Author Archives: Jesse

Broadband Bytes for 2009-06-20

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A More Detailed Explanation of UTOPIA's Bond Situation

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I had the opportunity to go down to UTOPIA’s office today to get updated on what’s going on down there. I walked away with a much better feel of what’s going on and a better understanding of what has caused the situation with the bonds. They also comitted to do a better job of keeping me up to speed on what’s happening. Here’s the lowdown on why the bonds are being called.

The bond situation they are in is complex, ugly, and not at all their fault. UTOPIA was required by the financing bank to use variable rate bonds instead of fixed rate bonds. Variable rate bonds obviously create a lot of issues with financial planning since you can end up with drastic and sudden rate changes. As a hedge against this, UTOPIA opted to create sort of a hedge against this volatility using a second type of bond. (If I screw up this explanation, someone send Kirt Sudweeks in to fix my explanation.)

The gist of it is that UTOPIA makes payments on a bond at a fixed 5.65% in exchange for receiving revenues on a type of variable-rate bond that has, historically, been withing 14 basis points (0.14%) of the type of bond they are using for financing. Because the bonds paid to them have historically been about the same as the bonds they are paying, it should, in theory, ensure that they pay no more than 5.65% on the outstanding debt.

The problem, though, is that the short-term bond market has gone completely haywire in a way without precedent. Instead of these two bonds being very close to each other in interest rate, they have instead created a delta as big as 6%. UTOPIA’s capitalized interest for making bond payments was burned very quickly as a result and the bond rates still haven’t normalized again. Another complication is that the bank that underwrote UTOPIA’s bonds had its rating downgraded and the interest rate was driven even higher.

While I couldn’t get confirmation as to what the total shortfall will be and what it would have been had bond rates not flipped out, I’m confident that this is a temporary situation. I can’t really discuss specifics, but suffice to say that after being let in as to what they are doing and what’s being worked on, they are on an upward trend that should resolve itself in a few years and they will only need to call a very small portion of the pledges. As it stands right now, they gave the cities a year’s advance notice of their intent to call and will draw from monies that have already been set aside. In effect, pledging cities have up to two years of breathing room before new money must be made available and it will be nowhere remotely close to the full pledge amount. Another positive effect is that when they go cash-positive, they can bond against subscriber revenue instead of the cities’ tax pledges, thus absolving the cities of any liability.

So here’s the take-away in a nutshell:

  • Nobody saw what was coming in the bond market because it had never happened before.
  • UTOPIA is covering operating expenses and a significant amount of the bond and will only need a fraction of the pledges for a limited period of time.
  • There’s a strong upward trend in revenues that will bring UTOPIA cash-positive within a few years and remove substantive risk from the cities when the bond is no longer secured with sales tax pledges.

What this proves is that the “free lunch” financing model requiring little-to-no upfront capital is not tenable and will not result in ubiquitous coverage. It also proves that the artificial financing limits in place by the legislature are causing a lot more harm than good. So yes, there is short-term pain, but there is light at the end of the tunnel.

Egg on MY Face: UTOPIA is likely to ask for pledges after all

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A month ago, I laid into the UTA and Rep. Craig Frank for claiming that UTOPIA could call bond payments this year. As far as I knew, the financing plan would not allow for UTOPIA to call any pledges until next year when the first payment came due. Now it looks like I’m the red-faced one as UTOPIA has confirmed that it plans to ask cities to chip in this year.

Apparently UTOPIA was only able to secure a variable-rate bond as part of the refinancing deal and was unable to convert it into a fixed-rate one. That’s not surprising given that credit markets were running a bit dry, but it is unexpected since that little detail never seemed to come up. Barring a sudden large increase in subscriber revenue, this has left UTOPIA short anywhere from $50K to $300K a month because of increased interest rates. The article didn’t reveal if that is the only shortfall in bond payments or not, but they are covering operating costs.

I’m especially upset because UTOPIA didn’t tell me that I was wrong after I published my lambasting. And I ended up finding out this morning by reading the article in the DesNews instead of getting any kind of head’s up. The lack of information available to the public is bad enough, but leaving your loudest supporters hanging out to dry just won’t fly.

Congress wants to stop metered Internet, but it's putting effort into the wrong end of the problem

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Rep. Eric Massa of New York today introduced a bill designed to put a stop to metered billing plans at large ISPs. The gist of it is that any ISP with more than 2 million customers must get FTC approval before doing any kind of consumption-based billing. Certainly companies like Time Warner and AT&T have gotten out of control with their miserly caps, but this is putting effort into the wrong end of the problem.

This proposal is just more of the same: highly restrictive regulation for the incumbents that gets constantly gamed and does nothing to promote better service provider choices. Given that the status quo of telecommunications regulation hasn’t ended up working so well, why on earth would we even entertain this idea? Lunacy is doing the same thing and expecting different results.

We should instead be focusing on how to increase competitive choices in the marketplace so that consumers have the option to pick their service provider. I’m confident that the only reason any service provider can get away with ridiculously low caps is because consumers can’t flee to another service. Once there’s some more competitive pressure, we’ll see those prices drop like a rock. In fact, markets with 4 service providers have prices that average about 25% less than markets with just two providers.

Let’s make sure our Congresscritters start focusing on the right part of the story. Competition is good. Regulation? Not so much.

Broadband Bytes for 2009-06-13

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Sale Fail: Provo Considering Contingencies for iProvo

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Found a nice little tidbit buried at the end of a story on Provo’s financial difficulties. Apparently the city is already preparing for the worst case scenario of getting the network back as Broadweave has depleted half of the reserve fund to make bond payments. Given that Broadweave is likely to lose a large chunk of reliable revenue from Traverse Mountain should they get booted out, my money is on the network being back in city hands by next year. Anyone want to give odds on this?

Is Twitter for Customer Service or Damage Control?

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Comcast has gotten a lot of praise for their Twitter customer service team and I don’t doubt it’s been responsible for their sharply increased rating on the American Consumer Satisfation Index (ACSI). I’ve used their team myself to resolve problems that support doesn’t or get quick answers to service questions. While I think they’re doing a valuable job, their function has been misidentified as customer service.

In my mind, customer service starts the minute you initiate contact to resolve an issue. You have an expectation that when you call in, you’re going to walk away with some kind of resolution. When you get conflicting answers from a CSR or don’t get your problem resolved by tech support, you’re not getting good customer service. By the time you’re venting on your blog, on a forum, or on your Twitter account, the damage is done: you got poor service.

When the Twitter-based customer service ninjas swoop in to try and get the problem fixed, they’re in full-on damage control mode. This isn’t to say they aren’t doing a great job of cleaning up messes; they are. But the core problem, that the customer service team failed to deliver, still hasn’t been fixed. I often don’t bother calling in with problems because I know I’m going to spend half an hour rebooting everything to have them blame my router, demand escalation, sit on hold another 15 minutes, and then face getting disconnected. It’s a lot easier to either complain online or seek out the Twitter folks to get things done.

This lesson is an important one for other service providers as a lot of former Comcast customers I’ve spoken with have sworn off ever going back because of customer service issues. Many Mstar customers have been in the same boat. Even though XMission’s DSL service is slower than Comcast and sometimes a bit more expensive, customers are fiercely loyal because the service is, by all accounts, awesome. It’s not because they’re using Twitter, it’s because they don’t have to in order to resolve customer issues.

Qwest Thinking VDSL2, Could Be Too Little, Too Late

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The biggest black eye in Qwest’s attempt to bring their broadband offerings into the 21st century has been the abysmal 896Kbps upload speeds, even when using ADSL2+ and FTTN. According to some insider posts at DSLReports, that may change. According to the tipster, Qwest is looking at VDSL2 with plans to bump the upload speeds to 5Mbps with a new top tier pushing 40Mbps/20Mbps. Even so, it’s not enough to catch up to UTOPIA or even Comcast.

The real question is if Qwest can afford any kind of widespread deployment. Since the company couldn’t unload its long-haul operations for anywhere near the asking price, Qwest is where it always has been: too deep in debt, too cash poor, and hemmoraging landline customers to VoIP, cable, and wireless carriers. They halted the current ADSL2+ installs citing that the winter weather was preventing them from continuing the build, but we all know it’s cash flow issues. Like a lot of analysts, I think Qwest is going to continue to wither until they find a cash-rich investor looking for a fixer-upper.

And if Qwest is more-or-less at a standstill, what are the odds of Comcast dropping DOCSIS 3.0 tiers in Utah? Pretty slim unless you live in Provo or a UTOPIA city where fiber is prodding them forward. It’s no secret that Comcast has, to date, focused network upgrades most heavily on areas where Verizon’s FIOS is the king of speed. As half of the duopoly crumbles, you can expect more of the same from Comcast: ho-hum speeds, mediocre pricing, and lackluster customer service (their Twitter damage control unit customer service team notwithstanding).

Twitter Weekly Updates for 2009-06-06

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Utah Tops In Internet Adoption, But What About Speeds?

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The Deseret News reported that Utah has the highest rate of Internet use of any state, topping out at 74.8% of homes. In a “well duh” moment, they attribute it to the young population and large concentration of tech companies. What was missing, however, is the full picture on how we’re doing speed-wise.

And that, friends, is a mixed bag. According to the results from SpeedTest.net, Utah doesn’t even crack the top 10 for download speeds. We do, however, place second when it comes to upload speeds, no doubt due to symmetrical connections available on the various fiber networks in our state. When you narrow in on our state, the best download and upload speeds come from Lindon and Orem, both cities with UTOPIA fiber. Provo comes in fourth on both lists with Broadweave/iProvo. Incumbents don’t fare so well. Qwest doesn’t crack either top 10 list and Comcast only makes the download list.

We should be demanding not just that Internet access be widespread, but that it be high-quality as well. The incumbents’ inability to deliver next-generation bandwidth is leaving us far behind the rest of the pack.