Dec 04
Is iProvo the Crystal Ball for Utopia?
2007 at 1:02 pm | posted by Rep. Craig Frank 10 comments
Current financial difficulties being experienced by iProvo (Provo’s fiber-optic telecommunications network providing telephone, television, and internet services to every Provo home and business) may provide a glimpse into the future for cities considering the UTOPIA project. Many of the leading indicators of success (or failure) between the two projects have some eery relationships as brought to light in a recent Deseret News article by Tad Walsh. Link HERE to Tad’s article.
Municipalities (city councils) considering “pledging” to the UTOPIA project (those that are non-pledging and non-associative cities) should look long and hard at the realities of these types of municipally-backed non-essential services for their residents and the potential tax increase implications these concerns may require. With a projected shortfall, this year alone, of over $2 Million ($850,000 in new shortfalls plus $1,200,000 in general funds already subsidizing the losses of the project), iProvo faces the harsh reality that they (the city council) may need to raise taxes to cover that shortfall. That’s hard to take if you’re not currently a taker “in the system.”
Walsh’s article explains that the original financial models used to sell the fiber-optic superhighway to municipalities have fallen short of their intended projections. Take rates (subscribership rates) were projected at 260 new subscribers a month; however, current take rates are substantially less than the projection. Current figures are showing about 140 “takers” a month. The network is losing about 120 subscribers a month (“churn” rate)…en mass defection, chosing to return to their private providers.
The first contracted provider of services for the iProvo project, HomeNet, is currently in bankruptcy. HomeNet has been replaced by MStar and Veracity/Nuvont. These two providers have shown resistance to allowing for additional private providers to enter the marketplace and provide services/access to the system. Whether that’s because the system is currently weak and take rates are low OR because they would prefer to maintain a relative Monopoly and ”high” marketshare…who can tell. Maybe they’d like to comment!
In the DNews article, Mayor Billings is quoted to have said that iProvo was launched because companies wouldn’t provide similar services in Provo. Gee, I wonder why? Why do we (politicians) think we’re smarter than the Free Market. Maybe the reason why these services aren’t provided by the private sector is because real businessmen (who have something at stake…like profit) know going into these projects that enormous capitalization is required and until the market can financially sustain the cost of services (and initial capitalization) THEY AREN’T VIABLE. Instead, in an effort to be immediately popular, and thinking something needs to be available right now! (sounds like my kids), government provides a private business look-alike so that their citizens…well…will like them 
The unfortunate thing is the only capitalization (money) government can provide IS YOUR MONEY. Better hold onto your wallet.
Pay me now or pay me later (Provo City General Fund dollars OR UTOPIA’s Municipal Sales Tax guarantee). iProvo is “financed” through subscribership and general fund tax dollars. UTOPIA is privately funded with a guarantee that if the project “goes south” pledging cities will pick up the slack (deficit) with cities general fund dollars. And, general fund dollars are your tax dollars. And, if a municipality sees a decrease in their general fund because they have to cover the difference…they’re gonna’ come to you to make up the differnce in their general fund. Better hold onto your wallet…oops, did I already say that?!
Currently, UTOPIA audits and indicators are showing low take rates (lower than projected, approximately 16.6% after a little more than two years), the break-even point to show that UTOPIA is a going concern has been pushed back from 2009 to 2012, and a number of potential “takers” in UTOPIA cities are making a conscious decision to stay with their private providers.
Now, I’m not saying that UTOPIA isn’t the greatest thing since sliced bread…except…that, I’ve learned throughout the short tenure of my business-life that services made through the Private Sector are usually more viable (long-term) than those provided by government. Why?! Because the private sector is motivated by PROFIT!
Ronald Reagan warned us when he quipped, “The nine most terrifying words in the English language are “I’m from the government and I’m here to help.”
So, is iProvo and its telecommunication network problem the crystal ball for what’s in store for UTOPIA? All lot of people a lot smarter than me think so.
10 Responses to “Is iProvo the Crystal Ball for Utopia?”
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December 4th, 2007 at 2:31 pm
I was at the meeting referenced last night. A big problem with the books is that iProvo is currently not compensated by other city departments for their use of the network. As the financials are currently setup, they expect subscribers to subsidize the cost of city usage. It’s pretty obvious that such a setup is just plain crazy talk, but they’ve finally realized “hey, that wasn’t such a good idea.” Once city agencies are actually paying iProvo for their usage, the financial picture is likely to change drastically. Given this revelation, it seems we should wait a few months and see how that affects the bottom line.
I hear a lot of talk about markets when municipal broadband is brought up. Unfortunately, telecom is not and has never been a free market. It’s a highly-regulated system gamed by the incumbent providers for their maximum benefit. Qwest, after all, gets to charge all kinds of government-mandated fees (USF, E-Rate, etc.) in exchange for regulations that effectively prevent new entrants from coming into the market (i.e. steep build-out requirements, a busted patent system, etc.).
Qwest got somewhere to the tune of $1.4B in increased fees and tax breaks under the federal Telecommunications Act of 1996 in exchange for replacing all of the old copper wires with fiber optics capable of 45Mbps. They also promised to share their lines with competitors to give us lower pricing. Instead, they didn’t build the network, they have no plans to build anything like it in the foreseeable future (unlike Verizon or AT&T), we have fewer ISPs today than in 1997 and telecommunications costs have increased by as much as 75% since the passage of the Act. We took the chains off of the telcos and they ripped us off. Where’s the outrage at THAT?
As I see it, UTOPIA/iProvo/SFCN/AFCNet are an attempt to build the network that Qwest never did despite having already paid for it. (UTOPIA has even been gracious enough to invite Qwest and Comcast to join this network.) Trying to go after Qwest (either to recoup the money or force them to build the network) would be costly in time and money and would not guarantee that we’d even get what we paid for at the end of it all. Comcast is so busy trying to stay above water in Verizon’s FIOS markets that they effectively ignore Utah. I can’t imagine you’d say that technology like UTOPIA isn’t important, yet despite the importance, nobody’s doing it. Well, not outside of Japan, Korea, Belgium, Iceland, Latvia…
Since the state failed to adequately enforce the Act and shows no signs of any corrective action whatsoever, it’s time to let the cities figure out what to do about it. Some of them have figured that UTOPIA is their best bet. Why not let them be? If UTOPIA is the giant mess you say it is, the cities will get stung and you’ll be proven right.
Remember: a lot of smart people also think that UTOPIA will succeed. Try and give us some credit too.
December 4th, 2007 at 3:13 pm
I have UTOPIA but am frustrated by the lack of competition. MSTAR has been nothing but trouble and they have not helped me out. I have no other options.
December 4th, 2007 at 3:53 pm
Jesse, sound like you’ve got a vested interest in Utopia. Am I wrong?
Rep. Franks job is to look at the big picture for all of us. I didn’t hear him say he doesn’t like Utopia et all, just that the taxpayer is taking all the the risk.
I hope continues to be careful with my money!
December 4th, 2007 at 8:04 pm
Citizen: I’m constantly having to explain that I don’t work for UTOPIA, PacketFront, MSTAR, Nuvont/Vercatiy, etc. I’ve no vested interest in UTOPIA other than wanting to see that sweet, sweet 50Mbps goodness hooked up to my home. I just happen to be very passionate about telecom and spend a lot of my free time following the industry.
December 5th, 2007 at 2:19 pm
Jesse,
Before you attribute iProvo’s failures on city departments not compensating iProvo for services rendered, let’s find out how much that amount is. And let’s be sure that Provo doesn’t equate iProvo’s costs with department benefits. For example, if it costs iProvo $1 million to provide a certain service but the value of the service to the city department is zero, then the city should not credit $1 million to iProvo’s account.
December 5th, 2007 at 4:17 pm
I understand Rep. Frank’s arguments about the dangers of local governments financially backing something private companies aren’t willing to do. That said, Qwest and the cable companies aren’t providing anywhere near the service they should be and they maintain their market domination primarily because of government involvement brought on by their successful lobbying efforts. Jesse is right that the big fat pipe of bandwidth we’ll get from a fiber network is a worthy goal that none of the current government supported “private companies” seem willing to provide.
We are stuck in a position where we have to continue to accept 2nd rate technology and service provided by companies who primarily excel at lobbying our legislators to ensure no one can compete against them. Maybe it is time to try something new.
Rep. Franks, if UTOPIA isn’t the answer what is? What do you propose be done to ensure Utah isn’t left in the technological dark ages? Should we pay Qwest more taxpayer money to continue to fail to supply real broadband to Utah’s households?
December 7th, 2007 at 12:18 am
I just recieved this month’s copy of the Utah Taxpayers Association December Newsletter. There’s an interesting blurb on Utopia if you link to their webpage.
http://www.utahtaxpayers.org/
Click on the “Current Newsletter” button and then go to Page 6. The article is titled “UTOPIA’s Financials”
December 7th, 2007 at 7:31 am
They also posted on on their blog about it: link
I’ve already offered some counter-points.
December 11th, 2007 at 11:50 am
Rep. Craig Frank. I’m curious what IS the solution if not Utopia. If you recall, we spoke on October 25th after the subcommittee meeting discussing Utopia and even compared it to other countries.
Companies such as Qwest and Comcast have received a large share of tax payer money to build out an infrastructure over fiber and we’re still waiting for them to begin!
In the meeting it was discussed that competition is two or more companies providing similar services however neither Qwest nor Comcast provide anything even remotely similar to Utopia’s Infrastructure int he State of Utah.
So I ask you, what is the solution if not Utopia?
February 12th, 2008 at 9:26 pm
Basic marketing study should realize that adult entertainment is normally what pushes demand for more bandwidth. I don’t think demand adult entertainment demand in the Utopia area is sufficient. So maybe Utopia needs something like a Utubia serving out highdef content that will attract demand. Is anyone doing that? Maybe Sundance Film festival could spur new media?