Category Archives: iProvo

The MSTAR Legal Threat: Do they have a case?

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I just took a moment to read through the city's code for disposal of surplus property to see if, as a non-lawyer, I could validate MSTAR's claims that they have a shot at legal action should the sale of iProvo be approved as currently constituted. After perusing Title 3, Chapter 3.04 of the city code, it seems like they don't really have much to lean on under that section. The mayor has broad authority to enter into contracts and ask the council to approve them after the fact and many of the normal requirements for the addition of properties to the Surplus Property List can be waived by council resolution. Even the requirement for a cash purchase can be waived by resolution.

It's possible that some section of state law trumps the city code regarding the sale of real property, but I don't seem to be able to find it. Utah Code 10-7-86 makes adoption of the Utah Procurement Code optional, not mandatory and large chunks of Utah Code 10-8-2 seems to be word-for-word what's in the city code. As much as I dislike the way in which this RFP was conducted, I'm having a hard time finding anything illegal about it, though this doesn't preclude anyone from filing a civil suit to block the sale.

I'm curious to know exactly what MSTAR's argument is and welcome any comments that might shed light on it.

Notes from the iProvo Hearing

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Last night, Provo's municipal council heard presentations from Broadweave, Veracity, the energy board and the telcom board on the proposed sale to Broadweave. There was a bit of new information and a lot of council skepticism. I don't have a play-by-play so much as some random thoughts.

  • Both the energy and telcom boards are eager to cut and run as fast as they can. Energy doesn't want to be forced to cross-subsidize from their own funds in the face of an increased need for additional power generation capacity. Telcom, it seems, is unconvinced that the city can effectively run the network and expressed frustration that their suggestions and feedback were rarely translated into action. While I can understand the position of the boards in terms of their own self-interests, I don't necessarily agree with them.
  • MSTAR is seriously cheesed off about the lack of an open RFP and made some not-so-vague intimations that it planned to sue to stop the sale should it be approved. They also expressed a lot of frustration that their own proposal to lease the network as the wholesale operator was turned down despite having lined up financing sources to bring them current and provide a significantly larger chunk of surety. One of the reasons MSTAR was denied was concern over not maintaining the open nature of the network. Irony much?
  • Broadweave plans to raise prices. Most triple-play and Internet customers can expect a $10-15/mo bump in pricing to maintain their current level of service. This is something I've previously suggested at the wholesale end to be passed on to the retail customer. The annual shortfall of $2M annually worked out to around $200 annually per subscriber, a difference that would have been easily made up for with a small bump in pricing. I don't get why Provo didn't seek to increase fees until the network was solvent, then ease up again later. I don't see how private ownership is the only way to make this happen.
  • Broadweave plans to offer new tiers of service. Their PowerPoint showed off about 6 different Internet packages from 3M/512K for $20/mo to 60M/60M for a waller-busting $180/mo. Again, something I've been suggesting for months now, that there be a value tier for grandma to increase subscriber units and a power user tier for folks willing to pay for more bandwidth. Again, I don't see how Broadweave's plans are any different from any other smart network operator.
  • Broadweave is buying the Eagle Broadband network in Houston. They plan to pay a scant $274K to pick up the fiber connected to 4000 homes. That might sound like a deal at under $65/household, but that's fiber only without franchise agreements, a NOC, transport rights and so forth. It's also a seriously distressed asset that left a bad taste in users' mouths after suddenly disappearing without notice. The existing customers will be hesitant to sign up for services after an experience like that and it will take a significant investment to make those assets useful again, most likely through expensive network expansion. Building a NOC with a phone switch and video head-end will easily run in excess of $3M.
  • Both Comcast and Qwest have concerns about the fairness of this deal. Both companies submitted letters to the city council expressing concern that Broadweave could get more favorable tax and right-of-way treatments under this deal, though neither is in opposition to a sale.
  • Broadweave is projecting that triple-play wholesale costs will drop from $43 to $15 per month. I don't know how this would even be possible. It's common knowledge that cable TV providers barely eke out a profit on television alone, a product that retails at $40+ per month. Anyone with more experience on transport costs care to chime in?
  • Broadweave was spooked by a lot of what I uncovered. Steve Christensen dedicated a slide of his presentation to "addressing" many of the concerns and irregularities that I've brought up in various venues. He failed to refute their lack of business licenses (something I noted to the council during my public comments), downplayed the investment required for the network in Houston and didn't have much of a rebuttal beyond "gimme a break" on the HomeNet comparison. Christensen also tried to downplay the involvement of his father in Traverse Mountain while failing to note that at least one uncle, possibly two are also principles in the project.
  • Members of the council are very skeptical of this deal. Steve Turley, Sherrie Hall Everett and Cynthia Clark hit hard with lots of questions and doubts about the terms of the agreement and the RFP process. Cynthia Dayton also said that she wouldn't consider it without a close look at Broadweave's financial statements even if it took an NDA to do so. Alarmingly, she has been requesting this information for weeks without any action. Cindy Richards seemed to agree with me that pursuing networks across 6 or more states means that the council should make sure that the financial backing is there. There's also a lot of concern at the pace this project is proceeding at with Mayor Billings trying to force this through on a tight timeline. My personal prediction is a 5-2 vote against the sale with George Stewart and Midge Johnson voting in favor.
  • The RFP may have been made vague so that customers didn't get spooked and bolt. Both Kevin Garlick and Mayor Billings brought up the fiber network in Marietta, GA that sold for 30% of its initial price claiming this was because the project was advertised as being for sale. While I can see this point, it wouldn't have been an issue had a provision of the sale been to maintain an open network and honor contracts with the existing providers. Once the sale became public, many other interested parties came out of the woodwork with better terms. Too bad that the city is obligated to treat Broadweave's offer with exclusivity through September.

My takeaway is that this deal is that the council recognizes that Broadweave is getting in way over its head despite the planned acquisition of Veracity and doesn't feel confident extending long-term financing under the current proposed terms. Some folks are as skeptical as I am, others are more optimistic. With all I've seen and heard, it's obvious to me that Broadweave should stick to what it knows, greenfield developments and exclusive service areas.

Multimedia Edition: Mayor Becker on UTOPIA, Utah Taxes Now Conference on Muni Telecom

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Coming to you today is a two-fer of audio on UTOPIA.

First up is a conversation on KCPW's Midday Metro where Salt Lake City Mayor Ralph Becker responds to a caller question on Salt Lake City's future with UTOPIA. He's definitely supportive of local decisions regarding the matter, though he's also cautious about joining because of the slow sign-ups and cost issues involved. His solution? Get the voters to speak up and say yea or nay. Listen to the full response here (MP3 Download). h/t: Paul Alexander who called in the question and sent me the MP3 response.

Second is a panel discussion on iProvo and UTOPIA at the Utah Taxes Now Conference with Utah Taxpayers Association President Sen. Howard Stephenson, Provo Mayor Lewis Billings and UTOPIA's new Executive Director Todd Marriott. Given that this is a UTA-sponsored event and the panel discussion was titled "The Collapse of Municipal Telecom in Utah", you've gotta know that the audience was probably stacked against both iProvo and UTOPIA. For those that have been listening to the discussion on municipal networks for a long time, you probably won't find a lot new in this discussion, but it's worth listening to anyway. The full conversation can be played from UtahPulse.com here (embedded audio). h/t: Utah Policy Daily who linked the audio of the conference.

Broadweave Plans to Replace the Portals for iProvo's Telephony Woes

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Broadweave announced their plan to fix the frequent issues with phone service on iProvo, pointing to deficiencies in the portals provided by World Wide Packets. Their message? An ultimatum to Ciena, the new parent company of World Wide Packets, to fix the firmware in 90 days or they'll start replacing the hardware. The reason? They claim the current portals don't properly support SIP.

Given that portals run about $300 a pop and Provo has 10,250 csutomers, that works up to just shy of $3.1M just on new portals. That doesn't even include the cost of labor to replace and troubleshoot. Seems a bit excessive when a $50 terminal adapter would probably fit the bill just as well. After all, I have yet to hear that anyone using Vonage is having issues with telephony over iProvo.

Broadweave seems to have some trouble spending lavishly on features that a company its size simply can't afford, like their supposed carrier-grade phone switches. Also remember that they plan to spend around $1.8M upgrading set-top boxes for MPEG-4 PLUS the costs for a new head-end to support the encoding. Can anyone else smell dot-com style crash-and-burn in the distance?

Broadweave's Double-Talk on Equipment Ownership

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Broadweave has repeatedly hammered on the existing providers on iProvo for not owning their own phone-switching equipment. According to their statements, the breakdown in call quality and reliability comes from iProvo, the retailer and the outsourced voice provider all pointing fingers at each other. It's funny, then to hear that Broadweave currently outsources its video operations in Sienna Hills to a company called Avail Media. I wonder what happens when video problems pop up for the 20 or so customers down there?

This means that Broadweave truly has zero experience operating a video head-end or delivering a video product on their own. How will they do so for the 6,000 or so existing video customers on iProvo? The odds are certainly against them. 

Is Broadweave Dumping Most of the Veracity Customers?

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A quote from Saturday's Daily Herald seems to indicate that this is the case:

"Broadweave has a CLEC or Competitive Local Exchange Carrier relationship with Qwest, and will therefore not be a service provider on Qwest's network," [Broadweave CEO Steve Christensen] said.

This seems fishy on a few levels. About 85-90% of Veracity's customer base exists outside of iProvo and UTOPIA. This is primarily in selling voice and data services over Qwest's network, the bread and butter of the company's revenues. It doesn't make sense to shed a significant portion of Veracity's customer base as part of this acquisition, yet that seems to be exactly what Broadweave intends to do.

The statement on being a CLEC also doesn't seem to make sense. Veracity has been a CLEC for a very long time using Qwest's network. How is it that Broadweave being a CLEC would preclude it from using Qwest's network? After all, MSTAR, Veracity and XMission have used Qwest's infrastructure while participating on iProvo or UTOPIA.

This also raises a lot of concerns with Veracity's employee base. Their experience is primarily with business clients, yet we're seeing that Broadweave will dump most of those clients in favor of a largely residential mix. It remains to be seen if they can successfully pull off this transition, but I highly doubt it. 

Broadweave's Double-Talk on Open Networks

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Broadweave has repeatedly insisted that the only way for iProvo to work is if it becomes a closed network with one provider operating both the retail and wholesale operations. Perhaps, then, they can explain why it is that they agreed to "provide access to alternate service providers for a fee" as part of their utility easement in the Sienna Hills subdivision near Washington City? (See SITLA Meeting Minutes of October 6, 2005, pg. 7) If such an arrangement were not economically viable, wouldn't Broadweave have walked away? It's a tacit admission that open networks can work financially.

It's also telling that as a part of their easement in Washington County, Broadweave also wanted to be awarded automatic contracts to develop telecommunications systems throughout the School & Institutional Trust Lands Administration's future projects. The board was rightfully spooked by this implication and voted against granting such a restriction. (See SITLA Meeting Minutes of October 20, 2005, pg. 25)

Broadweave's HR Problem

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In their report to the city, CCG noted that there were a significant number of HR issues leading to the deteriorating customer service situation at iProvo. They noted that "almost universally the telecom employees dislike or distrust the retailers" and observed that telecom employees were also at each others throats on a regular basis and to resolve it would "require management directive". Certainly neither retailers or their customers were served by this rivalry both within the NOC and towards retailers.

So how then is it possible that Broadweave plans to take these same people who caused this problem, the telecom employees, and force them to work both with each other and employees from a retailer, Veracity, without significant operational headaches? It seems to be that the old rivalries with each other and this retailer will continue to manifest themselves, likely moreso since, according to my sources, a majority of iProvo's employees are strongly opposed to this sale.

It's especially concerning since we hear a lot about the executive team and almost nothing about the management team; we have absolutely no idea how long Broadweave will be dysfunctional as it deals with these HR problems. During that time, customers and reputation will be lost, the latter of which takes significant time to regain. I do not think a company so young and small has the experience to successfully handle this kind of integration; even giants like HP and Sprint have failed at this task.

Broadweave Did Not Exist Prior to 2003, Website Claims First Contract in 1999

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I received a response from the Utah Division of Corporations regarding the original filing for Broadweave Networks and Lucy, they've got some 'splaining to do. According to the original filing, the company did not file articles of incorporation until June 4, 2003. (See original document.) Their website, however, indicates that the company obtained their first contract in 1999. (Link to website, screenshot in case they change it.) How can a company that doesn't exist have functioning contracts?

It's amazing that Provo's brand of "due diligence" doesn't disclose these kinds of irregularities.

Broadweave Buys Out Veracity, Customers From Other Providers

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Broadweave announced today that they plan to go one step further than buying out the customer lists and acquire Veracity as well. Veracity has over 10,000 clients but only a handful are on UTOPIA or iProvo. Most of Veracity's customer base is in T-1 lines or DSL services as well as business voice communications. This means that Broadweave plans to grow overnight from 1100 to over 20,000 subscribers. I seriously doubt they can handle all of that growth.

It's worth noting that Nuvont, which is still a provider on UTOPIA, buys all of its services from Veracity. XMission also has a deal to buy VoIP services from Veracity. It will be interesting to see if Broadweave will remain on UTOPIA and continue these contracts for services or pull an AT&T on us.

See more from the Daily Herald.