Subject: [NEXTEL-1] In Utah, Public Works Project in Digital

From: [email-masked]
Date: Fri, 21 Nov 2003 18:12:46 -0500

http://www.nytimes.com/2003/11/17/technology/17utopia.html?8hpib

November 17, 2003
In Utah, Public Works Project in Digital
By MATT RICHTEL
 
ALT LAKE CITY - When it comes to the Internet, residents of Utah are taking
matters into their own hands.

In a 21st-century twist on Roosevelt-era public works projects, Salt Lake City
and 17 other Utah cities are planning to build the largest ultrahigh-speed
digital network in the country. 

Construction on the project is scheduled to start next spring - if the cities
can raise the money to pull it off. The network would be capable of delivering
data over the Internet to homes and businesses at speeds 100 times faster than
current commercial residential offerings. It would also offer digital
television and telephone services through the Internet. 

With a $470 million price tag, the project is considered one of the most
ambitious efforts in the world to deploy fiber optic cables, which carry data
in bursts of light over glass fibers. Though it has not received much attention
outside the area, the project has raised questions here about the role of
government, particularly from telecommunications companies, which are starting
to complain about the prospect of competing against a publicly sponsored
digital network.

The cities involved argue that reliable access to high-speed data is so
important to their goals of improving education and advancing economic growth
that the project should be seen as no more controversial than the traditional
public role in building roads, bridges, sewers and schools - as well as
electric power systems, which are often municipally owned in the Western United
States.

Data infrastructure "is not a nicety,'' said Paul T. Morris, executive director
for the project, which he has named Utopia, a stylized acronym for the Utah
Telecommunication Open Infrastructure Agency. "It's an essential economic
growth issue," he added. "The best network in the U.S. will be in Utah - not in
New York, not in Chicago, not in Los Angeles."

Its advocates say that Utopia will give participating cities a leg up in
attracting sophisticated companies and highly educated, technology-minded
individuals. The network is expected to be available to 723,000 residents in
248,000 households and 34,500 businesses. Prices would vary considerably
depending on the service, though basic high-speed Internet access is expected
to cost about $28 a month.

But private sector competitors and taxpayer groups assert that the cities and
their residents face a high level of financial risk for a network that may far
exceed their needs. Telephone and cable companies nationwide are scrambling to
build networks relying on less expensive, less advanced technology that they
argue will be perfectly adequate for many years to come.

Jerry Fenn, the president of the Utah division of Qwest, the regional telephone
company here that provides its own high-speed Internet access, said there were
few uses yet for the network Utopia plans to deliver.

The speeds to be provided "are way more than what most consumers need in their
home," Mr. Fenn said, adding, "Why provide a Rolls-Royce when a Chevrolet will
do?"

The notion of building extensive fiber optic networks may raise painful memories
for many investors. During the latter half of the 1990's, several
telecommunications companies lost billions of dollars when they laid fiber
across the country - and under the ocean - in anticipation of huge demands that
failed to materialize. 

But the Utopia project, which has been in the works for 18 months, is different.
It is an attempt to complete a direct fiber optic connection to the home - an
ambition that collapsed in the telecommunications bust. And its advocates argue
that the best way to advance digital technology is for a public entity to build
a common fiber optic connection as a utility for all potential users rather
than relying on the competition among private rivals that helped foster the
over-investment debacle at the turn of the century. 

The Utopia effort, while by far the largest to date, is not the first attempt by
municipalities to build an Internet infrastructure. In the spirit of power
utilities, a small but growing number of local governments are investing in
high-speed networks that far exceed current commercial speeds. But the efforts
so far have tended to be in rural areas. 

As of October, only 180,300 homes had direct access to fiber optic lines; 64,700
were actually connected, according to Render, Vanderslice & Associates, a
market research firm in Tulsa, Okla. 

"This is a very powerful test case," said Sharon Gillett, a research associate
at M.I.T.'s center for technology, policy and industrial development. "If
Utopia succeeds, it will be the first really large-scale deployment of fiber to
the home in the United States."

Most people still reach the Internet from their homes through dial-up
connections over copper telephone lines, typically limited to delivering data
at 56.6 kilobits per second. That speed works well for things like e-mail
messages, but it can be frustrating when using graphics-rich Web pages or
downloading music and other larger files. 

To upgrade dial-up speeds, telephone companies modify their phone lines to offer
a technology called digital subscriber line, or D.S.L., which creates a direct
connection to the Internet at speeds that vary from 256 kilobits a second to
one megabit or so, sometimes more. 

Cable companies like Comcast and Cox have been even more aggressive, adapting
their systems to deliver Internet services at speeds usually roughly twice as
fast as D.S.L. Prices vary, but consumers can pay $30 to $60 a month for
high-speed access, whether through cable or telephone lines.

Utah's competitive landscape is similar to those in other states. Comcast's
broadband service is available to 80 percent of its residents, and should be
available to 90 percent by the end of the year. The company is spending about
$350 million to increase the capability to as much as three megabits per
second. 

For its part, Qwest, the regional telephone company, said D.S.L. service was
available in about 60 percent of homes in the region. It is spending $100
million to upgrade its systems in 14 states.

But those delivery systems, as well as the higher-speed direct connections that
are commonly used to hook up businesses to the Internet, pale before fiber
optic lines. Depending on the kind of equipment used, fiber can deliver data at
speeds of 100 megabits a second - even as much as 1,000 megabits under some
circumstances - enabling the lines to be used simultaneously to send voice,
video, Internet and other data traffic.

As of yet, there are few demands for such capabilities. But Mr. Morris, of
Utopia, predicted that it would not be long before promising new applications
emerged. For instance, televisions need 6 megabits a second to deliver
DVD-quality images over the Internet, and 18 megabits to deliver HDTV. He is
counting on residents in the Utopia service area to turn soon to
video-on-demand, online video games, Internet and telephone service, all of
which consume bandwidth.

The applications are not all here today, Mr. Morris said, but when they are,
"you get to 95 megabits pretty quickly." He added: "We built a network that we
don't have to change."

The project originated in 2002 after a similar effort by Provo, 35 miles south
of Salt Lake City, hit a stumbling block. Provo built a fiber optic network,
but it ran into a buzz saw of complaints from private telecommunications
companies, notably AT&T Broadband. 

The Utah Legislature agreed with AT&T. Following the lead of several other
states, it passed a bill making it difficult for government entities to create
Internet utilities that sell service directly to consumers. But lawmakers here
left the door open for communities to build wholesale networks, which would be
required to lease space on the fiber optic lines to companies to provide retail
digital services. Following this model, 18 cities created Utopia, vowing to go
ahead if they could make the case that the fees paid by consumers and
businesses would repay the cost of building the system. 

The costs are substantial. Mr. Morris said Utopia would spend about $1,100 a
home to run the fiber network by each house in the 18 cities involved, and an
additional $1,400 for each home that decided to be connected. 

An economic study by DynamicCity in Lindon, Utah, predicted that 40 percent of
consumers and residents would sign up after two years. The project was likely
to generate enough revenue by its seventh year to cover all expenses, the study
estimated. 

Mr. Morris said Utopia was arranging financing from a New York investment bank.
He said that the cities would be asked to guarantee a portion of the loan
Utopia acquires from the investment bank, but that the amount was still being
negotiated.

Such a guarantee, while not providing a subsidy in the form of tax-exempt
financing, substantially increases the creditworthiness of Utopia, dropping the
interest rate to the 6 percent range from as high as 12 percent, Mr. Morris
said. But it also puts those cities at risk should the project fail to meet
expectations.

Mr. Morris said he expected to secure the financial commitment this month,
paving the way for construction to begin next spring or summer. 

Some local watchdog groups oppose the venture. Mike Jerman, vice president of
the Utah Taxpayers Association, said the government should not be involved in
such a fast-changing business. He said that without the taxpayer backstop, Wall
Street would be reluctant to give its support. "They were looking at a 12
percent interest rate,'' he said. "That's worse than a corporate junk bond.
It's an indication of how much confidence investors have in the project."

Mr. Morris acknowledged the challenge but insisted that Utopia was a golden
opportunity to put together a real business to fulfill a genuine public
purpose. "This is a major public works project, but it's not like in the era of
F.D.R.," he said. "It's not a subsidy. We have a business plan."

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