1 of 6
Scott G Winterton, Deseret News
Network Operations Center Technicians Donald Seher, front, Manager Troy Thompson, standing, and Brian Merell, seated, work in the NOC, Network Operations Center at Utopia, a fiber optic company Thursday, Oct. 20, 2011.
Forward-thinking municipalities used the power of their sales-tax revenue and bonding capacity to build citywide fiber optic networks in the past decade. But costs and profits have not met expectations and unanticipated concerns have driven expenses up.

WEST VALLEY CITY — UTOPIA and iProvo have a money problem, and now some politicians are going after them.

Since 2002, the government agency UTOPIA began delivering some of the nation's fastest Internet and television connections to cities along the Wasatch Front. Provo set up a similar venture with iProvo.

DynamicCity, a Lindon-based consultancy thought UTOPIA was such a good idea that in 2003 it forecasted that 40 percent of residents would sign up within two years and that the agency would cover expenses within seven years.

Last year UTOPIA, which is short for the Utah Telecommunication Open Infrastructure Agency, said only 15.7 percent of residents had come on board. A depressed economy isn't spurring residents to sign up fast enough. The agency generated $3.11 million in revenue while expenses totaled $43.1 million.

"We need to get to a break even standpoint, and that is going to take a couple of years," UTOPIA Chief Executive Officer Todd Marriott said in an interview. The agency plans to break even within five years. "Our biggest key to success is expanding usage. "

Forward-thinking municipalities used the power of their sales-tax revenue and bonding capacity to build citywide fiber optic networks in the past decade. But costs and profits have not met expectations and unanticipated concerns have driven expenses up.

"Obviously UTOPIA is struggling and the initial roll out has not gone according to plan," said Richard Manning, Orem's city manager, in an email. "At this time it seems most appropriate to address how to make UTOPIA work rather than attempting to scuttle it. Those who continue to fight against the success of UTOPIA must not fully comprehend the impact it would have on the residents of each of the participating cities if UTOPIA is not successful."

Brigham City, Centerville, Layton, Lindon, Midvale, Murray, Orem, Payson, Perry, Tremonton and West Valley City are on the hook to repay $428 million, including interest, for the network. A dozen service providers interface with paying customers with UTOPIA acting as the service wholesaler.

DynamicCity President Cory Turner declined to comment on where the company's UTOPIA projections went wrong.

In 2010, $30.7 million of UTOPIA's $43.1 million in expense went to paying bond interest. The agency has long-term debt and swaps to fix its interest rates. With interest rates falling, UTOPIA has a good opportunity to refinance its debt, said chief financial officer Kirt Sudweeks. The network applied for a $66 million loan through the Department of Agriculture's Rural Utilities Service in 2005 and started using the money, believing the full amount had been approved. But the government stopped paying at $21 million, and just last month UTOPIA filed a civil lawsuit against the government, seeking $39 million in damages. The shortage led UTOPIA to refinance and extend its bond debt in 2008. Actual damages may actually be in the range of hundreds of millions of dollars, Marriott said. "The RUS loan did more harm to UTOPIA than any other single thing."The agency is working with its banks to figure out how and when.

iProvo

UTOPIA's complications aren't isolated. Provo bonded $39.5 million to build the iProvo fiber optic network, completed in 2004, that now goes to the curb of every home and business in the city. Its network was sold in 2008 and is run by Veracity Networks, though the city is still on the hook to repay the original bonds.

Beginning Nov. 1, Provo will also be offsetting insufficient bond repayment revenue by charging each household a "Telecom Debt Charge" for the next 15 years. Homeowners will pay $5.35 per month and commercial customers will be charged $10 per month plus 2.3 percent of the electric portion of their utility bills.

On both networks, actually using the network costs more — about $50 per month and up, based on connection speeds and services used.

Provo's network had 10,800 customers by September 2007, a 32.7 percent connection rate. Updated connection numbers aren't available now that the network is privately operated.

Veracity is also one of a dozen providers on UTOPIA, which doesn't disclose the amount providers pay for access to the network because of their competition with Qwest and Comcast, Marriott said.

Neither network is turning a profit.

There is no groundswell of complaints from end users about how the fiber optic networks function, but there are a lot of questions about what taxpayers should expect for their investment, how success or failure should be measured, and whether there should be limits to new spending as the possibility for new debt is added to already sunk costs.

Some of those questions are coming to candidates on the November ballot for city council posts in affected cities.

"People have been asking about it and are concerned about not being able to get (service at their home), and especially about the $1.8-plus million that Layton pays annually until 2040" for its share of the bond repayment, said Dawn Fitzpatrick, a City Council candidate.

Fitzpatrick serves on Laton's Planning Commission. She said she recently supported expanding UTOPIA in the city, entirely paid for with a $16 million supplemental federal grant. But she questions how the city got where it is today. "If this product is so great, I wonder why a private enterprise didn't move forward with it."

Competitors Comcast and Qwest have protested the government-sponsored competition: Qwest with a lawsuit against UTOPIA and both companies through the Utah Legislature and as members of the Utah Taxpayers Association, which has taken a position against UTOPIA.

Legislative Audit Report

Rep. Brad Daw, R-Orem, has asked the Legislative Auditor General to identify how UTOPIA has used its resources, examine UTOPIA's general management practices and evaluate how well UTOPIA serves its residents. The audit report is due out in December.

By comparison, Layton City Councilman F. Renny Knowlton, who is seeking his fifth term and has been involved with UTOPIA since Layton signed on, said he has not been asked a single question about UTOPIA.

"The general attitude toward UTOPIA is overwhelmingly positive," Knowlton said. "Over the years I have received far more questions from citizens anxious to know when Utopia would reach their neighborhood than from opponents."

First-term Provo Mayor John Curtis was not part of the decision to build iProvo but does believe it would be a mistake to use profitability as a benchmark for the network's success.

"The network has run, and for the foreseeable future will continue to run, at a loss. Blame it on the economy, current legislation or technology, but it's true," he wrote in July on his blog.

Curtis promotes the network's secondary benefits: "This gives us a leg up in recruiting businesses, it keeps pricing low for services such as phone, Internet and video, and it provides low-cost benefits to our public schools. In addition to the many benefits we've already realized from the network, there's potential for even more."

The city uses the network to coordinate its traffic lights, traffic cameras and plans to incorporate remote meter reading.

Provo's Municipal Council voted on the utility bill surcharge Sept. 20. How the council will view iProvo debt in the future could change after the November election.

Candidate Hal Miller suggests the city might not have gone far enough by getting out of the retail end of the business by selling the network to Broadweave, which later merged with Veracity Communications to become Veracity Networks.

"I encounter the (iProvo) issue frequently in my campaigning, almost always with the admonition to avoid another boondoggle. Whether that's a fair characterization is debatable, but it appears that the failure to pose the iProvo bond to voters and to include one or more well-formed exit strategies, aside from defaulting on the bond, were ill-advised."

Council candidate Gary Winterton said the people he visits with talk in terms of "What best use can be made of the asset we have in our community, and what is the most fair way to pay for the debt and asset we have?"

Federal Grants

Complications beyond unattained projections have also added to UTOPIA's financial problems.

Veracity Networks, as owner and sole retail provider on the Provo network, also claims to be the largest of the 12 retail providers on the UTOPIA network.

Veracity Networks CEO Drew Peterson said fiber optic networks are a good and enduring investment that even residents not currently using it in their homes should be happy to have in their community. "It's a medium that's going to be around forever and ever and ever." Or at least until something moves faster than the speed of light, he adds.

There has been talk about merging the iProvo and UTOPIA networks, but there are no active proposals to do so. And in Peterson's mind, that would move the technology-driven infrastructure in the wrong direction. He believes this kind of development belongs squarely in the private sector.

That said, he believes UTOPIA and the Provo network are "too leveraged" for any private entity to want to buy.

Marriott believes the time will come when political debates over profitability will be moot because the availability of the network will be considered essential. "It will become very analogous to a century ago when people said electrical infrastructure is for the wealthy only."

e-mail: [email protected], Twitter: SteveFidel