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Financial success is the most obvious kind. It’s very easy to look at expenditures and revenues and come up with a bottom line figure. I don’t mean to discount the importance of coming up with a positive number at the end of that statement, but it really isn’t the entire financial picture. (Take a look at my breakdown of Provo’s real and potential savings from iProvo for a good example.) Orem, for example, is saving somewhere in the neighborhood of $600K per year in telecommunications costs by using UTOPIA fiber in their city. None of the other cities have released similar figures (at least not that I am aware of), but I think it safe to say that they are experiencing similar savings. Such an approach also fails to recognize that incumbent providers are forced to offer better service and pricing to attract and retain customers. Based on national figures, a UTOPIA-served neighborhood is likely to save 25% or more off of telecommunications costs.

These two items alone can make up for any revenue shortfalls UTOPIA may experience, yet they are rarely discussed. This doesn’t even take into account the potential savings for any city-owned utilities such as Murray’s city power. Provo utilized their network to chop a significant amount of response time from outages and had planned to implement remote leak detection for the water system. Other cities can take similar measures to not only better utilize the network, but also to expand it further. To not include these items in the financial picture might work well for anti-UTOPIA groups like the Utah “Taxpayers” Association, but it has no basis in reality.

This leads into another metric for defining success: the level of competition in served areas. UTOPIA was born from the frustration that incumbent providers felt no pressure to deploy next-generation broadband services. With Qwest on financial life support and Comcast focusing on hotly-contested FIOS areas, Utah was destined to get the short shrift from both of them. UTOPIA put the pressure on both to offer substantive discounts to UTOPIA areas, something that has been independently confirmed by several people I know. Both have also been scrambling to do system upgrades to try and offer competitive speeds. Even a non-UTOPIA cutomer in a UTOPIA area benefits from the service being available.

UTOPIA can also define success by how many companies its member cities either attract or retain because of the network. During the rebonding hearings last year, I heard many stories from homeowners and small business owners that they chose to stay where they are or move into the city because UTOPIA service is available. Many more lamented that getting similar services outside of UTOPIA areas was prohibitively expensive and often not available. One company in Orem went from driving around portable hard drives filled with data to sending electronic copies from one office to another. As our production of and need for digital data increases, so does the need to easily share it between remote locations. Businesses recognize this and will choose cities that meet those needs.

Based on these metrics, can we say that UTOPIA is successful? I would argue that yes, it is. Be wary of those who would say otherwise as they are likely ignoring key pieces of the picture to support some ulterior motives.

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The bond situation they are in is complex, ugly, and not at all their fault. UTOPIA was required by the financing bank to use variable rate bonds instead of fixed rate bonds. Variable rate bonds obviously create a lot of issues with financial planning since you can end up with drastic and sudden rate changes. As a hedge against this, UTOPIA opted to create sort of a hedge against this volatility using a second type of bond. (If I screw up this explanation, someone send Kirt Sudweeks in to fix my explanation.)

The gist of it is that UTOPIA makes payments on a bond at a fixed 5.65% in exchange for receiving revenues on a type of variable-rate bond that has, historically, been withing 14 basis points (0.14%) of the type of bond they are using for financing. Because the bonds paid to them have historically been about the same as the bonds they are paying, it should, in theory, ensure that they pay no more than 5.65% on the outstanding debt.

The problem, though, is that the short-term bond market has gone completely haywire in a way without precedent. Instead of these two bonds being very close to each other in interest rate, they have instead created a delta as big as 6%. UTOPIA’s capitalized interest for making bond payments was burned very quickly as a result and the bond rates still haven’t normalized again. Another complication is that the bank that underwrote UTOPIA’s bonds had its rating downgraded and the interest rate was driven even higher.

While I couldn’t get confirmation as to what the total shortfall will be and what it would have been had bond rates not flipped out, I’m confident that this is a temporary situation. I can’t really discuss specifics, but suffice to say that after being let in as to what they are doing and what’s being worked on, they are on an upward trend that should resolve itself in a few years and they will only need to call a very small portion of the pledges. As it stands right now, they gave the cities a year’s advance notice of their intent to call and will draw from monies that have already been set aside. In effect, pledging cities have up to two years of breathing room before new money must be made available and it will be nowhere remotely close to the full pledge amount. Another positive effect is that when they go cash-positive, they can bond against subscriber revenue instead of the cities’ tax pledges, thus absolving the cities of any liability.

So here’s the take-away in a nutshell:

• Nobody saw what was coming in the bond market because it had never happened before.
• UTOPIA is covering operating expenses and a significant amount of the bond and will only need a fraction of the pledges for a limited period of time.
• There’s a strong upward trend in revenues that will bring UTOPIA cash-positive within a few years and remove substantive risk from the cities when the bond is no longer secured with sales tax pledges.

What this proves is that the “free lunch” financing model requiring little-to-no upfront capital is not tenable and will not result in ubiquitous coverage. It also proves that the artificial financing limits in place by the legislature are causing a lot more harm than good. So yes, there is short-term pain, but there is light at the end of the tunnel.

Apparently UTOPIA was only able to secure a variable-rate bond as part of the refinancing deal and was unable to convert it into a fixed-rate one. That’s not surprising given that credit markets were running a bit dry, but it is unexpected since that little detail never seemed to come up. Barring a sudden large increase in subscriber revenue, this has left UTOPIA short anywhere from $50K to $300K a month because of increased interest rates. The article didn’t reveal if that is the only shortfall in bond payments or not, but they are covering operating costs.

I’m especially upset because UTOPIA didn’t tell me that I was wrong after I published my lambasting. And I ended up finding out this morning by reading the article in the DesNews instead of getting any kind of head’s up. The lack of information available to the public is bad enough, but leaving your loudest supporters hanging out to dry just won’t fly.

This proposal is just more of the same: highly restrictive regulation for the incumbents that gets constantly gamed and does nothing to promote better service provider choices. Given that the status quo of telecommunications regulation hasn’t ended up working so well, why on earth would we even entertain this idea? Lunacy is doing the same thing and expecting different results.

We should instead be focusing on how to increase competitive choices in the marketplace so that consumers have the option to pick their service provider. I’m confident that the only reason any service provider can get away with ridiculously low caps is because consumers can’t flee to another service. Once there’s some more competitive pressure, we’ll see those prices drop like a rock. In fact, markets with 4 service providers have prices that average about 25% less than markets with just two providers.

Let’s make sure our Congresscritters start focusing on the right part of the story. Competition is good. Regulation? Not so much.

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In my mind, customer service starts the minute you initiate contact to resolve an issue. You have an expectation that when you call in, you’re going to walk away with some kind of resolution. When you get conflicting answers from a CSR or don’t get your problem resolved by tech support, you’re not getting good customer service. By the time you’re venting on your blog, on a forum, or on your Twitter account, the damage is done: you got poor service.

When the Twitter-based customer service ninjas swoop in to try and get the problem fixed, they’re in full-on damage control mode. This isn’t to say they aren’t doing a great job of cleaning up messes; they are. But the core problem, that the customer service team failed to deliver, still hasn’t been fixed. I often don’t bother calling in with problems because I know I’m going to spend half an hour rebooting everything to have them blame my router, demand escalation, sit on hold another 15 minutes, and then face getting disconnected. It’s a lot easier to either complain online or seek out the Twitter folks to get things done.

This lesson is an important one for other service providers as a lot of former Comcast customers I’ve spoken with have sworn off ever going back because of customer service issues. Many Mstar customers have been in the same boat. Even though XMission’s DSL service is slower than Comcast and sometimes a bit more expensive, customers are fiercely loyal because the service is, by all accounts, awesome. It’s not because they’re using Twitter, it’s because they don’t have to in order to resolve customer issues.