Tag Archives: utopia

$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.

Google Fiber likes Salt Lake, Utopia not so much

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No room on the Google bus.

Google Fiber’s Utah expansion appears limited to Salt Lake City and, maybe, some surrounding areas. In its announcement and press event on Wednesday, the Google team talked about “metro area—Salt Lake City”, but the emphasis was on the city proper.

There’s also no prospect, at this point, for Google to step in and rescue the Utopia municipal fiber system, as it did in Provo. Six of the eleven cities in the consortium want to move ahead with a refinancing deal proposed by Macquarie Capital, but no promises have been made yet and final decisions are still months away.

One of the cities that opted out, Orem, is apparently feeling pressure to change its mind. According to a story in the Orem Daily Herald, some see a connection between the opt-out and the Utopia board’s reluctance to expand…

Councilwoman Margaret Black posed the question that most council members were thinking.

“Are we getting the short end of the stick because we opted out of Macquarie?” asked Black, referring to Macquarie Capital Group, the investment company looking to negotiate a contract with UTOPIA for buildout of the fiber network.

“There is a concern that Orem is unpredictable and not easy to work with,” [city manager Jamie] Davidson said. “It’s concerning to me to see new options entering the market with a stranded investment for the future.”

Google also has a track record of backing away from cities with stroppy local officials, and it’s hard to imagine that it would want to jump into the middle of the bickering going on between Utopia members.

Google Fiber expanding into Salt Lake area

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Salt Lake City will be the next stop for Google Fiber. According to a post on the Google Fiber blog yesterday…

“Now, another city in the Silicon Slopes is poised to show the world what’s possible with gigabit Internet. Today, we’re ready to bring Google Fiber to one more metro area—Salt Lake City”.

…It’s a logical expansion out of its nearby Provo base. One question to be answered: does the expansion into the metro area include the Utopia systems? The eleven cities covered by that muni fiber to the home project have been looking for a bail out, with six deciding to move forward with a everyone pays, everyone gets plan developed by by Macquarie Capital.

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”.

Utopia moves ahead on FTTH bailout plan, but the monthly tax bill could go higher

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A flat monthly fee of $18 to $20 – or, now, perhaps more – to rescue the failing Utopia municipal fiber to the home system in Utah got mixed reviews from the city councils involved, but even so the project’s board of directors voted today to move ahead with negotiating a bailout plan put forward by Australia’s Macquarie Capital Group.

The system encompasses 11 cities in the Salt Lake area (but not Provo, where Google rescued an independent muni FTTH system or Salt Lake City itself). It has struggled financially just to stay in operation and has not been to fulfill an early promise of a 100% buildout.

Last Friday was the deadline for the 11 cities to vote on accepting Macquarie’s plan to impose a monthly fee on residents – whether or not they get service – to get the system onto a firm financial footing (h/t to the Eldo Telecom blog for the heads up). In the end, six city councils voted to move on to the second stage of negotiations, the other five opted out. The proposal was vigorously opposed by a taxpayer group, apparently funded – at least in part – by CenturyLink.

The $18 to $20 fee was based on an assumption that most or all of the 11 cities would sign up for the deal. With almost half saying no and the ones saying yes needing the most build out work, it’s not clear if the monthly tab will go up. It seems likely that it will, but Macquarie has 3 months to figure it out.

By comparison, property owners in Provo got a bargain. They’re forking out about $5 a month each to pay off the bonds used to build the system, while Google takes ownership and operating responsibility.

Broadband astroturf grows thicker

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The astroturfing season is officially open. According to a story in Vice, big incumbent ISPs are trying to make their opposition to new FCC network neutrality rules or, worse, reclassification of broadband as a regulated, common carrier service look like it’s coming from the common people. A group calling itself Broadband for America – who could be against that? – is cranking up an artificial grassroots – astroturf – campaign against net neutrality. But the group’s leadership is not exactly made up of consumer advocates…

Last month, Broadband for America wrote a letter to the FCC bluntly demanding that the agency ‘categorically reject’ any effort toward designating broadband as a public utility. It wasn’t signed by any internet consumer advocates…The signatures on the letter reads like a who’s who of ISP industry presidents and CEOs, including AT&T’s Randall Stephenson, Cox Communications’ Patrick Esser, NCTA president (and former FCC commissioner) Michael Powell, Verizon’s Lowell McAdam, and Comcast’s Brian Roberts.

Meanwhile, the Free Utopia blog is claiming that a website opposing an Australian bailout of the Utopia project, ostensibly put up by the Utah Taxpayers Association, was actually funded by CenturyLink, which stands to lose big if a true muni network ever hits its stride in the Salt Lake City area.

It’s easy to overstate the influence these false fronts exert on the decision making process, particularly at the FCC where the former chief lobbyist for both the cable and mobile phone industries now sits in the chairman’s seat. It’s not like Tom Wheeler doesn’t know the playbook by heart.

On the other hand, the FCC has reportedly received hundreds of thousands of emails on the topic, at least some of which probably came from actual ISP customers. Like this guy…

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.

Utopia might finally be utopia, thanks to Google

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Is a Google buyout the exit strategy?

One way or the other, it looks like Google is behind an impending bailout of Utopia, Utah’s multi-city muni fiber-to-the-home system. According to a story in the Ogden Standard-Examiner (and with a h/t to the Baller Herbst List)…

…officials gave only generic detail on what’s coming as a huge opportunity involving a major company mirroring Google’s involvement with Utah County.

They’re referring to Google’s take over of the municipal FTTH system in Provo, earlier this year. Talks regarding the possible buyout are cloaked in secrecy. That’s common – often legally required – practice in the private sector, but it’s raised a predictable storm of protests in a public sector context. There are 11 cities that are paying members of the Utopia project, and those officials were required to sign a non-disclosure agreement. Again, controversial for elected representatives but course of business for a corporation (Silicon Valley lore would have you believe that mutual NDAs are a romantic prelude to a first date).

A private sector rescue would take at least some of the burden off of local taxpayers, who are backing the money borrowed to pay for building and, so far, operating the system. Utopia’s business case is a wreck up to this point, with take rates apparently somewhere around 20% and an open access structure that makes it difficult for service providers to take advantage of economies of scale.

The suitor might or might not be Google. Those briefed on the bid would only say it involves an “Internet giant”. Which could be Google or one of its rivals, either a major player from the content and services side of the industry or an incumbent telecoms company that figures the best defence is a good offence.

Sunk costs support sinking gigabit prices

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Nowhere to go but up.

Fiber-to-the-home system operators are falling in behind Google’s idea that market share counts more than marginal revenue gains (or cost controls). Both Chattanooga’s municipal FTTH network and the Utopia system serving several Utah communities are following Google’s lead in Kansas City and Provo, and offering residential gigabit service for monthly fees in the $65 to $70 range.

At $350 per month, Chattanooga was attracting only a few dozen gigabit-level subscribers. At $70 per month, it should shortly have tens of thousands. For now, almost all of those will be existing subscribers who will upgrade in place. Over time, though, it’s a way of leveraging the cheap and abundant bandwidth provided by an FTTH system to gain market share.

Although reliable subscriber and market share figures are hard to come by, it looks like Chattanooga’s muni fiber system might have as much as 30% of local Internet subscribers, and Utopia appears to be in the 15% to 20% range. In either case, it’s not enough to pay back the full cost of building the systems, including debt service. I’ve yet to see hard numbers that show that it’s even enough to cover the true operating costs.

But near term costs can be covered by grants, direct taxpayer subsidies and indirect support from affiliated utilities. Long term, the goal is to make FTTH systems fully self-sustaining and to do that you need market share, certainly 40%-plus and likely in the 50% or 60% range.

Which means taking subscribers away from incumbent cable and telephone companies, who have shown a willingness to upgrade infrastructure, boost speeds and shave prices when threatened by a metro-sized competitor. The incumbents’ ability to leverage continental-scale capitalizations to fight local battles is tough to beat.

But maybe not impossible. Offering a gig for $65 to $70 is something only an FTTH operator can do. At that price, it’s a no-brainer for high end users. At that speed, it’s tempting for mid-level subscribers who haven’t been persuaded to spend an extra $20 or so a month for a few megabits more.

The marginal cost for operators is probably quite low, at least for now. Home subscribers might occasionally enjoy bursting a gigabit, but average aggregate usage probably won’t rise much at first. Those that definitively cross the grey line between residential and business uses can be managed with common sense terms of service. Revenue losses, from the relatively small number of customers willing to pay steeper rates, should be easily offset by higher total subscriber counts.

The fixed costs of an FTTH system are high. The way to be self-sustaining is to spread the pain thinly over many subscribers rather than thickly over a few. Google, and now Chattanooga and Utopia, are using the capacity those fixed costs provide to buy market share. It’s a page out of the incumbents’ playbook.

There’s no guarantee they will prevail, but when the big money is already spent and results are so far insufficient, the greater risk is to do nothing.