After several months of analysis, Australian investment group Macquarie Capital released on April 29 the first version of a proposal to purchase, develop and operate Utah’s struggling and unfinished fiber network, now run by UTOPIA, the Utah Telecommunication Open Infrastructure Agency. The proposal, which was first announced in limited and tentative detail last year, would, if accepted, put the financial responsibility of the network into the hands of Macquarie Capital for 30 years, after which time ownership would transfer back to UTOPIA’s 11 member cities.
The 96-page “milestone one” report outlines some preliminary details of how the agreement would work and how the network would operate. The report shows that a mandatory $18 to $20 monthly fee would be charged to every household and business in the network’s 11 member cities, even to those opting not to use it. After 2015, the monthly fee could be raised “at a mutually agreeable index.”
The buildout would mean laying an additional 1,600 miles of fiber-optic cable to extend the network to all 155,000 residents in UTOPIA’s member cities.
As Government Technology reported in April, UTOPIA’s network is now a decade old, less than half complete and, by some estimates, has a net worth of negative $132 million.
The first phase of the proposal brought no surprises, said Gary Jones, director of sales and marketing for UTOPIA. “We’ve heard the initial presentation and it’s what was expected, but it’s still early and there’s still much to be negotiated with the cities. The cities now have an opportunity to review the proposal and it is a milestone one. It’s not a complete proposal or something that could be signed tomorrow.”
The early proposal does have enough structure and costs to demonstrate that Macquarie is confident it can make the network financially viable. Basic service provided by the network would give symmetrical transfer speeds of up to 3 Mbps with a 20 GB data cap, available for no additional fee to all connected residents and businesses. Higher speed services would be made available via third-party Internet service providers that would need to buy rights to operate on the network from Macquarie Capital.
The engineering estimates were especially encouraging, said Gary Crane, city attorney for Layton, Utah. “I think all of the cities, without exception, are treating the proposal very positively and there are a lot of questions that will need to be answered in the second milestone, but we were very encouraged by what they produced,” he said. “The companies that bid on the project are first-class companies. We were really happy to see that. We were not expecting that type of response.”
This proposal would be a means for the 11 member cities to recoup their large initial investments, Crane said. As for the mandatory $18 to $20 fee, that’s actually a good thing for consumers, he said, because the network will drive down prices overall, leading to a net savings for customers. “Here in Utah, there are pretty much two incumbents that monopolize the entire market and wherever Google or UTOPIA has come into whatever cities they’ve come into, the prices from the incumbents dropped tremendously,” he said.
Royce Van Tassell, vice president of the Utah Taxpayers Association, has for years maintained that UTOPIA is a financial disaster. The new proposal, Van Tassell said, still leaves many important details unanswered that the cities need to watch carefully. “The more we look at it, the more the costs on the Macquarie deal seem to go up, and you end up dealing with a lot of unknowns as opposed to saying, 'Let’s just wash our hands and let the private sector do what they do really well,' which is buy, sell and build telecom,” he said.
After looking over the proposal for a couple days, the Utah Taxpayers Association has found one element particularly troubling, Van Tassell said. “Macquarie has said that they plan to maintain the network at a gig speed over the next 30 years,” he said. “Certainly in 2014, a gig sounds really fast. But if you go back and think about the speeds we had 20 years ago, 56k was really fast. The cities would be on the hook for the cost necessary to make that speed keep up with the times. Those costs could easily run $400 to $800 million on top of the roughly $1.5 billion that the monthly fee will cost taxpayers over that 30 years.
Colin wrote for Government Technology from 2010 through most of 2016.