In a live news conference this morning, City Manager Wayne Pyle announced that the city is working on a partnership with Ooma to provide free phone service to every resident of West Valley City. Residents would be responsible for taxes and fees and there is also a charge to port an existing number. The city projects that the partnership would save residents around $20M per year in telecommunications costs. This service will ride on top of the completed UTOPIA network assuming that the city council accepts Macquarie’s offer when the Milestone Two report is complete. While this deal seems to apply only to West Valley City, it will be interesting to see if other UTOPIA cities try to get in on that action.
This only highlights the immense brand power of a ubiquitous fiber network in a city. It also gives Google Fiber a bit of a black eye since they have no phone product at all.
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.
Wondering 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.
Layton joins Midvale and West Valley City in voting yes to move forward with getting final details of Macquarie’s proposal under Milestone Two, the third city in a row to do so. For those keeping score, this means that all of the cities who have voted on the proposal have chosen to get more details. Given that there’s no little commitment to do so, it’s a wonder any city isn’t interested in say “yes, please, give us the finalized details”.
The next scheduled votes won’t be until the final week to respond, so it’ll be really quiet. In the meantime, there’s a lot of public meetings you can drop in on to show your support. Also make sure that your city councils are hearing from you that they should move forward with Milestone Two.
I’ve just received an updated list of what meetings and votes are currently scheduled to take place regarding Macquarie’s proposal to UTOPIA. As always, theses are subject to change and could be added to. If you hear anything, let me know and I’ll update accordingly.
Public Meetings and Town Halls:
June 3 @ 7:00PM, Lindon: Lindon City Center, 100 N State St, Lindon
June 4 @ 7:00PM, Tremonton: Bear River High, 1450 S Main St, Garland
June 5 @ 5:00PM, Orem: Orem Senior Friendship Center, 93 N 400 E, Orem
June 5 @ 6:30PM, Murray: Doty Education Center, Building 6 of the Intermountain Medical Center, 5121 S Cottonwood St, Murray
June 5 @ 7:30PM, Centerville: Centerville City Hall, 250 N Main St, Centerville
June 17 @ 7:00PM, Lindon: Lindon City Centr, 100 N State St, Lindon
June 17 @ 7:30PM, Centerville: Centerville City Hall, 250 N Main St, Centerville
June 19 @ 6:00PM, Orem: Orem Senior Friendship Center, 93 N 400 E, Orem
June 5 @ 7:00PM, Layton: Layton City Hall, 437 N Wasatch Dr, Layton
June 18 @ 6:00PM, Payton: Payson City Hall, 439 W Utah Ave, Payson
June 24 @ 6:30PM, Murray: Murray City Hall, 5025 S State St, Murray
June 24, Centerville: Centerville City Hall, 250 N Main St, Centerville
June 26, Orem: Orem City Hall, 56 N State St, Orem
June 26 @ 7:00PM, Perry: Perry City Hall, 3005 W 1200 S, Perry
Some of these are cutting it pretty close to the deadline to respond of June 27. Payson is reportedly interested in finding out more, but their years of not attending board meetings with any regularity has left a huge information and expertise vacuum within the city government. I haven’t heard anything about Perry at all. Brigham City will be voting on the proposal either on June 19 or 26 during the regularly scheduled council meeting.
A 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.
West Valley City has voted 6-1 to move forward with Macquarie and get more details under Milestone Two. They join Midvale in deciding that getting full details is a good idea and should be actively pursued. Layton has reportedly not taken a vote yet and it is unknown when they will despite having been scheduled to do so Tuesday. Lindon, Centerville, and Murray will all hold meetings next week to discuss the deal. Lindon, Centerville and Tremonton are all scheduled to hold public votes Tuesday June 17, cutting it very close to the deadline for responses.
I don’t know when Murray, Brigham City, Orem, and Layton will be holding votes and I still haven’t heard if Perry or Payson will be doing so at all. If you live in these cities, you should contact your council members to make sure they know you support moving forward with what is currently the least expensive option on the table.
Want to ask Macquarie some more burning questions? Interested in seeing how your city council votes? Here’s the so-far definitive list of what is happening and where. Note that any of these is subject to change and I’ll do my best to publish updates.
Thursday May 22: Brigham City will have an open house at the Bunderson Center, 641 E 200 N, from 6PM to 8PM. Macquarie will be there to answer one-on-one questions.
Tuesday May 27: Orem will have Nick Hann at the regular city council meeting to answer questions and take feedback. The council meets at 3PM in the Public Safety Training Room.
Tuesday May 27: Both West Valley City and Layton will be taking votes on advancing with Milestone Two during their normal city council meetings.
Tuesday June 3: Lindon will have a public discussion item on the city council agenda. They meet 7PM at the Lindon City Center on State St.
Thursday June 5: Murray will have an open house at the Doty Center inside the Intermountain Medical Center complex. It starts at 6:30PM.
Thursday June 5: Centerville will have an open house, education session, and public Q&A at 7:30PM. I’m assuming it’s at city hall, but the location is unclear.
Tuesday June 17: Centerville, Tremonton, and Lindon should all be taking votes on advancing with Milestone Two during their normal city council meetings.
Notably absent from the list are Payson and Perry, cities that seem to have adopted “bury our heads in the sand and hope for the best” as their strategy. If you live in either city, you should contact your mayor and city council to give them a nudge.
In a unanimous vote, Midvale becomes the first UTOPIA city to choose to move forward with the proposal from Macquarie. Milestone Two will hammer out the fine details of the proposal to build, maintain, and operate the network for 30 years. The city will still need to vote to accept that finalized and detailed offer when it is completed.
Other cities are still taking feedback on the high-level overview presented in Milestone One. Murray will have an open house June 5 at 6:30PM. Centerville and Lindon both submitted detailed lists of questions and got public responses to all of them. This is shaping up to be an incredibly open process, a stark contrast to a UTOPIA that was scared to discuss anything in public for fear of being attacked again.
Keep your eyes open for postings about more upcoming votes and remember, the votes are just to move forward on getting fine details.
When evaluating if the Macquarie deal puts UTOPIA cities ahead or not, we have to figure out what the cost of doing nothing would be. As pointed out in the previous analysis, the monthly cost per household in the Macquarie deal will range from $11.48 on the high end to $0.96 on the low end. Staying the course is actually a lot more expensive than taking the deal. Allow me break down the numbers.
The current bond obligations, including future interest, are around $500M. If 163K households make payments for 30 years, that works out to around $8.52 per month per household. This isn’t the entirety of the costs, however. Based on 2013 financial data, UTOPIA has an annual operational shortfall of $2,410,380. This is around $1.23 per month per household on top of the bond debt. This brings the cost of doing nothing up to $9.75 per month per household. But wait, there’s more. The network requires a hardware refresh about every seven years at a cost of about $40M a pop. This adds another $2.92 per month per household to the total bringing it up to a whopping $12.67 per month per household. Macquarie is offering a much less expensive option on the table.
So what about versus the cost of shuttering the network? Assuming that the network could sell for $30M (based on the offers made to Provo), you’re still left with a cost of $470M or $8.01 per month per household. To hit the break even point with the Macquarie deal, you’d need a take rate between 33.5% and 38.2% depending on the utility fee. If you want to plug in your own figures for take rate and utility fee to determine the monthly cost per household, open up this spreadsheet and give it a whirl.
Staying the course is obviously not an option. Hitting a wash point with selling the network as-is seems like a bad one given how close it is to the same cost as the Macquarie deal. This is just further evidence that the cities need to move forward with Milestone Two and accept the resulting final offer.