PROVO — Broadweave Network executives faced another volley of tough questions Tuesday, first from a city-appointed review committee and then from the City Council, on their offer to buy iProvo.

A special City Council-appointed committee, a veritable who's who among local businessmen and politicians, met Tuesday morning to review Broadweave's proposal to assume control of the city's fiber optic network for $40.6 million, essentially relieving the city of its financial obligations. Then the City Council rehashed the issue at a special study session in the evening.

According to the agreement, the city will receive the sum of the $40.6 million payment by taking out a loan, said Provo Finance Director John Borget. If the City Council approves the deal by June 30, Broadweave will make an initial payment of $268,000 on July 1, then another payment on $268,000 on July 15.

Then they will make regular monthly payments of $277,000 for the next 19 years to pay off Provo's bonds, plus interest, for a total of about $63 million.

The money will also go to pay off $2.9 million the city will need up front to close the sale, as well as transfers made from the city's energy department to subsidize iProvo throughout the years.

Mayor Lewis Billings said the deal will be good for the city in the long run because the city stands to get dedicated capacity on the network valued between $1.3 million and $2.3 million per year.

At both meetings, committee members and city council members said they had good feelings about Broadweave and what it would bring to a network that has experienced slow growth rates and mounting costs. Recent reports provided by City Councilman George Stewart show iProvo continues to lose subscribers.

In April, 229 subscribers left the network, bringing the number of subscriptions to about 10,250. Stewart also provided a report showing that the city transferred $12.3 million between 2001 and 2005 from the city energy fund to keep iProvo afloat. The city also approved a $1.2 million transfer to iProvo from general fund sales tax receipts, bringing total iProvo investments to about $13.5 million.

The city has limited options in a situation like that, said Rep. Steve Clark, R-Provo, at the morning session.

"Under that scenario, we need to sell it," he said.

But for all the good committee members and City Council members see in Broadweave's proposed acquisition of the network, that didn't keep them from casting a scrutinizing eye over the terms of the sales agreement.

Clark said it appears Broadweave isn't assuming enough risk.

"There's no skin in the game from these folks," he said. "They're walking in with no dime down and taking over a $40 million asset."

Borget said Broadweave offered the city a letter from Sorenson Capital, a Salt Lake-based private equity firm, that guarantees the city $6 million. Should Broadweave miss a monthly payment, that amount could be withdrawn, Borget said.

Sorenson Capital previously announced it would invest in Broadband to make the purchase possible.

Stan Lockhart, director of government affairs for IM Flash and a state GOP leader, said he's impressed with Broadweave, but he wanted to know what would happen "if things went south" and Broadweave had to abandon its plans.

City Attorney Ryan Wood said the city would get the asset back as well as the $6 million guaranteed by Sorenson Capital.

Clark responded, saying the company should back the guarantee letter for at least $40 million. "Six million is peanuts," he said.

Clark turned to Steve Christensen, CEO of Broadweave, and said: "I don't think that any of us really believe you'll fail ... the question is why aren't you willing to put any money into this deal? I mean, cash to the city."

Christensen said there's a fallacy in that statement. He said the company and the city came up with a model to release the city from financial liability while freeing Broadweave to invest its money in what matters.

"And what counts is getting customers," he said.

City Councilman George Stewart said he's less interested in how much cash is going to the city as he is concerned with how successful the company becomes.

"I would rather have them put money into the system and be successful," he said.

Clark repeatedly asked what Broadweave is worth. Christensen declined to answer but said Sorenson Capital recently announced it would pump $400 million into various enterprises, including Broadweave.

Committee members also asked what will be the fate of Veracity and MStar. The firms reportedly owe the city $950,000.

Christensen said that announcement is forthcoming.

Clark said he thinks the city painted itself in a corner because it didn't send out a request for proposal specifically asking for companies to bid on iProvo.

"Why have we not allowed others to bid on this?" he asked.

At the City Council study session, council members leveled similar questions at Broadweave and city staffers.

City Attorney Robert West explained that the city doesn't need to go through an RFP process to alert people they are selling significant property, but they do need to go through a process.

"And that process involves a public hearing," he said.

West told City Council members the city needed to hold public meetings to get local residents' input on a proposition of this scale, which is why they've arranged for an additional city meeting May 27.

City Councilwoman Cindy Clark asked who the other respondents were to the RFP. West said it is possible to find out if the companies agree to having their identities known, but he doubts that will be the case.

"It makes them look like the loser," he said, because they lost the bid to Broadweave.

City Councilman Steve Turley also asked Christensen about Broadweave's customer base of about 1,100. Christensen did concede the company was going to experience substantial growth when it assumes command of a network with 10,000-plus subscribers, but he said he thinks Broadweave has proven its ability to manage networks.

"What we've done is we've created an amazing platform," he said. "... And that's what I feel do very well."

City Councilwoman Cindy Richards said she's excited for the prospects this deal offers the city because it takes taxpayers off the hook.

"That makes us whole," she said.

Christensen said he wasn't expecting so many hard questions.

"Now I feel like I'm in an impeachment hearing," he said.

Despite the hardballs, committee members and City Council members repeatedly expressed confidence in Broadweave.

"We want you to succeed," Lockhart said.

"We're just doing our job," Utah County Commissioner Steve White added.

The City Council will discuss the issue at its next meeting, 7 p.m. May 20 at the council chambers at 351 W. Center. Members will discuss the issue again at another meeting scheduled for 7 p.m. May 27 at the same location. There they will listen to public comment and possibly take action on the proposed sale of iProvo.


E-mail: [email protected]