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.
So, after messing around with the spreadsheet, would there ever be a situation where the households get a reduction in costs? I see at 56.95% take rate, it’s a wash ($0.00 cost to households each month), beyond that do we actually get a cost reduction? I know that the odds of getting higher than 50% aren’t realistic, I was just curious.
As for the deal, it needs to happen, we’re on the hook for the money anyway, we might as well get what we paid for.
That’s totally up to the cities. My best guess is that if revenues exceed the original bond plus utility fees, the extra money would go back into the city’s general fund. It would be up to them to decide if it’s a windfall to be spent or if it would be used to reduce other taxes.
Worth noting: when the cities get the network back at the end of 30 years, they will be raking in an estimated $51.13 per month per household in additional revenues. That’s an awful lot of cash.
Where does the 51.13 /household come from? What I pay the ISP for service isn’t that much even if you include the utility fee unless I’m paying for gigabit speeds.
The Milestone One report shows an annual windfall to the cities of $100M once they get the network back in 30 years. Divide by 163K homes and twelve months to get that figure.
Sure, but I think Peter’s question was where that $51.13 actually comes from. How can the average (non-inflation-adjusted) revenue be $51.13 per household without an extremely high (100%?) take rate of all the premium services?
I have no idea. Those are the figures from the Milestone One report. I’d recommend going to one of the various meetings and asking them how they came up with that number. In either event, the retirement of the $500M original bond debt in 30-ish years drops the break-even point by almost a third.
Jesse, do you know if they’re contractually obligated to continue to build out in new developments throughout the 30-year contractual period?
For example, if after 29.5 years, a new subdivision goes in, clearly Macquarie wouldn’t be too excited about the capital outlay for connecting that subdivision since they wouldn’t even come close to recovering their investment through a few months of utility fees.
Yes, building out all new developments is part of the proposal. Something that will reduce costs is that the developer will be required to lay conduit for them to pull cable in. Provo has done that for years on new neighborhoods.
Ha, if any of you think government will ever give reduce taxes after they pay it off, we are only wishing. They will keep it for an emergency or some other reason.
More like they will keep it to line their pockets…
If only there was a way to demand accountability and remove corrupt money grubbers from being our overlords.
Pete, I think you are on to something! We should create a system where we get to select who are leaders are. Secondly, we should periodically have the chance to NOT choose them if they act in ways we don’t approve of.
I believe in one of the recent city meetings it was mentioned by a city manager that if the network were to go dark the bonds would be called upon. So the money to pay for the bonds would be needed right away not over the remainder of the 30 years.