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Op-ed: Latest UTOPIA proposal could push costs above $2 billion

Published May 2, 2014 5:37 pm

This is an archived article that was published on sltrib.com in 2014, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

This past week the Australian firm Macquarie unveiled their Milestone One documents, documents which provide a great deal more detail about Macquarie's proposal to lease, operate and upgrade the long-troubled UTOPIA network. The topline terms sound attractive, but a closer examination suggests very troubling elements.

Specifically, Macquarie wants UTOPIA's member cities to impose an entirely new utility fee on the 157,000 addresses in the 11 member cities. Macquarie estimates UTOPIA taxpayers will see an annual fee increase between $216 and $240/year. Over 30 years that totals just over $1 billion.

Unfortunately, the actual cost will be significantly higher, because this fee will increase with inflation annually over the 30-year term. While the Macquarie documents don't specify which inflation index Macquarie will use, 2% is a reasonable annual long term estimate. Using that estimate, over 30 years UTOPIA taxpayers will pay between $1.4 billion and $1.6 billion in new utility fees. Needless to say, that's HUGE increase.

Unfortunately, Macquarie's documents have other devilish details. Specifically, a footnote on page 10 of Macquarie's slideshow presentation reads, "Technology upgrades and maintenance beyond 1Gbps will be the responsibility of the Agencies." In other words, Macquarie will upgrade the UTOPIA network so it will be capable of providing 1 gig service throughout the entire network; if the cities or residents want speeds faster than 1 gig, UTOPIA's member cities will have to pay for that upgrade and maintenance.

A gig speed connection is blazing fast. It represents today's frontier. Consider, however, how the frontier of internet speed has progressed in the past 20 years. In the mid 1990's, users were thrilled to get 56K speeds. File sizes were small to accommodate this limited bandwidth. Webpages with video were still unknown.

Ten years later, speeds had increased dramatically, though they seem quaint by today's standards. "Blazing" connections provided .5 megs. A few fiber connections could push 10 megs. Youtube was new, and it quickly grew to consume more of the world's bandwidth than any other website.

Fast forward another decade, and 10 megs is commonplace. Virtually every ISP offers an affordable 10 meg service (though not all of them consistently deliver 10 megs), and the new frontier is gig service, though few customers purchase it.

If the past two decades are any indication, gig service won't remain the frontier. In 20 years, new websites and services will make gig service look as passé as 56K does today. And yet Macquarie says that if UTOPIA cities want those higher speeds, they'll have to upgrade and maintain it themselves.

Those upgrades will not be cheap. When Provo sold the iProvo network to Google, Provo's principal benefit lay in avoiding the costs of upgrading the network every three to five years. Provo estimated each upgrade would cost $20 million. Since Provo has about ¼ as many addresses as UTOPIA's 11 cities, upgrading the UTOPIA network could easily cost $80 million per upgrade.

That upgrade and maintenance cost will recur five to ten times during the term of Macquarie's agreement. In other words, UTOPIA taxpayers will be responsible for another $400 to $800 million in upgrade costs, beyond the $1.3 billion to $1.5 billion from the utility fee and the $600 million in existing UTOPIA debt. In total, the Macquarie deal could push the UTOPIA cost well beyond $2 billion.

These costs are very large, and the closer we get to the details, the more the cost grows. While many hope the Macquarie deal will solve UTOPIA's problems, the most likely outcome is a huge increase in the burdens taxpayers will pay.

M. Royce Van Tassell is vice president of the Utah Taxpayers Association.