Tag Archives: macquarie

$25 monthly FTTH tax proposal fades away in Utah

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An everyone pays, everyone gets plan to pay for completion of the Utopia fiber to the home network in Utah appears to be dead (h/t to Fred Pilot at the EldoTelecom blog for the pointer). The financing package was proposed by an Australian company, Macquarie Capital, as a way to finish building out the network in participating Utah cities. The deal that was on the table would have every home and business pay a mandatory utility fee of $25 a month – a tax, in other words. In exchange, residents would get what amounted to a lifeline level of service: 5 Mbps symmetrical service with a 20 GB per month cap and an option to pay more to get more.

Only six of the eleven cities that participate in the Utopia project opted to move ahead and negotiate with Macquarie. The talks went on for more than two years and finally ended last month, according to the FreeUtopia blog

For all intents and purposes, it’s most likely not going to happen. There appears to be slow action on a binding public vote and the utility fee was very unpopular (and wasn’t coming down). The board has voted to pay Macquarie what they are due and take [the studies prepared by Macquarie] as valuable information to plan for the future with no further action.

The infrastructure financing model proposed – a public network built with private financing that’s repaid with mandatory monthly fees – is common enough in Europe and Australia, but it hasn’t proved to be popular with U.S. taxpayers so far, at least not for FTTH projects. A similar proposal in Pacific Grove, California by a British company has likewise ground to a halt.

UTOPIA tests everyone pays, everyone gets muni broadband model

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At a crossroads.

The latest report issued by Macquarie Capital as it pushes ahead with an effort to bail out the sinking multi-city UTOPIA municipal fiber-to-the-home project in Utah confronts an inevitable collision between public policy and profitability.

Good public policy requires muni FTTH service to be available to all, whether or not they want it now, or whether their neighbors want it. It’s a defining characteristic of any government-provided service. On the other hand, good business practice – indeed, the defining feature of capitalism – calls for money to be spent where the return on investment will be the highest.

Google Fiber is picking and choosing the neighborhoods where it’s building out on the basis of neighborhood demand. According to the Macquarie report, that’s just one example of how investment-driven decisions reinforce existing inequalities…

Based on…Google Fiber’s deployment in various cities, one can see that the coverage gaps in a demand driven models are severely skewed towards disadvantaged users…The demand driven or opt-out model both perpetuates the digital divide and as cities transition into gigabit infrastructure, disadvantaged users may potentially be permanently left behind.

According to the report, Google Fiber take rates in Kansas City vary by household income, ranging from 15% in areas where household income is $20,000 a year or less, to 53% among middle income (average $57,000) homes, all the way to 83% in a neighborhood where average income is $112,000.

That difference is the center piece of Macquarie’s pitch that homeowners and businesses in the six Utah cities that want to complete the Utopia buildout should be taxed pay a mandatory monthly fee. It’s currently pegged at $22.60, but could range up to $25 – whether they want fiber service or not.

It appears Macquarie is putting all its cards on the table. If voters in those six cities get the final say – it’s assumed they will but it’s not completely certain – then it’ll be a fair test of taxpayer interest in re-defining broadband systems as core, publicly provided infrastructure, like roads or sewers.

Broadband UTOPIA starts at $23 a month for cities that remain in the game

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Only six of eleven Utah cities involved in the UTOPIA fiber-to-the-home system chose to move ahead with a bail out plan proposed by Macquarie Capital, an Australian investment company. As a result, the proposed monthly tax bill (characterised as a “mandatory utility fee”) for homeowners in the reduced project area has jumped from $18 to $20 per month to the current estimate of $22.60 and a cap of $25. That’s just to pay for building out the network to every home and business in those cities.

The cities that decided to opt out of the negotiations tended to be ones where construction is already well along. All together, the active subscribers on the network aren’t generating enough revenue to pay off the bonds that financed the initial build. Consequently, sales tax revenue from those communities is being used to make up the shortfall.

As a result, the UTOPIA network is something of a patchwork and, according to the latest report issued by Macquarie, isn’t a viable business…

Fragmented network severely restricts ISPs’ ability to market successfully to users. Business model is uneconomical due to high cost of acquiring customers and maintaining superior service without scale.

If Macquarie’s bail out plan moves ahead, every household passed by the system would pay the monthly charge and get basic service of 5 Mbps down and up, with a monthly cap of 20 Gbps. Faster and more generous Internet access, and voice and video service, could be purchased from commercial ISPs that would buy bulk capacity at standard wholesale rates from UTOPIA and resell it as they choose.

One big question is what to do about the cities that opted out of the deal. Network build outs would end, but the $4 million generated annually by existing customers in those cities is a powerful incentive to keep them in the system.

The hope is to have all the questions answered and the deal finalised by the end of July. Voters might or might not get to have a say at that point: the final step outlined in the report is termed a “potential vote by public to affirm project and commercial close”.

Aussies jump in with Utopia FTTH bid

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Spends just as well as a greenback.

Utopia’s saviour appears to be an Australian investment company, Macquarie Capital Group, that specialises in large public sector projects, including fiber optic networks. According to a story in the Salt Lake City Tribune, Macquarie is starting out with a feasibility study…

The goal, according to a senior Macquarie executive, would be to develop a private-public partnership with any of the UTOPIA cities that wanted to participate, with Macquarie paying to build out the municipal Internet grid and then running it under a 30-year revenue-sharing contract. The cities, which are saddled with millions of dollars in debt to build UTOPIA to this point, still will have to pay that off on their own.

The firm’s study over three to four months will determine the engineering hurdles to build out, the costs, possible service levels and the feasibility of making it profitable, said Nick Hann, senior managing director with Macquarie.

The deal as described seems to jibe with the terms of Google’s takeover of the nearby Provo system: taxpayers have their liability capped – but not otherwise relieved – at current levels and Macquarie bears some or all of the financial burden going forward. The major difference is that Macquarie doesn’t appear to be taking full ownership of the system. So it’s not clear that taxpayers would be completely off the hook. That’s the sort of detail you wouldn’t expect to get until Macquarie combs through the books and the plant, though.

Big picture, Macquarie’s interest could mean a couple of things: either they’ve found new investment value in metro-scale FTTH or they’re following a tried and true path of paying pennies on the dollar (or in Google’s case, just a dollar) for distressed telecoms assets. That’s how SureWest’s fiber business got started in Sacramento, for example. We’ll find out if and when we see the terms of an actual deal.