UTOPIA/UIA turns financial corner, issues dividends for first time as demand for fiber internet is up
What was once a subject of political division within Orem is now a much desired service.
The Utah Telecommunication Open Infrastructure Agency, or UTOPIA, and sister company Utah Infrastructure Agency, also known as UIA, appear to have turned the financial corner and are making a profit; at least UIA is.
When UTOPIA first started in 2002, 11 cities across the state, known as the “pledging” cities, bonded $185 million for construction costs using sales tax pledges as collateral to secure the bond. Subsequently in order for the continued growth of the network, UIA was created in 2011 and had to take out an additional $77 million in bonds to continue to grow, according Kimberly McKinley, UTOPIA marketing director.
The relationship between UTOPIA and UIA was developed by the partnering cities in the UTOPIA agreement.
UTOPIA doesn’t provide any services itself, instead opting for an “open access model.” UTOPIA simply builds and maintains the infrastructure and allows private-sector service providers to use it. It also carries the heavy bond debt that has cities paying by number of residents for the next 22 years.
When the partner cities were unable to get needed speeds and services for their residents from incumbent providers, they decided to continue the buildout of the network. Eight cities continued forward and formed UIA so that it could meet current and future demand.
UIA is a separate entity that partner cities have formed to grow the UTOPIA network and provide more oversight on the growth of the community-owned fiber-optic network in those partner cities. It is the agency that puts the fiber in the ground. It also makes it easier for other cities that are interested in having this kind of network to join down the road.
The UTOPIA/UIA issues were a major goal of the Orem City Council in 2017, according to Steven Downs, city spokesman. They have met their goals of making the financial situation better, and UIA is bringing more service to homes.
According to city officials, Orem gave $3 million in 2017 to UTOPIA to pay for its portion of the UTOPIA bond debt of approximately $475 million, which includes the original bond and interest accumulated over the years. The bond is expected to be fully paid in 2040. The amount Orem would pay grows by 2 percent each year with the final payment being $4 million in 2040.
However, UIA’s success has been so strong in getting fiber into the ground and customers signed on, they are able to not only able to make the bond payments, but incoming revenues are allowing UIA to pay a 2 percent dividend to the cities for the first time; thus covering the interest rate increases on the UTOPIA debt.
“That is a savings of $50,000 to Orem,” said Roger Timmerman, UTOPIA’s executive director.
“A portion of the debt being covered by UTOPIA/UIA is as much about the money as it is about the message this sends to Orem residents about the direction that the organization is heading,” Downs said. “It is a large financial benefit to have the debt payment being offset, but it also clearly suggests that the demand for this service is increasing rapidly.”
Downs added, “In my four years working for Orem city, I am yet to encounter someone who has said that they don’t need greater internet capacity in their home, and it is unlikely that the demand for bandwidth will ever decrease.”
Timmerman said he is planning for that demand to grow every year. He noted that residents are starting to see this as a needed utility.
On Orem’s utility bills, there is an indication as to whether a person’s dwelling is able to be connected to the underground fiber.
“This speaks to the emerging nature of fiber and utility service,” Timmerman said. “Some have philosophical concerns about city government being involved but it makes sense in some cities.”
He noted cities like Provo that have its own power company.
As part of the council’s 2017 goal, it had delineated guiding principles for options to bring UTOPIA and fiber-optic conduit to all the residents of Orem who would like to hook up to the system.
Part of those guiding principles the council listed it wanted to be completed included:
The availability to get conduit to every home in Orem.Do it with no new debt; or in conjunction with street lighting options.Look at what it will take to pay down the existing debt with UTOPIA.
To that end, UIA has just finished putting in underground fiber in the area around Sleepy Ridge Golf Course. It will start in another area of Orem this spring.
“We are back into expansion mode in Orem,” Timmerman said. “The demand for service has skyrocketed.”
Timmerman said that 1,200 homes now have the availability to connect to fiber. Approximately 400 have connected in 2017.
The list of providers to both homes and businesses has also expanded. There are now 10 residential providers and more than 25 business providers.
“There are also several wireless providers using UTOPIA as well,” Timmerman said.
Timmerman added they expect to add approximately 2,000 homes next year that will have the availability to hook up to the fiber system.