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.

The end of the road? It’s Macquarie or bust for UTOPIA

utopia-logoPart of the visit with UTOPIA was figuring out how they’re moving forward and assess the financial health of the operation. Unfortunately, it looks like despite hitting a number of financial targets, they’ve fallen short financially. Right now, they’re still running a deficit on operations (I hear around $150-175K-ish a month) and it’s not closing as quickly as they need to meet the home stretch of the UIA plan. Right now, break even is about three years out as they concentrate on business customers. Given that subsidizing operations isn’t an option, that puts them in an operational pickle.

They were pretty candid with me when I asked questions. The switch from focusing on homes to focusing on businesses came at the explicit request of the cities. Business accounts cost about the same to get hooked up as residential, but they generate about four times the revenue. Even small businesses are worth about two homes a pop. With limited resources, they have to focus on those specific areas to at least try and cover operating expenditures.

The biggest barrier to most businesses is the brand name. Despite offering great speeds at great prices and excellent SLAs, their PR kind of bites. (Shocking, right?) The limited deployment means it’s much harder to serve multi-location businesses, though service providers have been creative in using UTOPIA where it can be had. Small businesses are challenging because many of them want the reliability of UTOPIA over cable and DSL, but there’s not a cheap enough product offering for them.

There’s some bright news, though. They’re signing up about 60-70 new accounts per month without doing much marketing or direct sales, although they could be doing so much more by using a Irvine SEO Company. There’s been a marked increase in high-dollar products like gigabit and even 10Gbps circuits. Most of the cities (including Layton, West Valley City, Murray, Orem, Brigham City, and Tremonton) are using the network extensively for city operations and reducing their own internal costs. If you’re in a completed footprint, you can pay to get hooked up. If you already have the wire on the side of the house, they don’t even have to roll a truck to do it. And operational costs are much closer to being covered than they ever have been.

And yes, the silver lining is pretty thin right now. Despite all of the good things UTOPIA has done (building to ~95K homes with ~11.5K taking service, offering cheap gigabit, 17 service providers, etc), money matters. I support UTOPIA, but the stark reality is that without any money, it’ll die on the vine. It’s here because the early problems, including an illogical build plan, the Qwest right-of-way lawsuit, and constant legislative meddling, tripped things up right out of the gate

I’ll be blunt: either the Macquarie deal happens or we could be waiting decades for fiber to get to more homes. UTOPIA is pretty fortunate to be negotiating with a company that’s bringing a lot of mutual benefit including the cities retaining ownership of the network. If it doesn’t pan out, though, I think we’re hosed.

Return of the lease? UTOPIA offers a new connection option

In a flashback of the old model, UTOPIA is offering up a new connection option very similar to the leasing option they started with. Customers who have the fiber in front of their homes can opt to enter into a 2-year agreement at $30/mo to cover the cost of installation. At the expiration of the two-year period, they can either go month-to-month or choose to re-up the contract. The upside is that there’s a shorter commitment term, but the downside is that the infrastructure charge won’t go away like it does when you buy it out. Customers who opted to purchase the connection can switch to the leased model and have their down payment applied towards the monthly charges.

To be honest, I don’t see that this is much of an advantage for users since you’re not saving any money and will end up paying in perpetuity for the connection. Since it’s only available to areas where the fiber is already on the curb, it also won’t do anything to get the network extended into your neighborhood either. It could, however, be a good way to sign up fence-sitters in existing service areas.

What do you think? Would you go for the short-term lease or buy out the connection?

UPDATE: Just to clarify, the conversion of a down payment on the connection into lease payments is only if you haven’t purchased the connection outright. If you’ve already bought the connection or have payments going towards doing so, this will still continue and you’ll still own the line. The line ownership option isn’t going anywhere.

UTOPIA’s 2011 Audit Report

UTOPIA’s 2011 audit report (PDF) has come out, and the Utah Taxpayers Association wasted no time in butchering their “analysis” of it. (If you need a good piece of fiction, go find their January 2012 newsletter; I won’t grace it with a link.) Their overeagerness to once again trash UTOPIA, however, means they ignored basic math and did zero fact-checking, but we’re all used to that by now, aren’t we?

The golden ray of sunshine in the report is a jump in total revenues of 98.7% over the prior year while expenditures dropped 7.2%. (The UTA chose to focus on just operating revenues and omitted the information about dropping costs.) Saying that this is a huge improvement is an understatement, especially when this doesn’t include any of the new UIA subscribers in the mix. While there was a small drop in total subscribers (a net loss of 210 thanks to the Prime Time meltdown), the period from July 1 to December 31 netted an additional 1400 subscribers via the UIA. This isn’t included in the audit report since 1) the audit report covers the period from June 30 2010 to June 30 2011 and 2) all new residential subscribers are being brought on via the UIA and will be included in a separate audit report beginning next year.

Since the UTA really can’t spin a good story concerning the revenues and expenditures, they chose instead to attack on the assets front. You may recall that part of UTOPIA’s bond structure is to use credit swaps to help stabilize the interest paid on their variable rate bond. Essentially, they purchased bonds with a slightly lower interest rate than what they pay and use the interest revenue to help stabilize fluctuations in bond rates, paying only the spread between the two. When UTOPIA’s audits are performed, it has to take into account all liabilities including the cost of these bonds they own. This creates the perception of decreased net assets even though UTOPIA won’t be selling those bonds until pay off their own bond. In short, it’s a paper liability that doesn’t actually cost them anything until almost three decades from now. The UTA, however, did not talk to UTOPIA to ask about this situation, instead choosing to assume the worst.

According to UTOPIA, they are currently ahead on their projections for revenues and slightly behind on total subscribers, about a wash. The first year of their five-year plan focused most heavily on existing service areas, areas where picking up additional subscribers would be relatively low-cost. Year 2 is going to focus more heavily on getting additional areas hooked up, so make sure you’re registering your interest on their website.

So the short of it is that UTOPIA has posted huge increases in revenues, a modest decrease in expenditures, and it well on-track to sign up thousands of new customers by the time their current fiscal year closes. If that’s not success, I don’t know what is.

Further UTOPIA Installation Details

I just spoke with someone who’s considering getting UTOPIA installed in Orem (yes, the salespeople are apparently out in force) and got some details about what to expect on install costs under the UIA model. The cost of installation is $3,000 which is available to both new and current subscribers. If you pay up-front, you get a $250 discount and it will drop the monthly cost somewhere in the $25 range. There are also options to finance the install over either a 10-year or 20-year period. The 10-year period requires $300 up-front and about $30 per month whereas the 20-year period is no up-front cost and around $25 per month.

The real trick with the install costs is to do a quick run-down of what you’ll be paying in the long term. Assuming a savings of $25 per month, the up-front payment for installation will pay itself back in just over nine years. Under all plans, the cost of installation will eventually go away, but Qwest and Comcast will still be charging you for that “free” installation. Odds are pretty good you’ll be subscribed to Internet service for the next two decades (and if you don’t think you will be, why are you reading this?) and there are multiple choices for service if for some reason one of the providers cheese you off, so I don’t think there should be a lot of concern about not using the infrastructure you paid for.

If you live in a UTOPIA member city and want service, make it easy on the sales guys and let them know ahead of time that you’re interested.

How To Bring UTOPIA To Your City, the UIA Way

I had previously written about how to get UTOPIA where you live, but a lot has changed in the model since then. While the old model required you to convince the city to get on the hook for a significant chunk of change, the UIA model alleviates a lot of the risk. Many of the steps are the same, but the particulars are slightly different.

  • Put together a strong proposal to make your case. Make a brief 5 to 10 minute presentation that explains how the UIA works (see post here) and why joining would be beneficial, then summarize those remarks in a 3-4 paragraph letter. Brevity is key, so stick to the main points and be prepared for questions. It’s better to have your arguments together first and then find someone to present them to. Don’t know where to start? I’m happy to help.
  • Get organized. There’s strength in numbers, so make sure you start finding other people who want UTOPIA, especially in a concentrated area like a neighborhood or particular block. You’ll also want to get business owners and leaders on board since they often carry a disproportionate amount of weight in city government. If you want to lead an effort in your city, I’m happy to setup a subdomain (i.e. yourcity.freeutopia.org) for you to post on. You may also want to consider setting up a Facebook group or an email list (which I can also host).
  • Identify city council members who would be interested. Look for those with a background in technology, research, real estate, or property management as Pyramis Company. They’ve likely had to work with sending or receiving large amounts of data that took forever to finish or can best understand why UTOPIA matters. Make contact with those most likely to support membership in UTOPIA before presenting to the city council as a whole. Don’t forget the try the mayor’s office while you’re at it.
  • Ask for an agenda item at your next city council meeting. Believe it or not, you too can speak to the city council about whatever you want. Find out who’s in charge of city council agenda items in your city and ask them if you can do a presentation on UTOPIA. More often than not, you can get about 5-10 minutes to speak. I’ve managed to get a slot at a legislative committee hearing, so it’s not that big of a deal. Some cities hear about it so much that they limit any discussion on the matter. West Jordan, for example, will only have UTOPIA as an agenda item once a year. Find out when the last time was and try to plan appropriately.
  • Be ready for an intense Q&A session. The city council will hammer you with financial questions. Make sure you’ve prepared to explain that the UIA assesses all costs of network construction to those who sign up for service, that the city will need to issue a bond for the money, and that no money is released until there is enough demand in a compact area to cover all costs of the bond plus some of the shared network costs. A city may also need to conduct a feasibility study on their dime to determine if sufficient demand exists. Above all, don’t be afraid to defer questions to a UTOPIA representative if you don’t know the specifics. Some Q&A sessions can last a half hour or longer depending on the council.
  • Plan for follow-up presentations. Cities don’t jump into these things based on a single presentation no matter how slick it might be. Plan for future city council meetings as representatives from UTOPIA, Qwest/CenturyLink, Comcast, and the Utah Taxpayers Association may be invited. Make good use of the public comment periods and make sure as many supporters as possible do so as well.
  • Above all, thank the council for their time. They’re pretty busy folks who are sacrificing as much time as you are to hear what you have to say. You’re also asking them to put some money (and their future election prospects) on the line. They need to know what you appreciate their hard work and sacrifice.

Still getting stuck? Feel free to e-mail me for help. I’m glad to put together and even conduct presentations to help spread UTOPIA as far as possible. I can also put you in touch with some representatives at UTOPIA who are happy to give your council members a tour of the facilities and provide their own presentations.

Exclusive: Payson Not Showing at UTOPIA Board Meetings

For quite some time now, Payson has seemed to be afflicted with a huge case of buyer’s remorse about UTOPIA. Back in 2008, they opted to not participate in the new round of bonding and later punted on joining the UIA. (Who knows if they’ll even come up with the matching funds to participate in the federal stimulus either.) The biggest shocker, though, comes from a review of UTOPIA board minutes. A review of these shows that Payson’s UTOPIA board member hasn’t been showing up to many of the meetings, even when one was held in Payson at what I can imagine was great inconvenience to the members of the other cities.

My review of the minutes shows that in 2009, Payson did not attend nine of the monthly board meetings. In 2010, eight meetings were missed. Neither of the 2011 board meetings with available minutes show that Payson was in attendance, and I’m willing to bet that the others that I don’t have minutes for would show a similar pattern. Making it to just five meetings in over two years is abysmal, especially when there’s the option to participate via phone.

Given the large amount of stranded investment in the city and Payson’s large financial commitments to the network, this seems like a total abdication of their responsibility to city taxpayers. Shouldn’t they be making an effort to get the network covering both operational costs and debt service? Wouldn’t it be prudent to set aside money for participating in the UIA, money that is guaranteed to be paid back by subscribers and utilize infrastructure already in the ground? Why would Payson do an ostrich impersonation in the face of the harsh fiscal realities?

If I were a resident of Payson, I’d be out for blood. Contact Councilman Brad Daley and let him know that if he’s going to be on the board, he has a responsibility to show up to meetings and do the people’s work, especially since he voted for UTOPIA in the first place. If he won’t do it, it’s time to pressure Mayor Rick Moore to find someone who will.

UTOPIA’s Five-Year Plan

I had the chance to visit with Gary Jones, UTOPIA’s new sales and marketing guy, Julie Paulson, the new PR flack, and Kirt Sudweeks, the CFO, to get some updates on how things are going to be playing out this building season. I got a pretty good rundown of where they’re going, and I think the plan is good enough to work.

The network currently has about 9,000 subscribers out of 56,000 marketable addresses. The plan calls for adding on 5,000 new subscribers each of the next five years. Under the UIA model, this would cover all operating expenses of the new subscribers and the operating expenses of the existing subscribers while potentially providing a small offset of the current pledges (though significant offsets aren’t scheduled until 2015). Existing subscribers will be given the chance to participate in the UIA model, either to buy their connection outright or finance it over 20 years, either of which will eliminate the built-in network construction costs from the old model. This would also provide a significant influx of cash to UTOPIA to help with construction. There’s also a lot going into identifying potential subscribers in areas with the network in the ground that aren’t currently signed up.

Those of you living in cities that chose to participate in the UIA will be able to sign up under the new model, but the ability of UTOPIA to build depends on group participation and proximity to existing network. If you’re next to one of the anchor institutions being wired with stimulus money, it’ll be easier to hook you up. That, in turn, makes adjacent neighborhoods easier to hook up, and so on. If you live in a small pocket without service available, talk to your neighbors and get that interest registered on UTOPIA’s website.

Now allow me to inject some reality in here. I think UTOPIA’s plan is doable. Adding 5,000 new subscribers a year, if split between new construction and existing areas, would run under 10% marketshare per year. UTOPIA can conceivably hit 35-40% of the markets they serve as iProvo did. If you’re like me and want UTOPIA to succeed and really REALLY want to get service, you’d better be prepared to work. I keep on saying it, but it bears repeating: you’re in the driver’s seat. Don’t sit back and wait for service to come to you, be the squeaky wheel that gets the grease.

If the expansion is citizen-driven and UTOPIA properly executes on the plan (which has been a sore point before), it’ll only be a few years before there’s money to pay the bonds. I have better confidence this time around because unlike Brigham City, the money is already approved and waiting for construction. (Seriously, getting the bonds passed and figuring out what to do in the areas with lower take rates cost at lest 3-4 months.) Now get out there and do your part to make this thing work.

On the UTOPIA Lawsuits and City Responsibility

I’ve been delaying writing more about this because I’ve been in the process of talking to people and gathering more information about the legal fight between Chris Hogan and UTOPIA. If you’d like to review the source material yourself, check out both UTOPIA’s filing and Hogan’s filing for yourself. Personally, it looks like a lot of “he said, she said” material. Hogan’s complaint centers around nepotism and violation of state bidding processes while UTOPIA has fired back to say that Hogan made a power play for the Executive Director’s chair using blackmail. Yeah, it’s all pretty nasty stuff, and it’s affecting people I like on both sides.

I think some of this may be a clash of management style. I’ve watched Todd Marriott operate and he’s what I would call a “vision guy”. Other “vision guys” are folks like Murray Mayor Dan Snarr and Sandy Mayor Tom Dolan. I think the world of Mayor Snarr, but Mayor Dolan I wouldn’t touch with a ten foot pole, and it comes down to the way they execute on their vision. Snarr’s approach has always been to sell you on the vision whereas Dolan focuses on making the vision happen whether you wanted to be along for the ride or not. I think Marriott can oscillate between those approaches sometimes, and that may not sit well.

Marriott also fits into what I’d call an “action guy”, someone who wants to get things done and knows just how he wants to do it. This in and of itself isn’t a bad thing, but being a government entity, there’s a complex web of rules that have to be followed with darn near every action. I’m sure that UTOPIA’s counsel is good at finding ways to accomplish these goals within the framework of state law, but I’m also certain that it ends up in unfamiliar territory and pushes the boundaries, things that have often gotten local governments in hot water with the Legislature (like Salt Lake County and the now-infamous police fee). Creativity in government, rather than being rewarded, often gets punished and can appear to be flagrant rule-breaking.

I’ve heard and read a lot of negative things flying back-and-forth and at the very least, the acrimony that has built up is some cause for concern. It would also be concerning if even a fraction of the allegations by either party is true. In all of this, I have to ask what the board is doing to avoid and circumvent these issues in the future. They certainly can’t micro-manage the people they select to captain the ship, but they absolutely need to stay on top of what’s happening and guard the public trust. I’m glad that the board has been more involved in recent years than at the beginning, but I still don’t feel as if the cities are properly invested in UTOPIA and its success.

On the surface, I can understand why. UTOPIA has spent a lot of money without much to show for it so far. (Seriously, $200M+ for <10K subscribers is not the best return on investment.) If I were in an elected position, it would be very tempting to keep things limping along until I can pass the buck to the next guy, especially if I don’t really understand the telecom market or the underlying technology. This, however, really needs to end. The cities need to be fully invested in more than just their pocketbooks. If there isn’t someone in city government, elected or appointed, who can really understand the project and help guide it, the cities should put out a call to find someone who is that they can appoint to the board.

Right now, I’m taking a “wait and see” approach. The UIA plan is good, I just worry about the execution after Brigham City took so much longer than expected to get moving. If it succeeds and UTOPIA’s finances see a drastic improvement, then whatever Marriott and his team are doing is probably going to be okay with me.  If it flops out or fizzles and we have another case of missed deadlines, it’s time for increased scrutiny. The project and its goals are more important to me than any individual involved in it, and it should be that way for all of us who support open-access networks.

I’m going to start doing my part by making an effort to be at UTOPIA’s monthly board meetings to keep an eye on things. The next one is Monday May 9th at 9:30AM in UTOPIA’s offices at Redwood and the 21st S Freeway. I hope that some of you other private citizens will do your part as well.

UTOPIA on the Way to Centerville

Yeah, I know, you’ve heard it before. This time, though, UTOPIA has a sack full of federal dollars to financing building out the middle-mile infrastructure in Centerville. Does this mean service in your neighborhood? Not entirely. The construction will get as far as the substations in the city, but getting it into your house means getting enough of your interested neighbors to sign up for service via the new UIA plan.  Jog on over to UTOPIA’s interest form and get your name on the list to be notified if/when they’re ready to build out your neighborhood.

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