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With new model, Utah takes last shot at Utopia.

With new model, Utah takes last shot at Utopia

Gubbins, Ed. 25 Nov. 2008. 9:13 am.

Utah's multi-city Utopia network is taking perhaps one last shot at making its wholesale municipal fiber project work, with a revised model, new management and a new focus on business customers.

The 11-city fiber-to-the-premises project has been under increased pressure from taxpayers since revenue shortfalls led it to ask participating cities to double their investment in the project last spring so that construction could continue.

"The cities have come down on them and basically said, 'You guys [have] got a year to make this work,'" said Lane Livingston, chief executive officer of Fibernet, a local ISP that recently signed on to sell services on Utopia's network. "So Utopia has regrouped and said, 'We'll go after wherever there's real money.'"

Key to Utopia's new focus is a move to redirect network deployment toward businesses rather than residential customers. Though the project was initially conceived as a way to bring universal broadband to underserved residents, critics say that model isn't lucrative enough. And so in recent months, Utopia began connecting its fiber to underserved office parks in Utah County, the area just south of Salt Lake County that includes Provo and houses more than 10,000 businesses.

"There's a lot of stranded infrastructure out there," said Hugh Matheson, Utopia's new communications director. "[Utopia's creators] assumed a ubiquitous build, so their deployment decisions were based on going everywhere at once. They got so far and, for a lot of different reasons, they didn't get the last mile in in lots of places before they needed to refinance. There's fiber that goes into some footprints but doesn't go down streets. There are places where there's fiber under the streets that hasn't been marketed. They were kind of going maybe too many places at once."

Utopia's goal is still to be ubiquitous eventually, but to do so by first becoming economical and then building upon the strength of its improved financial model. "That will create the momentum, both psychologically and financially, to roll out from there," Matheson said. The strategic shift has already lured more partners. In recent weeks, Utopia has named two new service providers to the network: Fibernet (not to be confused with the publicly held national provider of the same name) and Idaho-based Fuzecore. Fibernet will focus exclusively on business customers, competing primarily with XMission, which has been on the Utopia network for years. Livingston, Fibernet's CEO, believes Utopia's fiber passes (without necessarily connecting to) several thousand businesses and expects to see the number quadruple over the next year or so.

In addition, Utopia is making a series of other changes meant to improve its economics. It has moved to replace Tetra Tech, the partner it used for fiber deployment. It has transitioned to an in-house network operations center from one managed by PacketFront, which acquired Dynamic City, one of the creators of Utopia's original business plan. Utopia has also hired a third party to help sign up new customers; Network Community Services representatives are going door to door on behalf of all of Utopia's service providers, explaining to potential customers what their choices are and helping them sign up. The use of a third party is important, since Utah law forbids Utopia, as a public entity, from actually selling retail services itself.

The changes are being implemented by a new management team installed shortly after the refinancing this spring. In May Utopia named as its new executive director Todd Marriott, a serial startup investor and graduate of Utah's Brigham Young University who left a job as a Wal-Mart buyer in the early 1990s to help grow telephony startup Citi-Link Communications, both by building its customer base and by helping it acquire Denver-based IP Telephony, a provider of business communications products such as voicemail, virtual PBXs and follow-me services.

Marriott said he initially began looking at Utopia as a potential acquisition target, which is not surprising, since Utah's other well-known muni network, iProvo, was acquired and privatized this year by Broadweave Networks, led by Steve Christensen, another Brigham Young alum who, like Marriott, once played on the Cougars football team.

When Christensen bought iProvo (which was struggling with churn and top-line problems similar to Utopia's, with some of the same service providers on the network), he vowed to save it by ditching its wholesale-only model, in which many across the telecom industry had begun to lose faith. That model, which Utopia still shares, creates inefficiencies, he said, by separating service provider from network operator. For example, he told Telephony in May, "It's incredibly onerous to activate a customer on the network because [service providers] don't have hooks into the network."

Fibernet's Livingston said he sees no onerous issues with Utopia's provisioning systems today, which he said have been improved under new management. "They've made great strides," he said. "I never really was comfortable with my ability to control my customers [in the past] and how things were working. Now it's more reasonable." In addition, Utopia's pricing models are being revised from their previous basis on the economics of residential broadband to more profitable commercial services. (In the old model, margins for service providers were low – maybe 5%, Livingston said.) And purchasing is also being simplified, he said, with simpler pricing and an online application programming interface for retailers to plug their own platforms into and automate. "There used to be several components," he said. "Now I can just buy a single piece for a customer."

At the same time, Utopia is vying for greater customer commitments. Where it once charged retailers "almost nothing" for fiber builds, Livingston said, "They've since changed that to say, 'We'll make you go through a traditional cost justification,' which is what a normal telco might do, but they're willing to amortize that into a contract period of a couple years. So if you're willing to sign up for a service commitment of around two years, there is no buildout cost, and that still makes sense for a majority of folks when you can't get anything else – DSL or cable."

Utopia is also considering wholesaling video services to its customers (though today only MStar offers video on the network). Utopia has had an agreement with iProvo (now Broadweave) to share a video head end. But that contract expires next month, and since Provo's network has changed owners, Utopia and Broadweave have been in talks lately to resolve who owns what in that facility, according to the Utah Daily Herald.

But Utopia's reformation will be an uphill battle, as the project's missteps thus far have tarnished its name, and its political troubles may make potential customers nervous about how long it will be around.

Meanwhile, the incumbent in Utah, Qwest Communications, is now aggressively rolling out fiber to the node, with 7-Mb/s and 20-Mb/s services – something it wasn't doing when the initial case for Utopia was being made.

"The moment these guys go into an area in any kind of substantial way, Qwest is right behind them," Livingston said.

Utopia's new managers are of course well aware of these challenges and on their slim margin for error at this point. "Because of the passage of time, the runway's shorter," Matheson said. "We have to get even more focused."

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