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iProvo Sold To Broadweave For $40 Million
Crtics of municpal broadband pop the bubbly

The Salt Lake Tribune reports that one of Utah's two struggling municipal fiber networks, iProvo, is going to be sold to Broadweave Networks for $40.6 million. Broadweave will lease the existing network operations center from the city to service residential and business fiber, while the city continues to use the network for municipal functions. Last December I mentioned the city brought in consultants to find out why the project was losing customers, and discovered it was thanks to incumbents undercutting prices, and poor customer service.

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iProvo now becomes a private enterprise, which should thrill regional incumbents like Qwest and critics like the Libertarian Reason Foundation, which had consistently targeted the project as an example of government dysfunction. According to the Provo press release, the FTTH network reached some 36,000 residences. However, only 10,300 actually subscribed, and 120 were leaving per month.

While it's pretty clear the city is cutting and running before those losses get worse, Provo Mayor Lewis Billings tells the Deseret News otherwise. "This isn't about unloading it and walking away," Lewis says. "If the private sector would step up and the private sector could step up, then city government should let them step up," Billings said.

Selling your failing network so you can pay off the $39.5 million bond used to finance it seems like walking away, but maybe I'm nit picking. Broadweave, co-founded by former Novell CEO Robert Frankenberg, isn't a huge operation. The company has just one review (albeit a positive one) in our database.

Utah's other major municipal fiber operation, Utopia, has also been experiencing financial problems due to business plan problems and incumbent price cuts. While resellers offer symmetrical 50/50Mbps tiers via the network for as low as $39.95, the service is heavily capped. Unlike iProvo, most of Utopia member communities have voted to refinance the network in an effort to make things work.

Update: Lawyer Jim Baller, who I've talked with at length over the years on these kinds of projects, says that iProvo's failure isn't entirely bleak:

quote:
First, just subtracting sales price from cost is not the right way to assess iProvo. iProvo’s presence lowered rates for every-one, including the incumbents’ customers, saving millions that circulated around local economy many times, contributing significant financial benefits with each cycle (e.g., producing increased revenue, property values, taxes, etc.). Economists call this the “multiplier effect.”

Second, iProvo’s difficulties stemmed primarily from trying to comply with the flawed “wholesale model” with which the Utah legislature saddled it. For many reasons, that model just can’t work in most settings in the US.

Third, this is another example of the history of the electric power industry repeating itself in the communications area. In the 1920s, about a third of the 3300 municipal electric utilities sold their systems to private companies, having achieved their goal of not being left behind in the Age of Electricity.

Now, iProvo has done the same thing for Provo in the Age of Information. With an FTTH system in place, regardless of who operates it, Provo will much be better off than the vast majority of American cities in surviving and thriving in the emerging knowledge-based global economy.
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KrK
Heavy Artillery For The Little Guy
Premium Member
join:2000-01-17
Tulsa, OK

KrK

Premium Member

Yes, it's about walking away

... and pretty soon Broadweave will probably sell it piecemeal to Qwest or something....

The hits just keep on coming.....
patcat88
join:2002-04-05
Jamaica, NY

patcat88

Member

Re: Yes, it's about walking away

said by KrK:

... and pretty soon Broadweave will probably sell it piecemeal to Qwest or something....

The hits just keep on coming.....
Wouldn't that be funny!
banner
Premium Member
join:2003-11-07
Long Beach, CA

banner

Premium Member

You can cancel your service but you have to keep paying

Citizens who cancelled or did not sign up paid and will keep paying in taxes.

City employees will be able to browse and download at blazing fast speeds, but the fiber is not connected to the police cars and fire trucks so citizens will benefit little.

I wonder if the city funded the project with auction-market loans... If they did, the interest rates for those loans are going through the roof and the 'investment' is going to cost much more than forecast.

Matt3
All noise, no signal.
Premium Member
join:2003-07-20
Jamestown, NC

Matt3

Premium Member

Not tax debt

The main argument of most anti-muni pundits is that if these projects fail, the citizens will be on the hook for a huge tax burden.

This is proof that is not the case as they earned a cool $1.1 million off the deal.
soothsayer15
join:2002-03-01
Irving, TX

1 edit

soothsayer15

Member

Re: Not tax debt

said by Matt3:

The main argument of most anti-muni pundits is that if these projects fail, the citizens will be on the hook for a huge tax burden.

This is proof that is not the case as they earned a cool $1.1 million off the deal.
They didn't turn a profit. If they had they wouldn't be selling it. It costs them $39.5 million to start it. They were on pace to lose $10 million dollars from 2005 to this year, and that's after adding another $1.2 Million in taxes. I can understand muni-broadband when there are no other options or just one competitor, but in a multi-competitor environment it doesn't make business sense. That's what free spending politicians don't understand. The same way they think giving kids computers will automatically make them smarter.

Matt3
All noise, no signal.
Premium Member
join:2003-07-20
Jamestown, NC

Matt3

Premium Member

Re: Not tax debt

said by soothsayer15:

said by Matt3:

The main argument of most anti-muni pundits is that if these projects fail, the citizens will be on the hook for a huge tax burden.

This is proof that is not the case as they earned a cool $1.1 million off the deal.
They didn't turn a profit. If they had they wouldn't be selling it. It costs them $39.5 million to start it. They were on pace to lose $10 million dollars from 2005 to this year, and that's after adding another $1.2 Million in taxes. I can understand muni-broadband when there are no other options or just one competitor, but in a multi-competitor environment it doesn't make business sense. That's what free spending politicians don't understand. The same way they think giving kids computers will automatically make them smarter.
Governments don't exist to make a profit. If they do, they must reinvest those profits back for the public good.

The fact they are coming out $1.1 million ahead I think speaks volumes.
Austinloop
join:2001-08-19
Austin, TX

1 recommendation

Austinloop

Member

Re: Not tax debt

Matt, I guess that you could say that they are 1.1 million ahead, but given that it is the government, I would look at it as 1.1 million less in the hole, so the taxpayers, in theory, get a 1.1 million break on their taxes, think I will hide and wait on that one.

Just semantics, really.
moonpuppy (banned)
join:2000-08-21
Glen Burnie, MD

moonpuppy (banned)

Member

As soon as iProvo goes away.....

.....the rates will go back up.
utahluge
join:2004-10-14
Draper, UT

utahluge

Member

Bill Gates

Bill Gates could revolutionize the U.S. broadband by ''donating'' (like he does with charities) fiber infrastructure to cities. Who knows, people may actually start liking him...

Yauch
join:2005-06-24

Yauch

Member

Re: Bill Gates

Yes, because your torrents are every bit as important as giving a starving child a bowl of rice or AIDS tests for African teenagers.

RadioDoc

join:2000-05-11
La Grange, IL

RadioDoc

They accomplished the goal. Its up and running...

...now get out of the way.

"If the private sector would step up and the private sector could step up, then city government should let them step up," Billings said.

Probably the smartest thing ever said about muni broadband.

RayW
Premium Member
join:2001-09-01
Layton, UT

1 recommendation

RayW

Premium Member

I wonder -

How many of the folks that are bashing the muni systems here in Utah have been to any of the meetings to see what really is going on and not just getting their information via the media or DSLR? I wonder how many of those same folks, by being in the legislative offices, saw the purchase of laws by their beloved corporations designed to cripple any muni project so that it is bound to fail and factor that into their writings?

As noted, QWEST et al were forced to offer better rates in the Provo area, so yes, some tax money was spent, but without the ability to compare the tax expenditures to what the people saved because the corporations were forced to lower prices and raise service to a more reasonable level, most folks are shooting swamp gas out of the waste chute (and the real stuff is more useful, it burns). And not only monetary items has to be factored in but emotional and other factors.

I myself am sad that it has come to the point where the "people" are slaves (my apologies for the politically sensitive term that supposedly causes mental anguish to certain segments of the US population, but it is the right word) to the corporations instead of masters of their own (for better or worse) fate. Just goes to show, he who has the money can buy the laws that he wants, and screw the majority of the people.

My prayer is that Broadweave can now tell the other corporations that the laws crippling the muni are now null and void and go on to finish iProvo the way it should have been done, and make money (once the multi year contracts start expiring). Maybe Utopia can do the same and tell QWEST that they wasted their payments to buy a certain politician who is not even in the area. I know I want Utopia here, but I am 3/4 of mile too far west for this phase.

Yeah, we the people have paid, not only in taxes to fight the corporations, but in our bills to the corporations to fight us, the people. Paid twice....sigh.

lostinthewest
@DNVR.QWEST.NET

lostinthewest

Anon

LOL

Hey dudes you shoulda looked under the hood. WWP & Minerva?

Unfortunately you probably just bought a Mercedes with a Yugo engine, LOL. 40 million for a 10 million system? Hope not, so, good luck.
geoffdaily
join:2008-05-07
Washington, DC

geoffdaily

Member

iProvo Sale Sign of Failure or Success?

Jim Baller's comments I believe come in response to a post I wrote that explores the question of whether or not iProvo was a success or failure for muni-fiber.

You can check that post out here: »www.app-rising.com/gdblo ··· for.html