Blog Post

Utah cities score broadband deal that rivals Kansas City and Google

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.

Battle flag

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.

9 Responses to “Utah cities score broadband deal that rivals Kansas City and Google”

  1. Sanjay Agarwal

    Hi Craig,

    Your profile at the bottom of the article mentions, “consultant who helps organizations develop broadband strategies.” Would you care to elaborate whether you have consulted for Macquarie, UTOPIA, or related parties or not?

    Also, can you tease out how $500/home that Google will spend per home compares with $2000/premise that Macquarie/UTOPIA plan to “spend?” How much would Macquarie charge per premise/customer? Will it honor net neutrality?

    Why does your article sound anti-Google? Remember, all might not be kosher at Macquarie either… and eventually, taxpayers in Utah might be paying through the nose for their broadband connections.

    Now, as you mention on your blog, the legislators in both Kansas and Utah are trying to screw taxpayers due to special interests with regards to broadband access. Why do you think that the cities who have promised access to Macquarie have clean officials? Would you care to look at the fine print of the agreement and enlighten us on what rates Macquarie plans for broadband access and how much will they rise every year or so?

    Thank you.

    • Sanjay, taking your questions from the top.

      I don’t do any work for the company or the cities, and I have not worked for them in the past. I heard of Macquarie fir the first time last Thursday, and only had one conversation with them over the weekend to fact check what little information I have about them.

      The final details on numbers aren’t out yet since negotiations are still on-going. So I’m relying on numbers from Jesse Harris and how much Macquarie was willing to comment in my conversation with them. But the gist of things as I understand it is: Macquarie has made a commitment to connect all houses and businesses in the 11 cities (we didn’t talk about schools and other institutions). Until the final arrangements are in place, it’s hard to know the specific amount per premise or be able to determine how they did the math. The $2000 figure is a guess based on a total buildout cost that others, but not Macquarie, have come calculated and an estimate of 150,000 homes and businesses to be connected.

      My article isn’t anti-Google, just a compare-and-contrast between the type of agreements the respective companies are offering cities. What Macqurie is offering, based on what we know now, are terms that are better for the member cities than what Google is offering. When the final deal is set and we can look at those terms, we’ll know more about what the cities are getting. Macquarie saw the article yesterday and didn’t correct the terms as I presented them.

      Also, until we see what wholesale pricing is and what price residents and businesses have to pay the cities via the equivalent to a utility fee, we won’t have an indication how good or bad this deal is. But ultimately, the ISPs that operate over the network will determine the final prices subscribers pay. When we have the fine print, we’ll know more.

      Sanjay, what is your job and your role (citizen of a member city, vendor, elected official) in this project? You have good questions, as do others.

  2. Jack N Fran Farrell

    Policies that deny local control of community assets probably violate state constitutions. If Congress wanted to deny communities the right to hold assets they would not have put land for townships and for support of local schools in the center of counties from OH to CA.

  3. Thanks for this article, Craig. It points up that the real competitive battle is between the impatient capital that funds the business models of legacy incumbent telcos and cablecos and the far more patient capital of infrastructure investment firms like Macquarie.

    The incumbents can’t prevail in this contest, which explains why they have turned to public policy to write the rules to continue to favor their impatient capital that demands a speedy return but is ill suited to long term, big dollar infrastructure projects like fiber to the premise.