EXCLUSIVE: CenturyLink Paid For uNOpia

CenturyLinkWondering how the uNOpia site sprung up so quickly and with so much funding? Wonder no more. I have inside information that the payments for the entire operation come directly from CenturyLink itself. This isn’t too surprising since they rarely directly involve themselves in politics anymore, preferring to launder the money through hatchetmen like the Utah Taxpayers Association (who, of course, is heavily promoting the uNOpia site). Given how much CenturyLink stands to lose in the residential and commercial wireline market should this succeed, it’s no wonder they’re willing to spend thousands of dollars to try and upend it.

This isn’t anything too surprising after the confirmed involvement of the Utah Taxpayers Association in HB60 and the suspected involvement in SB190 earlier this year. Incumbents will stoop to any low in order to protect their turf and keep prices artificially high.

Lies, Half-Truths, and uNOpia

Utah Taxpayers AssociationWhen it comes to simply making stuff up, nobody in Utah can top the Utah Taxpayers Association. The latest effort, “uNOpia”, is no exception, a mish-mash of arglebargle designed explicitly to rile up low-information voters into a frenzy (you know, like they did in Orem last year). The arguments are about as smart as a sack of hammers and so very, very easy to pick apart.

  • Myth: The Macquarie deal is a $1.8B tax increase.
  • Fact: The Macquarie deal has an estimated cost of no more than $1,173.6M. The only way it comes up as $1.8B is if you add in inflation. Even so, none of the UTA’s figures factor in the estimated $1-1.5B in revenues to offset the cost, revenues that, shockingly, will also rise with inflation. The real cost of the deal is around $6.22/mo per residence after paying the existing bonds, a far cry from the no more than $20/mo per residence the city will be charged and less than selling the network.
  • Myth: You have to pay for the Macquarie deal even if you can’t afford it.
  • Fact: The deal includes a built-in waiver for the indigent. It’s right there in the Milestone One document.
  • Myth: UTOPIA will cut off your water if you don’t pay the utility fee.
  • Fact: Centerville bundles all utility fees and pays them in a specific order in the event of an underpayment. Right now, water is the last to be paid. The city council can (and probably will) change that. No other UTOPIA city has this kind of structure, and UTOPIA itself has zero power or say-so in this arrangement.
  • Myth: Elected officials have no say in UTOPIA if they accept the Macquarie deal.
  • Fact: The UTOPIA and UIA boards will continue to operate as they have been and seats will be filled by the cities. Seats have historically gone to mayors, city council members, or executive staff (city manager, economic development, etc). None of this changes, and Macquarie will be bound to honor all contractual obligations of the deal.
  • Myth: Utah law prohibits the utility fee.
  • Fact: It was very clearly settled during the SB190 debate that the cities absolutely may institute this kind of utility fee. This is part of why the bill was killed before it came to a floor vote. In fact, The Utah Taxpayers Association gave a favorable recommendation to the exact same kind of utility fee in Provo to pay for iProvo.
  • Myth: Large tech companies don’t locate in UTOPIA cities or use UTOPIA fiber.
  • Fact: Mozy uses UTOPIA fiber and is part of EMC, one of the largest tech companies in the world. (Full disclosure: I work for RSA Security, an EMC subsidiary. They do not endorse my efforts here.) Overstock is dropping $100M on building a new Midvale campus. Symantec relocated its PGP acquisition from Draper to Lindon, a UTOPIA city. Tell me again how large tech companies don’t pick UTOPIA cities.
  • Myth: UTOPIA causes tax increases.
  • Fact: Non-UTOPIA cities raised taxes around the same time, and many UTOPIA cities did not raise taxes. There’s a much stronger correlation between tax increases and cities who bet a little too heavily on sales tax revenues from large retail establishments.

Really, their diatribe just goes on and on like that. A lot of it is basic fact-checking stuff that’s flat-out wrong, but they know those kinds of statements will rile people up and get them too angry to consider the real facts.

The best thing you can do right now is to make sure you show up at city council meetings, let your elected officials know you support the deal, and make sure you counter any of the flat-out false talking points the opposition will be trotting out time and time again. We’re really close to having this thing in the bag, and we can’t let up until the ink dries on the final agreement.

Utah Taxpayers Association Launches Sophmoric “uNOpia” Site Opposing Macquarie Deal

Utah Taxpayers AssociationSurprising exactly nobody, the Utah Taxpayers Association has launched an effort to try and derail the Macquarie deal using misinformation, half-truths, and outright lies. Using the sophomoric name “uNOpia“, they falsely claim that the deal will cost more (when it is actually less than selling), that those who can’t afford the utility fee will be forced to pay it (when the deal includes waivers for the indigent), and that cities lose all control of how the deal works (when it’s all hammered out in a contract). The lies are blatant hysteria designed to whip people into an unhinged frenzy, exactly the same as they’ve done time and time again on anything UTOPIA.

The best thing you can do is make sure you show up at public meetings and counter the misinformation campaign paid for by incumbents CenturyLink and Comcast. It’s time for these hatchetmen to take a seat and let the adults in the room speak.

Broadweave the Sequel? FirstDigital appears completely unqualified to make a pitch to Orem

insidelogoA company you’ve never heard of makes a pitch to take over a municipal fiber network despite no track record of providing residential services or network construction on a large scale. If this story sounds familiar, it’s because it describes Broadweave’s pitch to Provo that ended in a disastrous devaluing of the network that allowed Google to take it over for the price of a Coke at McDonald’s. Suspiciously, it’s also beginning to sound a lot like a proposal from Salt Lake City CLEC FirstDigital being made in Orem as a competing offer to Macquarie.

So who is FirstDigital? Judging from their very spartan website, it appears they provide services to business customers with a heavy focus on T-1 lines and old-school analog phone lines. There’s no evidence that they have experience with managing fiber infrastructure on their own or have any idea how to provide services to residential customers. A search of their employees seems to indicate as much. To say that this company would be in way over their head is a huge understatement.

Based on some third party notes about meetings in Orem, it appears that FirstDigital is trying to keep as many details of their proposal under wraps as possible. They’re meeting with one or two council members at a time to avoid open meeting requirements, a tactic that sends UTOPIA critics howling. What has come out in the public meetings has been concerning at best. The biggest issue is that FirstDigital wants to employ the Google Fiber “fiberhood” tactic, a plan where they only build out areas that are financially justified. This buries any promise of ubiquity under a rock in no time flat. Given that much of the remaining areas of Orem are very expensive to build (thanks to the infamous “Orem potatoes” rocky soil), it’s likely they wouldn’t build out much more of the city at all, but we already know that the half-finished network doesn’t break even. Macquarie is proposing to complete building the entire city, not redline those areas where they can’t make a quick buck.

I’m also going to immediately question the financial situation of FirstDigital itself. Broadweave had a bankroll of tens of millions of dollars to take over a completed network in a city of the same size and failed miserably. FirstDigital would be taking over a half-finished network with no NOC, no video headend, and no transport outside of the city. This is a project that requires a much larger sum of money than Broadweave had available and is unlikely to reduce the financial burden on the city any more than Macquarie would. Hoovers estimates that the company has a scant $900K/year in revenue and just 11 employees (though LinkedIn shows at least 20). For comparison, Macquarie manages at least $140B in assets and is bringing the top international names in network engineering to the table.

While many details are still shrouded in mystery, I feel pretty confident in saying that this looks like a small company about to get in way over their head. I asked FirstDigital for an interview, but they have failed to respond. Oremites, make sure your council knows that this apparently ill-equipped suitor should be kicked to the curb.

Is Macquarie a good deal for UTOPIA cities? The math says yes

It’s not very surprising to see Royce Van Tassell attack UTOPIA and its proposed deal with Macquarie. He is, after all, vice president of the Utah Taxpayers Association, a group that receives contributions from Comcast and CenturyLink. It is surprising, though, to see him make up his own facts and numbers. A fair look shows that the deal is much better than Macquarie is willing to say out loud.

A lot of hay has been made over the requirement in the deal to have the utility fee rise with CPI. The criticisms, however, assume that the cost to provide service and the revenues from subscribers are both static. Why is it a reasonable assumption that neither of these things will also rise with inflation? It isn’t, so inflation is entirely a non-argument.

Royce also gets some very basic facts wrong about the deal. This covers 163K addresses, not 157K. Macquarie has stated clearly that the utility fee will include network refreshes every seven years at a cost of about $60M each time, but he’s claiming that it’s not included and that equipment refreshes will happen as often as every three years. Royce claims that upgrades will be incredibly expensive, yet 100Mbps electronics from 10 years ago were more expensive than 1Gbps electronics are today. There are so many errors of fact in his op-ed that it’s hard to take any of his conclusions seriously.

And so let me break down the very simple math of how the deal works and what it will actually cost subscribers.

Let’s take a worst case-scenario first. Assuming a take rate of only 30% and a utility fee of $20, the total cost of the Macquarie deal will be $1173.6M while revenues are estimated to be $1000M. Less $500M to pay for the existing bond obligations, you’re looking at a total cost over 30 years of $673.6M or an effective utility fee of $11.48 per month per address. That’s a lot less than the stated fee.

But what about the best case scenario? That’s assuming a take rate of 50% and a utility fee of $18. This brings the total cost to $1056.2M and total revenues to $1500M. Less the $500M for existing bond obligations, you’re looking at $56.2M over 30 years or a scant $0.96 per month per address. It’s pretty hard to get upset over a fee that small.

So really, it all depends on the take rate. The question is what take rate we can reasonably expect. Brigham City got a 28% take rate with a $3000 installation charge, but Macquarie will eliminate it. Provo managed to keep 35% despite having disastrously bad providers like MSTAR and Broadweave, but Macquarie has well-respected ISPs like XMission, Veracity, and many other local companies. If Macquarie achieves this take rate, the cities hit the “wash” point where their costs are the same whether or not they opt to go with the deal. That point is about at a 38% take rate. I’d like to think just about anyone can do 3% better than Provo.

Even at the point where the deal is a wash financially, cities still get a completed network with an included basic level of service for every resident. Comcast and CenturyLink will slash their prices substantially in response to the competition (at least 50% in Provo) so that every citizen benefits regardless of if they use the network. Even for someone with a very basic Internet connection that wouldn’t use the network, they would be paying no more than $11.48 to potentially save at least $15, a net gain. The cities also get a $100M annual revenue stream at the end of the 30-year contract, effectively making the worst case scenario break even after less than seven years of ownership.

Given the very easily attainable goals and the high likelihood of reaching them, it would be ridiculous for cities to not move forward with negotiations under Milestone Two. Or to listen to a naysayer like Mr. Van Tassell that’s paid to say the things he says.

Was HB60 an inside play by the Utah Taxpayers Association? All signs point to yes

Utah Taxpayers AssociationOnce HB60 hit the wires, I was quick to file a GRAMA request to find out what kind of communication Rep. Curt Webb had been receiving on the bill. Most of it is angry emails from Utah residents, many of whom were not accepting Rep. Webb’s cut-and-paste boilerplate reply about “transparency”. Here’s what he wrote along with my comments on each part:

Somehow the bill has gotten mischaracterized in the public eye. I have met with lobbyists and industry people over the past few days. I believe that much of the misunderstanding has been cleared up, and you may see a few minor amendments to provide that clarification. If it did what is being said of the bill, it would violate all of my conservative free market principles and run contrary to my voting record.

Actually, Rep. Webb, we understand the restriction all too well. You’ve been had. Just own the turkey and move on.

The bill does not prohibit infrastructure expansion. In fact it addresses no other entity than UTOPIA. UTOPIA is government entity created by an interlocal agreement and the public asks for and deserves transparency and accountability of them. The bill requires that any city into which UTOPIA expands become a member city. HB60 is not designed to damage UTOPIA is any way, but rather to provide clarity and accountability to citizens who may be involved in that expansion.

When UTOPIA builds in a non-member city, it has to negotiate a franchise agreement with that city like any other telecom builder. It’s already on a level playing field. Non-member cities can enforce transparency and accountability via this agreement. The only distinction with a member city is that the franchise agreement has been negotiated in advance for the entire municipality. By prohibiting UTOPIA from negotiating franchise agreements except on a citywide basis, you’re making them play by a different set of rules. That is, at the very core, damaging.

Why? Example: We must keep in mind that UTOPIA is an entity composed of member cities. If an expansion were installed in a non member city, and problems with the network arose; who would the citizens in that area turn to? That user is not a citizen of the proviing [sic] entity. Their own non member city could say “We are not UTOPIA.” If they turned to UTOPIA for help, those member cities could say “You are not our constituent”.

We’ve already established that the franchise agreement gives the non-member city power to establish and enforce terms with UTOPIA. It seems like Rep. Webb either doesn’t understand franchise agreements or is convinced that unless cities increase their involvement with UTOPIA, they won’t enforce the provisions of them. The former is most likely as the latter is simply outlandish. Unless, of course, he’s conceding that cities don’t properly enforce the terms of franchise agreements with operators like CenturyLink and Comcast. That, however, seems unlikely.

The bill only applies only [sic] to government entities as providers, (iProvo no longer applies), and requires as a matter of government accountability to users, that expansion areas become member cities. Some already have.

The cities are and have been accountable to their citizens, member or not.

Email between UTA and Curt Webb on HB60

Email between UTA and Curt Webb on HB60

So I find myself wondering how his confused logic spawned this bill in the first place. Then I came across the one email not between Rep. Webb and someone furious at this bill: an exchange between himself and none other than Royce Van Tassell of the Utah Taxpayers Association! Most telling, Rep. Webb emailed Van Tassell directly and out of the blue to solicit their talking points on the issue.

Unshockingly, the UTA has the same fundamental misunderstandings of how franchise agreements work as Rep. Webb expressed in his missive. Van Tassell also alluded to the push coming straight from UTA’s president, Sen. Howard Stephenson. Don’t take my word for it: read the email yourself.

This is just the latest in the long and disturbing trend of incumbent providers funneling money into a sitting senator’s company to influence the legislative process from the inside while keeping their hands “clean”. How the voters of Draper can tolerate it is beyond me. It’s my hope that they’ll wise up to it and send Stephenson packing.

Sen Valentine waffles on Amendment 2 to SB190

Sen John ValentineNo sooner did Sen. John Valentine promise to UTOPIA and Macquarie to withdraw Amendment 2 to SB190 than he started telling constituents that he hasn’t made up his mind yet. As previously covered, this amendment would keep Macquarie from doing the same kind of utility fee deal in new cities that it’s currently arranging with UTOPIA. It seems now that Sen. Valentine is dealing with UTOPIA and Macquarie in bad faith, telling them one thing while he tries to do another.

This means we need to keep up the email campaign to oppose it. In addition to hitting the Senate body, you should also contact Rep. James Dunnigan, the House sponsor, to let him know that you don’t want to support Amendment 2. The only way this goes through in a way to benefit all Utahns, not just those in UTOPIA cities, is if the bill is preserved as amended in the Senate Business and Labor Committee.

There’s only 13 days left in the legislative session. Make them count!

PS Yes, I have a GRAMA request in to see who’s been talking to Sen. Valentine about this bill.

SB190 gets amended to slam the door on new UTOPIA cities

Sen John ValentineDid you have a glimmer of hope that you’d be able to get UTOPIA service in your city once Macquarie comes in? Sen. John Valentine just smashed it with a hammer. His floor amendment to SB190 makes it so that only current UTOPIA cities can use a utility fee to finance construction of the network. Any new cities that join would be unable to do so at all.

Why does this matter? Because Macquarie has structured the entire deal around it. If future cities can’t do it, they can’t get the same terms that Macquarie is offering UTOPIA. This could derail their rumored plans to cover the entire state in gigabit fiber with over a dozen competing providers.

Right now, the bill is in the Senate and will come to a floor vote. It’s urgent that you contact members of the Senate, particularly your senator, to tell them to oppose this amendment. Sen. Valentine is working in bad faith by not involving UTOPIA cities either in this new amendment or the original bill.

Click here to email the entire Senate body and voice your opposition! They need to hear from you.

UPDATED 2-27-2014 2:25PM: We won! Valentine has committed to UTOPIA mayors to pull Amendment 2. Now if it can just go through without any other trickery…

SB190 revised: is the bill “fixed”?

Sen John ValentineI’ve been looking over some amendments that Sen. John Valentine has made to SB190 and it appears to be much improved over its original form. The utility fee is back on the table, but it does require that municipalities carve out exemptions for “economically indigent” persons if they can’t afford the fee. It also conveniently still omits Provo from these new requirements despite its large low-income student population.

The changes came after Sen. Valentine met with mayors from UTOPIA cities, something he probably should have done before even drafting the bill. It also cites unnamed “mayors” who initially pushed him to run the bills, presumably not from UTOPIA cities. I’d personally like to know who they were and why they would care what UTOPIA cities are doing with their budgets and bond debts.

One lingering concern I have is that “economically indigent” isn’t a defined term I can find in either in the bill or elsewhere in the chapter. The best I can find is in Title 77-32-202, paragraph (3)(a)(ii) where indigent is defined as under 150% of the federal poverty level for purposes of assigning free legal counsel. Based on the current federal poverty level, that would work out to $35,325 for a family of four. It’s unknown if that would be the standard by which all cities would be judged or if they’d be free to establish their own guidelines.

Even with the improvements, I still plan to speak against this bill. If it’s a good idea, there’s no reason to exempt Provo (thus providing an indirect advantage to Google). I’m also not comfortable with leaving terms undefined as a “gotcha” to try putting the original restrictions in place in another session. Finally, I don’t like the legislature trying to dictate terms to cities as if they are a super-city council. If they want to run the city, they should get on the council themselves.

Bill Alert: SB190 will be heard in committee Monday Feb 24 at 8AM

I just got a notice that SB190, the bill that could chase off Macquarie, will be heard Monday February 24 at 8AM in the Senate Business and Labor committee. Word on the street is that members of the committee have been getting a lot of emails in opposition (good job, folks), but we also should show up to speak against it. Make sure you spread this around so we can show up in force!