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Tuesday, October 10, 2006
Broadband Decision

American Fork will now enter negotiations with PacketFront for the sale of the municipal network and the lease of some of the City's fiber-optic lines.

After meeting for 40 minutes or so in executive session "to discuss the sale of real property," the American Fork City Council voted unanimously in its general session tonight to proceed with the sale of its (almost) city-wide network and the lease of a small fraction of its fiber-optic lines to PacketFront.

My observation over the last several weeks is that PacketFront's was by far the most attractive of the five timely responses to this summer's request for proposals (RFP). City officials previously stated publicly that there were six proposals. I learned earlier this week that the sixth actually arrived after the deadline. It, too, was an attractive proposal, and it came from an established company with strong ties to Utah County. To pursue it, however, the Council would have to have rejected all five of the original proposals and issued a new RFP -- which it could easily have done, had it been so inclined.

PacketFront is a consortium of companies which specialize in different phases of the business, such as financing, infrastructure, and customer service. It has roots in Sweden but a strong presence in the United States and elsewhere in North America. MStar, an Internet service provider (ISP) with an excellent reputation, a substantial local customer base, and a presence on the local UTOPIA network, recently joined the consortium, according to a report I received this week. This late acquisition most likely helped resolve some significant concerns on the part of some City officials.

According to American Fork resident Jerry Kite, a 38-year veteran of telecommunications who has given generously of his expertise to help the City grapple with its broadband situation, PacketFront customers in Pasco, Washington, speak highly of the company and its products and services there.

The terms reported in tonight's public meeting are these:

  • PacketFront offered $2 million for purchase of the network and lease of six in-ground fiber lines between downtown Salt Lake City and Spanish Fork and six above-ground lines between American Fork and Springville. This leaves the City 114 of its original 144 in-ground fiber lines (UTOPIA already bought 24 of them) and 30 of the original 36 above-ground lines, which are still available for lease or sale.
  • PacketFront anticipates an additional investment of $8 million to "build out" the system with fiber to each home and business over approximately the next 15 months. This will allow it to offer not only Internet connectivity, but also telephone service (Voice Over IP, or VoIP) and television to its customers in the city -- the much discussed "triple play." A PacketFront representative also mentioned but did not specify additional services for residents and businesses.
  • PacketFront will honor the City's contracts with current ISPs.
  • PacketFront will offer positions to the City's current employees who work with the system, if they are interested, with the exception of one who will remain in the City's employ to manage the transition and the leasing of fiber.

A letter of intent is forthcoming, followed by contract negotiations. Meanwhile, predictably, the PacketFront representative is saying things like "extremely excited" and "a flagship network." Let us hope that the latter, in particular, proves to be more than nice rhetoric.

In my view, this sale is excellent news if it works. I hope -- and am guardedly optimistic -- that it will.

If I may be more personal for a moment . . . As a devoted user of AFCNet, I very much appreciate the diligence and persistence of some City officials who understand the value of municipal broadband and its important place in the community and its economy. Without their efforts, particularly in light of other officials' apparent simple eagerness to jettison the system, I am not at all certain that so (apparently) favorable a result could have been achieved.

Back to the larger picture. One might wonder, Was it a big mistake for the City, under the previous administration, to acquire the system? Some think so. I do not. As a longtime, frequent critic of that administration -- a posture I will resume in the next paragraph -- allow me to say that I think it was a bold, wise, forward-looking acquisition.

I think neglecting to manage it competently was a serious mistake.

David Rodeback comments (10/11/06):

See the Caleb Warnock article in today's Daily Herald's.

Paul Venturella comments (10/16/06):

It's not clear from the story what was sold (for how much) and what was leased (for how much, for how long). That information would be needed to determine if the deal was really good for AF City.

Keeping the network alive and actually upgrading the network is definitely good for residents as they will have choice.

David Rodeback responds (10/18/06):

Knowing only what was announced in the meeting, I reasoned thusly: The value of the city network itself has been estimated over the past year at anywhere between about $300,000 and $900,000. A year ago, UTOPIA purchased 24 of the underground fiber-optic lines for $1.5 million. So by comparison a $2 million offer for the city network and leasing of six underground and six above-ground fiber-optic lines looks more than competitive.

Today I obtained further details of the offer. PacketFront offers $400,000 upon execution of the contract, with the remaining $1.6 million to be paid in equal annual payments, with interest, over ten years, beginning one year after execution of the contract. The fiber-optic lease will be a 20-year IRU, or Indefeasible Right of Use, which is essentially long-term temporary ownership. (You probably don't wonder about such things, but, despite my fondness for big words, I'm fairly certain I have never written or uttered the word indefeasible before.)

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