Utah's Broadband War

SALT LAKE CITY -- Broadband Cities Convention -- Utah’s incumbent broadband providers appear to be fighting back, dropping broadband prices to retard the uptake of new triple-play services provided by Utah Telecommunication Open Infrastructure Agency (UTOPIA).

UTOPIA is a publicly owned fiber network managed by a privately held company, DynamicCity Inc. As a wholesaler it leases the infrastucture, which was funded using bonds, to retail broadband service providers for the distribution of their services (voice, video, data, etc.).

Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Qwest Communications International Inc. (NYSE: Q) are distributing marketing materials advertising lowered prices, but the fine print stipulates they apply only to cities where UTOPIA service is available, says Ben Gould of DynamicCity.

UTOPIA's fiber now reaches fewer than 10,000 of the 450,000 the network hopes to eventually service.

Perhaps this is an indication of the future path of warfare between commercial incumbents and municipal broadband networks. Thus far, the incumbents have attempted to block UTOPIA’s progress through legal and legislative means, and those tactics are still being used. Qwest filed suit some months ago against UTOPIA and one of its member cities, and both Qwest and Comcast have worked to influence anti-muni broadband legislation in the state legislature. (See Cannon Fires at Incumbents.)

Since UTOPIA began delivering broadband service over its fiber in March, the conflict appears to have taken a new turn. (See Muni Networks: The Public's Not Buying.)

Comcast has dropped its Internet service price from $45.95 to $29.95 a month for people in "UTOPIA cities" Midvale and Murray, and that price is locked in under a one-year contract. Comcast’s high-speed Internet service maxes out at 4 Mbit/s for downloads and 384 kbit/s for uploads, far less than the competing UTOPIA service. One of UTOPIA’s triple-play service providers, MStar.NET LLC, offers 15 Mbit/s of symmetrical broadband for $39 a month.

When it comes to the bundle of voice, video, and data services, Gould says MStar actually has the lowest price for UTOPIA city residents. MStar’s triple-play bundle sells for $104 a month, while Comcast’s bundle comes to about $140 a month, Gould says.

But as UTOPIA fiber reaches more and more neighborhoods, how far will the incumbents’ price cuts go? Could the day come in UTOPIA cities where the cost of broadband is $5 dollars a month? UTOPIA executive director Paul Morris doesn’t think so. “You can’t find a case where [prices] will go down to 5 bucks a month for broadband service,” Morris says. “If they went to five bucks a month, then other cities are subsidizing that low price, and they wouldn’t put up with it."

Should such a price war occur, DynamicCity’s Gould suggests that a municipal network might be better prepared than the incumbents to survive it. (See Poll: RBOCs Fuel 'Broadband Gap'.)

“They need a three- to five-year return on their investment in any given market,” according to Gould. Government-owned networks, by contrast, can be financed with a 20- to 30-year bond, he says (See Light Readers Embrace Muni Nets .).

Still, the 14 cities that own UTOPIA plan to pay off the $85 million bond they floated in July 2004 using profits generated by wholesaling the network -- not through new tax levees. UTOPIA faces pressure to win market share to bring in that revenue.

UTOPIA’s fate matters because it has become one of the models for municipal networks that many community activists are watching as they contemplate building such networks in their own towns. It also employs a business model that many believe has the best chance of weathering the political battles and surviving competition from incumbents.

The success or failure of the UTOPIA model could have a profound impact on other municipalities considering the expense of launching similar networks.

— Mark Sullivan, Reporter, Light Reading