A Performance Audit of the Utah Telecommunication Open ...

end of 2010, 3,698 former subscribers who had not been required topay a last-mile installation fee had dropped the service. That represents31 percent of UTOPIA’s subscribers at that point. We estimateUTOPIA’s stranded investment in those homes to be $4.4 million.Because the subscribers left the network, UTOPIA has no way ofrecovering that investment in last-mile infrastructure.UTOPIA is also losing money on many early subscribers whoremain on the network. Because UTOPIA did not require thesesubscribers to pay an installation fee, they did not contribute to thecost of installing the network infrastructure. Current monthly feeshave not yet been sufficient to cover the network’s operating cost andso cannot provide anything toward repaying infrastructure costs. Byour latest estimate, UTOPIA connected 7,329 subscribers (in additionto those 3,698 who dropped the service) who did not pay aninstallation fee. At $1,183 per home, we estimate the last-mile costs tothose homes represent an $8.7 million investment.The cost to providelast mile installationsto subscribersamounts to anestimated $13 millionon UTOPIA’s books.Taken together, we estimate UTOPIA has paid about $13 millionin last-mile costs for subscribers, both those still with the network andthose who dropped the service, who never paid installation fees. Goingforward, UTOPIA’s current management team has sought to addressthat problem by requiring new subscribers to pay the cost ofinstallation.Development Held Up Due to Disputes Over Rights of Way.UTOPIA’s construction plan may have been overly optimisticregarding the accessibility of utility poles in certain neighborhoods.UTOPIA staff report that much of the stranded investment and delaysin the construction schedule can be attributed to disputes over accessrights. In some neighborhoods, UTOPIA planned to install its fiberopticcables on certain utility poles owned by the telephone or powercompanies. UTOPIA staff report that disputes over access to thoseutility poles prevented them from installing UTOPIA’s equipment incertain neighborhoods. Rather than hold up construction until suchdisputes were resolved, UTOPIA contractors were instructed to moveon to other areas where access was not in dispute.After eighteen months, UTOPIA and Qwest finally resolved theirdispute over access rights. By that time, however, UTOPIA staffreport that the agency’s construction contractors had moved on toother locations and the financial resources had been committed- 26 -A Performance Audit of the Utah Telecommunication Open Infrastructure Agency (August 2012)