The Macquarie Deal Sounds OK, But History Counsels for Caution [The Hub Debate]

fiber-cableThis is  a Hub Debate on the proposed Macquarie acquisition of UTOPIAParticipate in the comments or submit a response for publication to

Resolved: “UTOPIA cities are being offered a lifeline by Macquarie and, despite the estimated $18 to $20 per household utility fee increase, should take the deal.”

When I first moved to Layton in 2009, I looked around for good Internet service, and discovered that Layton was part of UTOPIA. I was told that the network build out was about three blocks from my home and would be there in no less than four months. Five years later, the build out has completely stalled, and I’m still waiting.

The topic of UTOPIA generates real angst among residents and policymakers. The original deal was poorly structured and even more poorly implemented. We’ve got a partially finished network that negatively cash flows with no sign of improvement. Current municipal policymakers are saddled with UTOPIA, and it’s a political quandary – no one wants to spend any more money, but folks are uncomfortable wasting what’s already been spent.

People feel trapped, and the desperation is evident.

For an example, look no further south than Provo, which was so relieved to be done with implementing iProvo (it’s own network project), that it handed over its network to Google for $1.00 without any profit potential while continuing to remain obligated on the incurred debt. Google swooped in as an angel to save Provo from itself and got a sweetheart deal.

Compared to the gift to Google, the Macquarie deal looks like a steal for the cities. Macquarie builds and maintains the network, connects each home, shares profits with the cities that will ideally allow them to make their debt payments, and then turns over the network in 30 years. All for a $20 mandatory utility fee assessed against every home, which is paid to Macquarie for its trouble in building and maintaining the network. The $20 also guarantees to each resident basic Internet service (3MB down).

On its face, the Macquarie deal seems like a good option, if only in comparison to the alternative.

But cities should be cautious.

They are in this mess because of a poorly negotiated, conceived, and implemented deal. Rushing into anything with Macquarie doesn’t fix things if they end up in the same situation with different parties down the road.

This deal needs to be negotiated carefully, not seized, “as-is,” like a life preserver. Realize that Macquarie likes it principally because they’re going to get the ultimate in guaranteed income—municipal tax revenues not tied to income or consumption. They get it over the course of 30 years.

Macquarie does not hold all the cards, and the cities shouldn’t negotiate like it does.

What happens in 30 years if the technology is obsolete? What happens if the maintenance obligations of Macquarie are poorly negotiated and carried out? What happens in 15 years, if the utility fee still only gives access to Internet with a maximum 3MB download? Heck, what happens to the usability of Internet at those speeds in two years?

All of a sudden the mandatory utility fee looks an awful lot like additional payment on debt and not fee-for-service.

I’m inclined to favor the Macquarie deal over the alternatives that I see. But I’m trying my best not to be blind about it. If there’s one thing that I’ve learned in years of watching government it’s: You always can make things worse.

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