A Performance Audit of the Utah Telecommunication Open ...

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plan did not anticipate the difficulty UTOPIA would face in resolvingright-of-way disputes. These mistakes were costly and contributed tothe delayed completion of the project.We believe an underlying problem throughout UTOPIA’sexpansion is the lack of a carefully prepared development plan andpolicies to guide the construction of the network. When we asked tosee the original planning document for UTOPIA’s expansion, staffwere unable to produce one. They said the planning of the networkwas initially carried out by UTOPIA’s contractor, Dynamic City, andthat they may or may not have had a written plan. However, if itexisted, no copy was on record at UTOPIA’s main offices. We wouldfind it alarming if a government entity attempted such a highlycomplex and expensive construction project without drafting a formalwritten plan approved by a governing board. However, board minutesmake no mention of the board ever reviewing and approving such adocument and staff report that no such document is on file.The Decision to Build in Many Cities Simultaneously Was aMistake. UTOPIA board and staff commonly identified as onemistake the decision to attempt a “ubiquitous build.” That is, theagency attempted to build at least a portion of its networkinfrastructure in each of its member cities at the same time. Thisapproach to construction led to partially completed sections ofnetwork in multiple cities at different locations that are still incapableof producing revenue.At first, UTOPIA intended to complete construction of thenetwork in a few construction areas or footprints at a time. Inaddition, the initial strategy focused on locations that were expected toprovide a high initial return on investment. Once an area wascompleted, UTOPIA could enroll subscribers and immediately begingenerating the revenue needed to build in other locations.Citing politicalpressures, UTOPIAleadership altered itsbuild strategy toappear moredemographicallyinclusive.One consultant, who worked with UTOPIA from the beginning,told us that political pressure led them to adopt the strategy wherebythey would build portions of the network in many differentcommunities at once. In 2007, a year after the agency completed itsfirst phase of construction, UTOPIA was accused of abandoning itscommitment to universal service. Instead, its critics said, the agencywas focused exclusively on wealthier neighborhoods and was “cherrypicking” the high-end subscribers.- 24 -A Performance Audit of the Utah Telecommunication Open Infrastructure Agency (August 2012)
One former executive reported that UTOPIA leadership addressedthe cherry-picking concern by directing contractors to focus on areaswhere the build would be the cheapest and UTOPIA could maximizeits investment. The agency sought to demonstrate its commitment toequal treatment by disregarding income level or economic status in thebuilding strategy.Furthermore, UTOPIA staff and consultants reported the agencyfelt pressure to begin construction in many different locations in orderto demonstrate to as many cities as possible that they were benefittingfrom participation in UTOPIA. The result was a rather haphazardseries of disconnected sections of network.While the agency’s ubiquitous approach to construction may haveaddressed the complaints of some critics, it turned out to be afinancially risky strategy. The construction effort was not aimed atcompleting sections of network that could immediately generaterevenue. Thus, when funding became scarce, UTOPIA found it didnot have the ability to complete partly built sections of network inseveral different communities. The result was a significant amount ofstranded investment.UTOPIA’s commitmentto build in many citiesat once proved to befinancially risky andresulted in significantstranded investment.As reported in Chapter II, UTOPIA officials state they are makinga concerted effort to free already stranded assets. Additionally, movingforward UTOPIA officials have committed to requiring a minimumlevel of interest before investing in any new infrastructure.The Decision to Connect Subscribers without Charging aConnection Fee Was Costly. UTOPIA’s former management teamexposed the agency to financial risk when it decided to not chargehomeowners at least a portion of the installation cost. As an alternativeto charging a connection fee, UTOPIA might have followed a morewidely accepted industry practice of requiring a minimum subscriptionperiod. When a large number of homeowners chose to stopsubscribing to the service, UTOPIA was unable to recover much of itslocal infrastructure investment.UTOPIA’s early board and staff appear to have been overlyconfident, believing that residents would be so drawn to the newservice that few subscribers would drop it. In fact, a large number ofearly subscribers did choose to drop the service. As a result, UTOPIAended up with a large amount of “last-mile” infrastructure (the lengthfrom the street curb to the premise) that was not being used. By theOffice of the Utah Legislative Auditor General - 25 -
Page 1: REPORT TO THEUTAH LEGISLATURENumber
Page 5: DigestA Performance Audit ofUtah Te
Page 9: Table of ContentsDigest ...........
Page 12 and 13: will be funded through UIA financin
Page 14 and 15: the organization’s general manage
Page 16 and 17: UTOPIA Did Not Reach Its Goal to Bu
Page 18 and 19: UTOPIA did notachieve its goal toco
Page 20 and 21: Figure 2.4 Summary of the Agencies
Page 22 and 23: efinancing, the maximum amount pled
Page 24 and 25: One consequence of the slow growth
Page 26 and 27: factors in deciding where to build.
Page 28 and 29: completed in a timely fashion and h
Page 30 and 31: Figure 2.10 Seven Years of Operatin
Page 32 and 33: Figure 2.11 By 2010, UTOPIA Had Spe
Page 36 and 37: end of 2010, 3,698 former subscribe
Page 38 and 39: Uncollected revenuesfrom retail pro
Page 40 and 41: agreed to provide UTOPIA with a $66
Page 42 and 43: As problems mounted, the board deci
Page 44 and 45: The data in Figure 3.2 shows that,
Page 46 and 47: As stated previously, two possible
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Page 50 and 51: UTOPIA Has a New Development PlanAi
Page 52 and 53: Centerville and in its legacy areas
Page 54 and 55: UTOPIA shouldidentify specific area
Page 56 and 57: e applied. Not surprisingly, we fou
Page 58 and 59: act in its entirety. Also, the agen
Page 60 and 61: Manual, which describes how local a
Page 62 and 63: in public, the executive committee
Page 64 and 65: separate public body that must comp
Page 66 and 67: public entities that are subject to
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Page 78 and 79: Five‐Year Plan Summary 2Agency (U
Page 80 and 81: Five‐Year Plan Summary 4cities’
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