Utah Lawmakers Assail Agency’s Buildout Strategy

Published November 1, 2007

Utah’s sales tax-backed statewide fiber-optic backbone is coming under fire over what legislators see as a deliberate shift in strategy to seek new, so-called “green field” fiber-optic buildout contracts in high-end real estate developments at the expense of areas of the state where the existing population remains unserved.

The Utah Telecommunication Open Infrastructure Agency (UTOPIA) was launched in 2004 as a joint project of 14 member cities that agreed to support a statewide fiber-optic backbone. The initial plan was to connect member cities (see table) to the backbone, then sell wholesale bandwidth to commercial service providers, cable and Internet access companies, and large end users with significant bandwidth requirements.

Municipal Participants in UTOPIA

City Population in 2004 Number of Households

UTOPIA’S 11 Pledging Member Cities

Phase 1
Lindon 8,363 1,977
Midvale 27,029 10,729
Murray 34,024 13,303
Orem 84,324 24,156
Payson 12,716 3,869
West Valley City 108,896 33,463
Phase 2
Brigham City 17,411 5,840
Centerville 14,585 4,238
Layton 58,474 19,144
Perry City 2,383 786
Tremonton 5,592 1,808

The Nonpledging Member Cities

Cedar City 20,527 7,134
Cedar Hills 3,094 1,701
Riverton 25,011 6,594

The Dropouts*

Roy 35,503 N/A
Salt Lake City 185,421 N/A
South Jordan 39,198 N/A
Taylorsville 55,632 N/A

* Cities that originally planned to join UTOPIA but opted out when they refused to pledge sales taxes to back the loans.

Source: Utah Telecommunication Open Infrastructure Agency

The network, funded by loans guaranteed by local sales tax revenues from member cities, was also expected to spread high-speed broadband connectivity to areas of Utah its proponents claimed would otherwise never be served by commercial service providers such as Qwest and Comcast.

Municipal broadband proponents praised the UTOPIA project as a large-scale, visionary step to close the gap between the number of urban and rural broadband users.

‘Low-Hanging Fruit’

But at a September hearing of the Interim Subcommittee on Government Competition and Privatization, consisting of members from the Utah Senate and House of Representatives, UTOPIA officials were questioned on their recent pursuit of bids to build fiber networks in new housing developments in so-called “non-pledging” cities, often in competition with commercial service providers.

At the hearing, subcommittee co-chair state Sen. Howard Stephenson (R-Draper) accused UTOPIA of abandoning its original mission in favor of using its advantage of taxpayer dollars to grab “low-hanging fruit”–potentially lucrative middle- to upper-income housing developments in Utah’s burgeoning exurban locations extending throughout the Wasatch Valley, where most Utah residents live and where much of the state’s future growth is expected to take place.

Utah’s population growth ranks fifth in the nation, according to the U.S. Census Bureau.

‘Non-Pledging’ Members

Committee members seeking to curb government-operated broadband networks were especially concerned with UTOPIA’s activities in “non-pledging” cities. “Non-pledging” members agree to allow UTOPIA’s network to connect to local telecom facilities, but they do not have to commit sales tax revenues to the project if it needs additional money.

As the price for not pledging sales taxes, David Shaw, UTOPIA’s general council explained, the consortium will not extend its fiber backbone to points all over town. Although Shaw parsed this condition as if the town were waiving its right to universal UTOPIA service, Stephenson openly mused whether a city’s non-pledging status actually benefits UTOPIA by relieving the agency from the expense of providing complete local coverage.

Big Money Loser

UTOPIA’s latest financial statements show $21 million in losses in 2006 and 2007. The agency projects another $17.3 million in losses for 2008.

Although Shaw maintained that financially UTOPIA “is right where we should be,” he could not predict when the consortium would reach break-even. He maintained UTOPIA has not had to turn to sales tax revenues to shore up losses, although he disclosed it had received a loan from the U.S. Department of Agriculture’s Rural Utilities Service, a federal fund used for rural telecom buildouts.

Shaw also said UTOPIA was delivering gigabit-level fiber connections to large hospitals and several schools. But when pressed, he said the Utah telecom private sector could have provided those connections.

At the same hearing, Jerry Fenn, Qwest president for Utah, argued UTOPIA, as a state agency, was not competing on a level playing field. “One of our chief competitors is also our regulator,” he said.

Steven Titch ([email protected]) is senior fellow for IT and telecom policy at The Heartland Institute and managing editor of IT&T News. He testified at the hearing reported on in this article.