UTOPIA Future Seen Unclear After Split Board Vote

A recent split among 11 Utah cities participating in the Utah Telecommunication Open Infrastructure Agency’s financially troubled municipal broadband network regarding whether to partner with Macquarie Capital to build out the network leaves UTOPIA with an unclear future, participants and municipal broadband advocates told us. Only six of the 11 active UTOPIA member cities voted in late June to continue working with Macquarie on a partnership: Brigham City, Layton, Midvale, Perry, Tremonton and West Valley City. The five cities that voted against the Macquarie proposal were Centerville, Lindon, Murray, Orem and Payson, UTOPIA said. Macquarie’s proposed 30-year partnership with UTOPIA has been controversial, drawing opposition earlier this year in the Utah State Senate before getting a reprieve from lawmakers (CD Feb 25 p7).

The five cities that voted against the Macquarie proposal were opposed in part because of an estimated $18-$20 per-household monthly utility fee that Macquarie sought to cover some network construction costs. It was “very clear” that those cities were also the ones who “most engaged their residents in understanding what they wanted,” said Royce Van Tassell, vice president of the Utah Taxpayers Association, which has been critical of the UTOPIA network. The association’s stance on UTOPIA shows it’s more interested in the needs of its backers, which include several major national broadband providers opposed to UTOPIA, than “what’s in the best interest of taxpayers,” said Christopher Mitchell, director of the Telecommunications as Commons Initiative at the Institute for Local Self-Reliance. Taxpayers in the UTOPIA cities will be responsible for $500 million in UTOPIA costs if Macquarie doesn’t take control of the buildout and assume those costs, he said.

UTOPIA’s board voted 6-5 last week to move forward with a study of Macquarie’s proposal that would include more detailed engineering and financial planning, but it’s still waiting for Macquarie’s reaction to the vote. Mitchell and Van Tassell said they believe the vote may make Macquarie rethink its proposal. “We are anxiously waiting to find out what Macquarie’s reaction is,” Van Tassell said. Macquarie did not immediately comment.

The split UTOPIA board doesn’t automatically hurt UTOPIA, and the network could still work with only six participant cities, but “the prospects of it being able to succeed financially are much slimmer,” Mitchell said. “My fear is that a massive firm like Macquarie may not have the interest with half the population.” It’s possible Macquarie may be able to make its proposal work with the six cities in favor of the partnership, “but without some form of expanding to connect all the households that were meant to be connected, it’s hard to see that UTOPIA could ever be financially viable,” Mitchell said.

Other Options?

The UTOPIA board is also considering a pending proposal from Utah-based broadband provider FirstDigital Telecom, expected to submit its application this month. Jesse Harris, founder of the pro-UTOPIA advocacy group freeutopia.org, said he doesn’t believe FirstDigital is a viable option, saying he believes UTOPIA can move ahead with Macquarie even with just the six participating cities on board. “They won’t have to worry about network refreshes or repairs or construction or anything because it’s all bundled into the deal,” Harris said. “Pretty much all they need to do is kick back and wait for the wholesale revenues to come in.”

There are “no good options available” to UTOPIA if Macquarie backs out, but “the best of the bad options” would be for UTOPIA to sell the network to a broadband provider at a “salvage value” price, Van Tassell said. “It’s certainly time to stop digging that financial hole deeper and get out of as much of this mess as we can."

The five cities that voted against Macquarie may end up “rethinking” their decision because there are limited viable alternatives available for them as well, said Harris. Those cities could maintain an amended status quo involving additional costs on top of the ones they're already paying or seek out another partnership on their own, he said. Those cities could also pursue selling off their portion of the network to another company or shut down completely, but both would involve potential lawsuits, Harris said.

Supporters and opponents of municipal broadband differ on what the UTOPIA cities’ split means for other municipal broadband providers. Mitchell said most other municipal networks have embraced a different business model and “learned from watching UTOPIA and haven’t duplicated mistakes it made along the way.” He also said using utility fees to finance open access broadband networks “is worth considering elsewhere because it treats the network like a street. A lot of communities have no interest in that but some do and that should be something they're able to do.” Van Tassell said he believes UTOPIA’s problems are endemic across all municipal broadband networks and that it should be a “warning bell” to the FCC against pre-empting state authority on municipal broadband. FCC Chairman Tom Wheeler said in June that the agency is reviewing the best ways to pre-empt state restrictions on municipal broadband (CD June 16 p15).

Utah’s state legislature will “continue to voice concern and opposition” to municipal broadband, because it’s “inherently not good public policy,” but it will continue to not interfere with the UTOPIA cities’ participation in the network, said Utah State Senate Pro-Tem Curt Bramble, a Republican. “I'd be surprised if they take steps to make UTOPIA a state problem as opposed to a significant problem for the cities.”