Will Utah cities OK Australia company’s takeover of UTOPIA?
Broadband • Municipal network’s 11 member cities have four weeks to accept new terms.
Published: June 2, 2014 02:10PM
Updated: June 2, 2014 04:17PM
image
Steve Griffin | Tribune file photo A UTOPIA crew prepares to lay conduit to house fiber optic cables near 2000 N. Main St. in Centerville in this Aug. 22, 2011 photo. Centerville is among 11 UTOPIA member cities that must decide whether to approve the takeover of the municipal broadband network by Macquarie Capital, an Australian investment firm.

One way or another, June will be a historic month for Utah’s biggest experiment with what is called “municipal broadband.”

Eleven Wasatch Front cities involved in a project called UTOPIA have the next four weeks to opt in or out of an Australian investment company’s plan to take over, finish and operate their struggling high-speed fiber-optic network for them, in exchange for a share of its profits.

Officials from Brigham City to Payson continue to comb through a detailed business study of the financially troubled grid compiled by Sydney-based Macquarie Capital Group as a June 27 deadline to sign on approaches. But they’ve also brought in another suitor, Utah-based broadband provider First Digital Telecom, to proffer its own proposal to finish and run the UTOPIA network.

Leaders in Midvale and West Valley City already have approved the Macquarie bid, authorizing it to do a full analysis of extending high-end data, video and voice capacity to all homes and businesses within their city limits. The global firm specializing in large public-works projects will bring back its detailed business, legal and technical analysis for final approval by year’s end.

Lindon, Murray, Layton, Tremonton and Centerville have scheduled public meetings in the coming weeks to debate being part of Macquarie’s vision. Other cities, including Murray, Lindon and Orem, are also polling residents to gauge sentiment on key elements of the plan, including its proposed $18 to $20 monthly utility fee on all households to help defray network construction costs.

Referred to as an “availability fee,” the charge is drawing opposition to Macquarie’s plan in some quarters.

The per-household fee would entitle residents to basic Internet service with speeds of 3 megabits per second, but all households would pay the charge whether they take the service or not.

“I love the idea of fiber and want every citizen to have it,” Orem Mayor Richard Brunst said. “But I don’t want to force it on them.”

As debate over UTOPIA’s future moves to various city halls, a Macquarie official said the company remains “very hopeful” that members cities will choose to participate.

“Our big push is to get all the cities and we feel we’re making good progress,” said Nick Hann, senior managing director with Macquarie.

While drawing as many of the 11 cities’ estimated 160,000 combined households as possible “certainly gives the transaction scale and critical mass,” Hann said, “we don’t need all 11 to create a viable project.”

Short for the Utah Telecommunications Open Infrastructure Agency, UTOPIA was envisioned 12 years ago as an economic-development tool, meant to connect businesses and homes in member cities with Internet access at speeds of one gigabit per second, up to 200 times faster than download and upload rates typically available from private vendors.

But UTOPIA has struggled over the years, due to a combination of mismanagement, heavy debt, opposition from private-sector telecommunications companies, construction problems that left the UTOPIA grid partly finished, and low sign-up rates from potential customers.

While UTOPIA’s finances have improved recently, its member cities continue to subsidize the quasi-public agency’s budget losses, as well as pay millions of dollars a year in city sales and business tax revenue to cover UTOPIA’s massive debt obligations. That debt burden on taxpayers would persist even if the UTOPIA network was shut down or sold off in pieces.

Macquarie began pursuing the UTOPIA deal in 2013. Known primarily for transit projects, Macquarie Capital Group is a subsidiary of Macquarie Group Limited, an Australian investment and management firm with projects in 28 countries and a market capitalization of $14 billion.

The company believes it can deliver a finished UTOPIA network on a set timetable and run it at a profit in a 30-year concession contract with member cities, which would keep ownership of the grid. Under its public-private partnership model, city governments no longer would manage the network directly, instead setting benchmarks on service that Macquarie would contract to meet.

Macquarie says its network would offer premium-service speeds of up to a gigabit, comparable to offers by rival companies such as CenturyLink and Google Fiber, which took over Provo’s city network in 2013. Google Fiber now is looking at Salt Lake City as a second Utah market.

Under Macquarie’s plan, UTOPIA would remain an open network, with access available on a wholesale basis to private Internet service providers, who could in turn offer retail services such as Web access or video on demand to customers over Macquarie-operated fiber.

Hann said its interest in the Utah project is part of a worldwide strategy of expanding investments in public infrastructure projects, especially in the telecommunications sector. If the UTOPIA plan works, it would be among the company’s first investments in a fiber-optic network.

Macquarie is fielding calls from officials around the U.S. interested in similar public-private partnerships on broadband networks, Hann said. “If we can create a successful deal — and we believe we can — we’ll be able to roll out that opportunity to others,” he said.

For months, UTOPIA cities have dealt exclusively with Macquarie while it evaluates the UTOPIA project, under a written agreement that also limited public disclosure of the deal’s contours while it was under negotiation.

But last week, officials from UTOPIA cities unexpectedly voted to allow First Digital Telecom to make a last-ditch bid to compete for a piece of the UTOPIA business Macquarie is seeking.

UTOPIA’s two governing boards, composed of officials from member cities, convened a rare joint meeting last Wednesday, then went behind closed doors for more than three hours, to hear First Digital president Wesley McDougal and other executives give the company’s pitch.

Details of the First Digital proposal are being kept secret, under a confidentiality agreement between UTOPIA and the company. UTOPIA officials voted Wednesday to consider First Digital’s proposal alongside the Macquarie plan, but then voted minutes later to bar any other companies from submitting plans.

Reached at his Salt Lake City office on Friday, McDougal declined to comment on the company’s proposal.

For Macquarie’s part, Hann said some of the UTOPIA cities had asked “a week or two ago” for a waiver on the exclusivity clause so they could consider outside proposals, and the company agreed.

“We have a good proposal on the table,” he said.

What is UTOPIA?

Short for the Utah Telecommunications Open Infrastructure Agency, UTOPIA was conceived in 2002 to give businesses and homes in 11 member cities access to Internet speeds of one gigabit per second, up to 200 times faster than what’s available from private vendors. The network still isn’t finished and has struggled with debt, mismanagement and low sign-up rates from customers.

Cities to meet on Macquarie deal

Lindon • Tuesday, June 3, 7 p.m., Lindon City Center, 100 N. State St. in Lindon.

Murray • Thursday, June 5, 6:30 p.m., Doty Education Center, 5121 Cottonwood St. in Murray.

Centerville • Thursday, June 5, open house and Q&A, time and location not specified. Tuesday, June 17, public hearing, 250 N. Main St. in Centerville.