Press Release: UTOPIA Event in Centerville

With Internet Service Faster Than a Centerville Wind,

UTOPIA Wires City’s Businesses for the Future

 

Centerville’s Mayor, UTOPIA and Wired Businesses Hold “Fiber Friday” Event

to Demonstrate Benefits of Fiber Optics

 

Consider these dilemmas faced daily by Utah businesses:

 

  • ·         An advertising agency has recently given employees the choice to work from home one day a week—a great morale booster that also reduces driving and improves air quality. But the need to send large graphics files back and forth makes it practically impossible because the internet connections at both the business and the employee’s home are too slow. The employee has no choice but to abandon what was supposed to be a great idea.

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UTOPIA’s 2011 Audit Report

UTOPIA’s 2011 audit report (PDF) has come out, and the Utah Taxpayers Association wasted no time in butchering their “analysis” of it. (If you need a good piece of fiction, go find their January 2012 newsletter; I won’t grace it with a link.) Their overeagerness to once again trash UTOPIA, however, means they ignored basic math and did zero fact-checking, but we’re all used to that by now, aren’t we?

The golden ray of sunshine in the report is a jump in total revenues of 98.7% over the prior year while expenditures dropped 7.2%. (The UTA chose to focus on just operating revenues and omitted the information about dropping costs.) Saying that this is a huge improvement is an understatement, especially when this doesn’t include any of the new UIA subscribers in the mix. While there was a small drop in total subscribers (a net loss of 210 thanks to the Prime Time meltdown), the period from July 1 to December 31 netted an additional 1400 subscribers via the UIA. This isn’t included in the audit report since 1) the audit report covers the period from June 30 2010 to June 30 2011 and 2) all new residential subscribers are being brought on via the UIA and will be included in a separate audit report beginning next year.

Since the UTA really can’t spin a good story concerning the revenues and expenditures, they chose instead to attack on the assets front. You may recall that part of UTOPIA’s bond structure is to use credit swaps to help stabilize the interest paid on their variable rate bond. Essentially, they purchased bonds with a slightly lower interest rate than what they pay and use the interest revenue to help stabilize fluctuations in bond rates, paying only the spread between the two. When UTOPIA’s audits are performed, it has to take into account all liabilities including the cost of these bonds they own. This creates the perception of decreased net assets even though UTOPIA won’t be selling those bonds until pay off their own bond. In short, it’s a paper liability that doesn’t actually cost them anything until almost three decades from now. The UTA, however, did not talk to UTOPIA to ask about this situation, instead choosing to assume the worst.

According to UTOPIA, they are currently ahead on their projections for revenues and slightly behind on total subscribers, about a wash. The first year of their five-year plan focused most heavily on existing service areas, areas where picking up additional subscribers would be relatively low-cost. Year 2 is going to focus more heavily on getting additional areas hooked up, so make sure you’re registering your interest on their website.

So the short of it is that UTOPIA has posted huge increases in revenues, a modest decrease in expenditures, and it well on-track to sign up thousands of new customers by the time their current fiscal year closes. If that’s not success, I don’t know what is.

From Muni to Co-op? UTOPIA Model Paves a Way

A lot of people wonder why someone with my libertarian tendencies would support municipal broadband. I’m often trying to explain to them the massive market corruption that has occurred largely at the hands of bungled state and federal regulation, often getting a glazed look in return. By the time I start talking about the barriers that keep private companies from even trying to crack that nut, I might as well have Ben Stein speaking on my behalf.

And yet, these significant barriers to entry are the reason why private companies don’t step up to try and fix the telecommunications landscape despite the poor customer service ratings of the dominant players in the industry. For those that can actually secure financing, they are often bled to death with Standard Oil-style undercutting and mountains of regulatory red tape. Even in an ideal situation, it often takes 7-10 years for telecom projects to produce black ink, well beyond the attention span of most speculators investors.

Because there seems to be little hope of fixing the regulatory landscape, finding investors who don’t expect unrealistic returns on investment, and undoing the entrenchment of incumbents, having municipally-backed networks fill the gap seems to be the option of last resort to try and establish some semblance of competitive choice. While a lot of muni supporters would be loathe to admit it, a large part of this is because munis have a very large well of money to draw from to survive long-term assaults: the almighty tax dollar. They can simply ride out the storm until incumbents wear down, throw their hands up, and turn their attention elsewhere.

UTOPIA’s current model alleviates some of this unpalatable use of tax money by shifting the costs of construction onto users, and only building when those sections are financially sustainable. In a lot of ways, it is similar to the New Deal-era co-ops for rural electrical and telephone service. The municipal backing, however, grants a lot of advantages when it comes to financing the project, gaining right-of-way, and cutting through regulations, things that a stand-alone co-op would have significant difficulty accomplishing.

That said, the idea of buying a piece of the network and becoming a stakeholder sets the foundation for a future model of assigning ownership back to users. It would be entirely possible for UTOPIA, once financially sustainable, to turn itself into a co-operative with the users in control of the network. This would absolve the city from being required to manage telecom, but it would still put users squarely in charge. For cities considering building a network but worried about the long-term effects, this paves a way for them to seed a network and let it grow itself, expanding to universal service as any profits are reinvested into the network.

Is this something UTOPIA could do? Maybe. There’s a lot of old model baggage that weighs things down, and cities went in with the initial promise of padding city budgets. Still, it’s an interesting possibility for networks new and old.

UTOPIA Restructuring the Bonds

UTOPIA appeared before the Tremonton city council a couple of weeks ago to discuss refinancing the current bonds held by the network. As you may recall, the bond market went sideways after these bonds were issued resulting is a significantly higher interest payment than was planned for. This move is meant to change up the bond structure to normalize the interest payments and reduce volatility. No, it’s not another request for money money, though I can already hear the Utah Taxpayers Association gearing up to spin it that way. The principle, term, and payments will remain entirely unchanged, but the cities still have to sign off on it. It may be possible, however, to secure an even better rate on the bond as rates are well south of 4% right now.

If you get any scare messages about UTOPIA wanting to get more money, be sure to set the record straight.

UTOPIA and iProvo as Campaign Issues

The Deseret News brought up that UTOPIA and iProvo are proving to be campaign issues in the upcoming municipal elections. (h/t: Brian Merrell) The article itself provides a good background on the financial details of the networks (and an added bonus that the Utah Taxpayers Association is little more than a lackey for Comcast and CenturyLink), but not much in the way of where candidates stand. Personally, I’ve found them to fall into one of three categories.

The first is the obvious municipal network supporter. They’re in favor of the network and are willing to do what it takes to make it successful. Long-time boosters like Dan Snarr and JoAnn Seghini fall into this category. You’ll find them to be few and far between because of the amount of flack so many of them catch.

The second is the opponent who wants to acknowledge reality. They don’t think joining the network was a good idea, but they know the reality is that the decision has been made and they have to make the best of it. In some ways, they are the best option since they won’t pull punches when something isn’t working the way they think it should. John Curtis is a good example.

The last is the opponent who has plenty of complaints, but nothing in the way of solutions. They’ll rant all day long about how the network was a terrible decision, it should have never been done, and no good can come of it. They completely fail to propose any real solutions, and the “just sell it” attitude pays no heed to making the city take a financial bath in order to prove their ideological point. These people are a reckless danger to any city they govern since they are willing to make you, the taxpayer, pay dearly in order to kill off their non-favored programs. George McEwan is a prime example of this kind of low-information irresponsibility (and he was thankfully eliminated from the election for failure to file financial disclosures).

So as you head to the polls in your city, ask yourself which of these candidates is going to make good decisions for the city. Ask yourself who each one of the candidates fits from your list. You’ll know what to do.

Utah County Association of Realtors Planning Anti-UTOPIA Meeting in Orem

See below for update.  It appears that astroturfing isn’t just for the Utah Taxpayers Association anymore. The Utah County Association of Realtors, a very powerful lobbying group, has been organizing a “public forum” entitled “What does UTOPIA mean for your home?” and has been using robocalls to promote attendance at it. The call says that UTOPIA will be in attendance, but they never extended an invitation to them. They did, however, extend an invitation to the Utah Taxpayers Association and two anti-UTOPIA candidates for city council. Unsurprisingly, the low-scruples ousted Utah County GOP Chairman Taylor Oldroyd is the prime organizer.

I’d advise UTOPIA supporters in or around Orem to show up to the meeting at 1031 W. Center St. Orem on Tuesday October 25 at 2PM. There will no doubt be disinformation by the truckload that will have to be countered.

UPDATE: Per Chris Nichols, the president of the Utah County Association of Realtors, the Utah Taxpayers Association has been un-invited from the event. He stated that his goal is strictly to discuss the implications of transfer of title when a homebuyer has chosen to finance the installation including how it appears when doing a search on the property. He also made it clear that any attempts to derail the discussion beyond that would be thoroughly unwelcome.

Chris also stated that UTOPIA was invited, but the person whom he named as “someone who has done work for UTOPIA” was not a name I’m familiar with. Granted, I don’t know everyone on their payroll, but if the PR department doesn’t know anything about it, it kind of maybe didn’t exactly go to the right person. Sounds like they both had their wires crossed on that one.

For the record, he was pretty mad at me and spent over 10 minutes chewing me out on the phone. I tried to explain why I formed the opinion I did, but he had no interest in hearing it. The website for the event links straight to the light-on-facts UTA website and lists a smattering of candidates for city council in Orem, both of whom are anti-UTOPIA (though one of them is being a realist about the situation). These combined with questions that appear to imply that the UTOPIA contract causes significant real estate sale issues created a very bad public face. The website itself also has no contact information as to who the responsible party would be.

My take? He wasn’t holding a tight enough leash on his employee Oldroyd who then worked with the UTA to try and sneakily co-opt the event for his own political purposes. My publicizing of it was very embarassing (and understandably so) and he needed to take it out on someone right then and there. Hey Chris? No hard feelings this time, but maybe try to be a bit more understanding of where someone else is coming from next time around. A lot of bloggers wouldn’t be as gracious as I am to heavily update an article to show both sides.

1Wire Goes Residential with SumoFiber

UTOPIA has added a new residential provider to the network via existing commercial provider 1Wire. SumoFiber will be offering 50M/50M, 100M/100M, and 1G/1G Internet and unlimited phone. Given the prices, I assume they are before the UIA costs are added in, but it’s still pretty competitive.

The good news about this addition is that it’s coming from a company with a performance record. UTOPIA has increased standards significantly for new and existing providers to try and prevent the kinds of problems we saw with Mstar and their resulting trail of wreckage. If anyone signs up for service, let us know how they do.

(Thanks to reader David for pointing out the addition.)

UTOPIA Sues RUS

I can’t say this is unexpected. UTOPIA has filed a lawsuit against RUS for failing to live up to their contractual obligations under the loan taken out several years ago. The delay in reimbursement caused a lot of strain on UTOPIA vendors, delayed network deployment, and left UTOPIA on the hook for millions of dollars in authorized but unreimbursed expenditures. I’m still waiting for a copy of the court filing so I can see their specific claims, but I would bet that they’ve got a pretty solid case and are asking for a pretty hefty amount in punitive and actual damages.

Does Windstream’s Acquisition of PAETEC Spell ILEC Wars?

A week and a half ago, ILEC Windstream Communications announced that it would be acquiring business telecommunications company PAETEC, a current UTOPIA provider. As of yet, nothing has been said as to if that arrangement on the network will continue. As you may recall, AT&T had planned to join UTOPIA as the flagship provider until SBC purchased the company in 2005. That got called off because incumbent providers, both in the telco and cableco space, have a long-standing gentleman’s agreement to stay out of each other’s territories. While Verizon and AT&T fired a few shots in some Texas suburbs a few years ago, this arrangement has continued to stand for decades. The question now is if Windstream is willing to risk competition in its own backyard to keep access to UTOPIA.

I think the answer might be yes. Business telephone companies regularly both compete with and buy wholesale services from incumbent providers. Veracity, for instance, does this all the time. This would be a rare occurrence that a company is both, and I find it highly unlikely that CenturyLink would set up shop in Windstream’s backyard (mostly because they don’t have the money, but I digress). Even with what I assume are relatively few accounts on UTOPIA, Windstream may be ready to make the calculated decision to open up an ILEC-on-ILEC war right here in Utah. It may even expand to the residential market now that the merged company is no longer focused on business accounts.

The implications are huge. If Windstream pulls it off, Verizon and AT&T, both of whom are cash-rich, may decide to start picking off bits of CenturyLink’s business. Before long, incumbent territory won’t matter anymore. UTOPIA’s open access model would be ideally positioned to capitalize on the willingness to cross the anti-competitive artificial boundaries and provide quick market access.

Where iProvo is Going From Here

Most of you are already aware that Veracity’s reserve fund for iProvo has reached the point of potentially triggering a default. From the news stories you’ve read, odds are good that you think that Broadweave 2.0 is about to come crashing down on the city. I’ve sat down with Veracity and Mayor Curtis to get the real deal story and I don’t think it’s the apocalyptic scenario that sells papers and glues eyeballs to evening newscasts.

First off, I’ll give you Veracity’s side of things. They went into the network expecting to spend about $2-3M on network upgrades. To date, they say they’ve dropped a good $8M on fixing things up. For that investment, the network can cover both operating expenses and debt service, but there is no money left over for installations, marketing, or network upgrades. Veracity could choose to cross-subsidize the network, but that eats into their budget for expansion. The current strategy has been to try and expand to other markets to leverage the video head end and spread out the cost of the NOC, primarily through building fiber to CenturyLink cabinets, co-locating, and selling services over a U-Verse-like ADSL2+ network. If they pumped more money into iProvo itself, it stunts these growth efforts. It’s a short-term gain for a long-term loss. Neither the city nor Veracity would win under the current scenario.

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