Provo taking back iProvo fiber-optic system, but seeking buyers for network

Provo • The city is still looking for someone to buy iProvo while taking back ownership of the troubled fiber-optic system from Veracity Networks.

In the meantime, Veracity, under a proposed lease, would continue to operate iProvo.

"The city needs to take back the network, but it wants to continue to provide services for customers," said Dan Follett, Provo's assistant finance director, during a recent Municipal Council meeting.

Follett said the city continues to seek a buyer, but the proposed agreement would keep Veracity operating and maintaining the network for at least 14 months.

City spokeswoman Helen Anderson compared the proposed contract to a bank foreclosing on a home but agreeing to let the former homeowner live in the house as a renter rather than have it sit vacant.

The plan calls for Veracity to pay at least $95,000 a month, along with about $7,000 a month to rent the city's Network Operations Center until February. It also calls for Veracity to pay an additional $23 a month for each new home customer who signs up, and 4 percent of the fees for apartment complexes and businesses that sign up for Veracity's services after Jan. 1.

Follett said the city and Veracity already are operating under the terms of the agreement, which is backdated to Jan. 1 and awaits City Council approval.

Mayor John Curtis said the proposed agreement is good for the city and Veracity.

"We've known for a while," Curtis said, "that it would not be any good to force [Veracity] out of business."

Last year, the city deemed Veracity in default on its contract to buy the network after its security deposit fell below $1.6 million. Veracity had been using the deposit to cover its $278,000 monthly payment to the city to improve its cash flow.

Under the terms of the original sales agreement, the city would take possession of the network in a default and continue to be responsible for paying off its $37 million debt.

Royce Van Tassell, vice president of the Utah Taxpayers Association, said he wasn't fully familiar with the details of the proposed agreement, but added it sounded like a sound move.

"At this point, it is a far better option than if the city were to operate it themselves," Van Tassell said. "With the time created by the agreement, Provo should be able to find a private buyer to take the network off their hands."

The association has declared the city's decision to charge residents a monthly fee to retire iProvo's debt as the "least bad way forward" out of the red ink.

dmeyers@sltrib.com

Twitter: @donaldwmeyers —

About iProvo

The city began building the iProvo network in 2004, borrowing $39 million to install a fiber-optic network to provide phone, Internet and television service to every home and business in Provo.

The city originally planned to run the network on its own, but the Legislature outlawed cities providing telecommunications services. The city could be a wholesaler, offering space on the network to cable TV companies, Internet providers and telephone companies.

The city was never able to get enough subscribers to cover the cost of the bond. As a result, the city poured in $2 million a year in surplus funds from its energy department to cover the balance.

In 2008, the city sold the network to Broadweave Networks, which agreed to take over the monthly bond payments, while the city still held the bond. But Broadweave began using its security fund to make the monthly payments to build up its cash reserves. Veracity Communications later bought out Broadweave and became Veracity Networks.

But Veracity also found it could not make enough money from the network to pay off the bond and was declared in default last year. The city initiated a utility charge to cover the cost of the bond payments, while Veracity continued to operate the network. The city also launched a search for a buyer.