July 11, 2010
Plagued by continuing losses and facing an uncertain future, the Utopia fiber-optic system is out to reinvent itself.
Operators of the system want Utopia’s 11 member cities to coalesce and launch an entity known as the Utah Infrastructure Agency, which would raise up to $60 million to complete the development of its network.
Utopia, short for the Utah Telecommunication Open Infrastructure Agency, announced in May it needed the additional money to continue its work, but is only now in the midst of explaining the strategy it intends to use if its member cities approve the new funding request.
“This is what we have been working toward for the past two years, ever since I came onboard,” said Todd Marriott, Utopia’s executive director. “Under this model, the cities will not be spending any additional money until they are assured of a return on their investment.”
Along with setting up the agency as a funding vehicle, each city also will be asked to organize a municipally owned telecommunications utility, Marriott said, adding that this will represent another big step forward because end users will be able to deal with network issues on a more local level.
Utopia was organized in 2002 by community leaders who believed the state’s largest private telecommunications providers were unwilling to bring high-speed Internet and other broadband services to their cities.
Since then, Brigham City, Centerville, Layton, Lindon, Midvale, Murray, Orem, Payson, Perry, Tremonton and West Valley City have pledged more than $500 million over 32 years to back the bond that Utopia sold to finance network construction.
Utopia’s history, though, has been marked by years of missed projections and mounting losses, even as its technology has earned praise from users.
“It has been great for us,” said Jeff Alexander, the owner of Alexander’s Print Advantage in Lindon. “We need a lot of Internet capacity, and our Utopia connection has helped us better handle our online business.”
Despite such endorsements, Utopia continues to struggle. Despite eight years of effort, it has a subscriber base of only around 10,000 customers.
It lost $51 million in fiscal 2009. It is expected to report a loss of nearly $25 million for its 2010 fiscal year ended on June 30 and is projecting another $20 million loss in the coming 12 months. In January, Utopia called on its member cities to begin covering the network’s bond payments, something the original Utopia promoters promised never would happen.
Marriott, though, contends things will get better soon and that the Utah Infrastructure Agency-municipal utility model is the key.
So far five Utopia cities, including largest member West Valley City, have agreed to be part of the agency, though none has approved issuing additional bonds.
West Valley City Mayor Mike Winder thinks the agency will be critical to Utopia’s future. “The demand for broadband services out there is enormous,” he said.
As envisioned, Utopia cities that join the agency would pledge additional tax money to support another round of bonding — as much as $60 million. “I’m not sure it will build out the network completely, but it will allow the continued development” of the system, Marriott said.
The money raised would be used to market Utopia’s network in areas that already have been built out. It also would be used to identify and then extend the network into neighborhoods where demand for fiber-optic technology is strong.
Once the agency connects a new customer, the city’s municipal utility would begin collecting:
• A monthly fee — it could be as much as $25 for 20 years — to pay for the cost of the network connection and to service the bonds that UIA will issue.
• A monthly charge — estimated at $25 — to cover the utility’s operations and to pay Utopia for operating and maintaining the network. Any money left over could be used by each city to pay down their original Utopia bond obligations.
Also, because each individual customer must contract with an outside company to receive services such as high-speed Internet and television and telephone connections over the Utopia system, the municipal utility would collect that money and forward it to the third-party service providers.
“As it is now set up, those [third-party] service providers collect from the customers, and Utopia often has to wait to collect its money from the them,” said Midvale City Manager Kane Loader, who serves as Utopia’s board chairman. “This will be a much more efficient way of doing things.”
Longtime Utopia critic Howard Stephenson, of the Utah Taxpayers Association, said he still is trying to gain additional information about the new model.
“It’s hard to tell if this new agency represents just a [financial] sleight of hand or whether it will actually be a better model to handle a failing venture,” he said. “I suppose it does make some sense to set up another entity that doesn’t have the problems associated with it that Utopia does.”
Still, Stephenson said, there is so much red ink associated with Utopia — it has a negative net worth of more than $126 million — that he doubts the new model will make much difference. “Red ink is red ink, no matter where you put it.”
Tremonton City Councilman Byron Wood said he heard about the new business model only a couple of days ago.
“I’m not clear on all the details, but I’m a little concerned they may be asking us for more money,” he said. “And that is troubling because they’re upside down” with more debts than assets.
Tremonton’s fiber-optic network already is about 90 percent built out, so it is in a little bit different position than those cities where there still is a lot of work that needs to be done, he said.
“With Utopia, though, it always has been one for all and all for one. Before I decide anything, I need a better understanding of what is going on.”