IProvo losses lead to big review

City hires 2 consultants to help stanch cash flow

Published: Tuesday, Dec. 4 2007 12:20 a.m. MST

PROVO — Faced with unrelenting losses, Provo leaders have launched a massive review of the city's ambitious iProvo telecommunications network.

The city has hired two national consultants while it continues to search for a new manager for the system and expects to add three new companies to the network in the next few months.

"There are 31 key strategies we want to pursue," Mayor Lewis Billings told residents who make up the city's telecommunications board Monday during a strategic summit that lasted more than three hours.

Losses over the first four months of the fiscal year, which began in July, total $214,000 for the fiber-optic telecommunications network that now delivers digital television, Internet and phone service to 10,236 Provo residences.

The city created this year's budget with the expectation that iProvo would gain 260 new subscribers a month. Through four months, it is adding 140 per month.

The iProvo shortfall for those four months is actually $614,000 — the $214,000 plus $100,000 per month the City Council is providing from the general fund to cover the losses that were anticipated by this year's budget even if the network had been able to generate those 260 projected new subscribers per month.

The fact the network is losing more than the budgeted amount did not surprise but did frustrate council members at the meeting. Council Chairman George Stewart wanted city staff to address iProvo's 14 percent churn rate, which represents 120 subscribers a month who are dropping their iProvo services.

Billings and interim project manager Kevin Garlick did not shy away from those concerns. Instead, they said facts like those were the impetus for the intense review process they've initiated.

"There are circumstances and realities that are different than what we forecasted," Billings said. "We've had to look at the reality of where we are."

It was clear Monday that one strategy is to have city departments pay more for the benefits they get from iProvo, already getting about $400,000 this year from the Provo Energy Department.

"We should have done that on the front end," Garlick said, "but all the financial models showed we would have an aggressive take rate and good revenues and those revenues would go to benefit the other city departments."

Instead, iProvo suffered a slow start exacerbated by a disastrous relationship with HomeNet, the company the city chose to be the first to offer services over the network. HomeNet is in bankruptcy proceedings in Washington state and was replaced in 2005 by MStar and Veracity/Nuvont.

The city sought new service providers earlier this year. It has identified three it will consider adding in the next few weeks. Five others have expressed interest since Provo began looking.

"The two or three existing providers would prefer we not add additional competition," Garlick said, "but we've made clear to them that is the concept behind an open-access (iProvo) network."

Some of the potential new service provider partners would bring their customers with them to the iProvo network, instantly creating new subscribers and revenue for the city.

The competition could drive down costs for iProvo subscribers while improving customer service. Subscription costs also could fall if city departments pay more of the freight.

"It's unfair to have residents subsidize city departments who are benefiting from iProvo," Billings said.

The review includes the creation of a large number of committees looking for ways to increase revenues and the number of subscribers while cutting costs. A cost review and reduction committee, for example, is meeting twice a week and is considering every option, including selling some assets, Provo finance director John Borget said.

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