Municipal telecom in Provo takes a turn for the better – UTOPIA should follow suit

Last week Provo Mayor Lewis Billings announced the sale of its municipal telecom system iProvo to Broadweave.  The news out of Provo is heartening, especially to those who understand that government should stay out of the business of business. With the pending sale of iProvo to Broadweave, municipal telecom in Utah is slowly, but surely fading into memory. The Provo City Council still has to formally approve the deal, but all indications point to them speedily approving the deal. The question is, what does this mean for UTOPIA, Utah’s largest municipal telecom system.

UTOPIA has yet to publicly acknowledge it, but municipal telecom in Utah changed dramatically on Tuesday. Broadweave’s iProvo announcement raises more troubling questions about the refinance scheme most UTOPIA cities just approved. Given this changed landscape, it is incumbent on the eleven UTOPIA city councils to reconsider their support of UTOPIA’s proposed refinance.

Broadweave plans to be an aggressive player in the telecom market.
In an interview with Telephonyonline.com, Broadweave CEO Steve Christensen indicated that his ambitions extend far beyond Provo. In direct response to a question about potential interest in UTOPIA, Christensen said, “We will be actively pursuing other acquisitions. There are 41 municipal fiber-to-the-premises networks out there. We have a thoughtful, methodical plan for acquiring other municipal FTTP networks and other greenfield FTTP networks.”
Given Broadweave’s overt growth plans, now is the time to shed UTOPIA’s burden. If you wait 2 years and let the current management try to turn UTOPIA around, Broadweave will already have their own infrastructure, particularly in the greenfield neighborhoods UTOPIA (and the other incumbent providers) will be competing for. At that point, none of the incumbent providers would want to purchase a parallel network. And the chances of a 4th company successfully muscling its way into an already crowded telecom market are poor at best.

iProvo’s sale spells trouble for UTOPIA’s service providers.
iProvo and UTOPIA share service providers. Broadweave has been very clear that they plan to operate a closed network. They will own and operate the network, and provide the only ISP services on their network. That means Broadweave will either purchase Mstar, Nuvont and Veracity outright, or they will purchase those providers’ iProvo customers.

If Broadweave takes the first option, it’s not clear what Broadweave will do with the current ISPs’ UTOPIA customers. Broadweave’s public statements make it abundantly clear that they have little interest in being just an ISP. From a customer service standpoint, they feel very strongly that the wholesale model virtually guarantees failure. Conceivably they could buy the ISPs and spin off separate companies to provide on the UTOPIA network, but the problems start up ISPs have had on both the UTOPIA and iProvo networks does not inspire confidence that UTOPIA customers would be well-served.

If Broadweave purchases the providers’ iProvo customers and leaves the companies otherwise intact, those ISPs will be severely hobbled. It’s an open secret that some of these providers are struggling, even failing to remain current on their transport fees to both iProvo and UTOPIA. Taking such a large chunk of customers away from them would make the current providers’ financial position even more tenuous.

In other words, the iProvo sale will dramatically hinder UTOPIA’s ability to succeed, because UTOPIA’s providers will either be eliminated or hobbled. And as UTOPIA has repeatedly argued, UTOPIA’s ability to succeed hinges on its ability to attract many, strong providers. If the iProvo sale hampers or eliminates UTOPIA’s current providers, UTOPIA will be unable to succeed, even with the new finance scheme. If UTOPIA is going to fail, taxpayers in UTOPIA cities are better off without the added burdens the new finance scheme adds.

The iProvo sale demonstrates how unrealistic RUS receivership really is.
UTOPIA representatives repeatedly asserted that not approving the finance scheme would doom UTOPIA, because RUS would take UTOPIA into receivership. While many council members acknowledged that RUS would have no interest in actually taking receivership, the mere possibility weighed heavily on many council members’ minds.

As more details about the iProvo sale come out, it’s abundantly clear how flexible the public and private sectors can be, when a good deal is on the table. It is precisely this flexibility that would keep UTOPIA out of receivership. For example, under the terms of the Broadweave deal Provo will continue to hold the original bonds. Broadweave will make the debt service and interest payments, and maintain in escrow 1 year’s worth of debt service and interest payments for the life of the bonds. If Broadweave fails, this escrow gives Provo the opportunity to find another buyer.

If Broadweave is willing to maintain this escrow for the next 19 years, Broadweave or another interested buyer would be similarly willing to make the necessary payments to RUS to prevent the system from entering receivership. Again, this flexibility argues strongly in favor of reconsidering whether the UTOPIA finance scheme should go forward. If the biggest “threat” to UTOPIA without the finance scheme doesn’t really exist, then the justification for supporting the finance scheme is much weaker.

UTOPIA city councils should reconsider their support of UTOPIA’s refinance scheme
Given these very real, imminent and troubling possibilities, UTOPIA city councils should reconsider their support of UTOPIA’s proposed refinance. The risks UTOPIA faces are even greater now than they were when the UTOPIA cities voted on the refinance scheme. However, the die is not yet cast. UTOPIA has asked Payson to reconsider their vote against the refinance pledge, which means every other city has the same opportunity. Given the tremendous risks to taxpayers, and this week’s tectonic shifts in Utah’s telecom landscape, now is the time to look at selling the UTOPIA network. And as the creative financing plan for iProvo demonstrates, an interested private provider will make sure RUS does not take UTOPIA into receivership.