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. 

This article was originally posted on The New York Times on December 3, 2011. To view original article, click HERE.

By Susan P. Crawford

For the second year in a row, the Monday after Thanksgiving - so-called Cyber Monday, when online retailers offer discounts to lure holiday shoppers - was the biggest online sales day of the year, totaling some $1.25 billion and overwhelmig the sales figures racked up by brick-and-mortar stores three days before, on Black Friday, the former perennial record-holder.

Such numbers may seem proof that America is, indeed, online. But they mask an emerging division, one that has worrisome implications for our economy and society. Increasingly, we are a country in which only the urban and suburban well-off have truly high-speed Internet access, while the rest - the poor and working class - either cannot afford or use restricted wireless access as their only connection to the Internet. As our jobs, entertainment, politics and even health care move online, millions are at risk of being left behind. 

Telecommunications, which in theory should bind us together, has often divided us in practice. Until the late 20th century, the divide split those with phone access and those without it. Then it was the Web: in 1995 the Commerce Department published its first look at the "digital divide," finding stark racial, economic and geographic gaps between those who could get online and those who could not.

"While a standard telephone line can be an individual's pathway to the riches of the Information Age," the report said, "a personal computer and modem are rapidly becoming the keys to the vault." If you were white, middle-class and urban, the Internet was opening untold doors of information and opportunity. If you were poor, rural or a member of a minority group, you were fast being left behind.

Over the last decade, cheap Web access over phone lines brought millions to the Internet. But in recent years, the emergence of services like video-on-demand, online medicine and Internet classrooms have redefined the state of the art: they require reliable, truly high-speed connections, the kind available almost exclusively from the nation's small number of very powerful cable companies. Such access means expensive contracts, which many Americans simply cannot afford.

While we still talk about "the" Internet, we increasingly have two separate access marketplaces: high-speed wired and second-class wireless. High-speed access is a superhighway for those who can afford it, while racial minorities and poorer and rural Americans must make do with a bike path.

Just over 200 million Americans have high-speed, wired Internet access at home, and almost two-thirds of them get it through their local cable company. The connections are truly high-speed: based on a technological standard called Docsis 2.0 or 3.0, they can reach up to 105 megabits per second, fast enough to download a music album in three seconds. 

These customers are the targets for the next generation of Internet services, technology that will greatly enhance their careers, education and quality of life. Within a decade, patients at home will be able to speak with their doctors online and thus get access to lower-cost, higher-quality care. High-speed connections will also allow for distance education through real-time videoconferencing; already, thousands of high school students are earning diplomas via virtual classrooms.

Households will soon be able to monitor their energy use via smart-grid technology to keep costs and carbon dioxide emissions down. Even the way that wired America works will change: many job applications are already possible only online; soonk job interviews will be held by way of videoconferencing, saving cost and time.

But the rest of America will most likely be left out of all this. Millions are still offline completely, while others can afford only connections over their phone lines or via wireless smartphones. They can thus expect even lower-quality health services, career opportunities, education and entertainment options than they already receive. True, Americans of all stripes are adopting smartphones at breakneck speeds; in just over four years the number has jumped from about 10 percent to about 35 percent; among Hispanics and African-Americans, it's roughly 44 percent. Most of the time, smartphone owners also have wired access at home: the Pew Internet and American Life Project recently reported that 59 percent of American adults with incomes above $75,000 had a smartphone, and a 2010 study by the Federal Communications Commission found that more than 90 percent of people at that income level had wired high-speed Internet access at home.

But that is not true for lower-income and minority Americans. According to numbers released last month by the Department of Commerce, a mere 4 out of every 10 households with annual incomes below $25,000 in 2010 reported having wired Internet access at home, compared with the vast majority - 93 percent - of households with incomes exceeding $100,000. Only slightly more than half of all African-American and Hispanic households (55 percent and 57 percent, respectively) have wired Internet access at home, compared with 72 percent of whites.

These numbers are likely to grow even starker as the 30 percent of Americans without any kind of Internet access come online. When they do, particularly if the next several years deliver subpar growth in personal income, they will probably go for the only option that is at all within their reach: wireless smartphones. A wired high-speed Internet plan might cost $100 a month; a smartphone plan might cost half that, often with a free or heavily discounted phone thrown in.

The problem is that smartphone access is not a substitute for wired. The vast majority of jobs require online applications, but it is hard to type up a resume on a hand-held device; it is hard to get a college degree from a remote location using wireless. Few people would start a business using only a wireless connection. 

It is not just inconvenient - many of these activities are physically impossible via a wireless connection. By their nature, the airwaves suffer from severe capacity limitations; the same five gigabytes of data that might take nine minutes to download over a high-speed cable connection would take an hour and 15 minutes to travel over a wireless connection.

Even if a smartphone had the technical potential to compete with wired, users would still be hampered by the monthly data caps put in place by AT&T and Verizon, by far the largest wireless carriers in America. For example, well before finishing the download of a single two-hour, high-definition movie from iTunes over a 4G wireless network, a typical subscriber would hit his or her monthly cap and start incurring $10 per gigabyte in overage charges. If you think this is a frivolous concern, for "movie" insert an equally large data stream, like "business meeting."

Public libraries are taking up the slack and buckling under the strain. Nearly half of librarians say that their connections are insufficient to meet patrons' needs. And it is hard to imagine conducting a job interview in a library.

In the past, the cost of new technologies has dropped over time, and eventually many Americans could afford a computer and a modem to access a standard phone line. Phone service - something 96 percent of Americans have - was sold at regulated rates and the phone companies were forced to allow competing Internet access providers to share their lines.

But there is reason to believe this time is different. Today, the problem is about affording unregulated high-sped Internet service - provided, in the case of cable, by a few for-profit companies with very little local competition and almost no check on their prices. They have to bear all the cost of infrastructre and so have no incentive to expand into rural areas, where potential customers are relatively few and far between. (The Federal Communications Commission recently announced a plan to convert subsidies that once supported basic rural telephone services into subsidies for basic Internet access.)

The bigger problem is the lack of competition in cable markets. Though there ar several large cable companies nationwide, each dominates its own fragmented kingdom of local markets: Comcast is the only game in Philadelphia, while Time Warner dominates Cleveland. That is partly because it is so expensive to lay down the physical cables, and companies, having paid for those networks, guard them jealously, clustering their operations and spending tens of millions of dollars to lobby against laws that might oblige them to share their infrastructure.

Cable's only real competition comes from Verizon's FiOS fiber-optic service, which can provide speeds up to 150 megabits per second. But FiOS is available to only about 10 percent of households. AT&T's U-verse, which has about 4 percent of the market, cannot provide comparable speeds because, while it uses fiber-optic cable to reach neighborhoods, the signal switches to slower copper lines to connect to houses. And don't even think about DSL, which carries just a fraction of the data needed to handle the services that cable users take for granted.

Lacking competition from other cable companies or alternate delivery technologies, each of the country's large cable distributors has the ability to raise prices in its region for high-speed Internet services. Those who can still afford it are paying higher and higher rates for the same quality of service, while those who cannot are turning to wireless.

It doesn't have to be this way, as a growing number of countries demonstrate. The Organization for Economic Cooperation and Development ranks America 12th among developed nations for wired Internet access, and it is safe to assume that high prices have played a role in lowering our standing. So America, the country that invented the Internet and still leads the world in telecommunications innovation, is lagging far behind in actual use of that technology.

The answer to this puzzle is regulatory policy. Over the last 10 years, we have deregulated high-speed Internet access in the hope that competition among providers would protect consumers. The result? We now have neither a functioning competitive market for high-speed wired Internet access nor government oversight.

By contrast, governments that have intervened in high-speed Internet markets have seen higher numbers of people adopting the technology, doing so earlier and at lower subscription charges. Many of these countries have required telecommunications providers to sell access to parts of their networks to competitors at regulated rates, so that competition can lower prices.

Meanwhile, they are working toward, or already have, fiber-optic networks will be inexpensive, standardized, ubiquitous and equally fast for uploading and downloading. Many of those countries, not only advanced ones like Sweden and Japan but also less-developed ones like Portugal and Russia, are already well on their way to wholly replacing their standard telephone connections with state-of-the-art fiber-optic connections that will even further reduce the cost to users, while significantly improving access speeds.

The only thing close is FiOS. But, according to Difraction Analysis, a research firm, it costs six times as much as comparable service in Hong Kong, five times as much as in Paris and two and a half times as much as in Amsterdam. When it comes to the retail cost of fiber access in America, we do about as well as Istanbul. 

The new digital divide raises important questions about social equity in an information-driven world. But it is also a matter of protecting our economic future. Thirty years from now, African-Americans and Latinos, who are at greatest risk of being left behind in the Internet revolution, will be more than half of our work force. If we want to be competitive in the global economy, we need to make sure every American has truly high-speed wired access to the Internet for a reasonable cost.

Susan P. Crawford is a professor at the Benjamin N. Cardozo School of Law and a former special assistant to President Obama for science, technology and innovation policy.