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Reason Foundation report: Time to sell iProvo

Published April 17, 2008 1:06 am

City spokeswoman counters that the document is flawed by misstatements of the network's red ink
This is an archived article that was published on sltrib.com in 2008, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

A libertarian-leaning California think tank has renewed its declaration that iProvo is a financial failure and that it's time for the city to consider selling it to a private telecommunications provider.

The Reason Foundation's report says the fiber-optic network has lost approximately $8.4 million in the four years of its operation, and will continue to bleed red ink unless the wholesale provider model is scrapped.

"They're still having the same problems they had a few years ago," said Steven Titch, Reason's telecom analyst and author of the report. "They're just getting more expensive."

And Provo, as it did when Titch first wrote about iProvo's woes two years ago, said his report was fatally flawed by mistakes.

"The report is flawed throughout," said Helen Anderson, city spokeswoman, in an e-mail sent to reporters. She said the report misstated finances for one year by $1 million.

However, two municipal councilmen think it is time to seriously consider selling the network.

"I don't think there's any amount of cost allocation that is going to make those red numbers turn black," Councilman Steve Turley said Wednesday.

Councilman George Stewart sees privatizing the system as the best option - if the city can get a good price for the system.

"If there were a proposal to pay off the debt, I would be very supportive," Stewart said. "We're just not generating enough revenue from the operation itself, even with the city's contribution, to pay off the debt."

Reason's document is a follow-up to the foundation's 2006 report, which stated that Provo's wholesale model of operation was not going to work. In his current assessment, Titch notes that the city has put roughly $2 million a year to keep the system going and pay off its debt.

Titch said iProvo and its providers' difficulty retaining subscribers is a contributing factor in its financial problems.

"iProvo was born of a myth that some sort of government broadband service was needed to ensure universal access to broadband," Titch wrote. "That it has taken more than three years to reach 10,000 users while losing $8.4 million - and is on course to lose more than $2 million for the second year in a row - testifies to the ineffectiveness of government- owned systems as a policy for digital inclusion."

But Anderson said Titch's report overstates the amount of money iProvo lost. She said the 2006 financial reports show the telecommunication utility losing only $1.05 million in 2006, not the $1.9 million Titch stated in his report.

The city also contested the claims that the rate of subscriber loss - the churn - was high. City officials, in a report supplied by Anderson, said the 13 percent annual churn rate was low for a telecommunication company. In contrast, Internet phone company Vonage has a 28 percent annual churn rate, while Time Warner cable television has 13 percent.

But Titch said city officials ignore that Provo did not factor churn into its business model from the beginning.

Titch's report warns that one solution Provo is considering - passing along iProvo's costs to other departments and to the public through utility and fee increases - would be unpopular with residents who will see it as a subsidy.

Titch points to Corpus Christi, Texas, which sold its network to Earthlink as a model for how to solve Provo's problem. But he said Corpus Christi also avoided some of Provo's mistakes by first figuring out what it could do with a network rather than just build it then figure out how to use it.

dmeyers@sltrib.com

The Reason Foundation's new report on iProvo can be found at http://www.reason.org/pb69.pdf. Its 2006 report is available at http://www.reason.org/ps353.pdf.