Category Archives: Essays

Advocacy essays in support of UTOPIA, iProvo, and municipal broadband in general.

A Broadband Moonshot for Utah

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Lieutenant Governor Spencer Cox, as part of his campaign for governor, recently challenged Utahns to send him their best big ideas, something audacious with impact across generations. Anyone who knows me knows where I’m going immediately.

For years, I’ve harped on there being no real broadband plan in Utah. The “plan” released almost five years ago was light on specifics and deferred far too much to the incumbent operators that have left us in an underserved mess. Since then, the Utah Broadband Outreach Center appears to have mostly gone dark. Website updates are sparse and agendas are often posted weeks or months after the actual meeting happened. Maps are often outdated assuming the links still work at all. With the big focus on rural economic development and remote work, this has become a foundational issue that requires all hands on deck.

The most baseline of things that has to happen is giving UBOC the funding and authority to build an accurate and useful map of wired and wireless broadband availability. I’ve had many conversations with local government officials who discount the poor state of broadband because the voluntary and unaudited submissions from providers misrepresent what the field looks like. When you don’t know where you are and that there’s a problem to be solved, you can’t chart an appropriate course. The map needs to have wired, fixed wireless, and mobile wireless data, updated at least annually, and audited for accuracy.

With a proper map in hand, we then need to focus on four key metrics: availability, affordability, quality, and competition.

Many homes in Utah do not have broadband access, even at the FCC’s inadequate definition of 25Mbps down, 3Mbps up. Even more only have a choice of a single provider at this speed. While this is more common in rural areas, it happens in the middle of urbanized areas of Sandy and Holladay too. A map helps us identify those coverage gaps so we know where to put our efforts.

Cost of broadband is often a barrier to adoption. DSL, while dog slow and antiquated, has high adoption in low and fixed income households because it’s very cheap, in the $20-25/mo range. Many middle and upper income households target around $70/mo, the standard going rate for gigabit fiber where it is available. In many cases, the cost of access often exceeds this and leaves people either buying less broadband than they need and relying on wireless service with monthly transfer caps, throttling, and signal issues.

While speed is the most readily and easily measured indicator, it is by no means the sole metric. Broadband also needs to have low latency to support voice and video communications or it will appear to be unresponsive. It also needs to be able to deliver consistent results, both for speed and latency. Unreliable and inconsistent quality of your connection can make it ineffective.

Competition is how we make sure broadband gets and stays good. It drives down prices, has higher customer satisfaction, and provides for a better product. Open access networks like UTOPIA provide robust competitive choice among many providers and open up broadband to be a free rather than captive market.

So how do we get there?

The biggest barrier to deploying networks is and always has been cost. Despite some improvement on best practices, Google Fiber learned very quickly that deploying fiber is an expensive proposition. Fixed wireless, while cheaper, also requires fiber to the tower and doesn’t deliver the same quality level as fiber. Mobile wireless has never and likely will never be in the same class because of the technical limitations. The only real option is to focus on fiber with wireless for edge cases and the hardest to reach areas.

Colorado provides some source of inspiration for how to tackle this problem. They provide grants and low-interest loans to cover deployment costs beyond what’s within a margin of the industry average, around $3500 per home. This targets the money at locations that are not served due to cost, but I think it needs to go further with conditions. If we’re going to promote competition which addresses affordability and quality, then we need to have a requirement that any funding only go towards open access networks with a minimum of three providers. This ensures that while solving the availability problem we do not also neglect the affordability, quality, and competition ones.

If you look to who has been doing the most work on improving broadband in Utah, it’s been primarily cooperatives (like South Central Communications), small rural telecoms with access to federal funding (Beehive, CentraCom, Emery Telecom), and municipal-lead efforts (Provo, Spanish Fork, the various member cities in UTOPIA). This isn’t to say that any of them achieves the ideal or has not encountered plenty of problems along the way, but they certainly understand the marketplace better than moribund incumbents like CenturyLink and Comcast, companies whose names are often used as “farm words”. Involving them in conversations, even if they aren’t entirely on board with the bold vision of universal open access fiber, is crucial to making it all work.

I don’t exaggerate when I say that a universal open access fiber network to every corner of the state would be as transformational, economically and socially, as rural electrification was last century. If you want a big bet that outlasts everyone alive, that’s where you should be all in.

After a long hiatus, Utah Taxpayers Association once again sock puppets for incumbents

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Man, it’s been a long time since I’ve had to write about the Utah Taxpayers Association. Once Royce Van Tassell left for greener pastures, the UTA was pretty quiet about all things UTOPIA. In fact, I understand that the last time UTA and UTOPIA sat down UTA left frustrated that they couldn’t find any good ways to spin the financials into more bad news. Trust me when I say I had a smug sense of satisfaction at that piece of information.

It seems, though, that their financial overlords, uh, “members” such as CenturyLink and Comcast have sounded the klaxons to demand more sock puppeterring on their behalf. Newly hired Vice President Rusty Cannon spewed out the usual array of half-truths and flat-out lies in conjunction with Red Meat Radio host, now former (yay!) Utah State Senator, and UTA President Howard Stephenson asking all the usual leading questions. Unfortunately for them, facts aren’t even remotely on their side.

The first assertion is that both UTOPIA and UIA are both “financial disasters”. This is a curious claim to make after years of silence. In fact, let’s look at the June 30 2018 financial reports for both UTOPIA and UIA. UTOPIA is covering its operating expenditures just as they have claimed for years, a substantial improvement over the last five years. UIA is actually increasing its net position. It’s hard to see the financial disaster being claimed, especially since anyone with a grasp on accounting principles knows it’s so much hogwash.

Cannon goes on to claim that UTOPIA carries $297M in debt service, yet the latest financial statement shows only $282M in debt. Of that, just over $98.3M is in notes payable to member cities as a promise to pay them back for bond payments. Since UIA is generating revenues in excess of operating expenses, the cities can reasonably expect to be paid back as the bonds are converted into notes payable. Weirdly, Cannon also claims that UTOPIA has a shortfall of up to $2M in operating expenditures, yet the financial statements show very clearly that operating expenditures are being covered. You wouldn’t be blamed for wondering if he doesn’t know how to ready financial statements or if he’s just doing the usual UTA business of flat-out lying.

Comically, Cannon cites a widely discredited Univeristy of Pennsylvania study on municipal networks as evidence that almost none of the projects work. Both Brookings Institute and our friends at the Institute for Local Self Reliance have delved into the results of that study and found cherry-picked data, incomplete data, falsified data, and false equivalencies. Choosing such a poor resource to lean upon exposes the weakness of the argument being made. Not one to be left out of the conversation, Stephenson then chimes in about the broken promised made under Roger Black nearly two decades ago with zero admission that the direction of the agency has changed dramatically in the last five years.

Most incredibly, Cannon then tries to insinuate, just as detractors did almost 20 years ago, that fiber could be obsoleted by 5G (ha!) or some as of yet unknown technology. The claim is entirely preposterous both to anyone familiar with the telecom landscape and any halfway competent technologist not blinded by ideological arguments. Verizon has straight up said that the only way their 5G network will perform as desired is with (drumroll please)… deeply deployed gigabit or better fiber. Every year, the supposed speed limit for existing fiber strands is shattered with some new lab breakthrough. In 2018, a link topping 159Tbps (yes, terabits) was demonstrated over a distance of 1045km. The absolute fastest wireless product in a lab barely hits 10Gbps under the most ideal of conditions and at comically short distances.

So why, after years of silence, is UTA roaring back? Probably because dozens of cities are looking at municipal fiber, they’ve seen what successful models have emerged, and UTOPIA has both proven those models and their operational excellence at running the largest and most-loved fiber network in the state of Utah. This is leaving incumbents terrified that there could be a wave of new municipal fiber builds reacting to their shoddy second-rate networks, infamously poor customer service, and generally acting as awful as you expect monopolists to.

To the Utah Taxpayers Association: bring it on. I’ve wiped the floor with you before and I’m happy to do it again.

Once again, the Daily Herald completely misses the mark on UTOPIA

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It’s pretty incredible that even now newspapers can’t get stories about UTOPIA right. The Daily Herald penned a recent op-ed that managed to skip or mangle so many facts that it’s no small wonder they came to the erroneous conclusions that they did. I have to take some time to dissect the many, many ways in which they fall into decades-old failing arguments and end up doing little more than parroting the kind of tripe the Utah Taxpayers Association has shoveled since the very beginning.

First, they start off with a few paragraphs talking about 5G wireless. Remember when everyone told us that 4G LTE deployments would eradicate the need for wired Internet service at all? Or that WiFi would do the same thing? Yet here we are, two decades after 802.11 was introduced in consumer devices and nearly a decade into LTE deployments and that’s nowhere near the case. 5G will be no different. It lives on short-range frequencies that require deploying a ton of infrastructure to support. And, surprise, a big part of that is fiber to each one of the access points.

Then they declare that bonding to finish construction puts Orem in deep financial trouble. Except, well, it doesn’t. Ever since the SAA/UIA model rolled in, every bond issued is guaranteed by subscribers. It won’t even get issued until the take rates are high enough to break even. The latest news about the UIA is that it even generates revenues in excess of the bond costs, a net positive. So, seriously, where is the downside when the worst case scenario is break even?

Oddly, they then launch into concerns about Orem’s needed infrastructure spending. But what is fiber if not infrastructure? Given past results, a new UIA bond would cover some of the original bond debt and free up more money to spend on other things including roads. It’s concern trolling at its finest.

There’s one of two possibilities for the sloppy fact-omitting editorial that the Daily Herald’s board pumped out: they either are ignorant of the facts or chose to deliberately ignore them. In either case, they have acted very irresponsibly by pushing a view that doesn’t jive with reality. Hopefully they’ll be open to getting educated and publishing a “mea culpa” response.

If GOED is serious about rural business, they need a broadband plan

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© Michael Gäbler / Wikimedia Commons / CC BY-SA 3.0

Reading about how bad rural broadband can be is one thing. Experiencing it is another. Living in Cedar City for three years and spending a lot of it exploring Southern Utah from here to Delta to Moab to Mexican Hat has made it painfully obvious how awful the situation is across large swaths of the state. Unfortunately, almost all of the attention for improving broadband has been focused on the Wasatch Front with the occasional bone thrown to St George. While a few towns have been the beneficiaries of Universal Service Fund money building fiber to their doorstep, most of rural and small town Utah has been left behind.

Businesses now consider sufficient telecommunications services to be as critical as roads and utilities like water and power. This means being able to both purchase sufficient speeds and do so at a reasonable price. Across the Wasatch Front and the metro Saint George areas, businesses can buy almost any speed they want from multiple competing carriers. But when it comes to rural locations, you’ve lucky if you even get competition between two companies for access quality that would have been considered merely adequate a decade ago. Neglecting this critical infrastructure is not an option to attract serious businesses to Utah’s smaller towns and rural counties.

In the middle of this is the Utah Broadband Project. Now, I do not meant to throw them entirely under the bus. Their mandate is to map out broadband data across the state and they do so with relatively few resourced. When there are inaccuracies pointed out to them, they are quick to correct them. That said, this is the limit of their mandate and funding. They have no authority or funding to do real world broadband surveys to determine if the self-reported data from providers is accurate at all. When I talked to the head of the program, Kelleigh Cole, her concern at any expanded authority was that providers would no longer be willing to voluntarily give up data on their coverage and speeds. That self-reported data often contains inflated claims about speeds and availability. More frustratingly, the agency takes absolutely no positions on what can be done to improve broadband around the state, instead being a broker for the very limited data they compile.

So what we have is an agency doing the best they can with the extremely limited money and power they are provided. Unfortunately, it leaves us with a very incomplete and often inaccurate picture of the broadband landscape. This data is being actively used by legislators and city officials to craft broadband policy. If we give them bad data, they will make bad decisions. GOED is not an exception to this rule.

Those bad decisions seem to be the result of the unfortunately rote GOP line of “let the market sort it out”. Well, the captive markets of rural communities have been sorted out, and it’s overwhelmingly a case of CenturyLink more-or-less abandoning those markets, a few scant cable companies gobbling up the markets where they actually compete, wireless ISPs providing speeds that don’t fit the legal definition of broadband, and a few ILECs gorging themselves on federal monies to entrench their own monopolies. The rural and small town “markets” get subpar speeds at inflated prices and often have very little actual competition. Looking at the goals set forth in the almost three year old Utah Broadband Plan, a document wipe with platitudes and obnoxiously passive voice, it appears to be on track for being ineffective at doing much of anything.

GOED needs to be very clear that without rural broadband, it cannot fulfill its promises to deliver new jobs to rural areas. Legislators in rural areas need to respond by giving the Utah Broadband Project the kind of teeth it desperately needs to actually improve the state of broadband in Utah through accurate data. And, like it or not, the state is going to have to spend money on critical middle mile projects and remove barriers to wholesale open access municipal networks like UTOPIA if it really wants to spread affordable, quality, ubiquitous, and competitive broadband throughout the state. Paul Mero issued a pretty clear call for political conservatives (especially those in Utah) to stop being ideologues and start actually getting things done. This is a sore spot where they can do so with overwhelming public approval.

Time to get on the ball.

Macquarie cities, it’s time to make a decision

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macquarie_logo_2638Maybe it’s just me, but I’m starting to tire of waiting for the cities who opted into Milestone 2 of the proposal from Macquarie to finally act. After missing the original August deadline to complete the report, there’s been almost dead silence. Nobody seems to want to talk about it, UTOPIA itself is kept in the dark, and aside from a draft that leaked months ago, there’s been absolutely nothing for public review. After the tumultuous ride that we’ve all been through on UTOPIA already, does this seem like a good way to win over the public trust?

I get that this is a very complex deal. With only half of the cities on board representing only slightly more than half of the network, it creates a lot of complexities. It’s also no small matter to try and re-work the costs to stay as low as possible for those who stayed in. No doubt the deal is being engineered to also try and entice in some of the cities who decided to pass.

But we’re past the point where the complexity of the deal justifies, well, much of anything. The cities need to stop discussing the minutiae to death and start accepting that they, in fact, are not in the position of power when it comes to negotiations. UTOPIA is a half-built network that’s barely about to cover its operating expenses. Even supporters of the network hate the way it’s been run, say nothing of people who still continue to try and find a way to kill the network no matter the cost. Macquarie got pretty well blindsided by the complex politics involved and the cities have a kind of fearful fatigue in discussing the issue any further when any position will draw wrath and ire from some vocal minority.

None of this justifies the complete and total lack of public discussion. In fact, it makes it worse. People want to know what’s going on. If you don’t tell them, someone (probably the Utah Taxpayers Association and their big donors Comcast and CenturyLink) will toss whatever speculation they want out there to see what sticks. By waiting to talk about anything until every little tiny detail is sewn up, Macquarie and the cities are leaving an opening to be derailed early and left constantly playing defense. This has basically been UTOPIA’s entire PR playbook as far back as I can remember and now the name is so toxic that everyone agrees it’ll have to die no matter what happens with Macquarie. That’s not exactly a winning move.

Macquarie and cities, start talking to us. The more you wait, the worse this looks.

What you need to know about the Utah Broadband Plan

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Utah Broadband ProjectThe Utah Broadband Project recently released the Utah Broadband Plan, the culmination of almost five years of work paid for by a federal grant. This builds upon the Utah Broadband Map and a report on broadband adoption within the state. The report has four  main objectives:

  1. Strengthen and Grow Existing Utah Businesses, Urban and Rural
  2. Increase Innovation, Entrepreneurship, and Investment
  3. Increase National and International Business
  4. Prioritize Education to Develop the Workforce of the Future

The first unfortunate thing that pops up is that the group that put together the report recommends against treating broadband like the utility it is, yet it also rightly calls it “infrastructure”. Despite broadband being more-or-less unregulated as it is and leading to no competitive choice for 25Mbps+ for 55% of Americans, they state flatly that regulation “would be costly and could result in undesired impacts including constraining industry growth”. This strikes an immediate poor response for the many Utahns who, even in urbanized areas of Salt Lake City, cannot purchase wired service that meets the legal definition of broadband.

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If Macquarie wants to win over cost-wary cities, they may need a new plan

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macquarie_logo_2638In all of the city council discussions over the Macquarie deal, the conversation has been dominated by the potential cost of the utility fee. Even with the extremely high probability of generating enough revenue to cover the utility fee and reduce the bond payment, it’s all about what how much money is going to be collected from the cities. This has sunk the deal in about half of UTOPIA cities and looms as a threat over the ones that opted to get more details under Milestone Two. If Macquarie wants this to pass, they need to quash this main opposition talking point.

My projections are that this Macquarie deal creates a whole lot of money, both for Macquarie and the cities. Macquarie is operating in a very risk averse fashion despite this. They need to put more skin in the game in order to get current UTOPIA cities to take the deal and expand it across the state and the nation like they want. With their size and the low break-even point (35%-ish take rate), that should be easy to do.

Macquarie could alter the deal to eliminate or sharply reduce the direct utility fee. In its place, they should stipulate that they take 100% of the wholesale revenues until what would have been the utility fee is covered, then go back to the revenue split for any money beyond that. This would remove the possibility of cities having to pay anything for the deal and creates a small (and very remote) risk of them taking in less money than what it costs them to operate the network. There would be no way to scaremonger that the cities would be creating a huge tax on residents.

This is still a really good deal for cities. They eliminate all operational and maintenance costs associated with the network. If it doesn’t work, the only money they have to pay is the original bonds that they would have had to pay anyway. If it does work, they lower the bond payments. Either way, the network gets done, they eliminate the operational costs, and they get a completed network back at the end of 30 years.

There’s still downsides to this approach. Macquarie had planned to bond for 80% of the money needed to complete the build. The utility fee ensured that they could secure the best possible rates to do so. Without that kind of security, they would have to find alternate financing options or direct money internally to the project (and away from other projects). It could be harder for Macquarie to pull together the money and it will definitely mean that the revenue split for cities would be much smaller. It also means that Macquarie could end up not meeting their required ROI.

Maybe what Macqaurie could do is offer the cities three options and let each city pick the one that works for them. Option 1 would be the current utility fee with a maximum amount of revenue sharing to the cities. Option 2 would be no utility fee, but the cities have much lower odds of getting any kind of wholesale revenue split. Option 3 would be a lowered utility fee with a lowered share of wholesale revenues going to the cities. This would allow a lot of flexibility in how cities can opt in. It also allows Macquarie to at least partially take advantage of lower interest rates for the cities who take Option 1.

So far, Macquarie hasn’t played the politics of the situation very well at all. Despite a few big successes in the beginning, they’ve gotten their clocks cleaned in most of the cities that voted later and they haven’t been willing to accept that this is a full-scale war, not some alley fight. I’m hoping that they’ve paid attention and are willing to look at ways to keep this a good deal all around while defusing the biggest arguments against taking the deal.

Making the Macquarie deal better: things every city council should consider

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macquarie_logo_2638The Macquarie deal is really good. I have doubts that UTOPIA cities are going to get a better offer at all, and the odds that any other offer would even have a chance of paying any of the existing bond debt are very slim. That said, there are things that all city councils should work on to make sure this is the best deal possible. Here’s what I think they need to do.

Specify speed increases on the basic tier

Including a basic tier of service seems to be a must-have now that Google Fiber has done it. I think the included tier is a pretty good deal overall, but the contract must specify a rate at which those speeds will gradually increase. The FCC already defines broadband as 4Mbps/1Mbps service. It’s rumored that they’re going to bump that to 10Mbps/3Mbps Real Soon Now(TM). I don’t think the basic tier should necessarily match what the FCC calls broadband, but it certainly can’t sit at 3Mbps/3Mbps forever. Make sure the speed increases are built into the contract, potentially as a function of the FCC definition (i.e. 75% of FCC broadband downstream speeds for upstream and downstream).

Specify increases in the transfer cap on the basic tier

A lot of people got riled up over the 20GB cap on the basic tier, but for someone who’s doing really basic usage, that’s actually pretty good. That’s 100 hours of YouTube a month or 30 hours of SD Netflix. Most people on the basic tier probably won’t be using very much anyway. That said, the cap needs to rise with time just like the speeds. 20GB is good today. What if it’s not good enough tomorrow? Make sure the contract specified that it will increase.

Require providers to fully disclose the terms of transfer caps

While we’re speaking of transfer caps on the basic tier, I think we also need to get ISPs to be VERY clear and up-front about how they handle the cap. The spectre has been raised that a hard cap could mean that someone loses their VoIP E911 service when the cap runs out. It could mean big overages. All of these terms need to be up-front. Providers should disclose if they have no caps, a soft cap (with the terms of the penalties for repeated overages), or a hard cap (with transparent pricing on purchasing additional transfer). Anything less would not be acceptable.

Require all revenues to pay down the bond debt and utility fee

City councils should already be prioritizing revenues from the system to go towards first paying the bond debts and then reducing the utility fee. Should. Citizens need to make sure that they codify that this is how they’re going to actually do it. This removes the threat that revenues from the system will flow into the general fund and the full utility fee will be assessed to residents. That would be completely unacceptable.

Try to assess the utility fee on users only

Cities are free to figure out how to collect the utility fee from residents and businesses. Macquarie has suggested “everyone pays” as the model. That kind of stinks since the entire point of the UIA was to shift costs from taxpayers to subscribers, but it’s a hard reality of how city finances work, because of the financial struggle is that companies like forbrukslån try to give people a better option. If cities can get the net utility fee low enough, they should seriously consider assessing it to network subscribers only. In the unlikely event that the income covers both the utility fee AND the bond payments, those who paid should be first in line for rate reductions to be made whole. Once the bonds are paid off, those who paid should also be first in line for reaping the benefits.

Conclusions

City councils are the ones ultimately in the drivers seat on these items. The first three need to be hammered out in the Milestone Two proposal. It’s entirely possible that some of them have already brought up one or more of these points. The final two, however, are entirely up to them. And it’s entirely up to you to let them know that’s what you want too.

What’s in it for Macquarie? Understanding why they want a good deal for the cities too

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macquarie_logo_2638A pretty common accusation I’ve seen lately is that Macquarie is looking to lock up UTOPIA cities in a contract to make a guaranteed buck. After seeing fly-by-night operators like Broadweave and the almost comically underqualified attempts by FirstDigital (let’s not even get into HomeNet), I can’t blame someone for being just a bit cynical. Once you understand what they’re after, it makes it clear why they need the cities to win for them to win.

Based on the amount Macquarie will collect under the utility fee, the rate of return is somewhere between 3.7% and 4.7% less expenses for operating and maintaining the network. This barely keeps up with inflation, so a lot of the profit depends on getting a healthy take rate for the network. They actually have a strong financial incentive to make sure the network succeeds or they may barely break even.

They are also a VERY large company with over $140B in assets. They’re used to doing multi-billion dollar projects like toll roads, airports, and other infrastructure projects. This investment of $300-400M is relatively small. For an entry into telecommunications networks to work for them, they need to scale up. This means getting other cities on board. The only way that can happen is if the projects have a high likelihood of breaking even or better. UTOPIA cities are stuck with their existing bonds, but the deal is to generate enough revenue to cover Macquarie’s utility fee and have money to reduce the amount charged to residents for bond service. Cities without existing bonds will want to end up padding city coffers to take the deal.

There’s also a much longer term opportunity here for Macquarie. If they do a good job at operating and maintaining the network, they may be asked to continue doing so at the end of the 30 year deal.  It could also open up opportunities for them to take a similar role as a network management company for other networks across the country. For a company that’s focused on stable long-term returns for investors, not the quick buck, this is a dream position to be in.

If you haven’t figured it out yet, this is a small bet that Macquarie wants to use to sell this plan to other cities. If they don’t do a good job and make it no or low cost to new cities, that won’t happen. It could also result in reputation loss in their other market segments, something a highly conservative investment bank wouldn’t want to be caught up in. So will Macquarie act in the best interests of the cities? Yes. Because they have to.

Econowest Associates report for Utah Taxpayers Association makes huge mistakes, omissions

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Utah Taxpayers AssociationAs if the hyperbolic uNOpia site wasn’t light enough on facts, the Utah Taxpayers Association also commissioned a report that repeats many of the same mistakes. Apparently the hope is that by repeating the same lie over and over, it’ll end up being true. In this case, it appears that Doug MacDonald, who prepared the report, chose to merely parrot what his client asked him to. Let’s go through section-by-section and find the glaring errors and omissions, shall we?

Number 1 (pg 2)

  • Doug is making the same error of insisting on using inflation figures rather than constant dollars. This is misleading and no reasonable economist would dare do this. Constant dollars are the bread-and-butter of all economic analysis. Someone with his experience should know better.
  • The report shows 149K households, but Macquarie’s Milestone One report makes it clear that they intend to build out 163K households.
  • Macquarie will be contractually obligated to build, operate, and maintain the network for 30 years, but the report raises the impossibility of them abrogating the contract and still collecting the utility fee. He also hints that a future city council could attempt to break the contract, yet that would open the city up to massive liability. Apparently contract law is not a strong suit.

Number 2 (pg 3)

  • Doug claims that cities have considered not making existing bond debt payments, but there is zero evidence of this. No city in their right mind would default on any bond obligation.
  • Macquarie is assessing the utility fee to the cities who are free to figure out the most equitable way to collect it. The report, however, claims that the fee is mandatory for every resident. This makes no mention of Provo’s utility fee which is scaled so that businesses pay more and residents pay less or the planned waivers for indigent households.
  • The report makes the absurd statement that anyone who doesn’t have UTOPIA either loves their existing service or doesn’t want any kind of telecommunications service. This is despite the readily available evidence that consumers absolutely hate incumbent providers. There was apparently no effort made to do any kind of survey, scientific or otherwise, to back this claim.
  • The waiver for the indigent has been falsely characterized as a general opt-out provision. That is completely false.

Number 3 (pg 4)

  • Macquarie has committed to investing around $300M in building out UTOPIA, yet the report hand-wrings that it will be very difficult, if not impossible, to find the money. Macquarie is an investment bank with $140B in assets, so I’m pretty sure they’ve got the money around there somewhere.
  • The take rate figures provided in the report are completely inaccurate and measure the entire city as opposed to areas actually passed with fiber and able to be hooked up. There’s also no comparison to iProvo which achieved a 35% take rate with no install fee, a ubiquitous build, and terrible service providers.
  • The “break even” mentioned in the report is way off. A wash on the Macquarie deal is around 35%. Covering all of the existing bond service as well is in the 55% range.

Number 4 (pg 5)

  • Every ISP has committed to participate in the included basic tier of service, yet the report spreads more fear, uncertainty, and doubt about their participation. It’s obvious that Doug didn’t talk to a single one of them about this. I know for a fact that XMission, SumoFiber, Veracity, and WebWave are on the record with being strongly in support.
  • Of the ISPs on UTOPIA, most of them do not provide services over other methods of transport. Those that do are often looking to get away from doing so. XMission converts DSL customers to UTOPIA. Veracity has gone so far as to build their own fiber to CenturyLink cabinets to get off of their transport. The idea that they will sell their service over competing infrastructure is not based in reality.
  • The utility fee covers connecting the network to each address. The $50 reimbursement to ISPs is to cover any installation costs beyond that. ISPs do not have to front any money to hook up basic service customers.
  • Doug again asserts that cities may choose to default on their existing debt obligations, a scenario that no city in their right mind would ever attempt.
  • Macquarie has experience with telecommunications systems in Asia and is partnering with some of the biggest names in fiber optics such as Alcatel Lucent and Fujitsu. This is not going to be a project run by rank amateurs.
  • The report cites a failed toll road project in San Diego to try spreading fear that Macquarie would walk away from a project, but the details, as usual, are much more complex. The project went through a Chapter 11 filing in which Macquarie had to write off their interest in the road, yet the road continued to operate.

Number 5 (pg 7)

  • Macquarie has never stated that people will not need premium services. Even if lines will not be fully utilized, there is a huge demand for service provider alternatives just to get away from the terrible service provided by incumbent operators.
  • Again, the utility fees are assessed by Macquarie to the cities and it is up to the cities to determine who pays what. Provo has already implemented a model where businesses pay a lot more than residents. Concern trolling to scare residents isn’t serious research at all.

Number 6 (pg 8)

  • Evaluating the cost to sell or shut down the network is a farce. In either event, the bond reportedly becomes callable meaning that the entire amount is due immediately. Treating that as a realistic option doesn’t even make any sense.
  • No evaluation of the probable value of the network was done. Instead, Doug pulled two numbers out of a hat: the $1 “sale” price of iProvo and the $86M in assets reported by UTOPIA.
  • The “sunk cost” argument depends heavily on the fabricated “needed investment” and fallacious take rate estimates from number 3. As such, it can’t be considered a serious argument at all since the underlying assumptions are bad.

Number 7 (pg 9)

  • The debt amounts cited in the Econowest report do not appear anywhere in the Milestone One report, yet it claims that they do. In fact, the Milestone One report makes it very clear that the principal and interest currently totals around $500M. This amount is in line with $185M of bonds over 30 years at a nominal interest rate. How that gets inflated to $335M is beyond me.
  • Doug again screws up by claiming that UTOPIA debt is 69% of the level of state debt, yet the state debt of $35.7B works out to almost ten times the amount he claims. This is something easily discoverable with Google in about 30 seconds.

Number 8 (pg 10)

  • Just like the auditor’s report it cites, this one fails to draw any distinctions between current and former management.
  • Doug completely fails to consider any argument on the economics of utilities and trots out a “private sector” argument with no supporting evidence. I’ll just leave this piece on why he’s wrong right here.

Conclusions

This report is sloppy and unprofessional, something that should be embarrassing for someone of Mr. MacDonald’s experience. There’s ample concern trolling and FUD on points that have been settled. Basic figures are completely incorrect and unsourced. Absolutely no effort was put into doing research to back up the conclusions. This amateurish work doesn’t read at all like it was completed by a professional.

If this is really the best that the UTA can come up with, I’m going to have a hard time believing that opponents of the deal are going to make much headway.