Out of Control

There have always been those who are magnanimous enough never to say, “I told you so.”

Unfortunately, I’m not one of them. iProvo, the municipally-owned wholesale fiber optic system, has lost $214,000 over the first four months of its current fiscal year, which began July 1, Provo’s Deseret Morning News reported last week. That figure does not include the four payments of $100,000 made by the city to cover the shortfall iProvo had anticipated going into the current fiscal year. So, all told, four months into fiscal 2008, the operation is $614,000 in the red.

In a policy study Reason released 12 months ago, I predicted that the losses would continue, growing larger year to year. If they continue at this current rate for the rest of the fiscal year, iProvo’s 2008 cost will be approach $2 million--$850,000 on top of the $1.2 million already budgeted from city coffers. iProvo spent $1 million in 2006. All this for phone, cable and/or Internet services that Provo residents can get from either Comcast, Qwest, DirecTV or Dish Network, not to mention a bevy of local ISPs, at comparable prices.

iProvo reports that it has 10,236 customers, a goal that its business plan had required it to reach two years ago. Even then, 10,000 has not proven to be the break-even point it was expected to be. Lower revenue per subscriber plus an abysmal churn rate–140 service activations per month offset by 120 cancellations—frustrate any attempt to gain market traction.

Some of the proposed quick fixes are rather cynical. iProvo is seeking to add additional retailers. The idea is that they would flip their captive customers to the iProvo network, immediately boosting the muni’s numbers (at the expense of commercial ISPs now carrying the backbone traffic). And while Mayor Lewis Billings is loath to raise taxes to support iProvo, he and interim project director Kevin Garlick have said they might raise the rates city departments pay for iProvo services. Any resulting tax increase then, while not funding iProvo directly, will fund the ability of the city to do business with iProvo.

Billings says he has “31 key strategies” for iProvo. He needs only one: An exit strategy. This route might be the best way to salvage the city treasury, taxpayer wallets and perhaps his own administration.

The Deseret News said it best in an editorial (which cited the Reason study) the next day:

“By now it should be obvious that private businesses, faced with such losses, would consider abandoning ship. Provo is treading where only private business ought to go, and doing so badly. Telecommunications is a market demanding the nimble feet of private investors. Trends and technologies are constantly shifting.”