January 27, 2012

Media Contacts:

Julie Paulson, 801 835 8519

Brian Wilkinson, 801 673 5615

Robyn Geist, 801 680 1135 

A lawsuit filed Wednesday in federal court by former UTOPIA contract employee Chris Hogan claims the organization defamed him and outlines a variety of allegations against the consortium of 16 Utah cities that joined together to build a fiber-optic network to serve residents, businesses and government agencies

UTOPIA steadfastly denies all of Hogan's allegations.

UTOPIA recognizes it's a cherished privilege in our country for anyone to sue anyone else over just about anything. This case against UTOPIA, however, is baseless and makes allegations that are simply false. Rather than UTOPIA defaming Chris Hogan, as is alleged in the suit, he is impugning the reputation of the organization and its hard-working staff.

Hogan has multiple cases pending in state and federal court related to his relationship with UTOPIA. In the only decision to substantively address his allegations, the court has held that he has no valid claim as to the majority of the allegations raised yet again in this latest lawsuit. The testimony in that hearing has been transcribed, is publicly available and speaks for itself. The justice system has vindicated UTOPIA to date, and UTOPIA expects to be vindicated in this case as well.

This is a repost of an article found in The Salt Lake Tribune. To view the original article, click HERE.

By Steven Oberbeck

The Salt Lake Tribune

Published: January 18, 2012

Despie losing more than 200 customers, the UTOPIA fiber-optic network is reporting that revenue generated from its operations increased 83 percent during its fiscal year that ended on June 30, 2011. 

UTOPIA, an acronym for the Utah Telecommunication Open Infrastructure Agency, said that it generated $5.2 million in operating revenue, compared wih $2.8 million in the previous year. Its expenditures dropped 7.2 percent.

Still, the agency reported that its operations produced a $6.2 million deficit in 2011, although that loss was among its smallest ever.

"We made some good progress," said Kirt Sudweeks, UTOPIA's chief financial officer. "In fact, if you take away our depreciation and eliminated the bad debt we had to write off due to the bankrupcy of one of our service providers, we would have been at operating break-even for the year."

Sudweeks said the bulk of the jump in operating revenue came from an increase in businesses signing up to receive services over the network. Also, the netwok raised its wholesale rates, which is what it charges service providers who use the network's fiber-optic infrastructure to serve customers.

UTOPIA was organized in 2002 by community leaders in more than a dozen municipalities along the Wasatch Front. At the time, they believed that private telecommunications providers in the state were unwilling to bring the benefits of high-speed Internet and other broadband services to their communities. In all, 11 of the fonding cities, from Brigham City north to Payson south, pledged about $500 million over 32 years to back the bonds that UTOPIA sold to finance network development.

The network, though, has been plagued with continuing losses and over-optimistic projections. It has yet to earn a profit and has a negative net worth of more than $120 million, which means that if all of UTOPIA's assets were sold it would still owe that amount to its creditors. 

Long-time UTOPIA critic Royce Van Tassell of the Utah Taxpayers Association, said the loss in subscribers is troubling, particularly given the significant expansion undertaken last year in Brigham City and other areas.

"In order to build in Brigham City they indicated they needed around 1,500 new customers," he said. "So, if they saw a loss of 210 customers (in fiscal 2011) that means that across the entire network around 1,700 other customers had to drop."

Van Tassell said that should be troubling to the communities that have invested in UTOPIA, given that its long-term viability is premised on aggressive annual growth.

Todd Marriott, the network's executive director, attributed the decline in subscribers to them being upset about the bankruptcy of one of the outside companies that was serving customers using UTOPIA's fiber-optic lines.

"We'll go back and get those customers," he said, indicating that in the six months since the end of the 2011 fiscal year 1,444 Utahns have signed up to receive services over the UTOPIA network.

Marriott and other network supporters are counting on the success of the Utah Infrastructure Agency, a separate entity set up by nine of the UTOPIA cities. The UIA, which was funded by an additional $62 million in bonds, is in charge of marketing and completing development of the UTOPIA network. And in the future, new subscribers who receive services over the network will be handled by UIA rather than UTOPIA.

What that means is that next year to get a good understanding of how the network is performing it will be necessary to look at the financial statements of both UTOPIA and UIA, Sudweeks said.

UTOPIA supporter Jesse Harris, who operates the freeutopia.org website, said he was encouraged after seeing the 2011 financial statements.

"Whatever they're doing they should keep doing," Harris said. "You can't argue with doubling revenue while decreasing cost. It represents a huge improvement, and that doesn't take into account that they also signed up more than 1,400 new subscribers since the close of their (fiscal) year."

steve@sltrib.com

Twitter @OberbeckBiz

This article is a reprint of a post on FreeUTOPIA.org. To view the orginal article, click HERE.

UTOPIA's 2011 audit report (PDF) has come out, and the Utah Taxpayers Association wasted no time in butchering their "analysis" of it. (If you need a good piece of fiction, go find their January 2012 newsletter; I won't grace it with a link.) Their overeagerness to once again trash UTOPIA, however, means they ignored basic math and did zero fact-checking, but we're all used to that by now, aren't we?

The golden ray of sunshine in the report is a jump in total revenues of 98.7% over the prior year while expenditures dropped 7.2%. (The UTA chose to focus on just operating revenues and omitted the information about dropping costs.) Saying that this is a huge improvement is an understatement, especially when this doesn't include any of the new UIA subscribers in the mix. While there was a small drop in total subscribers (a net loss of 210 thanks to the Prime Time meltdown), the period from July 1 to December 31 netted an additional 1400 subscribers via the UIA. This isn't included in the audit report since 1) the audit report covers the period from June 30 2010 to June 30 2011 and 2) all new residential subscribers are being brought on via the UIA and will be included in a separate audit report beginning next year.

Since the UTA really can't spin a good story concerning the revenues and expenditures, they chose instead to attack on the assets front. You may recall that part of UTOPIA's bond structure is to use credit swaps to help stabilize the interest paid on their variable rate bond. Essentially, they purchased bonds with a slightly lower interest rate than what they pay and use the interest revenue to help stabilize fluctuations in bond rates, paying only the spread between the two. When UTOPIA's audits are performed, it has to take into account all liabilities including the cost of these bonds they own. This creates the perception of decreased net assets even though UTOPIA won't be selling those bonds until pay off their own bond. In short, it's paper liability that doesn't actually cost them anything until almost three decades from now. The UTA, however did not talk to UTOPIA to ask about this situation, instead choosing to assume the worst. 

According to UTOPIA, they are currently ahead on their projections for revenues and slightly behind on total subscribers, about a wash. The first year of their five-year plan focused most heavily on existing service areas, areas where picking up additional subscribers would be relatively low-cost. Year 2 is gong to focus more heavily on getting additional areas hooked up, so make sure you're registering your interest on their website.

So the short of it is that UTOPIA has posted huge increases in revenues, a modest decrease in expenditures, and is well-on track to sign up thousands of new customers by the time their current fiscal year closes. If that's not success, I don't know what is. 

It's clear that the consumer home network is changing. What was once nothing more than a few telephone lines and a basic data modem to connect to the Internet is becoming a hub for premium online video and data services - clearly changing the game.

With this new multi-service environment, broadband CPE and home networking vendors are developing multi-function devices that combine the functions of a modem, router, and voice gateway.

Infonetics confirms this trend in its two third quarter broadband access reports, Broadband CPE and Subscribers: PON, FTTH, Cable, and DSL and Home Networking Devices.

"With the bulk of the groundwork laid, service providers will shift their focus to turning up services in subscribers' homes," said Jeff Heynen, directing analyst for broadband access and video at Infonetics Research. "In fact, we're already seeing steady growth in wideband cable CPE and fiber-to-the-home CPE, particularly in China, a clear trend that operators are investing in the next generation of broadband technology for the home."

Heynen added that, "The shift away from basic modems to high-end devices, such as VDSL gateways, VCSL IADs, wideband cable gateways and wideband EMTAs, reflects the fact that operators are preparing consumer homes with enough processing power to handle premium services, from high definition video to home automation and home security."

From a global market perspective, the home networking devices market totaled $1.8 billion in Q311, down percent from Q2 2011 due to expectd seasonal slowdowns. However, on a year-over-year basis, home networking devices sales were up 10 percent.

Driven by a 9 percent revenue increase in broadband routers and a 16 percent rise in HomePlug powerline adapters, Asia Pacific was the only region that posted a sequential revenue gain for home networking devices (up 6 percent).

Leading the broadband CPE segment was ZTE, which held on to its number one spot for broadband CPE revenue and shipments in Q3 2011. A big contribution to ZTE's lead was its partnership with China Telecom to deliver Ethernet-based Fiber to the Home (FTTH) Infrastructure and CPE to higher-end residential complexes in Shanghai.

Tied for second place behind ZTE were Motorola (NYSE: MSI) and Huawei followed by Technicolor and ARRIS (Nasdaq: ARRS).

To view the orginial article, click HERE.