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.