Details of Google's Provo FTTH purchase emerging

22 April 2013 by Steve Blum
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Did you really expect it would be free as in beer?

Provo residents will be paying at least $5.35 a month via their City utility bills for their otherwise free Google Internet service for the next seven years, according to the Associated Press. Documents released by the City of Provo back up that report and provide further details on the purchase, although some questions still remain.

Under the terms of the deal that the Provo City Council considers Tuesday, Google buys the FTTH system for a token amount (like, a couple of bucks), and agrees to build out the system to more or less every residence. Google also agrees, for no charge, to provide connectivity to City facilities and schools, and provide a level of Internet service to every resident who pays a $30 hookup fee. Right now, the free service speed would be 5 Mbps, but it could go up or down – it’s pegged to the free service levels Google currently provides in Kansas City.

After seven years, that service might or might not be free, but residents will still be paying the monthly fee for five more years, when the bonds used to fund construction of the City’s fiber-to-the-home system are expected to be paid off.

The City still owes about $37 million. With about 35,000 residents paying the monthly fee, they’ll be short by $10 million. Or more. I don’t know how the bonds are structured, and I’m only guessing that the $37 million figure includes interest. If not, then they could end up a lot further in the hole.

It’s not completely clear where the rest of the bond payments come from, although Google will pay a 5% franchise fee on all its video revenue. By way of example, if Google manages to quickly get to a 40% video take rate with an average monthly TV bill of $100, that’ll come to about $10 million over twelve years.

I’m not 100% certain that Google won’t have some additional liability for the bonds – not all the contractual details have been released yet – but it certainly looks like Google gets the fiber and the City keeps the debt.

It’s not a completely free ride, of course. Google will have to pay for upgrading and building out the system. The local chamber of commerce estimates that’ll cost $18 million, but City staff say it’s more like $30 million. I think the $30 million figure is the better one, based on some quick estimates. Google will also have to bear the operating costs of the network, which are likely to be in the low to mid seven-figure range per year. That opex includes pole and conduit lease payments, but those won’t be a huge profit center for the City.

Right now, something like 15% to 20% of Provo’s households subscribe to fiber service. Google is betting that by hooking everybody up to the service they’re paying for anyway (which kinda makes it free), it can double or triple that take rate by up selling them into video, phone, faster Internet and Google-knows-what other services.

Win or lose, this game will be fun to watch.

Updated: City of Provo documents as approved by the municipal council on 23 April 2013

Main contract between Google and City of Provo, including most of the other documents below

Franchise agreement

Agreement to provide dark fiber to the City

Agreement to provide Internet service to the City

Pole and conduit lease

NOC lease agreement

Structure attachment lease

Council agenda and packet with background information

Draft council resolution authorising the sale

Draft council resolution authorising the franchise agreement

Draft council resolution authorising the NOC lease