From Deseret News archives:
Experts say UTOPIA probably would fail
Business model is shaky at best, 2 analysts say
The two experts, one the former chairman of the Colorado Public Utilities Commission, were brought in by Qwest to analyze UTOPIA's business model during a press conference Wednesday.
The counterstrike to UTOPIA's claim that their system will be solvent and profitable comes just one week before 11 UTOPIA member cities will hold public hearings to vote on an interlocal agreement that will commit their cities to the project for the next 20 to possibly 50 years.
The Utah Telecommunications Open Infrastructure Agency is a project formed by several Utah cities to build an ultra-high-speed fiber-optic data network to provide Utah residents and businesses with telephone, data and video in one connection. Although the network promises to offer speeds up to 10 times faster than what current companies offer, the $340 million project is backed by millions in city sales tax revenue, which member cities stand to lose if the network fails.
William Fitzsimmons said he was hired by Qwest to evaluate UTOPIA's business model.
"It cannot deliver on what it promises," Fitzsimmons said.
The success of UTOPIA will hinge upon one key factor: customers. Under UTOPIA's business model, in order for the network to support itself, it must win the loyalty of about 40 percent of customers within member cities. Customers must take two out of the three services: telephone, video and Internet.
Fitzsimmons, who says he has 20 years' experience in the telecommunications industry, has serious doubts that UTOPIA will be able to woo 40 percent of the market, particularly because Qwest and Comcast would be expected to put up a fight for customers.
"What you have is this field of dreams scenario, that if you build it, they will come," said Raymond Gifford with the Washington, D.C., think tank, The Progress and Freedom Foundation. Gifford is also the former chairman for the Colorado Public Utilities Commission. Gifford said UTOPIA is poised to join many other municipal-backed telecommunications networks that are struggling.
Citing city-backed networks in Virginia, Pennsylvania and Oregon, Gifford said other municipal networks are requiring public subsidy to keep afloat. In some cases, Gifford said cities have pushed back estimates to as far as nine years before their network is expected to be self-sustaining.
"I called these communities. The feedback I got was very different," Black said. "The report doesn't even remotely represent the facts on the ground."
Both sides say it's a relatively new movement across the country, with most networks being between 2 and 4 years old.
However, Gifford said the problem with city-backed networks is more fundamental. Government-run networks lack the drive for improvement and innovation that private companies have in a competing market.
"UTOPIA ignores human nature and human issues," Gifford said.
Mike Jerman, vice president with Utah Taxpayers Association said the uncertainty alone should indicate the risk in using tax dollars to back the network. Instead, Jerman offered an alternative plan to UTOPIA.
Arguing that UTOPIA would not pay sales tax for equipment purchases, Jerman said that tax loss to the state should instead be passed on to private companies in the form of a tax break to allow them to build their own network.
E-mail: gfattah@desnews.com
