UTOPIA has fallen on hard times, reports the Salt Lake City Tribune.
The fiber-optic telecommunications network in 11 Utah cities is not signing up subscribers as quickly as its backers hoped and, as a result, the tax revenues of those cities could someday be called upon to pay the interest on the system’s debt.
When the Utah Telecommunication Open Infrastructure Agency (UTOPIA) was launched in 2003, it planned to boost the broadband competitiveness of Utah cities, although the largest city, Salt Lake, did not participate. UTOPIA only supplies the fiber optic network. Private companies provide the content and services, and pay fees to the network to make their products available.
The SLC Tribune, which has always editorialized against the project, reported Monday that the system has not met its business goals. By the third year of construction, it was supposed to have 22,000 customers and be generating about $5 million in revenue. Instead, it has about 6,500 customers and about $1.75 million in revenue.
If business doesn’t pick up, the cities could eventually could be called upon to kick in portions of the $202 million they pledged over 20 years to back construction bonds.
Two major municipal projects deliver fiber service up to 50Mbps directly to state residents: iProvo and Utopia. Utopia serves a dozen or so cities while iProvo operates within the City of Provo, Utah. iProvo (pdf) delivers broadband through fiber optic lines to over 33,000 residences and 4,100 business locations.
Both networks are municipally built, and lease wholesale network access to regional ISPs. iProvo has some 10,300 customers, but has been losing them at a rate of 120 per month.
In June the city voted to allocate an additional $1.2 million in sales tax revenue to help pay down the project’s debt. The city secured a nearly $40 million bond in 2004, and this summer it projected the network’s deficit—the gap between its costs and revenue—to peak at $1.7 million in the fiscal year ending July 2009, shrinking to less than half a million dollars by 2011.
“I think we’re in over our heads,” [Provo City Councilman] George Stewart said.
One of the factors to which Stewart attributes iProvo’s churn is large corporate competitors Comcast and Qwest Communications dropping their prices in the hopes of not only gaining and keeping market share but also making an example of the muni fiber model. The town’s incumbents are offering $99 triple-plays, Stewart said, while comparable offerings on iProvo are probably around $120.
iProvo’s current financial shortcomings stem partly from the failure of the first service provider on the network, HomeNet Communications, which went bankrupt in 2005, prompting an investigation into whether it falsified a letter of credit to land the iProvo contract.
To some, that episode illustrates one of the hazards of the municipal wholesale model: The city becomes invested in the success of private-sector service providers it can’t control. “You count on those guys to make it happen with the customers, and when they don’t, [the city] is really in a tight spot,” said one source close to iProvo who spoke on condition of anonymity. “Customers complain daily [to the city] about the level of customer service. They can’t get any response. They have inaccurate bills. The city stands there a little bit helpless, watching that train go by.”
Qwest and Comcast went to the state legislature to ban all municipal involvement in broadband networks. But Provo and 18 other cities fought the law. And won.
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