Good Change
I attended the iProvo Review Committee meeting this morning. It sounds like some parts of the agreement are starting to move Provo's direction. Specifically they are now saying that if Broadweave defaults on payments, Provo can foreclose on the network and also gets any upgrades to the network and network fixtures without charge. This is a really good change. Thumbs up.
Surety Agreement
There was a lot of talk about the surety agreement. As part of the terms of sale, Broadweave Networks of Provo (Of Provo), a subsidiary of Broadweave Networks (Broadweave), is buying the network. Broadweave is guaranteeing the payments of Of Provo. In addition, Sorenson Capital is guaranteeing the payments with a $6M guarantee for the first 2 years and a $3M guarantee for another year. If Broadweave meets financial performance measures that essentially require it to have an EBITDA of $4.5M annually for 12 months, the $3M guarantee goes away.
Overall this seems like a decent guarantee. My concern is, what if Broadweave is doing well financially and meets the measures, but Of Provo is not. Broadweave could choose to bankrupt Of Provo when no guarantee is in place. This is a really unlikely scenario, but still, it could happen.
Equipment Upgrade
Steve Christensen talked a little bit about how Broadweave intends to replace all of the WorldWide Packets boxes (the box in the house that connects the fiber). He said that these boxes don't support the SIP VoIP protocol, so they're going to replace them with a box that does. iProvo guys (Kevin Garlick, maybe, I don't remember), agreed that while the WWP boxes are good at data and video, they aren't good at voice.
I understand what they're saying, but I don't understand why they would do it this way. The WWP boxes are good at data. You can buy a SIP box that can operate on a data line for a lot less than you can buy a new fiber box that can do SIP. Why not keep the WWP boxes, change the voice system to use SIP over a data VLAN, and install SIP ATAs for voice. It's less expensive, allows you to use a best of breed approach for the different types of services, and would likely be less intrusive of a change for the customers.
Provo Services Right of First Refusal
As part of the terms of sale, Provo agrees to give right of first refusal on all Provo telecom contracts to Broadweave. So when Provo city needs to renew a phone contract, for example, it can negotiate with whatever provider, but before the contract is complete, Broadweave has the ability to meet the offer and provide the services to the city.
I don't have a problem with this, this aligns a couple of the cities interests. My only concern is what if Broadweave is a bad service provider. Meaning, maybe Broadweave is willing to meet the contract price, but the service quality is considerably worse. I guess this can be taken care of by service level provisions of the contract. If Broadweave didn't live up to those provisions the city would have recourse.
No Rose Colored Glasses
As there always seems to be in these kinds of meetings, there was a lot of talking about how Broadweave and Veracity are such technically able and experienced companies and how much better they are than all of the other past suitors. Now, I have some good opinions of Veracity's people, and I've heard good opinions from Veracity of Broadweave's people. That being said, there are some deficiencies.
This is going to be a big, ugly, transition. Broadweave has never had to do this kind of thing, and Veracity has never had to do it on this scale. There will be mistakes and problems and angry customers and bad publicity. I will not be surprised if people get really made at Provo for making the sale.
Also, Veracity doesn't like residential customers. They've tried, they didn't like it, they spun off Nuvont so they didn't have to deal with them anymore. Broadweave will have to handle those pretty much on their own, and it's a quick tenfold increase for them. Again, it's going to be messy.
So lets set expectations where they ought to be - really low. The pain doesn't really start until the deal is closed.
Thursday, May 22, 2008
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4 comments:
The portal replacement is a scary proposition. Those things cost about $300 a pop. With 10,250 customers on the network, you're talking about dropping $3M on new equipment right off the bat without including changes in the NOC or the labor cost to do those upgrades. I doubt a company with 1100 or so customers has that kind of money just lying around, investors or not.
I was told by a Veracity employee that the portal replacement would actually be paid for out of the iProvo bond. As I heard it, iProvo hasn't spent everything it borrowed, so it would use the rest on the new portals. It was someone who would know what he was talking about, but still rumor.
I doubt the veracity (har, har) of that claim. If iProvo still haa bond money left over, why would they have gotten loans from the Energy Dept. to cover bond payments?
I was thinking that as I wrote it, actually. It doesn't make sense, but I'm sure that's what I was told. Good thing I'm not a journalist, I could get fired over reporting rumor.
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