A Performance Audit of the Utah Telecommunication Open ...

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agreed to provide UTOPIA with a $66 million loan to build thenetwork in six of UTOPIA’s member cities.Although RUS appears to have been closely involved in theplanning and design of the network for approximately two years, iteventually withdrew its support. When asked, RUS declined tocomment on its reasons other than to refer us to a letter they sent toUTOPIA (see Appendix A). In the letter, RUS informed UTOPIAthat it “had not met the terms under the Bond AcquisitionAgreement” and RUS was therefore withholding additional financialsupport. RUS then gave the following two reasons for withdrawing itssupport:RUS cited concernsabout UTOPIA’ssolvency and itsbusiness plan when itwithdrew its support.RUS raised concerns about UTOPIA’s solvency.RUS stated that UTOPIA’s business plan had failed dueto “poor prior management” of the project. Specificproblems observed included an ineffective business plan,ineffective marketing, and cost overruns.Although the RUS said it was “ready to work with UTOPIA … tobring its operation out of financial difficulty,” the federal agencyrequired that UTOPIA meet a number of conditions before it wouldagree to provide the remaining funds.UTOPIA disputes the claim that it did not comply with the termsof its agreement with RUS. In fact, UTOPIA staff report that partiallycompleted sections of network Centerville were actually authorized byRUS before construction began. UTOPIA staff say that bywithholding the funds, RUS forced UTOPIA to use its remainingbond proceeds to pay contractors for the work they had performed.Because construction in most areas was not yet completed, staff saythat UTOPIA was unable to enroll any subscribers in thosecommunities and generate the income it needed to cover its costs. Ineffect, UTOPIA claims that RUS was actually the cause for thestranded investment and UTOPIA’s inability to generate revenue fromthat infrastructure. As a result, UTOPIA has filed a legal claim againstRUS for the damages UTOPIA has suffered.Retail Providers Blamed for Poor Customer Support, Loss ofSubscribers. Initially, UTOPIA assumed that once the network wasbuilt, it could rely on its retail providers to market the networkservices. Perhaps naively so, the agency assumed that UTOPIA’s high- 30 -A Performance Audit of the Utah Telecommunication Open Infrastructure Agency (August 2012)
andwidth services and the marketing by its retail providers wouldattract tens of thousands of families and businesses. Instead,UTOPIA’s board and staff say they were surprised to find that retailproviders did not aggressively market the service, and that they signedup far fewer subscribers than anticipated. Furthermore, the board alsoexpressed disappointment with the lack of customer service offered bysome retail providers.UTOPIA officials sayretail providers did notmarket UTOPIA’sproduct as actively asanticipated.To address these issues, UTOPIA has since modified its businessmodel to include its own marketing effort. UTOPIA administratorsbelieve this change in marketing approach will increase the number ofsubscribers and educate those subscribers on their ability to changeretail providers if service does not meet expectations.UTOPIA’s Troubles Also Attributed to the Poor Execution bya General Contractor. Initially, UTOPIA relied on an outsidegeneral contractor to develop and operate the network. UTOPIA’sboard made a commitment to “keep government small” by contractingout as many functions as possible. For this reason, from 2004 until2007, the agency had a minimal in-house staff, relying mainly on thepart-time support of staff provided by its member cities. For example,for the first few years, UTOPIA’s executive director split his time withhis responsibility as city attorney for West Valley City.UTOPIA relied on its outside general contractor to plan andoversee network construction. Once built, the contractor managed thenetwork operations center on UTOPIA’s behalf. The generalcontractor was also responsible for all administrative functions, such asthe design and construction of the network, hiring constructioncontractors, and building and operating the network operationscenter.After several years of relying on outside support, mainly from itsgeneral contractor, UTOPIA’s board realized that it did not haveadequate control over the agency’s operations. Furthermore, someobserved that although its general contractor had essentially developedthe concept of an open-access broadband network, the contractor didnot have the expertise to effectively execute that vision. UTOPIAinsiders said they began to reconsider their decision to rely on outsideassistance when the general contractor was purchased by another firmwhich soon fired a majority of the contractor’s employees.Inexperience of itsgeneral contractor wasalso cited as a causefor UTOPIA’s troubles.Office of the Utah Legislative Auditor General - 31 -
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 34 and 35: plan did not anticipate the difficu
Page 36 and 37: end of 2010, 3,698 former subscribe
Page 38 and 39: Uncollected revenuesfrom retail pro
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
Page 48 and 49: This Page Left Blank Intentionally-
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’
Page 86 and 87: - 76 - A Performance Audit of the U
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