Google Fiber: The best deal Provo deserves, but not the best deal it can get

Yep, that’s my final take on Google Fiber taking over iProvo: even though you can, you’re not willing to do any better, so go ahead and take the deal.

Google is effectively getting a free lease on the network for a $1 security deposit. Yes, legally, it’s getting “sold” for $1, but Provo has the right to buy it back for the purchase price if Google either doesn’t meet its service and upgrade obligations or decides to stop providing service. That may sound like a decent deal with Google pumping $18M in upgrades into it, but Provo doesn’t have the best track record with getting ownership back, do they?

Meanwhile, Provo is left holding the debt and paying $39.6M over the next twelve years. The city seems to value the network asset at just $25M, and other offers to buy the network were low-balled at $10M. Why has so much value disappeared? It’s because of a string of poor choices with service providers. First there was HomeNet. Then Mstar. Then Broadweave. By the time Veracity came to the table, they didn’t have quite enough oomph to overcome the immeasurable brand damage done by their predecessors. A network that used a $40M bond and who knows how much in federal grants  (which is what built the initial fiber rings) has managed to lose value simply based on perception.

I think Provo can do better. My back-of-the-napkin math is that Google picks up 70% of the total subscribers in town. Half of those are likely to use the free service and pay in one-time revenues of $367K, barely anything in the big picture. Of the remaining half, I’d bet they’ll be evenly split between Internet-only and double play for an average monthly ARPU of $95 each. That works out to about $14M per year in revenues.

On the expenses side, the upgrades are costing Google about $2.57M per year over the seven-year commitment. If Google were to assume the bond payments (and let’s assume they end as soon as they leave), they would still have $8.13M annually to cover expenses related to network operations. This doesn’t even include the revenues that Google is likely to get from TV ad revenue. In short, Google could both assume the bond and do well financially.

That said, I don’t think the council is going to try pushing for those terms, even if they are a win-win. Just as with most things in Provo politics, the die has been cast by the executive and council approval is merely a formality. The short public review period of under a week makes it perfectly clear that questioning the deal is not welcome. I think this deal is a neutral as it currently stands, but I wouldn’t be surprised if there’s a bit of buyer’s remorse down the road.