A Performance Audit of the Utah Telecommunication Open ...

Chapter IIUTOPIA Faces a ChallengingFinancial SituationIn 2003, the Utah Telecommunication Open InfrastructureAgency (UTOPIA) set out to quickly build a fiber-optic network thatwould reach each residence and business within its member cities.Those associated with UTOPIA believed that, once its network wasbuilt, it would sign up enough network subscribers to generate apositive cash flow within a few years. However, nine years have passedsince construction began and only one-third of the network has beencompleted. Because cost increases have outpaced the growth inrevenue, the agency has consistently posted large annual operatingdeficits. As a result, UTOPIA has found itself in a weakened financialcondition.One underlying challenge is that UTOPIA’s infrastructureinvestment is not producing sufficient revenue. In most areas whereconstruction has been completed, UTOPIA has insufficient subscribersto cover the cost of building and operating the infrastructure.Additionally, UTOPIA made a large investment in other sections ofthe network where the network infrastructure was never completed.Until UTOPIA completes the stranded sections of the network, thosesections will not produce any revenue. UTOPIA officials report thatsince 2008, UTOPIA has been working to put its strandedinvestments into production.UTOPIA’s Ambitious GoalsHave Not Been MetUTOPIA originally planned to build a broadband network in threeyears and to achieve a positive cash flow in five years. However, it hasnot met that schedule. Instead, the cost of financing and operating thenetwork increased before UTOPIA could provide a substantialnumber of customers with service. As a result, revenues have not beensufficient to cover its costs. Year after year, as operating deficits haveaccrued, the agency developed a large negative asset balance.UTOPIA has not metgrowth or revenuetargets established in2003.Office of the Utah Legislative Auditor General - 5 -