PROVO Though the city will have to shell out $2.6 million to seal the deal with Broadweave Networks, the sale of the fiber optic system will be a win for everybody in the long-run, two iProvo consultants said Thursday.
But others say the sale is a "bum deal for the city."
Earlier this week, Mayor Lewis Billings announced the city will sell iProvo the city-owned network that provides phone, Internet and video services to South Jordan-based Broadweave, a company that provides fiber optic infrastructure, for $40.6 million. Thursday morning, the Provo Telecommunications Board gathered to hear more details of the terms of the sale.
Initially, the city will receive the sum of the payment by taking out a $40.6 million loan for itself, said Provo Finance Director John Borget, which will be paid back over 19 years. After some number crunching, Borget said the sale will leave the city short $2.6 million.
But the long-term benefits of the sales transaction will far outweigh that sum, Borget said. And the consultants, who were hired by the city last year to provide recommendations regarding iProvo, agreed the sale is a win-win situation.
"Many deals are one-sided," wrote Doug Dawson of CCG Consulting in a letter to the Telecommunication Board, "but my analysis shows this to be a fair transaction for both parties."
According to the terms of the agreement, Broadweave will assume the remainder of the bond payments and almost all of the city's other financial obligations related to the network. Dawson said that arrangement is beneficiary for both parties because Provo will retain ownership of the network in case Broadweave fails. In turn, assuming bond payments effectively gives Broadweave a 19-year loan at interest rates lower than what they could obtain in the commercial market.
Scott Chandler of Franklin Court Partners said the terms of the agreement also provide bandwidth to the city departments to implement advanced meter infrastructure for electricity and water, as well as other technologies, for $300,000 per year. Both consultants estimate this agreement amounts to a benefit valued between $1.5 to $2.5 million per year.
Though Broadweave has yet to divulge its plans for current service providers on the system, Dawson includes one telling sentence in his analysis of the sales transaction:"The buyer wants to be the sole provider on the network."
Dawson said this spells out good news for the citizens for three reasons:
• A sole overbuilder will fare better both economically and in market share than multiple providers on an open-access network.
• Broadweave will almost certainly focus on providing the benefits of the network to more business customers.
• To date, iProvo has been subsidized through utility loans and transfers of taxes. Citizens will benefit from the sale because it maintains the current network while removing any chance of future subsidies to cover losses.
But Jesse Harris, a software implementer who writes about the UTOPIA and iProvo discussions on www.freeutopia.com, said he is not sure the iProvo sale is all it's trumped up to be. For one thing, he said, Broadweave isn't actually buying the network.
"It's kind of like someone saying, 'Sign me over the title of your car, and I'll lend you the money to make the payments,"' he said. "It's ridiculous."
Harris also questions Broadweave's ability to increase its subscriber base. Broadweave CEO Steve Christensen said the company has 1,000 customers, but they're sure they can handle iProvo's network which boasts about 10,400 subscribers. But Harris doesn't agree.
"I think they're going to stumble for a few years and then say, 'Guess we can't do it, good luck with the bond payments, Provo,"' he said.
Harris said he thinks the city should stick it out with iProvo and "do the grunt work necessary to make it succeed" instead of selling.
"I hope the good citizens of Provo will remember this betrayal at the ballot box in 2009," he wrote on his Web site.
Provo spokeswoman Helen Anderson said Broadweave has all the signs of longevity. Broadweave is well funded by Sorenson Capital and Esnet Group, and Sorenson Capital is backing the payments by providing a guarantee
Mayor Lewis Billings said he appreciated Harris' passion but said he remains optimistic on the outcome of the situation."We certainly appreciate Mr. Harris' opinions, but we would hope our residents would take the time to become informed and to carefully evaluate this proposal based on a careful review of the facts and after actually talking with the players involved," he said.