Fiber for American Fork, Part 4: Why Not UTOPIA?

UTOPIA Comes Calling

In the early weeks of 2019 the Utah Telecommunications Open Infrastructure Agency (UTOPIA) approached American Fork City officials with an invitation for American Fork to join UTOPIA. The City weighed the offer and declined — but that set some other things in motion.

City leaders began to assemble legal, financial, and technical experts with experience in similar projects around the United States and beyond. Essentially their question was, Is there something better we could do to position American Fork for the future?

It would have to be both feasible and sensible. It would have to serve the entire city into the future. It would have to address the remaining debt from AirSwitch (purchased in 2003), which is now roughly $1.5 million. And it would have to be far better than doing nothing — which is always a good test in government.

Long story short, the result was the proposal now known as LightHub Fiber, which will likely come to a final vote sometime in the next several weeks. It proposes to create an new public utility to extend fiber optic connectivity to every residence and business in the City. Its core purpose is not faster or cheaper Internet for all, but that’s the expected benefit most are discussing. This new infrastructure will also enhance economic growth and enable — and dramatically reduce the costs of — some of the things the City must do, and others it may want to do, in the foreseeable future. But that is a topic for a different blog post, which you’re welcome to read.

If we want to understand the landscape or the city council’s current decision process, we ought not look past UTOPIA and its conjoined twin, the Utah Infrastructure Agency (UIA)? (The relationship between the two is somewhat complex but mostly immaterial here. UIA’s key function is as a vehicle for more bonding for UTOPIA.)

It’s worth noting that in recent weeks UTOPIA has been lobbying one or more members of the American Fork City Council to reject its own LightHub Fiber proposal and reconsider UTOPIA.

Meanwhile, UTOPIA already serves part of American Fork. It’s not entirely clear to me that this is permissible under state law. (See below.) Granted, I’m not an attorney. Nor I do not speak for American Fork City.

Photo credit: If you’re seeing a photo of a large bird over water, the photo’s title is “Wandering Albatross.” A bit on the nose, do you think? In any case, it’s by JJ Harrison. and appears here under a CC BY–SA 3.0 license.

Just Barely Enough History

If you’ve lived on the Wasatch Front for a while, UTOPIA is probably a familiar acronym. To many people, especially in its member cities, it’s an epithet, due to slow and incomplete rollout and a mountain of debt. (Insert your own jab here; the word dystopia is available if you want it.)

However, service is up and running … where it’s up and running. When I’m at work in West Valley City, I’m using UTOPIA. Member cities include Brigham City, Centerville, Layton, Lindon, Midvale, Murray, Orem, Payson, Perry, Tremonton, West Valley City, and others. (See UTOPIA’s official website for a list which may be slightly outdated.)

There are three classes of member cities: pledging cities, which have backed some or all of UTOPIA’s/UIA’s debt with taxpayer dollars; non-pledging cities, which are interested but not committed enough to put up their tax money against the debt, so they’ll get the service when UTOPIA decides to supply it; and contracted cities, where a city is subject to whatever terms are negotiated in the contract. They invited American Fork to join as a contracted city, of which more below.

Early Troubles

Work to create UTOPIA began in 2001. It was formed as an interlocal agency in 2002. In 2004 they bonded for $85 million, backed by the tax pledges of pledging cities. In 2007 they rolled that initial debt and all subsequent debt (to that point) into a $185 million loan.

Initial plans were to reach complete build-out, approximate 141,000 connections, in 2007. The estimated 35 percent “take rate” (the percentage of available connections which were actually used by subscribers) was thought to be conservative.

By that point UTOPIA had made at least two critical mistakes.

First, in Midvale and West Valley City, for example, they had built out the system in the neighborhoods where construction was least expensive — essentially, in the poorer neighborhoods, where relatively few people had computers at home, and some didn’t even have televisions.

See the problem? They were building in the neighborhoods with the fewest potential customers, not the neighborhoods with the most potential customers, where construction was more expensive.

Second, they spend so much on other parts of the infrastructure that they reserved far too little capital for running connections to homes and businesses. As a result, many people in the original pledging cities were told, when they called to inquire about hooking up, that UTOPIA would take their contact information and call them back in a few years. A source who was highly placed at UTOPIA at the time told me that they coined a new word for this customer experience: anticipointment.

UTOPIA 2.0

They brought in some new management, whose job in a sense was to do with less than $10 million what UTOPIA hadn’t yet been able to do for almost $180 million. They did some restructuring and altered their strategies.

In 2010-2011 they created UIA, with nine of eleven original cities participating in it too, so they could bond for more money, since UTOPIA itself was nearing its statutory limit. UIA’s initial debt was $29.5 million; its share of the debt now exceeds $100 million.

Along the way, UTOPIA received $16 million in federal stimulus money. A promised federal loan of further funds went south, but in the end UTOPIA won an eight-figure settlement in court.

By April 2012, five years after expected completion in pledging cities, connections were available to only 58,000 residents, and there were only 9,300 subscribers, a 16 percent take rate. (These numbers are according to a Deseret News report on a 2012 legislative audit.)

One of the new, more successful strategies was to nibble subtly around the edges of the Municipal Cable Television and Public Telecommunications Act (Utah Code Title 10, Chapter 18). That law makes it illegal for any political subdivision of the State of Utah, including cities and counties, to create their own cable television or telecommunications service, with an exception for municipalities on two conditions.

Let’s pause to recall, if you’ve read my other posts on this subject, that I’ve repeatedly called the telecommunications lobby one of the largest, best-funded lobbies of state and US lawmakers and government agencies. It’s enormous. Is there any wonder that our state law ties the hands of cities in a manner that is clearly beneficial to the large telecommunications companies?

One of the conditions of the municipal exception (10.18.105.2b) is that a city’s system is either for internal government use or made available to private providers. The latter explains the basic structure of the LightHub Fiber proposal.

(Note that existing systems, like Spanish Fork’s version of AirSwitch, were grandfathered — that is, laws passed after the systems were funded didn’t make them illegal. American Fork missed that by a nose with AirSwitch.)

When an Albatross Wanders

The other requirement for the exception which allows cities to build telecommunications systems (Utah Code 10.18.105.2a) is that these systems are “designed to provide services within the municipality.”

One of the things which helped UTOPIA turn itself around — to the point that it reached the benchmarks in the new management’s five-year plan within a couple of weeks of five years — was to go a little way beyond the boundaries of member cities, where there was profit in it. They made a strategic decision to connect areas which are outside, but on the border of, a member city. For example, they might extend from Lindon, a member city, across the street to a business complex in Pleasant Grove, which is not a member city.

It’s been effective, and it seems somewhat reasonable, as long as they get can away with it. To date it has not been tested in court — which seems to have emboldened UTOPIA.

Now UTOPIA has connected the new high-density development on the south side of American Fork, just east of 500 East, between State Street and I-15, which they recognized as low-hanging fruit. That area is not across the street from any member city. (Pleasant Grove is not a member city.)

“Nobody’s cried foul yet,” said one of my sources.

That may not be the end. I haven’t seen the documents, but there are reports that, after American Fork and Kaysville rejected UTOPIA’s recent offers, UTOPIA filed for permits to run fiber down Main Street in both cities. Reportedly, they justified the applications by citing UETN, the network which connects schools, but you can bet your bottom dollar that the real motive is connecting to businesses there — very far indeed from any border of any member city.

This is probably a good time to remind you that I’m not an attorney or a judge, and I speak only for myself, not for American Fork City.

Present Tense

Rough start notwithstanding, UTOPIA is serving a number of cities and chipping away at its debt. Every so often, another city joins, which helps fund the long overdue buildout in the original pledging cities. But it’s still not living entirely on revenues from customers. Combining all member cities, UTOPIA is reportedly taking over $20 million annually in municipal tax revenues. (Initially these were sales taxes; now they are often franchise taxes, which are like sales taxes, but on energy.)

Different cities finance the system in different ways. For example, Brigham City is using a voluntary special assessment area. Essentially, a potential customer had to agree to a $3,000 lien on the property, which would be foreclosed ahead of any mortgage, in order to participate. They went door to door signing people up. When they got to 33% sign-ups, which seems like a minor miracle to me, they bonded.

UTOPIA built and operates the Brigham City system. Brigham City does not control the rates. And revenues in excess of bond service go to UTOPIA, not Brigham City. If that serves their needs, good for them. But American Fork can do better.

UTOPIA’s Offer to American Fork

In early 2019 UTOPIA proposed to come to American Fork, build the system, and bond in our behalf to fund it. The bonds would be guaranteed by American Fork’s tax pledge — but if we achieved a 30% “take rate” (participation rate), the revenues would be enough to serve the debt, and they wouldn’t take our committed tax funds. If our take rate was better than that — in some UTOPIA member cities it’s less than one-third of that, and in some it more than double — any extra revenue would go to UTOPIA, not to American Fork. (A long-time insider told me that part of UTOPIA’s strategy was to avoid, if possible, telling a prospective member city that excess revenue would go to UTOPIA, not back to that city.)

Someday, when the debt’s retired, UTOPIA might decide to share some revenue with member cities, on terms it alone would decide, but there’s no guarantee. That day is roughly $300 million away.

American Fork officials noted that, if we joined UTOPIA, the City would assume all the risk for its success in American Fork, while all the revenues would go to UTOPIA for the foreseeable future. Moreover, the City would have no control over rates and service levels.

Thank you, no, said the City.

[Later note: I have since been told — but still secondhand — that UTOPIA’s proposal was less formal, more of an exploratory conversation, and these numbers may simply have come up in that conversation.]

Granted, UTOPIA isn’t all bad. If a city wants broadband badly enough, but doesn’t want to be involved in the construction, operation, ISP relationships, revenues, etc., UTOPIA may be a reasonable choice. After a rocky start, it appears to be working well in some cities, technically and in financial terms.

Beyond UTOPIA

In the end, I’m with the City on this one. UTOPIA is not for American Fork.

When the mayor’s ad hoc task force, on which I served, took a look at the issue and the LightHub proposal specifically, just before it went public, we thought doing nothing would be better for American Fork than joining UTOPIA.

The decision now before the American Fork City Council is whether our own, different approach to citywide fiber is better than doing nothing. I think it is, by far. You may think otherwise.