Google is not the only company working with municipalities to build gigabit networks. Australian infrastructure giant Macquarie Capital is getting into the U.S. broadband business too. It has signed a pre-development agreement with a Utah inter-local agency to build out a fiber network to 150,000 homes and all of the businesses in 11 cities.
The Utah Telecommunications Open Infrastructure Agency (UTOPIA) member cities banded together to bring affordable broadband via an open-access network supporting several ISPs. Its initial years were plagued by controversy and financial challenges, but UTOPIA dramatically turned the corner in 2011 and the business improved.
A few days before Christmas 2013, Santa arrived with an arrangement that tops Google’s deals to date. Sydney, Australia-headquartered investment banking firm Macquarie Capital will, in a final public private partnership agreement, manage the building of UTOPIA’s fiber network without burdening taxpayers with additional debt.
A different kind of partnership
“Google’s pattern we’ve seen so far is to approach cities, negotiate a great sweetheart deal for themselves, build the network and offer services,” states Jesse Harris, Editor of FreeUTOPIA. “Macquarie offered a partnership with very different terms.”
In Provo, for example, Google negotiated a five-year deal to take over the city’s existing network and invest $18.7 million to expand the network to cover 35,000 homes for a cost of about $500 per home. There is no revenue sharing between Google and Provo and the network is not open access. Google paid $1 for essentially an indefinite lease. Provo taxpayers still have the bond debt from the existing buildout, but will never own the infrastructure unless Google walks away from the deal.
Contrast this with the UTOPIA arrangement. Macquarie negotiated a 30-year contract with UTOPIA that includes revenue sharing with the partnership so member cities can pay off past bond debts, according to Harris. The company would invest funds to cover all homes and business premises in the 11 cities, which works out to be around $2,000 a premise and is more characteristic of a new build. At the end of the contract, UTOPIA will own the infrastructure and with no new debt.
Will Macquarie come to my town?
Macquarie is a giant in the infrastructure investment world, funding airports, electricity utilities, communications and similar projects. Given its public works focus, the company isn’t concerned with creating huge profits but according to financial analysts such as Morningstar Equity Research, the company generates steady profits through solid and stable assets. This presents cities with a philosophically-aligned potential partner with deep pockets and a good future.
The company definitely appears to have sights on investments beyond UTOPIA. In an article announcing its partnership, Macquarie representative Nicholas Hann said, “We believe there is an opportunity to create a model for access to a citywide broadband network open to all service providers which may be copied by cities across the country.”
Harris laid out for Gigabit Nation a possible scenario in which other cities become partners with Macquarie. “They have infrastructure assets of $100 billion under management, so $300 million for UTOPIA is a relatively small investment for them,” he said. “After Macquarie completes the build out for UTOPIA members, I expect neighboring cities that granted the company free access to rights of way will clamor to be next, as will cities along Macquarie’s backbone from Utah to Las Vegas.”
A reason for optimism?
In light of Comcast’s announced intention to acquire Time Warner Cable, Macquarie may find it even more cities and towns asking it to replicate its partnership arrangement. Communities across the U.S. realize that if the nation’s two largest cable companies consolidate, consumers and businesses likely will experience higher prices under duopoly or monopoly conditions.
In an AP report, Comcast Executive VP David Cohen stated, “We’re certainly not promising that customer bills are going to go down or even increase less rapidly.” As UTOPIA along with Google’s community partners advertise their roles in forcing incumbents’ prices down, it is easy to foresee Macquarie and Google as primary players to drive a competitive marketplace.
Incumbents’ fear of this scenario is the impetus for the current battle in the Utah state legislature as community broadband stakeholders try to kill a bill that would prevent businesses not in a member city from purchasing UTOPIA’s services. Fear of Google’s competitive strength led cable industry lobbyist John Federico to introduce a bill in the Kansas state legislature in January that will prohibit private companies from bringing new broadband services to most of the state.
Aggressive counterattacks by broadband supporters in both states are making some headway. But it appears that incumbents are ready to instigate all out legislative war against private-sector competition as well as public. Communities that see little good coming from a Comcast-AT&T Axis of Dominance need to take a clue from UTOPIA and cast their nets far and wide. There are bound to be more companies with deep pockets willing to invest in community broadband.
Craig Settles is a consultant who helps organizations develop broadband strategies, host of radio talk show Gigabit Nation and a broadband industry analyst. Follow him on Twitter (@cjsettles) or via his blog.