Utah Cities dream of high-speed digital link called Utopia

The Winter Olympics drew the world’s eyes to Utah for 17 days in February 2002.

By Steven Oberbeck
The Salt Lake Tribune

Utopia — a proposal by 18 Utah cities to develop the nation’s largest ultra high-speed digital network — promises to draw attention to the state for far longer provided it gets built and operates, as its proponents promise, at no cost to taxpayers.

"We are getting a lot of calls . . . from cities across the country interested in what we are doing," said Paul T. Morris, Utopia’s executive director. "The wholesale concept we are proposing could well become a model for other cities struggling with how to bring economic development to their communities."

Utopia — the Utah Telecommunications Open Infrastructure Agency — is pushing for construction of a wholesale network that would bring a fiber-optic line to 248,000 homes and 34,500 business in the communities supporting the project.

Once built, the cities plan to act as wholesalers, leasing the network to service providers who would offer retail products such as high-definition television and lightning-quick Internet connections. Utopia believes revenue from the leases would provide the network with more than enough money to pay its debt and eventually generate a profit for the municipal owners.

To date, most of the attention the $540 million project has received has centered around the cutting edge technology the system plans to deploy. Yet with Utopia promoters revealing three weeks ago the system will need taxpayer guarantees before construction begins, the focus is shifting to the financial aspect of what some fear represents a huge gamble for the communities involved.

"This is a very powerful test case, but Utopia is hardly alone," said Sharon Gillett, a research associate at the Massachusetts Institute of Technology’s Center for Technology, Policy and Industrial Development.

Other communities have deployed their own municipal broadband systems, many as offshoots of municipal electrical utilities, she said. "Where Utopia is out front is that they are attempting to aggregate a large number of cities together."

Gillett, who with M.I.T.’s William H. Lehr and Carlos Osorio on Dec. 3 published the results of a study titled "Local Government Broadband Initiatives, sees little risk Utopia will build its system and discover there is only minute demand for the broadband capabilities its network offers.

"Broadband networks are like highways — they always get filled somehow or other," she said.

If there is a risk, it is the number of customers on the Utopia system — at least initially — may fall short of the critical mass that may be necessary for the eventual development and deployment of the next generation of broadband services — services that could soak up the capacity the system is being designed to offer.

"Of course, I don’t believe that will happen. But I am with M.I.T. and we do have that "T" in our name," Gillett said.

There are those, though, who are hesitant to embrace the "Field of Dreams" philosophy widely held by Utopia’s supporters.

That "build it and they will come philosophy" suggests that construction of a baseball diamond in an Iowa cornfield, or deployment of advance fiber optics, is enough to pique interest from a long line of automobiles with lights blazing, or a hoard of businesses eager to stuff the electronic pipeline with data.

Denver University’s Ron Rizzuto, a professor of finance who also has studied many of the municipalities that have entered the telecommunications business, said most of those systems are not profitable.

"At least they are not making money in the conventional sense," he said, arguing a large number of such systems operate at break even or below and rely on cross subsidies from other city revenue sources to meet operating budgets.

Rizzuto said in many cases when municipalities enter the telecommunications business, they are duplicating the private systems already in place. "The result is they end up building more capacity than people need," he said.

A study by one of Utopia’s advisers, DynamicCity in Lindon, predicts 40 percent of residents in the 18 Utah cities involved will sign up for services offered on the network in two years — a figure that eventually could climb to 69 percent.

However, for those numbers to be realized, Utopia must capture the hearts and wallets of many consumers who already get their cable television from Comcast and their Internet and residential telephone services from Qwest Communications and other providers.

"Utopia seems to be suggesting that they’re going to put Qwest and Comcast out of business," said Mike Jerman of the Utah Taxpayers Association. " I’m not sure I agree with that."

Qwest and Comcast, which also offer residential telephone services in some areas, will not surrender their market share without a fight. Both companies have invested hundreds of millions of dollars in recent years to upgrade their Utah networks.

Qwest’s Utah President Jerry Fenn said last week that if the Utopia network becomes a reality, Qwest will defend its market share for digital subscriber lines and other services. "And unfortunately, that will put us in the position of trying to make sure Utopia isn’t successful."

http://www.sltrib.com/2003/Dec/12142003/business/business.asp