated (for very good reasons.) Local government officials are trained that GRAMA must be followed religiously to avoid exposing their employers to liability. In the litigious environment in which UTOPIA exists, this is even more important. If UTOPIA doesn’t follow GRAMA religiously, it is exposed to another opportunity for someone to sue.

  7. Jarrod says:

    What I don’t understand is why there isn’t pressure on the state legislature to undo the damage they did by passing the law that forces this financing and business model. Isn’t it reasonable to say that the difficulties with both UTOPIA and iProvo are largely the fault of the legislature?

  8. Jesse says:

    Jarrod: That’s the entire reason I started this site. The legislature has placed artificial restrictions on telecom projects (no doubt at the request of incumbents like Qwest) to try and doom the projects from the start.

  9. Jarrod says:

    Exactly, and yet we spend all our time attacking or defending the projects themselves.

    I brought this up once at an iProvo review committee meeting – before the network was sold – and a bellicose Sen Curt Bramble shouted it down as impossible and not even worth mentioning. And that was the end of comments on that.

  10. Capt. Video says:

    I believe the most cumbersome part of the State legislation was the prohibition on the municipal being the service provider. Thus forcing the business model UTOPIA was committed to from day one.

    I know this was the biggest problem for the iProvo network. The original plan called for using existing infrastructure (energy dept. customers service, billing and perhaps even field crews) to provide telecom services. Resulting in substantial savings in operating costs and having customer service and full ownership under the city (as the successful network in Spanish Fork and other cities across the nation currently have.

    I believe UTOPIA actually liked the forced open network, split the profits with service providers model as it might push Provo to join UTOPIA.

    As you can imagine UTOPIA had considerable power as it represented a dozen cities and Provo stood alone when they wanted the League of Cities to fight this law much harder. I felt the League just rolled over as UTOPIA was sort ok with the law?

    I do agree the actions of the AT&T & Qwest lobby hurt all municipal networks. The legislature was more interested in protecting those companies than the citizens they represent.

    But the real issue today is the failure of the networks to offer a product and price that is attractive enough to make people switch. UTOPIA forecast very high take rates. If the customers were taking their services (all three) they would be doing fine!

  11. u235sentinel says:

    Let’s not forget that they didn’t advertise very well and neither did the providers. I’ve spoken to people who had Utopia fiber at their house and didn’t realize it was there. They didn’t know they could get better services at a fraction of the cost.

    Heck, even my company didn’t know Utopia was available (we’re just a couple blocks from their headquarters). It is being considered as an option. If we get enough companies switching to Utopia then we will see a change here.

    And no, I can’t tell you who I work for. Just that it’s one of several companies I’ve spoken with and yes, there is great interest in it.

    Even my kids charter school is bringing Utopia in now (it’s a done deal but not announced yet).

    I’ve been busy. Rather than updating my blog, I’m working to get the word out. As I promised in 2007, the duopoly will dry up one company at a time 🙂

  12. Capt. Video says:

    You are on the right path. Needless to say if the citizens has known about UTOPIA (and iProvo) and SWITCHED to them…there would be no problem today for either network.

    I’m not sure I agree 100% with the better service at a fraction of the cost. I’ll give you that on the data service, but I believe even a significant number of customers taking data only would not be enough (better, but not enough). (Residential data service is better (faster) but the cost is only a few dollars cheaper than Comcast and more expensive than Qwest.)

    I believe that if they really offered better service at a fraction of the cost word of mouth alone would have moved them forward.

    I would suggest both networks failed to offer a strong enough sign up incentive to move most customers. I myself lobbied Provo City for an offer of a free install and 3 months free service (the offer iProvo signed up over 50% of the homes in their test area in Grandview with) but was overruled.

    Back then both networks had the capital to make that type of offer. Today both networks are hard pressed to offer a free install.

    Comcast has never, NOT had a VERY aggressive install offer in the past 7 years or so. Always including a free install and often free or reduced service rates…sometimes for a full year (reduced rate). An offer that takes deep pockets that neither UTOPIA nor it’s service provider have.

    I believe it’s just too late, the hole UTOPIA is in is too deep. UTOPIA will never be profitable. Either the cities will support it forever (which I’m ok with) or it will be sold for pennies on the dollar and someone else will get a fresh start. I see no other likely results.

    The longer you wait, the smaller the difference between UTOPIA and Comcast will be. UTOPIA’s advantages over Comcast in data have continued to go down as Comcast adds higher speeds and UTOPIA’s rates increase. Comcast will one day offer FTTH or fiber close enough to the home to match UTOPIA in every aspect.

    UTOPIA had a significant advantage over Comcast when they launched (almost 7 years ago), that advantage is clearly slipping away and it will get harder, not easier to get customers to switch. The future does NOT look bright.

  13. Jesse says:

    Capt: If you knew what I knew, you would change your tune on UTOPIA’s financial outlook. The deals that have closed and the deals that are in the pipeline are huge. That’s not the sign of a financially moribund organization. The revenue will be there even if the subscriber numbers are not.

    DOCSIS 3.0, which Comcast is deploying, can currently only top out at 304M/108M using 8 channels. All indications are that Comcast will stick to 4-channel DOCSIS 3.0 which tops out at a 152M downstream. My money is on Comcast focusing their attention on FIOS markets first since Qwest’s DSL product doesn’t offer the same kind of speed and they aren’t entirely sure which neighborhoods have UTOPIA.

    UTOPIA, however, is doing now what Comcast plans to do by the end of next year. It can also easily support 10Gbit speeds right now; DOCSIS doesn’t even have that on the radar. Comcast can hold even for a few years, tops.

  14. Capt. Video says:

    I guess if UTOPIA would be more open to the public we all would know what you know!

    I have said I would indeed change my tune if UTOPIA showed a business plan. The revenue is all that really matters. In a month we will get a good look at the revenue they have been able to generate over the past year.

    Are you suggesting that UTOPIA will have revenues sufficient to not call upon the cities pledges? That would be very impressive…but I believe very unlikely.

    Without a full picture of the situation, in addition to some facts about some high revenue customers, you would need to consider the total revenue and expense picture. Seeing total bond payments, operating costs and revenues to really have any idea where UTOPIA stood.

    Since UTOPIA would not share if they will be $50k or $300k short in payments, and if that is a monthly amount in addition to the $1.3 or 1.6 million monthly bond payment we really don’t know.

    I’ll suggest that when we see their budget next month they will be well short of the needed $1 million plus monthly bond payment (after operating costs). I would be impressed if they were only 1/2 a million dollars a month short.

  15. Capt. Video says:

    My suggestion of Comcast and other catching them is still a fair prediction.

    Would anyone suggest they have not lost ground to Comcast since they started? (…and will continue to do so)

    Would anyone suggest they will have free capital to upgrade their network in the next 5 or 10 years?

    Do you see UTOPIA financially robust enough to continue to invest in the network to keep it state of the art?

    I see them not having enough money to make existing bond payments and no-one lined up to invest in them. Getting bad rates because they are a very high risk. Who would loan more to someone that can’t make their existing payments?

  16. Jesse says:

    Capt: While it is a possibility they could get enough revenue to avoid calling pledges, I do not think it is probable. I do think, however, that calling pledges is a temporary measure and that revenue is on an upward trend. It could take a few years to get to the point where they are making the bond payment on their own and it all depends on what the bond market does. I’m sure it’s frustrating to get only vague details via an information gatekeeper, but it is what it is.

    Comcast hasn’t caught up on anything. The fastest plan they offer in Utah is 16M/2M for $53/mo plus taxes and the “privilege” of going a la carte. (Realistically, you’re looking at $70/mo or so.) You can get a 20M/10M connection from XMission for around the same price and you still have the option of going faster. Both XMission and FuzeCore offer 50M/50M service for less than what Comcast charges for 50M/5M in other markets and it’s available right now. Prime Time is doing a 50M connection (not sure on the upload) for $70/mo. So how is Comcast catching up exactly? It seems they can’t even get on-par.

  17. Capt. Video says:

    When UTOPIA & iProvo launched Comcast was offering something like 2-3Mb down and 256k uploads.

    But Comcast has upgraded their offering, and my point is in the longer term they will continue to do so.

    When iProvo and UTOPIA launched Comcast did not offer VOD or HDTV. VOD was offered FIRST on iProvo/UTOPIA….now Comcast offers tens of thousands of offerings (including HD VOD) and UTOPIA offers???

    UTOPIA offered IP phone for years before Comcast did.

    It’s the trend I’m looking at here.
    The times they are a-changin’.

  18. nitrogen says:

    Comcast can continue upgrading to a point, but they’ll reach the physical limitations of copper long before we could ever reach the physical limitations of fiber. For now, both networks can benefit by simply upgrading equipment without laying new cable, but eventually Comcast will have to either lay fiber to the home or join a fiber network to match UTOPIA’s speed.

    As for UTOPIA not offering VOD, it’s not UTOPIA that neglects to offer it, but the providers who want to profit from their existing physical networks for as long as possible at the expense of consumers.

  19. Capt. Video says:


    I believe Comcast WILL upgrade to fiber WHEN they reach the limits of copper. There is no doubt fiber is better than copper, BUT my arguement has always been that copper (coax in this case) can deliver all the speed a customer needs or is willing to pay for TODAY.

    Comcast actually has fiber to a node, and then that node (serving from 50-200 customers?) changes the medium to copper.

    Comcast can make those nodes as small as they want by splitting nodes. (You split a node with 400 customers by lighting another fiber in the bundle and not serve 200 per node…and so on.

    Since coax cable can deliver almost unlimited speed/bandwidth (current systems can deliver about 30mb/sec. per 6mHz TV channel and they have 80 channels or so) there is no danger of Comcast not being able to provide all the bandwidth a customer wants to pay for. Currently only the last few hundred or thousand feet are copper in any cable system.

    But I have no doubt Comcast and all providers will migrate to FTTH as they feel the need to. If they felt the need (business need) to have FTTH today, they would have it. They believe (correctly in my opinion, supported by the facts) that customers are “ok” with what they are currently receiving, as shown by the failure of any significant number moving to iProvo or UTOPIA?

    If they started losing too much business to faster networks, they would upgrade to stop the loss immediately.

    As far as the VOD, it was UTOPIA not the service providers responsible for the headend in the past. UTOPIA bought and managed the VOD server, and had the contract for headend services, not the service provider. BUT if it were the service providers fault, the end result is the same. UTOPIA has perhaps 15,000 customer and perhaps 1000 have video. Numbers that do not indicate a “healthy” triple play network.

  20. Jesse says:

    Capt: Your figures make a lot of assumptions including that Comcast will make a full migration to SDV, nix analog channels, and upgrade the video side to MPEG-4. Without those changes, at least 75% of the available coax bandwidth is taken up with video. Also, Comcast is unlikely to have any node at less than 200 users. Some nodes have as many as 1000. It was a big deal when Cox announced that they planned to get their nodes down to 150 or so, the smallest of any MSO HFC network. While there are ways for Comcast to squeeze more bandwidth blood out of the copper turnip, they require significant investments in infrastructure to make it happen. Investments that, to date, they seem unwilling to make in non-FIOS markets.

  21. Capt. Video says:

    This is an old argument across well traveled ground. I think my main point is simple and accurate.

    It’s a business decision, not a technology decision for them. They have not exhausted the ability of their existing technology and have the financial ability to change technology as needed (as in when forced to by competition?).

    MOST of Comcast’s customers are “ok” with the service and pricing they receive. If that were not the case both Broadweave and UTOPIA would have more customers and Comcast would be forced to improve speeds and/or change technology. Which they have the technology and financial ability to do whenever they need to.

    Over the long haul, Comcast will likely provide either FTTH or fiber close enough to offer the services needed to meet the customer demand.

    Most importantly, apparently neither they, nor their customers feel the NEED for FTTH today. There are approx. 40,000-50,000 Comcast customers that could switch to UTOPIA or Broadweave IMMEDIATELY…but have elected NOT to do so. What does that tell you? (…and both you and I wish it were as simple as just letting those Comcast customers know that fiber service is available…It’s NOT!)

    Comcast provides services these customers want at a price they are willing to pay. As those customers demand more (faster internet) Comcast will upgrade their network to keep up with the demand…including deploying switched digital video or other technologies, WHEN needed to keep it’s customers from switching to other providers due to bandwidth limits…offering FTTH IF and WHEN NEEDED.

    Currently Coax Cable limitations are in no danger of forcing Comcast out of business. Coax has much life left in it.

    FTTH is the best! But is only marginally better than fiber to the (small) node or fiber to the curb and coax to the home. I doubt any company will ever be successful solely on the difference between these technologies.

  22. Jesse says:

    So why then is Verizon cleaning cable’s clock in FIOS markets?

  23. Capt. Video says:

    It seems Cable losses to FIOS are about 10% in these reports?


    But even if those were tripled, Cable would be keeping 70% of the customers? Is that cleaning their clocks?

    I would be surprised to see an upgraded cable system of a major provider lose 30-40% to FIOS…and even then 60-70% would remain with the cable company?

    I suspect that most of those that switch do so due to pricing.

    I just showed my brother that he could get a slightly better package…CHEAPER…thru Verizon and he switched.

    Saving him about $30 a month plus getting a few more features (HBO VOD was free with HBO where Cablevision charged an extra fee for it (again…it was a price thing.)

    In his market in NJ, the packages were very similar (FIOS was slightly better) and he would not switch for faster internet as he was already happy with his internet…he switched over PRICE!!!

    The new providers always seem to offer a lower monthly rate and FREE install. Knowing the incumbent is not likely to lower it’s rates to all existing customers to match them.

    I believe the vast majority switch to save money. Very few switch because they are looking for faster internet in my opinion.

    The majority DO NOT SWITCH!

  24. nitrogen says:

    I think that awareness is a big issue, and I think that availability is a bigger issue. I suspect that, without the initial interference from Comcast and Qwest, the present picture would be different. As things are now, I’m only a Comcast subscriber because it’s the only option in my area. Of those subscribers that could switch to UTOPIA, how many of them actually know?

  25. Capt. Video says:

    I would suggest awareness is a small factor at best. As I said…if only it were that easy!

    In Provo the service providers sent door to door sales to every home, more than once. Every home received a number of direct mail pieces as well as notices in the City utility bills and a half dozen or more mentions in the Mayor’s newsletter.

    I know when I worked for Mstar they were doing very heavy door to door in UTOPIA areas and sending direct mail as an area was released. I believe Mstar spent a million dollars (a real million dollars, not just a figure of speech) on marketing. They really tried!

    Please believe me when I say there are TENS OF THOUSANDS of Comcast homes that ARE aware of UTOPIA and just elect NOT to switch.

    How simple it would be for UTOPIA service providers if all they had to do was let people know it’s available. I understand all new build areas are marketed heavily upon release and they get 20-30%? It’s not awareness that is the main problem.

    Accept that most people are content with the offering, service and price from their present provider (Comcast, Qwest, Dish, whomever) or just don’t feel the advantages of changing providers is worth the bother.

    I wish it were not so….but that’s the real world situation.

  26. Jesse says:

    Verizon thinks competing on price is for suckers. http://www.dslreports.com/shownews/Verizon-Stops-Seriously-Competing-On-Price-103078 Instead, they are going to compete on services and upload speed.

  27. Capt. Video says:

    That is easy for Verizon to say…but it remains to be seen how successful they will be. As the link you provided points out,

    “Non-price competition remains a luxury for carriers who enjoy a lack of real competition and usually exist in monopoly or duopoly markets.”

    Verizon just announced this change a day or so ago and I have no doubt it will lower their take rate. Without the rate incentive fewer cable customers will leave.

    As I mentioned, they were not getting a majority of the customers to leave cable even when competing on price. It’s very clear to me a FTTH network going head to head with a good coax cable system can typically move perhaps 20-40% of the customers. Usually closer to 20% than 40%, leaving 80% to 60% happy with cable?

    I would suggest successful fiber networks will learn how to be successful with a 30% take rate and not expect to dominate the market because they have “better technology”. Then slowly over time they can hope to grow. That would mean keeping costs of construction and operations low.

    Has UTOPIA been able to do that? Can they recover and do that in the future? I think they may be able to IF the cities will contribute 1/2 a million dollars plus a month, for 5 or more years….and they can find capital to allow free installs and attractive switch offers for new customers.

  28. Capt. Video says:

    Announced by Verizon yesterday…”Verizon on Monday unveiled faster pricing tiers for its FiOS Internet service and announced a promotion that will provide new residential customers with the choice of a free netbook or Flip camcorder.”

    Does offering new customers a free netbook or camcorder sound like they are giving up competing on price and betting on their service, etc.??

    Sounds like they are actually raising the ante to get customers to leave cable?

  29. Capt. Video says:

    Compare this Verizon offer….offering Free Installs and a FREE Netbook Computer or Flip Camcorder and spending millions on marketing to get customers to switch from cable to fiber….with UTOPIA talking about charging a HIGH install fee or creating a 20 year lien on your home to pay for the install as their plan, with very limited marketing.

    What’s wrong with this picture?

    How likely are they to be successful?

  30. Jesse says:

    Capt: If the redemption of said free items is anything like the 19″ LCD TV debacle, they can depend on breakage to not shell out much of the free stuff. Also consider they did this in conjunction with a price increase of $5-10 per month that went along with the speed increases. Verizon is playing a smoke-and-mirrors game on pricing. They know that it’s more expensive for customers and they admit it, but that doesn’t mean customers won’t fall for it.

    So should UTOPIA play that game as well, or should they continue to present the 5-year breakdown that shows that a UTOPIA connection, even if it had higher install fees (which, despite lots of noise, hasn’t happened), will still cost less money? I’d argue the latter and they should hop to it.

  31. Jarrod says:

    With regards to awareness as a small factor – I was a poster boy for this for quite some time. I am a software developer who at the time worked for more than one iProvo service provider and stayed on my DSL connection for more than a year after I could have gotten iProvo. You would think I would be the ideal customer. But my DSL was good enough and I didn’t want to hassle with switching. It’s always such a PITA. Plus I was 100% aware of service issues and didn’t want to deal with those.

    Eventually I did switch to iProvo and I really liked it. I was actually able to pull a torrent at full speed and still use my Vonage phone. Now I’ve moved to where cable is the only option and I really miss my iProvo connection.

    A major reason for the problems with both UTOPIA and iProvo is wildly optimistic projections for take rates. When you’re depending on best case scenarios it’s really easy to get in big trouble.

  32. Capt. Video says:

    I don’t think the iProvo projections were wildly optimistic as far as subscriber numbers. Somewhere between 25% and 35% on the optimistic side, lower on the “need to make it” side.

    BUT where iProvo lost out was on the subscriber distribution. Their take rate just about matched their predictions but it was not distributed well.

    They had too few single family residents and too many multi-dwelling units. They also had two many single play (data only) and too few double and triple play customers.

    If they changed that distribution and keep the same number of subscribers they could have been profitable.

    MDU’s have a low install cost per customer, but they generate low revenue per customer. Single service subscribers in single family homes have a high install cost per customer and generate low income per customer.

    To really be successful a network needs single family homes taking 2-3 services. Something like 10% single service, 40% taking 2 services and perhaps 50% taking the triple play.

    You also need a good mix of business customers (large and small).

    My guess on UTOPIA would be 10% or less taking 3 services. What would you expect when only 1 of 7 providers even offer a triple play? (…and yes, UTOPIA’s subscriber projections were higher than Provo’s. If the new UTOPIA management team has made new projections they have kept them secret.)

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