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September 07, 2007
I Wouldn’t Join a Statewide Fiber Consortium That Would Have Someone Like Me as a Member
I had the privilege yesterday of testifying before the Utah State Legislature’s interim subcommittee on Government Competition and Privatization. The subcommittee, which is doing some large scale fact-finding on privatization issues (Reason’s Geoff Segal took a turn at a session earlier this year), devoted the morning to looking at municipal broadband, particularly Utah’s two highly visible projects, UTOPIA and iProvo.
UTOPIA, short for Utah Telecommunication Open Infrastructure Agency, is an organization made up of 14 member cities who have agreed to support a statewide fiber optic backbone that sells wholesale bandwidth to commercial service providers, cable and Internet access companies, large end-users and real estate developers.
UTOPIA’s recent agreements with the final group have touched off questions, especially since in pursuit of them UTOPIA has stepped up recruitment of “non-pledging” members. “Non-pledging” members agree to allow UTOPIA’s network to connect into local facilities, but they do not have to commit sales tax revenues to the project if it needs extra money. As the price for not pledging sales taxes, UTOPIA officials explained, the consortium will not extend its fiber backbone to points all over town. UTOPIA parses this condition as if the town were sacrificing something.
Aside from conjuring a variation on a famous Groucho Marx quote, suggested by the title above, this “non-pledging” member category is incredibly self-serving.
UTOPIA is offering this status in order to bid on new residential developments in direct competition with Qwest, Comcast and other private sector fiber contractors. In these so-called “Greenfield” deployments, fiber is much cheaper to extend and bury (fiber goes in before the pavement goes on) and there a much greater chance of high service penetration. The “non-pledging” town’s agreement give up “all over” fiber, in truth, relieves UTOPIA of the unprofitable task of providing fiber connections in areas where there is low demand—the very reason UTOPIA was launched to begin with!
Fortunately, Utah legislators, led by state Sen. Howard Stephenson, the subcommittee co-chair, have glommed onto this and repeatedly questioned UTOPIA officials if they were simply grabbing low-hanging fruit.
Another problem is that we don’t know how much UTOPIA is underbidding to win these and other such deals. Any shortfall, of course, can be made up with funds from taxpayer-backed loans, an advantage the commercial sector does not have. On the other hand, if UTOPIA is bidding competitively, does the agency aim to use the revenues they win in these lucrative pocket developments to fund the losses they are incurring elsewhere?
We do know that UTOPIA has lost $38.5 million in its first three years of operation, enough to make some legislators rightfully nervous about its long-term viability. Its officials still can’t predict a breakeven point. And while the point of UTOPIA was to extend fiber to places where the private sector had failed to go, it seems to be targeting RFPs from large enterprises where there are plenty of competitive alternatives. During its testimony, UTOPIA officials touted wins with large hospitals and several schools to deliver gigabit-level fiber connections. But when pressed, they said the private sector was equally capable of providing those connections.
This is not what UTOPIA was supposed to be about. What was intended to be a network designed to address telecom infrastructure gaps—of which there seem to be a lot less in Utah than thought—is gradually becoming a large government entity dedicated to its own survival at the expense of what has become a thriving private sector industry in the state.
Posted by steve.titch at September 7, 2007 05:54 PM
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