Utah’s multicity FTTH project enters phase two

After several months of delays, Utah’s multicity municipal wholesale fiber-to-the-home (FTTH) network, Utopia, is now entering its second phase of construction, according to Paul Morris, Utopia’s executive director.

In the first phase, which began in July 2004, Utopia--a government entity formed by 14 Utah cities--issued $85 million in bonds to back the cost of constructing wholesale FTTH networks in six initial cities. Eleven Utopia towns pledged to use sales tax to pay back those variable-rate bonds in the event revenues from the network are insufficient. Each city pledged an amount roughly equal to 40% of the cost of building the network in their own town. That promise of collateral helped lower the interest rates on the loans, Morris said.

Construction of the network in the first six cities should be complete in the next 12 to 18 months, Morris said. Utopia is now moving on to the other five cities while continuing to build in three of the phase-one towns.

“We’re just getting into [phase two] now,” Morris said, adding that the commencement of phase two took “several months longer” than Utopia’s business model had anticipated. During that delay, the project’s construction crews were “demobilized,” he said. “But we’re back in construction now.”

The next phase is a roughly $90-million construction funded mostly by grants from the federal government. In August, six Utopia towns with populations under 20,000 were granted a $66-million loan commitment from the Rural Utilities Service (RUS), part of the U.S. Department of Agriculture that dispenses funds to help defray the cost of deploying broadband in rural areas. “I think we’re the first municipal entity to be funded by RUS,” Morris said.

Adding to the RUS loan is about $30 million unused from the $85 million in phase one, giving Utopia more than $90 million for phase two, he said.

After construction of the first 11 municipal networks is largely complete and generating revenues, Utopia will consider using those revenues to fund construction in the remaining 3 cities (which did not pledge sales tax to back the project’s construction loans).

Utopia has estimated the total cost of constructing the network in all 11 cities to be about $340 million.

Four service providers currently sell services over the existing portions of the wholesale fiber network: Mstar, which offers voice, video and data service; AT&T, which only offers data, Veracity, which offers voice and data; and X-Mission, which is adding voice to its data offering in January.

The pace of network construction poses a challenge for those service providers, Morris said, as they have learned not to advertise services city-wide until the network is also city-wide. Consumers who see ads for FTTH long before it’s available to them experience what Morris calls “antici-pointment”--anticipation followed by disappointment.

“It’s when someone calls up [a service provider] and finds out they’re in a part of the city [where the network] won’t get built for a couple years, and then they’re mad.”

When the network is fully deployed in those six initial cities, he said, that problem will disappear, and service providers can advertise more broadly.