Last night, Provo's municipal council heard presentations from Broadweave, Veracity, the energy board and the telcom board on the proposed sale to Broadweave. There was a bit of new information and a lot of council skepticism. I don't have a play-by-play so much as some random thoughts.
- Both the energy and telcom boards are eager to cut and run as fast as they can. Energy doesn't want to be forced to cross-subsidize from their own funds in the face of an increased need for additional power generation capacity. Telcom, it seems, is unconvinced that the city can effectively run the network and expressed frustration that their suggestions and feedback were rarely translated into action. While I can understand the position of the boards in terms of their own self-interests, I don't necessarily agree with them.
- MSTAR is seriously cheesed off about the lack of an open RFP and made some not-so-vague intimations that it planned to sue to stop the sale should it be approved. They also expressed a lot of frustration that their own proposal to lease the network as the wholesale operator was turned down despite having lined up financing sources to bring them current and provide a significantly larger chunk of surety. One of the reasons MSTAR was denied was concern over not maintaining the open nature of the network. Irony much?
- Broadweave plans to raise prices. Most triple-play and Internet customers can expect a $10-15/mo bump in pricing to maintain their current level of service. This is something I've previously suggested at the wholesale end to be passed on to the retail customer. The annual shortfall of $2M annually worked out to around $200 annually per subscriber, a difference that would have been easily made up for with a small bump in pricing. I don't get why Provo didn't seek to increase fees until the network was solvent, then ease up again later. I don't see how private ownership is the only way to make this happen.
- Broadweave plans to offer new tiers of service. Their PowerPoint showed off about 6 different Internet packages from 3M/512K for $20/mo to 60M/60M for a waller-busting $180/mo. Again, something I've been suggesting for months now, that there be a value tier for grandma to increase subscriber units and a power user tier for folks willing to pay for more bandwidth. Again, I don't see how Broadweave's plans are any different from any other smart network operator.
- Broadweave is buying the Eagle Broadband network in Houston. They plan to pay a scant $274K to pick up the fiber connected to 4000 homes. That might sound like a deal at under $65/household, but that's fiber only without franchise agreements, a NOC, transport rights and so forth. It's also a seriously distressed asset that left a bad taste in users' mouths after suddenly disappearing without notice. The existing customers will be hesitant to sign up for services after an experience like that and it will take a significant investment to make those assets useful again, most likely through expensive network expansion. Building a NOC with a phone switch and video head-end will easily run in excess of $3M.
- Both Comcast and Qwest have concerns about the fairness of this deal. Both companies submitted letters to the city council expressing concern that Broadweave could get more favorable tax and right-of-way treatments under this deal, though neither is in opposition to a sale.
- Broadweave is projecting that triple-play wholesale costs will drop from $43 to $15 per month. I don't know how this would even be possible. It's common knowledge that cable TV providers barely eke out a profit on television alone, a product that retails at $40+ per month. Anyone with more experience on transport costs care to chime in?
- Broadweave was spooked by a lot of what I uncovered. Steve Christensen dedicated a slide of his presentation to "addressing" many of the concerns and irregularities that I've brought up in various venues. He failed to refute their lack of business licenses (something I noted to the council during my public comments), downplayed the investment required for the network in Houston and didn't have much of a rebuttal beyond "gimme a break" on the HomeNet comparison. Christensen also tried to downplay the involvement of his father in Traverse Mountain while failing to note that at least one uncle, possibly two are also principles in the project.
- Members of the council are very skeptical of this deal. Steve Turley, Sherrie Hall Everett and Cynthia Clark hit hard with lots of questions and doubts about the terms of the agreement and the RFP process. Cynthia Dayton also said that she wouldn't consider it without a close look at Broadweave's financial statements even if it took an NDA to do so. Alarmingly, she has been requesting this information for weeks without any action. Cindy Richards seemed to agree with me that pursuing networks across 6 or more states means that the council should make sure that the financial backing is there. There's also a lot of concern at the pace this project is proceeding at with Mayor Billings trying to force this through on a tight timeline. My personal prediction is a 5-2 vote against the sale with George Stewart and Midge Johnson voting in favor.
- The RFP may have been made vague so that customers didn't get spooked and bolt. Both Kevin Garlick and Mayor Billings brought up the fiber network in Marietta, GA that sold for 30% of its initial price claiming this was because the project was advertised as being for sale. While I can see this point, it wouldn't have been an issue had a provision of the sale been to maintain an open network and honor contracts with the existing providers. Once the sale became public, many other interested parties came out of the woodwork with better terms. Too bad that the city is obligated to treat Broadweave's offer with exclusivity through September.
My takeaway is that this deal is that the council recognizes that Broadweave is getting in way over its head despite the planned acquisition of Veracity and doesn't feel confident extending long-term financing under the current proposed terms. Some folks are as skeptical as I am, others are more optimistic. With all I've seen and heard, it's obvious to me that Broadweave should stick to what it knows, greenfield developments and exclusive service areas.
