Out of Control Policy Blog

iProvo Sold As Fiscal Reality Hits Home

The city of Provo, Utah, announced today that it will sell its money-losing municipal fiber network, iProvo, to Broadweave Networks, a Jordan, Utah, start-up for $40.6 million. This represents, I believe, the largest sale of a municipal fiber operation to a buyer that plans to maintain and grow it. Lebanon, Ohio, sold is failing muni broadband system to Cincinnati Bell last year for $7 million.

Reason has covered the financial disaster that Provo was becoming in two reports, the latest issued last month. Through the end of its fiscal year last June 30, iProvo had lost $7.4 million, and has been on pace to lose another $2 million this current fiscal year. The system was built in 2005 with a $39.5 million loan backed guaranteed by local taxes.

Nonetheless, the sale comes as something of a surprise. Separate reports from two consulting firms issued the week after the Reason policy study urged continued city funding of iProvo, although they recommended substantial changes in organization and operations. Up to last month, Provo Mayor Lewis Billings was expressing confidence in the system and stated that the city planned to stay the course.

Billings should be commended for his reversal. He's unloading the system while there is still value to be derived for the city as well as Broadweave. Other cities, particularly Ashland, Ore., have stubbornly held on to losing operations as growing debt drained any net value. They've become white elephants.

Moreover, the $40.6 million sale to Broadweave Networks demonstrates that significant investment dollars exist for fiber-optic development. The market for small-city fiber has not failed. If incumbent cable and telephone companies do not meet local demand it is apparent that other companies will step up. And Broadweave is no fly-by-night. It's an exciting, growing local company funded by Sorenson Capital, one of Utah's most respected venture capital firms.

That makes it all the more important for cities to pursue policies that encourage telecom infrastructure investment: franchise reform, low taxes and deregulation. These do a much better job at bringing viable broadband service that consumers actually want to buy to cities like Provo, while at the same time nurturing entrepreneurship, capital and job growth. This doesn't happen when government attempts to compete with the private sector through municipally-funded schemes.

Finally, Provo's decision to privatize coincides with the decision by (so far) 10 of 11 other Utah communities to refinance UTOPIA, the statewide fiber-to-the-home initiative with a new 33-year bond that could end up costing $505 million. It will be interesting to see how government-provided in these cities fare compared to Provo. Chances are residents of Provo, with a private sector provider, will have better choices, better prices, better service and higher take rates in 12 months than any of the UTOPIA cities.


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