The council received the following email regarding the Town Hall meeting we had earlier this month regarding high speed internet options for our city. I thought I would share it here as well.
I watched your recent fiber town hall and just wanted to provide a couple corrections and comments to the quotes below taken from the meeting. Please let me know if you have any additional questions for me. We’d be happy to schedule a work session to continue any dialogue with you about a potential UTOPIA Fiber partnership. Our other projects in the area (Layton, Morgan, West Point) have gone extremely well and the residents are very happy with the ultra-fast Internet services that we have brought to those communities.
Thank you,
 |
Roger Timmerman
Executive Director
Office: (801) 613-3855 | Cell: (801) 762-7960
|
“UTOPIA is a company.”
UTOPIA (and UIA) is not a company. None of us make any money individually from these new city partnerships beyond just our normal salary from UTOPIA. We don’t have any stockholders, or other investors to pay. UTOPIA is an inter-local entity, similar to other municipal partnerships for power, sewer, and other services where we save costs, obtain better capabilities, and achieve better economy of scale by partnering together. A UIA agreement should be considered a partnership with the UTOPIA/UIA consortium of cities rather than being sold something by a business.
On the flip-side of this, our barrier of entry for partnership with a new city is fairly high. The UIA board will not counter-approve a partnership with a city unless there is unanimous support from the applicant city council. We are not trying to push this on anyone, but are interested in partnerships where we understand that the relationship is mutually beneficial with strong support from both sides.
“Brigham City slowed down when so many signed up.”
This is a strange rumor to hear. I’ve been involved with Brigham City since it started and I’m not aware of any slowdowns. The network has always had far more capacity than has ever been used, even during peak hours or during special events. Our backbone runs right through Brigham City and supports 40 channels of 100 Gbps. That’s enough capacity to support a city larger than Salt Lake City but is there and available to Brigham City if it’s ever needed. Even our specific way of building fiber to the home assigns a dedicated fiber to each home with dedicated capacity to ensure that neighbors cannot impact each other. This is much better than fiber networks built by Centurylink or Google Fiber that use GPON to split and share connections with groups of homes on a single fiber connection. In those networks, neighbor usage does impact other neighbors.
“45% would have to sign up.”
The threshold to avoid cost to the city is closer to 40%, and based on timing, ends up being a requirement that has ~5 years to achieve.
This is an example scenario for a different city (similar size) that shows that even though the revenue guarantee begins after 2 years, revenues before that accumulate to protect the city from any financial exposure from the agreement. All of our projects under this structure have far exceeded this revenue projection with no financial exposure to the participating cities.
“Bill wouldn’t change when capital cost is paid off.”
This is partly true. We will not commit to what the cost of services will be in 27 years when the contract term ends. To do so would be irresponsible both for us and the city. Historically, the service speeds have increased every few years while the costs have stayed the same or gone down. The partnership of cities decides collectively what the rates will be now, and in the future. However, we do agree that you would get the same rates as the other cities, so when there are opportunities to reduce the price, South Weber would stand to benefit from that. South Weber is actually in a position to benefit far more from this arrangement compared to other cities because while residential areas barely break even over the long term, significant financial upside comes from business subscribers, of which South Weber has very few. Proportionally, South Weber would benefit by being part of a consortium that averages a much higher business component than South Weber has on its own. Over time as debts from various UIA projects are paid off, it is very likely that the price of service would decrease, but it would be irresponsible to make commitments now for what will be appropriate 27 years from now. If there is a need for system refurbishments, enhancements, new smart city applications, etc. we do not want to paint ourselves into a corner financially but instead need to have the flexibility to do what is right for the partnership of cities collectively.
“The city will have a 30 year bond.”
In our proposed structure, UIA is the issuer of the bonds and owes the debt. The city will have a 27 year contractual obligation, with 25 years of commitment (starts after two years) with UIA. The city will carry no debt. The city will not have to go through the process of issuing bonds. The city will also not have to deal with any costs above the revenue guarantee. In this structure UIA pays for all capital costs for infrastructure built previously (backbone routes, facilities, etc.) and all incremental after the initial phase (additional take rate, new developments, city expansion, churn replacement. etc) with no financial guarantee or obligations from the city.
“Comcast has 1 Gbps up and 1 Gbps down service.”
Comcast only offers 1 Gbps service in limited areas and the upload speed is usually only up to 50 Mbps. Because of the shared nature of cable and the real-world condition of their cable, users rarely see anything close to the advertised rates. The technology being deployed now (Docsys 3.1) supports speeds higher than this in a lab environment, but not in real-world environments. Comcast actually launched a 2 Gbps service on Docsys 3.1 in Utah, but had to cancel it because users weren’t able to get speeds anywhere near that because of the limitations of the real-world condition of their cable facilities.
“What happens if there is 60% take-rate?”
Having a higher take rate is both good and bad. The good is obvious in that there will be more revenue than needed for UIA to cover its debt expenses. The bad is that this adds a significant capital expense that is not covered by UIA’s bond or the city guarantee. The difference between 40% and 60% in South Weber is about 500 installations, that cost about $1000 each. Therefore, UIA will be responsible for paying the $500,000 in installation costs for those additional installations. Some quick math shows that it takes about 3 years for UIA to get paid back on those installations from the additional revenue. During that 3 years, perhaps another 10-20% signup, or there is additional city growth and new development. Again, UIA would go underwater with paying for those installations but then would get paid back over several years. I know it seems like UIA stands to benefit from any additional take-rate, but only in the very long term, and only with the intent of financing ongoing subscriber growth, network expansion, and paying off the debts of these projects.
“If it made sense financially why don’t they do it on their own.”
From a business perspective, UIA could make this work on our own. However, from a business perspective there are many cities that would be more profitable than South Weber if our primary motivation was profit. For example, we would pick cities with a large amount of business revenue potential and lower build costs. For these reasons, South Weber is not likely to ever see any private sector provider build fiber throughout the community. Instead, we are motivated by the communities themselves that recognize the need for this critical infrastructure and we provide the mechanism to make that possible without a cost to those communities.
“Is this the best fiber? Is this going to be good for 25+ years?
The fiber we put in is all the latest fiber from Corning, the leader in fiber manufacturing technology. The fiber we are putting in now is rated for 50+ years and is much better than the fiber we use in some of our backbone links that were installed 20+ years ago. However, even that older fiber is still plenty good for the 4000 Gbps systems we use in our core, so the fiber going in now is definitely good for at least 25 years, if not 50+ years.
“Perhaps the city should do it ourselves and keep the money.”
Conceptually, this isn’t a bad approach. We are very supportive of all municipal fiber efforts, even if we are not involved. However, fiber is a very technology centric infrastructure and requires a lot of specific skill sets as well as significant start-up and other fixed costs. For example, we have full-time staff dedicated to our 24/7 Networks Operations Center, Network Engineering, Field Technicians/Splicers, GIS, Customer Service, Accounting/Billing, Fiber Construction Management, Fiber Engineering, Inspectors, Utility Locators, Legal, and many other roles. We did not get to a point of being able to cover our operating costs until we had about 14,000 subscribers. It would be very difficult to achieve any sort of economy of scale for a project the size of South Weber while also being able to support all the functions needed to build and operate a fiber network. Even at the size of UTOPIA with over 31,000 subscribers, there is very little profit to be had. Broadband is a highly competitive industry and we constantly work to maintain efficiency knowing that we have to be a better value than the incumbent providers.
