Royce
van Tassell editorial mug
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.
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