A Performance Audit of the Utah Telecommunication Open ...

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As stated previously, two possible explanations for the agency’spoor performance are (1) demand for UTOPIA’s product has notbeen high enough, and (2) UTOPIA has been unable to meet existingdemand sufficient to reach agency projections. Another possibleexplanation is the limitations of UTOPIA’s open-access model, whichoffers service delivery on a wholesale basis.UTOPIA’s Wholesale ModelFaces LimitationsOne limitation of UTOPIA’s strategy to offer services on awholesale basis is that it relies on outside retail providers to providecustomer service and support. If a retailer’s service quality falls shortand subscribers leave the network, it can adversely affect UTOPIA’schances for success.The Wholesale Model May Be Part of the Problem. Outsideobservers have indicated that UTOPIA’s business model, which reliesheavily on outside retail providers, is part of the problem. DavidChaffee and Mitchell Shapiro, in a publication titled Municipal &Utility Guidebook to Bringing Broadband Fiber-Optics to YourCommunity specifically mentions Utah’s “wholesale only model” asone reason UTOPIA has “struggled to achieve targeted penetrationrates and revenues.” They observed the following:. . . If retail providers drop the ball in terms of attractingand retaining customers, the network owner is left withthe burden of debt repayment, but withoutcorresponding control over the growth of its subscriberbase and revenue. . .UTOPIA’s previousbusiness model wascriticized for its lack ofcontrol over marketing.UTOPIA has sinceshifted its model toprovide its own directmarketing.The wholesale model also leaves a network owner at themercy of the service quality provided by retailers usingits network. . . . If that quality does not measure up incustomers’ eyes . . . the network owner loses revenuegeneratingcustomers, and is likely to get much of theblame, even if it had nothing to do with the problemand can do very little to correct it.UTOPIA administrators have since altered their business model toinclude the new UIA-financed effort to allow UTOPIA to marketdirectly to potential subscribers instead of expecting service providersto fill that role. However, even if UTOPIA’s marketing effort is- 36 -A Performance Audit of the Utah Telecommunication Open Infrastructure Agency (August 2012)
successful and achieves its enrollment goals, the network will havedifficulty retaining those subscribers if the retail providers do not offerthe level of customer support that clients expect.Lack of Subscribers May Impede Performance of RetailProviders. UTOPIA board members have suggested that the loss offormer subscribers and the lack of new subscribers could be attributedto the retail providers’ poor performance. On the other hand, serviceproviders may be having difficulty succeeding because of the lack ofsubscribers. If their business plans were based on UTOPIA’s initialprojections of 49,000 subscribers by the third quarter of 2007, then itmay explain why retail providers are having difficulty performing asexpected.A 2004 feasibility study of phase one of the “11-City Build”suggested that, even with a projected 28,000 subscribers, the networkcould probably only support two or three retail providers. The retailproviders, the study explained, would need enough subscribers tomeet the significant fixed costs of providing triple play services (voice,data, and video). Instead, UTOPIA’s 2006 financial statements listedfour providers on the network with only 4,844 subscribers to supportthem. While the total number of subscribers has not yet reached10,000, UTOPIA continues to invite additional retail providers tooperate on its network, though few of its providers offer video, whichstaff report is a costly service to operate. The failure of providers toremain financially viable and/or to pay UTOPIA for network usagemay be due to an insufficient number of subscribers per provider tosustain operating profits.Insufficientsubscribers could bethe cause of retailprovider difficulty,particularly for videoproviders.The Best Test of UTOPIA’s Model May Be Its Efforts inCenterville and with Legacy Customers. The next test of theviability of UTOPIA’s new business plan will be the success it has insigning up new subscribers in Centerville and in those legacy areaswhere the network services are already available. If UTOPIA’s newmarketing efforts produce a sizable increase in subscribers inCenterville and in legacy neighborhoods, then there may be somejustification for continued support of the plan. If the number ofsubscribers continues to fall below projected levels, and certainlybelow 30 percent, then there would be cause to question the viabilityof UTOPIA’s new business plan.Office of the Utah Legislative Auditor General - 37 -
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 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 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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