More iProvo Details

I spent the morning at the iProvo review committee meeting. There were good hard questions asked by a number of committee members, including Sen Curt Bramble, Rep Steve Clark, Stan Lockhart, City Councilwoman Sherrie Hall Everett, and City Councilman Steve Turley. A few major points that came out in the discussion:

• At the close of sale there will be a net cash outflow from Provo to Broadweave of approximately $232K.
• Everything that we've heard about the retail providers owing lots of money to Provo ends up being true about MStar only. It appears both Veracity and Nuvont are current.
• Broadweave's payments to Provo are guaranteed up to $6M by Sorenson Capital for the first 2 years, up to $3M for a further year, and then, subject to performance measurements, there are no more guarantees. What this means is if Broadweave fails spectacularly in a year Provo will be paid its lease by Sorenson Capital up to $6M.
• When the assets are placed into private hands they become taxable. How they are taxed depends on whether they are real or personal property.
• Broadweave's intention is to purchase the customers from the existing retailers. There is an agreement pending between Broadweave and MStar whereby Broadweave purchases the customers and pays $875K of the roughly $950K that MStar owes the city.
• Broadweave just about came out and said that prices will increase. They pointed out that some of the service offerings were priced at unreasonable rates. A quote from Broadweave Steve: 'It's our goal to give you long term value.' and their offerings will be the 'best service you've ever had at prices equal to or better than the competition.'

It's apparent to me by the people that are attending these meetings from Broadweave that they are an engineering heavy company. Steve introduced his team. Aside from himself, there were 3 engineers, 1 lawyer, and 1 operations manager. I tend to think this is a good thing, but sales and marketing will be more important here than they are used to. As Steve pointed out, they usually are the only line to the home. This means they aren't used to competition on the retail side.

Provo referenced a 5 year projected budget based on growth of 260 customers per month. This budget showed a yearly shortfall of approx $3M per year. Most of the losses were due to the cost to connect new customers. I'm wondering what a budget would look like if they slowed down the growth and raised prices like Broadweave is planning.

Overall, this is starting to look like a reasonable deal for Provo. I'm still concerned about the other service providers and the price increases, but to be honest they are both good business moves for Broadweave. From Broadweave's side they seem to be setting things up as well as possible for success. It's hard to see how they can go wrong when they are essentially being paid to take over the network. If they raise prices right away to handle the shortfalls they won't ever be out a whole lot for the current operations.

The one big surprise was the net cash outflow from Provo on closing of the deal, and a number of committee members were concerned about that. I think it would soothe a lot of nerves if the buyer would actually hand over at least a little cash up front.