Layton says yes to Milestone Two

LaytoncitylogoLayton 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.

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.

Updated List of Macquarie-related Meetings

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

Votes:

  • 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.

West Valley City to Macquarie: We’re in

West-Valley-City-logoWest 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.

Schedule of Macquarie-related meetings

macquarie_logo_2638Want 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.

BREAKING: Midvale is the first UTOPIA city to say ‘yes’ to Macquarie’s Milestone Two

midvale_logoIn 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.

How does the Macquarie deal stack up against the other options? Very favorably

macquarie_logo_2638When 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.

 

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.

What you need to know about Macquarie’s proposal to UTOPIA

Macquarie has let their proposal out and it looks like they’re planning to make good on many of the rumored details. There’s also a number of very attractive points that will make this an easy sell for new cities to join. Some highlights:

  • The network build will be done in existing pledging UTOPIA cities in 30 months.
  • The fee will be $18-20 per month per subscriber address with a 50% discount for MDUs and a 100% premium for businesses. This amount will be indexed.
  • Utility fees will have a grace period of 6 months from construction to allow ISPs to hook people up.
  • The free tier of service will be 3Mbps symmetrical with a 20GB monthly cap. All service providers must agree to offer it as a condition of being on the network.
  • Cities stand to earn between $1.0B and $1.5B depending on the take rate. That’s 2-3 times the existing debt service. On the low end, it would drop the Macquarie fees by almost half. On the high end, it could almost entirely cover the Macquarie fee.
  • Speaking of revenues, the cities stand to rake in another $100M annually when the network reverts to their control in 30 years.
  • Macquarie will be aggressively promoting the network and intends to extend it to any city that wants to accept its terms. Cities without existing debt service may end up making a good bit of money on the deal.

The worst case scenario is that it is a wash with what they have now except the network gets completed and everyone gets free service. In the best case scenario (which I still this is a little too conservative), they end up paying almost nothing for the network. I’ll just come out at say it: any city council that doesn’t move forward on this deal is committing an act of deliberate and malicious fiscal malfeasance against their city and its citizens.

Macquarie has already presented this information in Utah County and will be presenting again Wednesday April 30 at 7PM at Layton City Hall and Thursday May 1 at 8PM at West Valley City Hall. Show up and make sure the cities know you want this deal to happen.

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.