As if the hyperbolic uNOpia site wasn’t light enough on facts, the Utah Taxpayers Association also commissioned a report that repeats many of the same mistakes. Apparently the hope is that by repeating the same lie over and over, it’ll end up being true. In this case, it appears that Doug MacDonald, who prepared the report, chose to merely parrot what his client asked him to. Let’s go through section-by-section and find the glaring errors and omissions, shall we?
Number 1 (pg 2)
- Doug is making the same error of insisting on using inflation figures rather than constant dollars. This is misleading and no reasonable economist would dare do this. Constant dollars are the bread-and-butter of all economic analysis. Someone with his experience should know better.
- The report shows 149K households, but Macquarie’s Milestone One report makes it clear that they intend to build out 163K households.
- Macquarie will be contractually obligated to build, operate, and maintain the network for 30 years, but the report raises the impossibility of them abrogating the contract and still collecting the utility fee. He also hints that a future city council could attempt to break the contract, yet that would open the city up to massive liability. Apparently contract law is not a strong suit.
Number 2 (pg 3)
- Doug claims that cities have considered not making existing bond debt payments, but there is zero evidence of this. No city in their right mind would default on any bond obligation.
- Macquarie is assessing the utility fee to the cities who are free to figure out the most equitable way to collect it. The report, however, claims that the fee is mandatory for every resident. This makes no mention of Provo’s utility fee which is scaled so that businesses pay more and residents pay less or the planned waivers for indigent households.
- The report makes the absurd statement that anyone who doesn’t have UTOPIA either loves their existing service or doesn’t want any kind of telecommunications service. This is despite the readily available evidence that consumers absolutely hate incumbent providers. There was apparently no effort made to do any kind of survey, scientific or otherwise, to back this claim.
- The waiver for the indigent has been falsely characterized as a general opt-out provision. That is completely false.
Number 3 (pg 4)
- Macquarie has committed to investing around $300M in building out UTOPIA, yet the report hand-wrings that it will be very difficult, if not impossible, to find the money. Macquarie is an investment bank with $140B in assets, so I’m pretty sure they’ve got the money around there somewhere.
- The take rate figures provided in the report are completely inaccurate and measure the entire city as opposed to areas actually passed with fiber and able to be hooked up. There’s also no comparison to iProvo which achieved a 35% take rate with no install fee, a ubiquitous build, and terrible service providers.
- The “break even” mentioned in the report is way off. A wash on the Macquarie deal is around 35%. Covering all of the existing bond service as well is in the 55% range.
Number 4 (pg 5)
- Every ISP has committed to participate in the included basic tier of service, yet the report spreads more fear, uncertainty, and doubt about their participation. It’s obvious that Doug didn’t talk to a single one of them about this. I know for a fact that XMission, SumoFiber, Veracity, and WebWave are on the record with being strongly in support.
- Of the ISPs on UTOPIA, most of them do not provide services over other methods of transport. Those that do are often looking to get away from doing so. XMission converts DSL customers to UTOPIA. Veracity has gone so far as to build their own fiber to CenturyLink cabinets to get off of their transport. The idea that they will sell their service over competing infrastructure is not based in reality.
- The utility fee covers connecting the network to each address. The $50 reimbursement to ISPs is to cover any installation costs beyond that. ISPs do not have to front any money to hook up basic service customers.
- Doug again asserts that cities may choose to default on their existing debt obligations, a scenario that no city in their right mind would ever attempt.
- Macquarie has experience with telecommunications systems in Asia and is partnering with some of the biggest names in fiber optics such as Alcatel Lucent and Fujitsu. This is not going to be a project run by rank amateurs.
- The report cites a failed toll road project in San Diego to try spreading fear that Macquarie would walk away from a project, but the details, as usual, are much more complex. The project went through a Chapter 11 filing in which Macquarie had to write off their interest in the road, yet the road continued to operate.
Number 5 (pg 7)
- Macquarie has never stated that people will not need premium services. Even if lines will not be fully utilized, there is a huge demand for service provider alternatives just to get away from the terrible service provided by incumbent operators.
- Again, the utility fees are assessed by Macquarie to the cities and it is up to the cities to determine who pays what. Provo has already implemented a model where businesses pay a lot more than residents. Concern trolling to scare residents isn’t serious research at all.
Number 6 (pg 8)
- Evaluating the cost to sell or shut down the network is a farce. In either event, the bond reportedly becomes callable meaning that the entire amount is due immediately. Treating that as a realistic option doesn’t even make any sense.
- No evaluation of the probable value of the network was done. Instead, Doug pulled two numbers out of a hat: the $1 “sale” price of iProvo and the $86M in assets reported by UTOPIA.
- The “sunk cost” argument depends heavily on the fabricated “needed investment” and fallacious take rate estimates from number 3. As such, it can’t be considered a serious argument at all since the underlying assumptions are bad.
Number 7 (pg 9)
- The debt amounts cited in the Econowest report do not appear anywhere in the Milestone One report, yet it claims that they do. In fact, the Milestone One report makes it very clear that the principal and interest currently totals around $500M. This amount is in line with $185M of bonds over 30 years at a nominal interest rate. How that gets inflated to $335M is beyond me.
- Doug again screws up by claiming that UTOPIA debt is 69% of the level of state debt, yet the state debt of $35.7B works out to almost ten times the amount he claims. This is something easily discoverable with Google in about 30 seconds.
Number 8 (pg 10)
- Just like the auditor’s report it cites, this one fails to draw any distinctions between current and former management.
- Doug completely fails to consider any argument on the economics of utilities and trots out a “private sector” argument with no supporting evidence. I’ll just leave this piece on why he’s wrong right here.
This report is sloppy and unprofessional, something that should be embarrassing for someone of Mr. MacDonald’s experience. There’s ample concern trolling and FUD on points that have been settled. Basic figures are completely incorrect and unsourced. Absolutely no effort was put into doing research to back up the conclusions. This amateurish work doesn’t read at all like it was completed by a professional.
If this is really the best that the UTA can come up with, I’m going to have a hard time believing that opponents of the deal are going to make much headway.
No. 8 was the strangest logical leap. In declaring “the private sector should handle it” the footnote (XI) references Joseph Stiglitz 1986 book on public sector economy… a book in which Stiglitz concludes, pre-internet, that the private sector has been “notoriously bad at deciding” in an innovative way where to invest capital. Stiglize has since written about this as it specifically applies to technology, and the internet. http://www.project-syndicate.org/commentary/joseph-e–stiglitz-makes-the-case-for-a-return-to-industrial-policy-in-developed-and-developing-countries-alike
My only point is that whether you disagree or agree with Stiglitz aside, this is either very lazy research by an otherwise skilled economist, or the Utah Taxpayers Association has horrendously misconstrued the research. I lean toward the latter, as Royce and crew at UTA seem to have turned misconstruing into an art form on many issues.
Assuming that the PDF is the actual report written by Doug MacDonald (and that’s the only thing I responded to, not the press release), I’m going to go with lazy. It’s pretty easy to construct arguments and find facts to suit existing biases.
Given that the go-no go decision point is about two weeks away, I don’t think UTA and their clients have time for serious analysis. The point is not to do serious analysis, but to sow enough doubt to persuade the Cities to decline to move to milestone 2. Doug lost credibility with me immediately at point number one when he parrots the same hyperbole being thrown about by the UTA. I’m no genius, but I know the difference between a thirty year contract with binding clauses on both parties and a decision to move forward to study a proposal in more detail. The latter is what is in front of the Cities right now, not the former.
Also worth noting: a full assessment of the network condition and formulation of a build and business plan is both necessary and valuable no matter which way you go.
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