5 Things You Need to Know About the UTOPIA Deal

May 9th, 2014

Article was originally published in KSL.com’s Science and Tech News on May 9, 2014 by Scott Dunn.

WEST VALLEY CITY – For the proponents of UTOPIA, there is now a real hope it will survive mostly intact and, if the Macquarie proposal is approved, rise up to be even better than before.

For more than a year, Australia-based Macquarie Capital has been working with the 11 remaining UTOPIA cities to not only salvage what has been built, but also to make it better, faster and more financially resilient than before.

Last week, three cities hosted three special council meetings to allow Macquarie a chance to present its proposal more formally, and to allow citizens to see for themselves what the deal is about. The proposal is more than 100 pages long, but the highlights have already been gleaned by one of the staunchest UTOPIA proponents on the Internet, Jesse Harris.

Here are five things you need to know about the Macquarie proposal:

  1. The network will be completed in existing UTOPIA cities in 30 months. Every residence and business will be connected to the new network, just like an ordinary utility such as water or power. Subscribers will have access to gigabit service on the new network. Estimated total fees for gigabit service is not easy to discern from the proposal document, but Macquarie contends that gigabit service will be designed and priced competitively at the wholesale level. Google Fiber is selling in Kansas City for $70 a month, a price that can be reasonably anticipated here.
  2. There is a utility fee of approximately $18-20 per month per subscriber address with a 50 percent discount for MDUs and a 100 percent premium for businesses. The fee amount will be indexed to inflation. Utility fees will have a grace period of six months from construction to allow ISPs to hook people up.
  3. There will be a free tier of service providing 3Mbps symmetrical (up and down) with a 20GB monthly cap. All service providers must agree to offer it as a condition of being on the network. This is paid for by the utility fee above.
  4. Macquarie’s proposal estimates that over the term of the agreement, Utopia cities stand to earn between $1 billion and $1.5 billion depending on the take rate. That’s 2-3 times the existing debt service. On the low end, it would drop the Macquarie fees by almost half. On the high end, it could almost entirely cover the Macquarie fee.
  5. The network would be owned and operated by a public/private partnership for 30 years. After the 30-year term expires, the network reverts back to the respective cities. When the cities take ownership, they will have a fully functioning, completely built out network to every home and residence with estimated annual revenues of about $100 million a year.

The business model proposed by Macquarie treats Internet access like a true utility. Every residence and business will get access, so that the ISPs offering service on the network will not have to try and sell a $3,000 connection fee to get started. The connection will already be there and paid for by the utility fee.

The benefits of this proposal are significant and forward-looking. Cities still in debt over the original UTOPIA financing have a real hope of paying that debt off with this proposal without incurring new taxes.

There are significant risks associated with the proposal. Opponents may see the utility fee as a new tax, erect new barriers to municipal broadband or seek liquidation of the UTOPIA network to a private entity such as Comcast or CenturyLink in exchange for relief from the debt service.

Macquarie has detailed the risks and benefits in its proposal so that the cities are aware of the political and financial risks of adopting the proposal. There are still many details to be worked out. The cities have until June 27 to approve the proposal and move to the next phase.