Transmission

XMission's Company Journal

The $1 Fiber Optic Network

googlefiberdollarProvo City excitedly announced yesterday that Google was taking over their troubled iProvo network. Google has done a respectable job in Kansas City, and I’m sure they will do the same in Provo. My only criticism after hearing this yesterday is that Kansas had to literally give away the farm to install a monopoly over fiber/telephone/video/Internet service in their city.

Ever since iProvo launched, XMission has tried to negotiate with the city to provide service over their network. At one point it seemed like they would be open to other Internet providers wholesaling their infrastructure, and we had a couple of good talks with them, but shortly after they announced they would be selling the entire network to Broadweave/Veracity. I was present at that surprise announcement and I asked the mayor, “Do you think the sale of a public asset warrants public discussion?” Whether it be a Performing Arts Center or a fiber-optic network, if a city has a considerable cash outlay for a project, they should have public permission. Provo has repeatedly ignored this, and this time is no different.

This morning I learned more details about the iProvo deal. Google, a company with a $255.15 billion market cap, a company that has $48 billion in cash, proposes to buy iProvo, a network valued at $50 million, for $1. Google will not assume any of the debt, the Provo city taxpayer will continue paying that. The network will solely belong to Google and will not be open to other providers. If for some reason a Provo customer decides they don’t appreciate Google’s take on privacy or their endorsing warrantless monitoring of the Internet, they will have no other choice for service that can give them speed and reliability of fiber.

Google Fiber has a great consumer model. Everyone will have access to a minimum of a 5Mb connection for free. A gigabit connection is $70/month. Could XMission do the same? If you subtracted the cost of the infrastructure, and had ubiquitous service throughout a city, these numbers are easy to match and even beat. Ever since the dawn of Internet service to the home, it has been known that 99% of subscribers have minimal impact on the network. The cost of raw Internet bandwidth has plummeted over the last decade, and when you’re Google, it is even cheaper. When Google announced their fiber project, they initially claimed their network would be open to other providers. When Kansas City launched, they quietly retracted that. Even though Google is promising a number of upgrades to iProvo, having a government sanctioned monopoly for $1 is a sweet deal that would have never been offered to a local provider like XMission. Those upgrades will be paid for by subscriber fees, and Google will make a profit. They wouldn’t be doing this otherwise, nor would I.

The most unfortunate aspect of this deal is that cities will continue to lobby Google to monopolize their fiber service, and after the necessary deep concessions, Google will accept. Some day the US may wake up and find that we’ve installed another communications giant that needs to be broken up. I have lobbied hard for the past decade for open municipal fiber infrastructure, and will continue to do so, but so far, that idea is shrinking rather than growing.

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28 thoughts on “The $1 Fiber Optic Network

  • Brian says:

    I once had Xmission providing fiber at an apartment in Provo. It was the best connection I’ve had to date, and stellar support on top of it. I have since moved to Springville and we are stuck with either DSL (1.5Mbps) or Comcrap (outrageous price for the speed). Every company seems to be stuck in a “big enough to be okay, but not earning enough to grow” stage, and there was no end in sight for my dismal choices. Since seeing this, I do feel for the tax payers, they shouldn’t have be paying the debt. But I can understand that Google has it’s pick of places, and I for one hope they will come to Springville soon. I cannot stand having my entire network be on the brink of collapse (router gets overloaded easily, needs to be rebooted. Can’t buy one of my own that works with CenturyLink) because one person is watching Netflix.

  • Rich says:

    This is true. I appreciate having the option of multiple different providers having Utopia over being locked into a sole option. Since having fiber installed and picking XMission as my provider of 100Mb/s service, I have not even considered switching since the $45/month price is reasonable and the service uptime has been 100%! I was so impressed with XMission that I have even switched my VOIP provider over to XMission.

    With GoogleFiber now having a presence in Utah and offering gigabit speed at $70/month vs. XMission’s at $300/month may create some competition with the dozen ISP’s servicing Utopia I can hope.

    Thanks!

  • Brad says:

    How much does XMission pay UTOPIA for access? Feel free to correct me if I’m wrong but isn’t UTOPIA entirely taxpayer funded too? Doesn’t that mean that XMission, like Google Fiber, is avoiding the infrastructure cost by having taxpayers cover it? I don’t understand how Google Fiber got any more of a sweetheart deal than XMission is getting with Utopia.

    Having the network open to many providers would be ideal, I agree, but this still sounds like a sweet deal for subscribers in Provo.

  • Pete Ashdown says:

    Brad, 50% to 70% of our UTOPIA service offering charges goes to UTOPIA. For example, our Gigabit service offering, $150/month goes to UTOPIA. This in turn helps the cities pay the bonds down and offsets what the taxpayer would be paying directly. Google will do nothing to pay down the bonds Provo is responsible for.

  • XMission charges $35 for our 50 Mbps fiber service on UTOPIA, and $45 for our 100 Mbps service. About 60% of that is sent directly to UTOPIA, and that only gets you to XMission. What remains is used to cover the costs of actually providing the service, which includes our unmatched tech support department and the state’s finest network.

    Despite the fact that the remaining margins are the thinnest of any service we offer, we still are very proud to host this amazing service as the premiere provider on the UTOPIA network. If UTOPIA is a sweetheart deal for anyone, it is XMission subscribers.

    UTOPIA subscribers also have a separate relationship directly with the UIA that pays for their fiber infrastructure. There are many means of handling this, which are very well outlined in UTOPIA’s new website:

    http://www.utopianet.org/faq/

  • Brandon Holbrook says:

    Very interesting article. I was excited about Google fiber but didn’t realize this aspect of the deal. I’ll share this with everyone I know.

  • Mark Crane says:

    I’m right on the edge of Provo, in Orem, and our internet provider is Veracity, through the city’s fiber network. It isn’t that fast and it costs more than Google’s offering.

    So many decisions in both towns are made without public discussion.

  • Chet Tapp says:

    I think the one word some are missing is “local.” Having once worked in an industry that is now owned and operated by large out of state corporations I can attest to the value of having a local option.

    Google may or may not be able to provide the services they claim but what will they do for the community they serve besides just providing internet? My guess is not much.

    Xmission does so much more than just provide internet services. They are also an active part of our community and friend to many small business’s.

    I think Provo’s decision to go with a HUGE corporation while dismissing local company like Xmission is shameful.

  • Josh says:

    I like Utopia and I like xmission.. I would have xmission/utopia fiber in a second if it was offered to me.. But my issue is that how much it isn’t expanding. What happens for us that aren’t in areas that it’s servicing? So far, there doesn’t seem to be any hope of a serious fiber expansion to the majority of cities in Utah.

    Myself and others are in agreement that the most exciting thing isn’t so much that Provo itself is getting fiber, but they will more than likely be expanding to the other areas in Utah that have thus far failed to be delivered fiber.

    With how much in debt Utopia has gained, I honestly don’t feel that other cities are going to invest in it. And even if they did end up investing in it, how long would it take for the other cities to get installed? Considering we’d be put in the back of the line with all the existing cities that still don’t have it in all their areas, I can’t see that being any time soon.

    I think just about everyone would highly prefer a muncipal fiber network, but when everyone (including myself) is losing faith that it’s working, that’s where my problem is coming.

    If you’re implying that everyone should just condemn google fiber and just wait and see if Utopia pulls through, I really don’t see how that’s going to sell.

    I think the most ironic thing about this is that Utopia themselves did a bid for google fiber at one point, so even themselves seem to be wanting it.. I don’t think anyone would be surprised if Utopia ends up making some sort of deal with google fiber.

  • Fiber Optic Marine says:

    HEY!!! I got $2… what else riduclously expensive thing is Provo selling for nothing? They got some left over jets at BYU… maybe one of those cool SWAT SUV’s the Provo PD has… ???

    This is the best yard sale Iv ever heard of… ROTFL!!

    ‘Im gonna pop some tags only got twenty dollars in my pocket.. Im.. Im a hunt ‘n look’n for a cum-up… this is f##kn awesome!’

  • Fiber Optic Marine says:

    …also, Orem had City Coucil meetings about Utopia BEFORE anything occurred. We got a notice about it as a mailer inside our utility bill, the problem was no one went to the meetings for Utopia UNTIL after it was something we were vested into. So Orem wasn’t done without consent… just lack of participation until after the fact.

    And thank goodness we made sure our future kids would have more than one choice over the fiber network WE control in our community instead of leaving them with the monopolies of XFinity and Century Link in place right now instead of having to pay for it while taking care of their kids!!!

  • James Howard says:

    It is because of Comcast and other providers inability to upgrade service that Google can do this. If other big companies would innovate then Google would not be able to do this type of thing. Competition is good. But we do not have that in the current marketplace. People love Google because they focus on the future. Not maintaining the current status. Is it fair that Google gets this shot, maybe not.

  • John Harrison says:

    Pete,

    I suggest that you approach UTOPIA and offer them the same deal that Google offered Provo. XMission gets a service monopoly, offers very reasonable rates for very fast service, upgrades aspects of the network that need it, and the cities still have to pay off their bonds on the infrastructure.

    Right now my impression is that UTOPIA is huge mess. $3k setup fees (or a friendly lien on your house) and terrible marketing. It is even somewhat difficult to figure out how to get UTOPIA or what it would cost even if you live in a UTOPIA city.

    Basically, offer to put some adults in charge with the same deal Provo got. See if that flies.

  • John Harrison says:

    Even better, approach Provo and start a bidding war. Offer them the same terms Google is offering plus $1million.

  • Brad says:

    Pete,

    Ah, I stand corrected then. Thanks.

    Now I’m wondering what on earth Google’s game plan is for Google Fiber. Estimates say Google has spent $83m on their Kansas City fiber deployment. Kansas City has 192,271 households. If they got a completely unrealistic 100% subscription rate for $70 internet service it’d still take at least 6 years to pay off the infrastructure cost (and that’s gross, ignoring management and maintenance costs so in reality it’d be much longer).

    Whatever Google’s plan is, at least Provo citizens get cheap, fast internet partially subsidized by Google. I guess that’s better than the current state of things with iProvo.

  • Andrew McKay says:

    @Brad

    Part of Google’s plan as many see it may be to upset local providers and gain attention. Provo likes having their big name attached…

    As for the “cheap” it all ends up getting paid back in taxes by local businesses and home owners anyway since Provo still has to pay the bonds.

    I still think UTOPIA can succeed but may be hampered by far to many people who are trying to get out of something a little rough now that will improve things in the future (anyone care to make some correlations with that mentality on, say, a national level?).

  • Patrick Bennett Hagen says:

    Pete, you’re dead on with your analysis. Had I known they were giving away the network, twice, I would have volunteered to run it — all by myself.

    I also submitted an RFP response and sat in Dan Follett’s office a couple of times to encourage 1) an open model like Utopia and 2) for the city to keep the network. On the second point, in just 12 short years the city would have it’s second cash cow. Along with the electric company, the fiber network would be able to fund so many more city services without increasing the tax burden. As we know, political horizons end much, much sooner than 12 years, and so it won’t be.

  • Peter says:

    Why all this talk of Xmission getting the same deal or Xmission taking over UTOPIA or iProvo? From what I’ve seen, Xmission doesn’t want to OWN any infrastructure and become another monopoly. I thought their business model was to run on other company’s infrastructure (Utopia, CenturyLink, etc.) and offer a superior ISP experience.

    That is how they have always competed. Only now they are not allowed to compete as these monopolies lock them out and only offer their sub-acceptable service.

    Has Xmission changed its business plan? Are they now looking to aquire infrastructure? That would be news to me.

  • Pete Ashdown says:

    Peter, you are correct. Aside from some wireless, we’ve never dived into the infrastructure business. However, as markets close it becomes increasingly difficult to provide residential service. Qwest (and subsequently CenturyLink) decided that they didn’t want to allow 3rd party ISPs to wholesale their infrastructure anymore, and effectively gutted our residential offering to Salt Lake County.

    Our business model has shifted to providing services over the Internet, rather than a connection to the Internet itself. Yet, I think residential service is something we do very well. If we found an opportunity to do “last-mile” to continue that, we probably would.

  • [...] Turns out the sale price of iProvo fiber network to Google is $1. It should come as no surprise that some people are less than thrilled about this price. [...]

  • Owen Johnston says:

    “Could XMission do the same? If you subtracted the cost of the infrastructure, and had ubiquitous service throughout a city, these numbers are easy to match and even beat.”

    Google has promised a fiber drop to every home in the city for $30 each. The mayor said there are about 15k homes in the city that already have the fiber run to them, and 20k that still need to have it installed. Provo currently charges $700 to do this installation. Utopia charges $2,750. That means Google’s cost will likely fall somewhere between $670 and $2720 per home. Multiply that by 20k and you have $13,400,000-$54,400,000 in infrastructure costs. Will there be people who won’t want a $70 gbps or free basic internet? Probably. But regardless it is still going to be a multi-million dollar investment upfront. Not to mention the cost of replacing old network equipment to bring the network up to speed. Is xmission or another local company in a position to take on that kind of investment in infrastructure?

    ‘“Do you think the sale of a public asset warrants public discussion?”’

    Certainly. They had 6 public meeting to explain the deal and answer questions. I attended the first of these meeting. The $1 sales price was laid out, along with the promises Google has made. The mood in the room was something just short of euphoria. The public discussion occurred, and the public are totally on board with this.

    You sound like just like CenturyLink, who apparently sent a letter to the city counsel voicing their concern that the city didn’t give ample time for public discussion before rushing to a decision. You think CenturyLink really cares about the opinions of Provo residents? The citizens of Provo are overwhelmingly for this deal. It is ISPs worried about losing market power and potential expansion that seem to be the ones who have a problem with the iProvo sale. As far as I’m concerned as a resident of Provo, this is a slam dunk.

  • Ben says:

    Owen Johnston… I couldn’t agree more. And while I feel bad that the local ISPs are going to lose out on local business I can’t stand Comcast which is my only option. The residents win.

  • Bandwagon says:

    I think to put it simply, this is the equivalent of a Rockstar with multiple millions of dollars sitting down to a comped meal, or being gifted clothing. Sure they have the money to pay for these things, but being famous has its perks. Google absolutely got some special treatment, just for being Google.

    You can’t fault Google for that, nor can you fault Provo City. It is just the American way. In the world of technology Google has its fan club just like any other celebrity. It is a household name that everyone knows. Since the announcement of Google Fiber you’ve had the equivalent of “screaming fans” begging just to have Google glance in their direction. They aren’t playing music that other musicians can’t play. They’ve just arranged all the notes in a order that resonates with the fan base and are creating hit after hit.

  • Pete Ashdown says:

    This isn’t a comped meal though. This is $50 million dollars being transferred from the tax payer to a very rich corporation to setup a monopoly of service. For the amount of grousing Utah County does about taxes, the free market, and privacy you would think that this egregious corporate welfare would raise more than a murmur.

    It is also worth noting that XMission’s “market power” in Provo has been next to nil since the dial-up days. We’ve never been allowed to provide service on iProvo, in spite of attempts to do otherwise. Kansas City is no different. When taxpayer funds are used to build infrastructure, that infrastructure should stay open and not belong to one private entity.

  • Hey Pete, sorry if I wasn’t clear. I was referring to CenturyLinks market power, and Xmission’s protential for expansion.

    Also the network is not worth $50 Million. How did you come up with that number? Is that what you would pay for it? If so I have an Athlon 64 I bought in 2005, want to pay me $200 for it while you are at it?

    I understand that Google Fiber has the potential to disrupt your business model and you have every right to be upset about that. Your exaggerated claims of corporate welfare, however, are not going to find any sympathy in Provo.

  • Pete Ashdown says:

    Fiber optic cables are primarily glass, and unlike copper and cable, they don’t corrode, oxidize, or otherwise decay over time. The speed of fiber optics is dictated by the electronics placed on each end, and unlike your Athlon 64, this has only increased over time.

    XMission commissioned a study on building a fiber-optic network in a 5000 home Salt Lake City neighborhood. The most expensive part of doing this is getting “glass in the ground” or leasing poles from Rocky Mountain Power. For 5000 homes, the cost of the network without electronics was $8 million. The electronics to support 5000 homes would have been under $200,000, or pretty close to $40/per house (this was 5 years ago). Fiber-optic installation labor comprises the majority of the cost.

    If you read Jesse’s article I linked to you’ll see that not only the existing value of the network is $50M, but that you’re going to continue paying $3.3M a year to service the debt over the next 12 years, bringing the grand total to $90M that Google is receiving for $1.

    No, I wouldn’t pay $50M for iProvo. You’re already doing that. I’d demand my city open it up so I got the best deal possible from competing providers.