iProvo's Other Offers

I'm learning today some information about some of the other possible purchasers of the iProvo network. Specifically, I hear that the city recently initiated contact with Qwest, who expressed interest in discussing a sale of the network. A meeting was set up, but the meeting was canceled after the sale to Broadweave was announced.

I'm also reading through a copy of the proposal that MStar made May 15, 2007, Provo's concerns with the proposal and MStar's response, and Provo's rejection letter.

It's interesting to see some of the parallels between what MStar proposed, and what Broadweave has proposed. Where Broadweave's proposal is different the changes tend to benefit Broadweave. So - the basic points of MStar's proposal:

• The network remains open. Any provider can provide service on the network. Other providers will have to pay the same transport fees that are currently paid by service providers.
  
• MStar leases the network by paying the payments on the city's debt, both external and internal. Any transport fees from other providers are used to offset the debt payments. MStar does not pay transport fees.
  
• Some of the assets transfer eventually to MStar, but the network remains the property of the city.
• MStar operates the network in place of the telecom department.
  
• MStar guarantees service levels, excluding outages caused by force mejure events (lightning storms, backhoe cuts to fiber, etc) or power outages.

Provo responded with a list of points of concern:

• Provo did not want to refinance its bonds to 30 years. This was listed as an option in the proposal.
• MStar's financial viability. Provo wanted MStar to come current with amounts due.
  
• There were some concerns with the form of the payment guarantee. Provo wanted to make sure funds were in place upon close of an agreement.
• There were concerns about MStar's customer service history.
• Provo was concerned that MStar did not share its goals of universal, affordable access, quality of life for citizens, and economic impact.
• There was concern that MStar's "anchor" position would put other service providers at a disadvantage.
• Provo wanted to see supporting detail for MStar's financial projections.
• MStar should not be able to filter or tax data by type or based on source or destination.
• MStar should not be able to add "unreasonable charges" beyond what they are currently paying.
• Provo was concerned with how easily Provo could terminate the lease in the event of problems with MStar's operation of the network.
• Provo wanted a series of operational reports be provided to the city on a regular basis so the city could measure performance.
• Provo expressed that it did not like the idea of transferring ownership of assets, preferring a pure lease agreement. It was also concerned with the compatibility of any new equipment with existing equipment. Provo was concerned that in an event where the city took back over the network, equipment changes should not force Provo to reconfigure the network.

Overall, it sounds like Provo was asking the right questions and being cautious in some good places. They were certainly being cautious in more places that they seem to have been with Broadweave. MStar gave the following responses (I'm dropping detail, but the main points):

• No problem if bonds were not refinanced.
• MStar admitted that under the current relationship MStar's business was not viable and hence the financial trouble. It cited as problems that fact that under their current contract there is no financial benefit to scale and MStar can't choose the products and services to provide. It gave details of sources of future financing, but that financing was all contingent on a change to the contract with iProvo along the lines of the proposal. This problem affected both the payment of current amounts due and the guarantee on debt payments. In short, investors wouldn't give MStar more money until the contract with iProvo changed.
  
• MStar detailed its improving history of customer service.
• MStar suggested that while it has different motivations from Provo City, the need to be competitive would support the goals of universal, affordable access and quality of life for all citizens.
• MStar used both an airport and a strip mall metaphor to show the benefit of an "anchor" provider idea while maintaining an open network.
• MStar preferred not to make any guarantees on service filtering, citing the need to handle potential virus attacks or unmanaged P2P traffic.
• MStar was willing to consider language to protect against "unreasonable charges", though it contended that competition would prevent such.
• On the rest, MStar was willing to negotiate the details.

In the end, Provo sent a letter rejecting the proposal. These are the reasons Provo gave:

Among other reasons, the primary concern with the new proposal is that it strays from our original goal of an open access network with multiple providers and many telecom service choices for the consumers. In addition, it raises the city's risk by placing its future success and security solely on MStar's ability to perform.

I know I'm going crazy with the bullets, but here are my thoughts on MStar's proposal vs Broadweave's:

• Provo seems to think that Broadweave is in a better position financially than MStar was in making this proposal, but it sounds like a very similar situation. I don't think Sorenson Capital is giving Broadweave financing guarantees without the iProvo deal.
• Broadweave's proposal certainly strays a bit more from the open access network ideal Provo touted in the rejection letter. As in, MStar said the network would be open and Broadweave says it won't - no question.
• Broadweave's proposal raises the city's risk even more by completely putting its future success and security solely on Broadweave's ability to perform. At least with MStar there could be other service providers still on the network.
• I admire MStar's ability to say "we are not succeeding being a service provider and this is why."
• I think, being in Provo's position, I would have had concerns with MStar's proposal. But my concerns would have been focused on why MStar found itself so far along a business model that they were now saying was not viable. What did they do wrong and why would they not do it again?
• I like the pure lease and I like the open network provisions of this proposal.

MStar also sent a letter last week to the city citing concerns with the RFP process. They contend that the sale appears to have been done in a secretive, closed door process that is against state law. They say that because the agreement with Broadweave is a sale of assets it requires an RFP that is specific and addresses the scenario directly. Apparently when MStar attempted to enter a discussion with the city about a sale of the network a city official told MStar that they could not consider an outright sale without a new RFP specific to such a sale.

These sound like good arguments to me.