Kaysville Exploring Muni Fiber; UTOPIA is a bidder

The muni fiber train in Utah continues to pick up steam as Kaysville wraps up a RFP to build a municipal fiber system. UTOPIA confirmed that they are a bidder on the project which calls for a public-private partnership in which the city maintains some level of ownership or control while another party handles construction and operation of the network. The city’s goal to deliver gigabit services to all homes for $80 or less per month by May 2021. The project scope also includes connecting all city buildings to the fiber network.

This is the latest example of cities finding that their options to improve broadband options and stay competitive in the marketplace can’t be left to existing incumbent providers. In addition to the 20 cities conducting feasibility studies with UTOPIA, multiple cities including Millcreek and Cedar City have heard proposals from EntryPoint Networks to construct municipal fiber systems.  This means upwards of 20% of the incorporated municipalities in Utah have built, are in the process of building, or are considering building fiber networks. That’s the kind of critical mass that can’t be undone and stands in stark contrast to how skittish many of them were even 5 years ago.

I’ve reached out to Kaysville City for more information on their proposal and will update the article as I hear back. Meanwhile, residents of Kaysville should contact their city council and mayor to make their voice heard, particularly if you have a preference as to who the city opts to partner with.

UPDATE 10/24/2018 9:19AM: I’ve been told that both Riverton and the small town of Hideout are also in the process of RFPs for fiber optic networks. Most notable is that Riverton has very clearly specified that they require an open access network and they are a non-pledging member of UTOPIA.

h/t Jonathan Karras for sending me a link to the RFP.

Expanding UTOPIA the Layton Way

UTOPIA has never been in a better position. Revenues have exceeded operating expenditures for a considerable amount of time, new footprints are being opened for service every month, and many member cities have been finally embracing the network as a vital part of their infrastructure. While Orem has been putting in a lot of time drawing up plans, Layton actually beat them to the punch and pulled the trigger on an expansion that will take no more than 24 months to cover the rest of the city.

In many ways, this is a lot like the UIA plan where bonds are issued to be paid back by pledging subscribers. There’s a couple differences, though. For starters, UIA can now issue bonds on its own authority. This means cities no longer have to use their bonding capacity to back them. The Layton plan also has the city backing the bonds using city franchise fees. If the subscriber numbers fall below what is required to pay the bond (which, to date, has not happened in a single UIA expansion area), the city pledges to cover the difference. On the flip side, if revenues exceed the bond payments (which has happened in most UIA expansion areas), the city gets to keep a cut of that for whatever they want. This could include paying off the original UTOPIA bonds, funding other city services, or anything else, really. It’s important to note that this revenue split option is only available to cities who assumed the original debt service.

A limiting factor is the available construction crews and materials. UTOPIA has said they’re currently connecting 1500 homes per month. The current housing boom has made finding additional people to build challenging. Add in that at least 20 (currently unnamed) cities are conducting feasibility studies with UTOPIA and you can see very quickly that rapid expansion may not exactly be in the cards. The take rate barrier for new cities is a scant 30%, low enough that it makes sense to pull the trigger and get your place in line. At least 40% of currently connected customers are opting for gigabit service, hinting that the revenue streams are there and won’t be meaningfully impacted by users opting for the slower 100M or 250M tiers.

Getting municipal fiber, the EntryPoint Networks way

EntryPoint Networks is not a household name, but their successful municipal fiber project in Ammon, ID certainly is. With 75% of served residents taking service for as low as $43/mo for 100M/100M, Ammon stands as a poster child for how to get municipal fiber right on political, financial, and technology sides. I had a chance to discuss their method with VP of Sales and Marketing Devin Cox. There’s a lot that’s very similar to UTOPIA, but enough divergence that it stands out as unique. They’re set to make their pitch to Cedar City on Wednesday June 20 at 4:30PM in the city council chambers and reportedly have more unnamed cities in the wings.

How it’s like UTOPIA

Cox had no hesitation to say that the “subscriber pays” model first adopted for UTOPIA deployment in Brigham City served as the basis for their model. Just like UTOPIA, the cost to deploy is spread over 20 years and will eventually be paid off in full. It’s an open access network that allows any provider to join and provide services. Much like UTOPIA, they have an open invitation to existing providers, including telco and cableco incumbents, to jump on the network and provide service. Most importantly, they use active Ethernet to ensure that each subscriber can get the full bandwidth of their connection.

The city is in the driver’s seat for most of the decisions. This includes how to finance the network, if subscribers will have legal ownership at the end, and who will operate, maintain, and manage it. EntryPoint sees their role as similar to DynamicCity in the early days of UTOPIA, to plan and build the network on behalf of the city they contract with. This does leave the possibility open for a city to partner with EntryPoint and UTOPIA at the same time, each of them filling slightly different roles.

And how it’s different

EntryPoint’s philosophy to network operations is to price it as low as possible to gain as much market share as possible. Since the vast majority of the cost is going to be construction and maintenance, it makes sense for them to get the actual service cost as low as possible to spread costs. In Ammon, this has driven the cost of 100M symmetrical service down to around $43/mo. UTOPIA doesn’t have this flexibility because of legacy debt, something that Payson will have paid off in a few years and cities who opted to refinance will have on the books until 2041.

Their provisioning system is also very different. Something DynamicCity was playing with was a self-provisioning portal. A customer could easily enable or disable services and switch service providers with a few clicks. This not only drives down costs, but it makes it very easy to add software-defined services as part of the package. This includes a point-to-point VPN/VPLS service that allows anyone to dynamically create and destroy private connections between any two points on the network. Examples include a route between a business and its remote workers, two gamers who want to go head-to-head, or families in the same city who want to share network resources like printers, storage, and so on.

They also bill those amounts very differently by splitting it into three buckets: network construction, network maintenance, and service provider fees. The network construction fee is the part that goes away in 20 years and is attached to your property tax bill. In Ammon, that fee has been just under $17/mo. Interestingly, they separately bill a “keep the lights on” network maintenance fee via the city’s utilities department. This is the cost to deliver service between any two points on the network, repair the network, and plan for future electronics swaps. This fee never changes no matter how many services you use or how much you use the network and currently is about the same as network construction. That bill exists as long as you use the service, but it can be suspended month-t0-month like many cable operators will do in towns with a lot of vacation homes.

The final part, the service provider fee, is paid straight to the ISP. With 100M/100M coming in around $10/mo of this, it’s hard to see that service providers actually make money at price points this low, but Cox claims that the provider costs are so low that the margins are actually quite high. UTOPIA provider SumoFiber participates on the network in Ammon as well, so I reached out for a comment. Per David Burr, they definitely make higher margins per customer, though that can vary depending on if they need to pull backhaul to interconnect or have local technicians for that market.

A way forward?

Let’s face it: the UTOPIA brand is pretty toxic politically. Even with covering operating expenses and making subscribers carry the full cost of expansion, it’s a hard sell to cities wary of the political fallout, especially when opponents will continue to harp on how things were a decade ago. In politics, facts take a back seat to whatever perceptions happen to get cemented early. UTOPIA also has its hands pretty full trying to meet the needs of existing members.

For all of these reasons, EntryPoint might be the best bet for any city who wants fiber but also wants to avoid political risk. As a resident of Cedar City, I’ll certainly be watching how it unfolds here pretty closely.

Once again, the Daily Herald completely misses the mark on UTOPIA

It’s pretty incredible that even now newspapers can’t get stories about UTOPIA right. The Daily Herald penned a recent op-ed that managed to skip or mangle so many facts that it’s no small wonder they came to the erroneous conclusions that they did. I have to take some time to dissect the many, many ways in which they fall into decades-old failing arguments and end up doing little more than parroting the kind of tripe the Utah Taxpayers Association has shoveled since the very beginning.

First, they start off with a few paragraphs talking about 5G wireless. Remember when everyone told us that 4G LTE deployments would eradicate the need for wired Internet service at all? Or that WiFi would do the same thing? Yet here we are, two decades after 802.11 was introduced in consumer devices and nearly a decade into LTE deployments and that’s nowhere near the case. 5G will be no different. It lives on short-range frequencies that require deploying a ton of infrastructure to support. And, surprise, a big part of that is fiber to each one of the access points.

Then they declare that bonding to finish construction puts Orem in deep financial trouble. Except, well, it doesn’t. Ever since the SAA/UIA model rolled in, every bond issued is guaranteed by subscribers. It won’t even get issued until the take rates are high enough to break even. The latest news about the UIA is that it even generates revenues in excess of the bond costs, a net positive. So, seriously, where is the downside when the worst case scenario is break even?

Oddly, they then launch into concerns about Orem’s needed infrastructure spending. But what is fiber if not infrastructure? Given past results, a new UIA bond would cover some of the original bond debt and free up more money to spend on other things including roads. It’s concern trolling at its finest.

There’s one of two possibilities for the sloppy fact-omitting editorial that the Daily Herald’s board pumped out: they either are ignorant of the facts or chose to deliberately ignore them. In either case, they have acted very irresponsibly by pushing a view that doesn’t jive with reality. Hopefully they’ll be open to getting educated and publishing a “mea culpa” response.