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iProvo: the rest of the story

Last Sunday, Provo Mayor Lewis Billings wrote an op-ed in the Deseret Morning News extolling the virtues of iProvo. We would like to cover some points that Mayor Billings overlooked.

iProvo is losing money
Last year, iProvo lost nearly $1 million and is expected to lose about $2 million this year. Provo originally projected that they would need 10,000 subscribers to break even, but now that number is being ratcheted upward.

Of course, iProvo was supposed to make money.

iProvo competes with unfair tax advantage
Since iProvo is government owned, it is not subject to taxes. Unlike Qwest, Comcast, satellite providers, and wireless companies, iProvo does not pay federal and state corporate income taxes, local property taxes, and state/local sales taxes.

Defenders of government-owned telecommunications systems argue that companies that provide services over iProvo's network are subject to taxes. However, iProvo's infrastructure is tax exempt, and private sector competitors like Qwest, Comcast, and wireless companies have to pay taxes on their infrastructure. Payment of some taxes by iProvo providers does not negate iProvo's exemption from other taxes.

Recently, the Legislature partially addressed this issue by exempting certain telecommunications purchases from state and local sales taxes.

However, the bottom line is that iProvo competes directly against private sector companies but does not pay property taxes or corporate income taxes. Some may argue that non-payment of federal and state corporate income taxes is a moot point since iProvo is losing money. Nevertheless, iProvo's competitors are subject to federal and state corporate income taxes.

Does the airport analogy justify iProvo?
UTOPIA and iProvo supporters have used the airport analogy to justify government-owned telecommunications systems. Supporters argue that it would be unrealistic for each airline to build its own airport. Therefore, government builds an airport and charges airlines to use it.

That's not a bad analogy from a PR sound bite perspective, but the analogy is seriously flawed from a logical fiscal policy point of view. Prior to iProvo's and UTOPIA's creation, private sector companies had invested hundred of millions of dollars in Utah's telecommunications infrastructure, and cumulative total private sector investment now exceeds $1 billion. It's simply not fiscally responsible to walk away from this investment, which is subject to taxes and does not expose taxpayers to risk, in order to start something from scratch and expose taxpayers to financial risk.

The airport analogy could make sense if the private sector had not been willing to build telecommuncations infrastructure in the first place, but that has not been the case.

But haven't Qwest and Comcast have lowered their prices because of iProvo?
Qwest offers the same prices and service throughout its entire multi-state service area. Comcast offers certain short-term promotional pricing which proponents of government-owned telecommunications systems cite as proof that iProvo and UTOPIA are benefitting taxpayers. However, Comcast's long-term pricing is independent of whether the customer lives in a city with government-owned telecommunications system.

Footnote:

The tax policy debate on iProvo and UTOPIA has an interesting political angle. Dave Owen is one of Utah's major political players and has been a vocal proponent of tax-exempt government-owned telecommunications systems.

At the same time, Owen has agitated for higher property taxes on centrally assessed taxpayers, which include Qwest, Comcast, and other private-sector telecommunications companies.

Owen is trying to have it both ways. He supports tax-exempt, taxpayer-subsidized government entities competing against taxpaying companies, and he expects those taxpaying companies to pay even more taxes.

At a later date, we'll talk about the issue of centrally assessed property taxes, but here's a summary:

- Owen et al expect centrally assessed taxpayers to pay taxes on intangible property, even though that is expressly forbidden by the state constitution as long as a state corporate income tax is imposed. If centrally assessed taxpayers were forced to pay taxes on intangible property, then locally assessed taxpayers would also have to pay this tax. This would be devastating to Utah's economy.

- Owen et al expect certain industries to continue to pay a fixed percentage of total property taxes even if those industries' share of state GDP decreases. In other words, if a given industry was paying 10% of all property taxes at a time when its share of state GDP was 10%, Owen expects that same industry to continue to pay 10% of total state property taxes even if that industry's share of state GDP decreases to 1%.

- Some centrally assessed opponents argue that centrally assessed companies should not be allowed to depreciate property. If this change were implemented, the centrally assessed companies could sue in state court to prohibit all companies from depreciating property. The would make Utah very uncompetitive in the international marked

The problem with Comcast and Qwest is that the infrastructure they have in place will not perform as required by the end users. It may be there already, but it is very outdated, limited and undermaintained. If Comcast and Qwest would have stepped up to provide fiber to the curb a few years ago, then Utopia and iProvo would not be justified. It's like driving on a dirt road instead of a super highway....just my two cents.

If the market demanded 10MB to the home and was willing to pay for it, the private sector would step up and provide the services.

If Comcast and Qwest were providing "dirt roads" that didn't perform as end users wanted, they wouldn't be profitable. They would be losing all of their business to iProvo and UTOPIA or to some private sector entrant that was willing to provide the service.

If iProvo were providing superhighways that everyone wanted, they wouldn't be losing money, particularly since they have tax advantages.

Keep in mind that iProvo is not the only government-owned system that is losing money. In fact, losing money is typical for these types of systems.

There is more and more demand each day and comcast and qwest are not and will not be ready.

The pricing Comcast offers in Spanish Fork is very competitive with the community owned Spanish Fork Community Network. This is permanent pricing rather than temporary promotional pricing.

I've happily used Comcast instead of SFCN for the past two years because Comcast provides better internet service. And yet, I'm a huge proponent of UTOPIA. I don't know how dissimilar iProvo is to UTOPIA. As I understand UTOPIA, Qwest or Comcast can provide internet service using the municipal fiber network. Less overhead wiring or fewer underground cables seems like a win for any community. I'll be interested to see how the UTOPIA cities fare.

Qwest and Comcast have repeatedly said they will not use UTOPIA or iProvo's infrastructure. After investing more than $1 billion in their own infrastructures, it makes no sense for them to abandon and write off their investment.

From a general economic perspective, it makes much more sense to continue to invest in and expand existing infrastructure, especially if shareholders, not taxpayers, bear the financial and technological risk.

If the story is as simple as it appears (I know that it rarely is) then Qwest and Comcast are fools who don't understand the economic principle of a sunk cost.

There are two scenarios.
1.) Comcast spends a bunch of money on a coax cable infrastructure and stays with it even though it is inferior to fiberoptic cabling because it is "good enough."
2.) Comcast spends a bunch of money on coax cable infrastructure and then switches to a better fiberoptic infrastructure at no extra cost, providing better service to customers and avoiding future obligations to maintain last mile links.

In both scenarios, the previous infrastructure is the same and should not be considered in future decisions. It isn't rational. The example given in the Wikipedia article I linked to is sitting through a bad movie because you already bought the ticket.

This is not a sunk cost issue because Qwest and Comcast are continually upgrading existing infrastructure which allows them to offer higher speeds. The fact that you are using Comcast instead of SFCN is proof of that.

Again, instead of walking away from existing infrastructure, Qwest and Comcast have made the rational economic decision to continue to invest and expand what they have right now. When the UTOPIA debate started a couple of years, Comcast's speeds were about 1 MB. Now they are over 5 MB and speeds will continue to increase as Comcast continues to invest in its existing system, all in response to consumer demand. The same is true for Qwest.

UTOPIA has responded that their speeds are faster than Comcast's and Qwest's, but the real issue is not who has the fastest speeds but whose speeds and prices are sufficient (as time goes on, speeds have increased and will continue to do so).

We should also reemphasize that Qwest's and Comcast's decision to reinvest in their own infrastructure does not expose taxpayers to risk, unlike UTOPIA, SFCN, and iProvo.

Please to be explaining why Comcast and Qwest both get a free pass for failing to deliver on a single promise from the 1996 Telecommunications Act while feeding from the $200B trough of subsidies and tax breaks and leaving us with a worse broadband adoption rate than Slovenia. This is something that detractors of municipal fiber projects can never provide an answer to nor can they provide an alternative to the incumbent monopolists. You don't appear to be any different.

The "profitability" argument is a load of crap, pure and simple. They're profitable because you can't buy a comparable product from another company and they can charge what they want. It's no coincidence that the number of cable companies has declined sharply since 2000 while television rates have jumped over 50%. It's easy to be profitable when you can jack up your rates with a captive market.

You can make all of the claims you want about adoption rates, but the fact is that over 1/3 of Provo households now subscribe to an iProvo service since it started becoming available about 2 years ago. That sounds like strong demand for next-generation services to me! Demand isn't why the incumbents haven't stepped up to the plate; it's cost. It's no secret in the industry that DSL is a cash cow because of the low cost of conversion and it's the same story with cable modems. They had to install new equipment at the plant, but they never had to replace much wiring. In the quest for profits, consumer demands fall to the bottom of the heap.

The one thing I will concede is that iProvo needs to raise rates to cover their losses. The current losses of $1M annually spread over 10,000 subscribing households averages about $100 annually per subscribing household. Tacking on an extra $10 a month keeps the system solvent and isn't likely to drive subscribers away from a system with superior technical advantages.

It's easy for government to provide a service at a loss and then say that the take rates "prove" that the private sector is not cutting it.

The government could enter ANY business sector or industry and offer services at a low cost (by not having to pay taxes and by subsidizing the low prices with transfers from other government funds) and brag about high take rates.

The reason iProvo and SFCN don't raise their rates to cover their losses is that they will lose customers. This is obvious.

How can you complain about "tax breaks" for Qwest and Comcast when UTOPIA and iProvo are tax exempt and when iProvo and SFCN are being subsidized by government funds?

Qwest has traditionally been one of the largest property taxpayers in Utah. Qwest pays millions each year in property taxes. UTOPIA and iProvo pay nothing.

You can't talk about a "monopoly" in internet services when Qwest, Comcast, and wireless companies are competing against each other for the same customers.

Again, profitability IS an issue. If iProvo and UTOPIA are such great deals for consumers, why can't they raise their rates to achieve profitability? If the private sector companies are providing such crappy service as you say they are, iProvo and UTOPIA should be able to raise their prices and still get adequate take rates.

Additional comment on profitability issue:

Why is it that all or nearly all government-owned telecommunications systems are not profitable? You say that Qwest's and Comcast's profitability is a non-issue because they have captive markets, but government systems can't make a profit in a competitive market?

As stated previously, government could enter ANY market and offer a "superior" product as long as it was willing to subsidize it and not have to pay taxes.

As I accurately predicted, you totally sidestepped the broken promises by the incumbent carriers. Comcast and Qwest were both given license by the government to be protected monopolies in exchange for concessions such as universal access, free services for government agencies, reduced price services for the indigent and so forth. These kinds of promises have been made at the local, state and even federal level. Many of these promises have been broken.

Do you know what percentage of homes Comcast and Qwest each service in Provo? 95%. That's hardly universal. Do you know what speeds they promised in 1996 with the Telecommunications Act? 45Mbps for about $40 a month. Do we have it? Not even close. Cable TV rates are sky-high despite supposed competition from satellite providers. How many promises do they need to break before it's okay for the kid gloves to come off?

The biggest problem with your type is that you cannot and will not propose any alternative solutions. It's hard enough to even get you to acknowledge that there's a problem to be fixed. While criticisms of proposed solutions are valid, you also need to come up with some kind of alternative plan. If you don't, you end up sounding like you're defending their misdeeds. (You aren't... are you?)

You can't declare something to be a fact to make it so, yet that's what you've done by claiming that increased rates would slow adoptions and drive away customers. Have you ever left a provider over a $5/mo increase in price? That's effectively what a customer would see presuming that the greatest rate increases would be for commercial accounts. (Getting 30Mbps for even $200/mo is still a steal in broadband. Ask any ISP.) You can claim that as your opinion but to claim it as fact is totally false and misleading.

And now to turn the tables: How can you complain about UTOPIA and iProvo being tax exempt and iProvo and SFCN being subsidized by government funds when Qwest and Comcast receive gigantic tax breaks? There are still taxes being collected by the retail providers of the services and you haven't provided any numbers to show that it results in a net loss of tax revenue. Again, you defend spending tax dollars on monopolistic incumbents while deriding spending them on a vendor-neutral next-generation network designed to try and keep us competitive with foreign nations. Where's the logic in that?

As for the "competition" argument, can you compare a steak to a hamburger? No, of course you can't. They are different quality products at different price points. This is like saying that Hyundai and Mercedes compete. They don't; they're in different markets. Wireless providers compete on price, but you sacrifice speed, coverage and reliability in the process. You also introduce yourself to stiffly-enforced transfer caps. Since it's not a comparable product, it doesn't truly compete with offerings from Comcast or Qwest and they are not competing for the same customers. Power users want speed, bargain hunters want price. That discounts us down to the Big Two.

Do Comcast and Qwest compete with each other? Hardly. The pricing, speeds and bundles are roughly the same with both. Qwest is legendary for its poor customer service (even well outside of its service area) and Comcast is notorious for capricious enforcement of obscure parts of its terms of service whenever it feels like it. Each of them has areas not serviced by the other. (Both claim to cover about 95% of Provo with broadband, leaving up to 10% of the city with only a single choice.) The key component of a competitive environment is more service for less money. Given the ever-rising rates in television and stagnant rates in phone and Internet service combined with the increasing gap between US broadband performance and other countries, I'd hardly say we have healthy competition. They barely even compete with each other in their core businesses, phone and TV service. Competition indeed.

While you might buy into the fudged numbers from hacks at the Heartland Institute on financial performance for muni fiber projects, they manipulate those numbers in dishonest ways. Most of the numbers include the initial construction costs and expect the projects to show instant profitability. (How many years did it take for Amazon to show a profit, hmmm?) The reality is that they use these dishonest methods of accounting to show almost all of them at a loss, then focus on the few that have actually negative net revenue to say "see, I told you so!" When you have the answer before the data, you're going to make the data fit the answer no matter what.

Not once do I hear a discussion about the projects running in the positive. (That's about a quarter of them, FYI.) There's no discussion on how those systems are succeeding or how to bring those working models to other systems. Instead, it's an instant declaration of failure designed to shield lying and greedy telcos and cablecos from any kind of real competition. If you were really interested in the costs of iProvo, you'd be trying to find what works and introduce it to them before declaring it a total failure.

The entire issue boils down to this: have telecommunications systems become a public good the same way that roads, water, electricity, etc. have? Given that you cannot reasonably hope to have a successful commercial environment anymore without telephone and high-speed Internet services, I'd say we've made it to that point. Plenty of people also fought public financing of railroad and the history books write nothing about them.

If you are going to accuse Heartland or anyone of fudging numbers, you ought to provide the evidence. Otherwise, your accusations are meaningless.

On the tax issue, all we can say is you must be kidding. As we pointed out in our post, you cannot dismiss iProvo's and UTOPIA's property tax exemption simply because iProvo's providers collect sales and other taxes. That's like saying "It's equitable if someone stops paying school district property taxes on their home as long as they are paying sales taxes."

Regarding the "no net loss in tax revenue" comment, the correct comparison is NOT how much tax revenue is being collected by the providers versus how much property tax is being foregone by iProvo. If iProvo did not exist, these customers would be using Qwest and Comcast and wireless networks which means these sales and utility franchise taxes would be paid. Therefore, the taxes collected and paid by iProvo's providers are simply tax revenues that would have occurred if iProvo did not exist.

Your "tax breaks" argument is similar to people who complain when "the rich" get federal income tax breaks but the poor don't. You don't get tax breaks unless you are paying taxes. The poor don't pay federal income taxes just like iProvo and UTOPIA don't pay property taxes. Therefore, they don't get the "tax breaks" that TAXPAYING entities get. At the end of the day, "the rich" still pay federal income taxes even after their tax breaks and the poor don't just like Qwest and Comcast continue to pay taxes even after their tax breaks and iProvo and UTOPIA do not.

In addition to the tax-exempt status, iProvo is subsidized. Qwest and Comcast are not subsidized and pay taxes, even after whatever tax breaks they get.

If increasing rates would allow the cities to maintain existing or close-to-existing take rates and allow them to forego subsidies, then why don't they?

If you accuse Qwest and Comcast of not being competitive because their prices are similar, then you have to assume then most of the economy is non-competitive. At any give time, the price difference between similar products (consumer or business) is not great, although sellers do offer deals depending on the state of the market.

You guys try to have it both ways. If prices are similar, then the companies are guilty of price-fixing. If prices are different, then one company is gouging customers.

The proof of number fudging is found in publication 20849, Exhibits 11 and 12 (pp. 66-77). By including the initial construction costs as "capital expenditures" on every year, they can claim the systems as operating at a loss for more years than they actually may have. It's like declaring City Creek Center to be a failure in mid-2008 because they've spent much more money than they've collected. Some of the systems haven't even finished the initial build-out having been in operation under 4 years. If that's not manipulating the numbers to support the conclusion, I don't know what is. It's also very telling that Heartland hasn't once attempted to game UTOPIA. Hmmm.

My argument on the tax breaks is that they were provided to deliver very specific promises that never materialized. It's akin to me paying you to fix my roof and you do nothing more than leave a work order on my doorstep. These companies absolutely must be held responsible for failing to deliver on these promises, yet you still continue to dodge that issue and give them a free pass. Why will you refuse to address the issue of anti-competitive and deceptive behavior in the telecommunications field? Is it because you actually support the behaviors?

Your entire argument on tax revenues is that municipal networks lower the amount of revenue collected, but then you claim that the type of revenue is just as important. Tax money is tax money; why does it matter as to how it's collected or what it's source may be? You may try to claim unfair treatment of the incumbents, but they have demonstrably been unfair to their customers for far, far longer. Pardon me for feeling little sympathy for them.

Qwest and Comcast are not subsidized? When did they opt out of the Universal Service Fund? While they may not receive any other subsidies, they have received decades of special monopoly status in exchange for delivering on certain promises. That doesn't count as a subsidy? Now that they've broken their promises of increased competition, better services and lower prices, I'm supposed to feel bad for them? It seems we're living in two different worlds.

I don't know why UTOPIA and iProvo don't increase rates. Have you tried proposing a modest rate hike to the break even point and asking why they don't do it? I'd bet the answer to that is a big, fat no.

What is evidence of the anti-competitive nature of their businesses is that the price of transferring a gigabyte of data has dropped like a rock in the last 5 years, yet broadband speeds and prices have largely stayed flat. They both refuse to pass along a decreased cost of transferring data and have jacked up both phone and television rates in the meantime. How on earth is that free-market competition?

I won't be surprised if you continue to dodge the questions about the failure of Qwest and Comcast to deliver on their promises of increased competition, lower prices and better broadband speeds. Those answers actually create the need for municipal fiber projects.

OK, so here's how we understand your argument.

Qwest and Comcast didn't keep their promises. Therefore, cities should be respond by engaging in a project that violates several principles of sound tax, fiscal, and economic policy, specifically:

- exposing taxpayers to financial risk even though the private sector is willing to bear this risk on its own

- competing directly against taxpaying entities while being exempt from property and income taxes, which erodes the tax base (and yes, it does matter how and when and from whom government gets its tax revenues).

- offering products and services that the private sector is willing to provide (before you say "but government offers faster speeds" note that appparently the private sector offers speeds that are fast enough otherwise the government system would not have to be subsidized by taxpayers or utility ratepayers)

Oh, we forgot to add a fourth violation of sound tax, fiscal, and economic policy that "justifies" sticking it to Qwest and Comcast for not meeting your expectations

- abandoning existing infrastructure which can be expanded at a lower cost than starting a new infrastructure from scratch

The private sector has never borne the risk on their own. Again, did they at some point opt out of the Universal Service Fund? Did they stop collecting the fees associated with the 1996 Telecommunications Act? Have they not fought for keeping their local monopoly status and closing their networks to competition? Do they not also campaign for state-wide franchising in order to cherry-pick neighborhoods and destroy universal access to service? The telecommunications industry has been using government as a tool to further their own entrenched dominance. To say that they are striking it out on their own is to show total ignorance to the history of telecommunications in this nation. (Remember, you're dealing with an IT pro. We know telco.)

It's a falsehood that iProvo and UTOPIA directly compete with Qwest and Comcast. Communities repeatedly asked these companies to provide next-generation services and they refused to build the required networks. The cities then decided to build the networks and allow companies to contract to use them. Most cities use a substantial part of the network for city services. (I wonder why iProvo expects subscriber revenues to pay off the service that the city uses for legitimate government functions. Seems like a proper accounting of how much of iProvo is simply a wide-area network for the city would end up more accurately stating revenues.) Qwest and Comcast were NOT excluded from either network and can still jump onboard if they so wish. The only reason they don't is because they detest competitive environments. Again, the falsehood is that it's government competing with private enterprise. Qwest and Comcast can live with the choices they made to attempt to continue leveraging their antiquated networks. That's the price of trying desperately to preserve their monopoly.

Again, it's false to say that a wholesale municipal fiber network results in a total loss of revenue. An accurate accounting would be to figure out how much of the network is actually tax-exempt as a public entity, something I've not seen you attempt to do.

The argument on where the taxes come from are akin to complaining that you don't have enough tax revenue from horse sales because of those dang cars. It's also been demonstrated in multiple studies (warning, they're all PDF files) that better broadband leads to better economic growth. The economic benefits of broadband significantly outweigh any possible lost tax revenue. This is especially important in a state with a growing tech sector and is vital for the success of projects like USTAR.

Qwest and Comcast have already demonstrated a lack of willingness to provide these services despite requests from cities and counties and their promises to the feds. They also entirely ignore projects like Verizon's FIOS that might actually help bridge our performance and pricing deficits with other countries. (Did you know we pay ten times per megabit what most other industrialized countries do? And you don't think we're being taken for a ride?) The take rates for private fiber are the same as the take rate for iProvo despite being significantly more expensive.

I won't deny that iProvo is making a few missteps and needs to correct course, but wholesale municipal fiber is a sound concept. Apparently you just need to do a bit more reading on the issue instead of putting on your philosophical blinders. I'd recommend FreeUTOPIA.org as a starting point.

Abandoning the existing infrastructure is a Good Thing(TM). It's an antiquated hodge-podge of incompatible technologies held together with the electronic equivalent of chewing gum and duct tape. MacGyver would be proud. We have DSL and cable modems instead of FTTH because the phone and cable companies wanted to do things on the cheap. Now they're paying the price by running into the performance limitations of 50-year-old copper and coax lines. (Remember? IT guy? I know this stuff.) Even technologies like ADSL2, DOCSIS 3.0 and BPL can't squeeze the same performance that fiber offers now and will offer in the future.

Fiber is infinitely expandable. By using better and better DWDM (that's dense wave-division multiplexing for you non-gearheads), the lines do not need to be replaced in order to get better capacity out of them; only the plant needs upgrading. Because light is much faster than electricity and can accomodate an infinite number of wavelengths on which to communicate (unlike old-school electrical systems), it's future-proofed as far as the eye can see. You're calling fiber a loser without understanding the technology.

Dear Mr. IT pro who knows telco,

The horse vs car analogy is bogus because the issue is tax equity, not whether or not cars displace horses because cars are technically superior. If one entity offers better value than another and takes their business, fine. But government should not be giving one competitor a tax advantage over another. Tax neutrality is one of the fundamental principles of sound tax policy.

You can't be serious when you say iProvo and UTOPIA don't compete against the private sector. If a customer can choose between Qwest and Comcast on one hand and government on the other hand, it's competition.

Your assertion that it's not competition because Qwest and Comcast could use iProvo (which would mean walking away from existing infrastructure) is also not logical. Based on your assumption, government could build its own malls and lease the space out to retailers (subsidized at a loss and exempt from property taxes) and claim that they were not competing against those who remain in existing malls.

You seem to have little issue, however, with the myriad other advantages that government has given the incumbents. The competing providers on UTOPIA/iProvo pay taxes at the same rate that Comcast and Qwest do. Or are you saying you can prove otherwise? Can you propose a "fix" to this other than killing the system or is that all you've got? Again, MSTAR beat Qwest soundly for second-best ISP in Utah County, so they must be doing something much better. You know, like not screwing up your bill month after month and providing poor service.

iProvo and UTOPIA are both vendor neutral: they do not favor any ISP over another. It's an open infrastructure that anyone can join. The companies competing with Qwest and Comcast are AT&T, Xmission, MSTAR and Nuvont (formerly Veracity). iProvo and UTOPIA are little more than wholesalers of a commodity infrastructure. You repeatedly fail to make the distinction between a wholesale vendor and the retailers.

Your shopping mall analogy is entirely illogical. It is not a required public infrastructure the same way that telecommunications is. Can your business operate without a mall next door? Yes. Can it operate without a telephone or high-speed Internet access? Highly doubtful. You might as well start claiming that public transit unfairly competes with taxis and Greyhound.

It would make all the sense in the world for Comcast and Qwest to drop their current infrastructure in favor of these upgraded systems. You no longer have to worry about building and maintaining the plant, the infrastructure is far superior to what you currently have and you have the brand power to still snap up a significant portion of the market share. They've managed to squeeze tons of profit out of the decades-old infrastructure that's already in place and have more than gotten a satisfactory ROI. Their only real concern with switching is that they'd be forced to truly compete on a level playing field, something they have been loathe to ever do.

IProvo/UTOPIA providers use an infrastructure that is tax exempt. Qwest's and Comcast's infrastructure in not tax exempt and it never has been. That is the difference.

The mall analogy is not illogical. While there are certainly differences between malls and telecommunications, the differences are not relevant to the question and the question is whether or not government is competing. You can make the point that telecommunications is more important than malls (we would agree) but that difference does not negate the fact that government is competing against the private sector in both cases.

I guess what it boils down to then is that I believe that a telecommunications infrastructure, much like transit, has become a legitimate public good that can be built by government and you do not. I suppose we'll have to agree to disagree on that point.

As for the tax disparity, I do not view it any differently than a municipality offering a tax break for a new company to come to town and build a network. Those are commonplace and generally accepted as a city's cost of doing business. The UTOPIA cities and Provo have decided that their tax break for competing carriers is to build the network for them and lease it back. You may disagree with tax breaks as an incentive to lure competitors to a city, but it doesn't make it illegitimate (even if it is, effectually, in perpetuity).

We'll agree to disagree on the first point.

On the second point, we support tax incentives in *certain* situations and oppose them in others. We support tax incentives if the recipient company

- pays high wages
- has the option of locating in another state or country (unlike most retail which is location-driven)
- exports goods and service and brings money into the state

Typically, companies that fit this profile are manufacturers, IT, and natural resources (although there could be others).

We also support tax incentives for businesses that improve productivity and that would include telecommunications. The major point here, as we've mentioned previously, is we oppose preferential tax treatment when companies are competing against each other.

We generally oppose tax incentives for retail, particularly if the customer base is local because this type of activity occurs on its own. It does not need to be incentivized.

One exception to the no-incentives-for-retail would be a company like Overstock. Overstock's retail base is not local and they could locate just about anywhere. Btw, we are not aware of any incentives that Overstock is getting.

Jesse,

Why are you a socialist? WHy do you think that government can and SHOULD be involved in this type of venture? You are wrong. There is no "well in my opinion I believe this or that" You are simply wrong. Socialism is wrong, you are promoting socialism, period.

Whats next? Government selling cars, running clothing stores and grocery stores? Where does it end?
Phil Dickson

Phil: For decades, Provo (among other cities) has promoted an exclusive monopoly system, mercantilism at its worst. Building a municipal fiber network is making amends for those bad policies by leveling the playing field for competitors. What I fail to see is why you have no criticism for government-granted monopolies and a thirst for executive privilege but you do take issue with them making amends to introduce true competition as penance for bad policy. Labeling it as "socialism" is a cop-out from actually debating the merits and acknowledging past failures. It also gives you an easy out from having to come up with any solutions of your own, doesn't it?

The only other avenue I can see is to break up the vertical monopoly of plant operations and retail service and require all plant operators to give equal treatment to all retailers. Of course, we already tried that with CLECs and the incumbents sabotaged them every step of the way. (This probably explains why the FCC reversed its requirement that ILECs lease lines to CLECs.) I guess what we learn from pure market-based solutions is that the incumbent in a market has no qualms playing dirty. Or are you okay with that?

Utah Taxpayer: I can see your points on that front and they're worth consideration. I'm still firmly supporting the concepts and most of the implementations of UTOPIA and iProvo, but I'll certainly be thinking of ways to address the concerns you have over tax revenues.

You skirted the question, by asking more questions. WHY DO YOU BELIEVE IN SOCIALISM? Government's getting involved in private ventures and providing everything to the citizens through taxpayer funds is socialism, whether you like the word or not. So answer the question.
Phil

Ohhhh, ok I see, you are a ranting citizen who is willing to accept a little socialism just as long as it assists you in getting what you want. I just read your other blog (you know, the one no one is reading) and I realized that you are an angry citizen who wants our mommy (the government) to provide us with nice little things, when the big bad private sector does not bow down to everything we want.

I have no need to have you respond to my question now, I know your type. Willing to give up free enterprise, principles and values for comforts and convienence.
Phil

Phil: The "blog no one is reading" happens to be read by several high-level executives of DynamicCity, the company building UTOPIA, as well as staff at Salt Lake City Weekly. (If you go check out the October 5, 2006 issue, you'll find I was interviewed for an article there. How about that, eh?) Qwest has also dropped in more than a few times to see if I'm a threat to their business. While I can understand that you were attempting to revoke my authority on the subject, I must say that you failed miserably. Talking to CEOs, getting your name in the paper and being watched by a major telco means you must know something rather than nothing.

Am I an angry citizen? Yes. Yes I am. I'm angry that we gave a big fat handout to the telecommunications industry in 1996 and had them break all of their promises under that legislation. If being taken for a $200B ride doesn't steam your clams, I'd have to wonder about your priorities.

So onto your original question. As I understand your reasoning, as specious as it may be, you believe that iProvo is socialism and ergo those who support iProvo or similar projects are supporting socialism. For iProvo to be socialism, it means that government would have to have total control of the network from end to end. That is, in fact, not how the network operates. iProvo is a wholesaler, not a retailer. Because private entities actually sell the service, it would be more accurately described as a public-private partnership, similar to leasing pole space from the city to power, telephone and cable companies. Or is that socialism as well?

Also bear in mind that the iProvo network was originally conceived as a way for city agencies to have a high-speed WAN and connect together resources such as traffic lights and cameras. The cables had already been planned for a legitimate function of government and were going to be sitting within several hundred yards of every home. Because Provo operates water and power facilities, it also made sense to extend the connections to water and power meters for remote electronic reading. (This happens to be the original reason power companies developed BPL or Broadband over Power Lines.)

While the city stood to reap immense cost savings from city agencies with this new government network, they saw an opportunity to lease out their excess capacity to private companies willing to provide next-generation services that neither Comcast nor Qwest were willing to provide. I suppose they could have invited Verizon to town (they've demonstrated a willingness to finally make good on their 1996 promises with FIOS), but it made better sense for the city to simply lease out the excess.

What Provo did was build a network for government functions with much more capacity than they needed at the current moment. Since trenching is always the highest cost involved in building a network, it made sense for them to drop in future-proofed fiber instead of copper lines to have higher available peak bandwidth. They then leased off the excess capacity to willing service providers similar to selling off surplus equipment.

It's pretty obvious that this excess capacity being sold off is no different from selling off old fleet vehicles or replaced PCs.

Phil, I'll call you for what you are: just another Internet troll more interested in trying to shout people down than take a defensible position. You proceed to change the subject from whether or not iProvo is appropriate or necessary by trying to attach a label to the opposing party to shift the debate from the topic at hand to your obvious ad hominem attack. Let me know how many people you end up winning over with that debating style.

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