The privatization of the iProvo network has shown that privatizing a municipally owned and operated network is the best option for UTOPIA. Here's why.
The debate over what to do with UTOPIA and the $503 million obligation taxpayers have shouldered has so far fixated on two poles: Either UTOPIA cities should increase taxpayer obligations by approving a new bond, or not.
If city councils don't approve the new bond, taxpayers will still be on the hook for half a billion dollars over the next 30-plus years. That is not an appealing option, so it's hardly surprising that many city councils are seriously considering approving a third round of bonding for UTOPIA.
A better option exists and has frankly been pioneered right in our backyard. It's time for UTOPIA and its member cities to follow Provo's example, hang out a "For Sale" sign and let the highest bidder walk away with the network.
The privatization of the iProvo network has proceeded in fits and starts and is by no means complete. Nonetheless, there is no doubt that Provo taxpayers are better off because of it. Under the deal's terms, Provo still carries the $39 million in bonds originally sold to build the network, but the new owner, Veracity Networks, is repaying the bonds.
Unfortunately, Veracity has struggled to generate the operating revenue necessary for it to add new customers and repay the bonds. When Veracity has not had sufficient operating revenue to maintain operations and repay the bonds, it has dipped into their investors' capital to make these payments.
Last year, Veracity asked Provo to further ease the short-term burden by temporarily paying a portion of the monthly bond payment. Veracity will repay Provo for this portion, plus interest, at the end of the bond's term. If Veracity at some point is unable to maintain these payments, ownership of the network could revert to Provo.
Provo rightly wants to avoid that eventuality, but even if it did happen, privatizing iProvo has benefited taxpayers. All the money Veracity has paid is money Provo taxpayers didn't have to pay.
The magnitudes for UTOPIA and iProvo are different, but the same compelling logic should guide my colleagues on other city councils regarding UTOPIA. iProvo spent about $39 million (exclusive of interest), and got about 10,000 subscribers. UTOPIA has spent more than four times as much, yet still has only 10,000 subscribers to show. Probably that means UTOPIA can't be sold at par. But again, any amount city councils can get reduces the amount taxpayers will have to pay.
Importantly, UTOPIA's performance to date gives little reason to believe that additional funding will change their trajectory. City councils involved with UTOPIA have already risked $503 million — money that likely can't be salvaged with additional spending.
Selling UTOPIA to a private provider won't make everyone happy. Certainly, incumbent providers wouldn't be thrilled at the prospect of a robust private company competing against them. From a taxpayer perspective and from the perspective of the city councils, though, making incumbent providers happy simply shouldn't be the highest priority.
Some city councils may believe that the best option is to approve the current round of bonding and then explore what sale offers are available. That would be a mistake. Increasing UTOPIA's debt by $60 million will discourage potential buyers. A private buyer would not want to pay more for UTOPIA until the new debt is translated into greater value. And that means waiting for UTOPIA to spend that money building out the network.
In the meantime, however, taxpayers in all the UTOPIA cities will be paying full freight to UTOPIA's bond holders, instead of having a private provider shoulder some of that load.
My friends and colleagues on UTOPIA's city councils have a hard choice to make. If Provo's experience is any indication, though, they should follow the same path and find a willing buyer.
Steve Turley has served on the Provo City Council since 2004.