Schedule of Macquarie-related meetings

macquarie_logo_2638Want to ask Macquarie some more burning questions? Interested in seeing how your city council votes? Here’s the so-far definitive list of what is happening and where. Note that any of these is subject to change and I’ll do my best to publish updates.

  • Thursday May 22: Brigham City will have an open house at the Bunderson Center, 641 E 200 N, from 6PM to 8PM. Macquarie will be there to answer one-on-one questions.
  • Tuesday May 27: Orem will have Nick Hann at the regular city council meeting to answer questions and take feedback. The council meets at 3PM in the Public Safety Training Room.
  • Tuesday May 27: Both West Valley City and Layton will be taking votes on advancing with Milestone Two during their normal city council meetings.
  • Tuesday June 3: Lindon will have a public discussion item on the city council agenda. They meet 7PM at the Lindon City Center on State St.
  • Thursday June 5: Murray will have an open house at the Doty Center inside the Intermountain Medical Center complex. It starts at 6:30PM.
  • Thursday June 5: Centerville will have an open house, education session, and public Q&A at 7:30PM. I’m assuming it’s at city hall, but the location is unclear.
  • Tuesday June 17: Centerville, Tremonton, and Lindon should all be taking votes on advancing with Milestone Two during their normal city council meetings.

Notably absent from the list are Payson and Perry, cities that seem to have adopted “bury our heads in the sand and hope for the best” as their strategy. If you live in either city, you should contact your mayor and city council to give them a nudge.

BREAKING: Midvale is the first UTOPIA city to say ‘yes’ to Macquarie’s Milestone Two

midvale_logoIn a unanimous vote, Midvale becomes the first UTOPIA city to choose to move forward with the proposal from Macquarie. Milestone Two will hammer out the fine details of the proposal to build, maintain, and operate the network for 30 years. The city will still need to vote to accept that finalized and detailed offer when it is completed.

Other cities are still taking feedback on the high-level overview presented in Milestone One. Murray will have an open house June 5 at 6:30PM. Centerville and Lindon both submitted detailed lists of questions and got public responses to all of them. This is shaping up to be an incredibly open process, a stark contrast to a UTOPIA that was scared to discuss anything in public for fear of being attacked again.

Keep your eyes open for postings about more upcoming votes and remember, the votes are just to move forward on getting fine details.

How does the Macquarie deal stack up against the other options? Very favorably

macquarie_logo_2638When evaluating if the Macquarie deal puts UTOPIA cities ahead or not, we have to figure out what the cost of doing nothing would be. As pointed out in the previous analysis, the monthly cost per household in the Macquarie deal will range from $11.48 on the high end to $0.96 on the low end. Staying the course is actually a lot more expensive than taking the deal. Allow me break down the numbers.

The current bond obligations, including future interest, are around $500M. If 163K households make payments for 30 years, that works out to around $8.52 per month per household. This isn’t the entirety of the costs, however. Based on 2013 financial data, UTOPIA has an annual operational shortfall of $2,410,380. This is around $1.23 per month per household on top of the bond debt. This brings the cost of doing nothing up to $9.75 per month per household. But wait, there’s more. The network requires a hardware refresh about every seven years at a cost of about $40M a pop. This adds another $2.92 per month per household to the total bringing it up to a whopping $12.67 per month per household. Macquarie is offering a much less expensive option on the table.

So what about versus the cost of shuttering the network? Assuming that the network could sell for $30M (based on the offers made to Provo), you’re still left with a cost of $470M or $8.01 per  month per household. To hit the break even point with the Macquarie deal, you’d need a take rate between 33.5% and 38.2% depending on the utility fee. If you want to plug in your own figures for take rate and utility fee to determine the monthly cost per household, open up this spreadsheet and give it a whirl.

Staying the course is obviously not an option. Hitting a wash point with selling the network as-is seems like a bad one given how close it is to the same cost as the Macquarie deal. This is just further evidence that the cities need to move forward with Milestone Two and accept the resulting final offer.

 

Broadband Bytes for 2014-05-16

Broadband Bytes for 2014-05-09

Is Macquarie a good deal for UTOPIA cities? The math says yes

It’s not very surprising to see Royce Van Tassell attack UTOPIA and its proposed deal with Macquarie. He is, after all, vice president of the Utah Taxpayers Association, a group that receives contributions from Comcast and CenturyLink. It is surprising, though, to see him make up his own facts and numbers. A fair look shows that the deal is much better than Macquarie is willing to say out loud.

A lot of hay has been made over the requirement in the deal to have the utility fee rise with CPI. The criticisms, however, assume that the cost to provide service and the revenues from subscribers are both static. Why is it a reasonable assumption that neither of these things will also rise with inflation? It isn’t, so inflation is entirely a non-argument.

Royce also gets some very basic facts wrong about the deal. This covers 163K addresses, not 157K. Macquarie has stated clearly that the utility fee will include network refreshes every seven years at a cost of about $60M each time, but he’s claiming that it’s not included and that equipment refreshes will happen as often as every three years. Royce claims that upgrades will be incredibly expensive, yet 100Mbps electronics from 10 years ago were more expensive than 1Gbps electronics are today. There are so many errors of fact in his op-ed that it’s hard to take any of his conclusions seriously.

And so let me break down the very simple math of how the deal works and what it will actually cost subscribers.

Let’s take a worst case-scenario first. Assuming a take rate of only 30% and a utility fee of $20, the total cost of the Macquarie deal will be $1173.6M while revenues are estimated to be $1000M. Less $500M to pay for the existing bond obligations, you’re looking at a total cost over 30 years of $673.6M or an effective utility fee of $11.48 per month per address. That’s a lot less than the stated fee.

But what about the best case scenario? That’s assuming a take rate of 50% and a utility fee of $18. This brings the total cost to $1056.2M and total revenues to $1500M. Less the $500M for existing bond obligations, you’re looking at $56.2M over 30 years or a scant $0.96 per month per address. It’s pretty hard to get upset over a fee that small.

So really, it all depends on the take rate. The question is what take rate we can reasonably expect. Brigham City got a 28% take rate with a $3000 installation charge, but Macquarie will eliminate it. Provo managed to keep 35% despite having disastrously bad providers like MSTAR and Broadweave, but Macquarie has well-respected ISPs like XMission, Veracity, and many other local companies. If Macquarie achieves this take rate, the cities hit the “wash” point where their costs are the same whether or not they opt to go with the deal. That point is about at a 38% take rate. I’d like to think just about anyone can do 3% better than Provo.

Even at the point where the deal is a wash financially, cities still get a completed network with an included basic level of service for every resident. Comcast and CenturyLink will slash their prices substantially in response to the competition (at least 50% in Provo) so that every citizen benefits regardless of if they use the network. Even for someone with a very basic Internet connection that wouldn’t use the network, they would be paying no more than $11.48 to potentially save at least $15, a net gain. The cities also get a $100M annual revenue stream at the end of the 30-year contract, effectively making the worst case scenario break even after less than seven years of ownership.

Given the very easily attainable goals and the high likelihood of reaching them, it would be ridiculous for cities to not move forward with negotiations under Milestone Two. Or to listen to a naysayer like Mr. Van Tassell that’s paid to say the things he says.

Broadband Bytes for 2014-05-02

What you need to know about Macquarie’s proposal to UTOPIA

Macquarie has let their proposal out and it looks like they’re planning to make good on many of the rumored details. There’s also a number of very attractive points that will make this an easy sell for new cities to join. Some highlights:

  • The network build will be done in existing pledging UTOPIA cities in 30 months.
  • The fee will be $18-20 per month per subscriber address with a 50% discount for MDUs and a 100% premium for businesses. This amount will be indexed.
  • Utility fees will have a grace period of 6 months from construction to allow ISPs to hook people up.
  • The free tier of service will be 3Mbps symmetrical with a 20GB monthly cap. All service providers must agree to offer it as a condition of being on the network.
  • Cities stand to earn between $1.0B and $1.5B 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.
  • Speaking of revenues, the cities stand to rake in another $100M annually when the network reverts to their control in 30 years.
  • Macquarie will be aggressively promoting the network and intends to extend it to any city that wants to accept its terms. Cities without existing debt service may end up making a good bit of money on the deal.

The worst case scenario is that it is a wash with what they have now except the network gets completed and everyone gets free service. In the best case scenario (which I still this is a little too conservative), they end up paying almost nothing for the network. I’ll just come out at say it: any city council that doesn’t move forward on this deal is committing an act of deliberate and malicious fiscal malfeasance against their city and its citizens.

Macquarie has already presented this information in Utah County and will be presenting again Wednesday April 30 at 7PM at Layton City Hall and Thursday May 1 at 8PM at West Valley City Hall. Show up and make sure the cities know you want this deal to happen.

Broadband Bytes for 2014-04-25