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Six Utah cities move ahead on UTOPIA deal — for now

Published July 1, 2014 4:11 pm

Broadband • Controversial utility fee leads five member cities to back away.
This is an archived article that was published on sltrib.com in 2014, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

West Valley City • Only six of UTOPIA's 11 member cities voted Monday to continue toward possibly contracting with a would-be savior to finish the consortium's troubled high-speed, fiber-optic broadband network in a quick 30 months and finally put it on solid financial footing.

So Australia-based Macquarie Capital now will continue detailed studies on taking over and completing UTOPIA broadband in just those six cities: West Valley City, Layton, Midvale, Brigham City, Perry and Tremonton.

What happens with the other five — Centerville, Lindon, Murray, Orem and Payson — remains to be determined.

"We need to figure out a way to contract with those cities so that their portion of the [existing] network continues to be serviced" if Macquarie eventually takes over elsewhere, said UTOPIA Board Chairman Wayne Pyle, who is also the West Valley City manager.

The UTOPIA board voted 6-5 on Monday to proceed to the next three-month phase of a study on Macquarie's proposal — including more detailed engineering and construction plans along with a look at financing, bonding and legal issues.

That portion of the study is estimated to cost up to $980,000, Pyle said. The six cities that voted to proceed could be on the hook for up to that amount if they ultimately choose not to contract with Macquarie. The company would cover those costs if it is awarded a contract.

The five cities that opted out have no responsibility for those additional study costs, Pyle said.

Macquarie's proposal includes a controversial monthly utility fee estimated at $18 to $20 per household — whether residents want service or not — to help defray network construction costs. The five cities that opted out generally opposed that fee, and now would not face it, although they still are obligated for previous commitments.

New fee estimates • Because those five cities are out, Pyle said, it affects the size and costs of the project. He said the company hopes to provide within about a week some rough estimates of what the change will do to costs, and how it may alter the monthly utility fee.

Some of the six cities that are moving forward warned Monday that if costs increase significantly, they also would withdraw support — and would want another quick vote to halt ongoing studies.

Because of that, Royce Van Tassell, vice president of the Utah Taxpayers Association, which has been critical of UTOPIA, said the board should have waited to vote until it had that information in hand.

"It seems a little premature, given that Macquarie is still going to re-evaluate costs," he said. But "it's good to know that they may come back if that's necessary."

Pyle said the allure of Macquarie for some cities is, in part, that it could "save us money because they have economy of scale with huge companies globally" to build the network. "Macquarie is huge. They are the largest public-private partnership infrastructure builder in the world."

He said the company is offering to finish the system in all cities in 30 months, while construction would otherwise likely drag on for years. Macquarie is large and stable, he added, and should be a good operator of the system.

Meanwhile, UTOPIA is also awaiting a competing proposal from another suitor: Utah-based broadband provider First Digital Telecom. The board has given it until next month to provide details on how it would propose to take over and operate the system.

UTOPIA history • Short for the Utah Telecommunication 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 up to 200 times faster than download and upload rates typically available from private vendors.

But UTOPIA has struggled through the years, due to a combination of mismanagement, heavy debt, opposition from private-sector telecommunication 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.

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.