Grace Leong

The privatization of fiber-optics network iProvo entered its next phase with Broadweave Network's acquisition of Veracity's operations and the customer base of two other iProvo service providers, officials announced on Friday.

"When we agreed to buy iProvo, we were only buying half of the solution because the network is not a service provider. To make it financially viable, we have to buy the other half, that is, the customer base," said Steve Christensen, Broadweave's chief executive.

Veracity also delivers voice and data services over the UTOPIA and Qwest networks. What's unclear is whether Broadweave will eventually buy Nuvont and Mstar's UTOPIA customer base as well. For now, Christensen declined to specify Broadweave's plans for Veracity's customers on UTOPIA.

"Broadweave has a CLEC or Competitive Local Exchange Carrier relationship with Qwest, and will therefore not be a service provider on Qwest's network," he said. "But it's an unsettled issue with UTOPIA. We need to get visibility into UTOPIA, troubleshoot and see what's wrong with the network."

Provo city officials announced last week that Broadweave -- backed by local investment firms Sorenson Capital and EsNet Group -- would be buying iProvo for $40.6 million subject to the approval of the Municipal Council. The city has been trying for months to figure out a way to stop bleeding money on the venture to the tune of millions of dollars a year.

Christensen declined to divulge financial terms of the cash and stock acquisition of Veracity. He also declined to discuss pricing strategies and product packages for customers at this point.

He said there won't be any layoffs at Broadweave's 70-worker operations, or Veracity's 50-plus worker corporate headquarters in Provo. In fact, Broadweave is looking to add six customer service workers and several more engineers.

But the Veracity name will cease to exist eventually, as Broadweave builds its brand identity as a residential and business service provider.

Under the deal, two key Veracity owners, Drew Peterson and Kevin Mayberry, will join Broadweave's executive management. Peterson, president and chief executive of Veracity, will become Broadweave's chief sales officer, while Mayberry will join its board of directors.

One of the key factors that made Veracity an attractive acquisition was its strong management, engineering and customer support team, and what Christensen calls "a real capability" to sell and deliver quality services to businesses in Utah -- a large revenue segment Provo has failed to tap to date. A business customer would typically bring $300 more in revenue than a residential customer, according to Peterson.

"When we initially made the decision to purchase the iProvo network, we quickly discovered that the network was not reaching its true potential for achieving a high take rate among business customers," Christensen said. Of iProvo's total customer base of 10,500, there are only 513 business subscribers as of March, according to the city.

Also sweetening the deal is the fact that Veracity was "cash-flow positive" and its revenues were growing at a rate of more than 200 percent annually. The company claims to have the largest Internet phone-based service in the state, an area that Broadweave has repeatedly talked about improving on the iProvo system. Veracity's clients include Brigham Young University, Alpine School District, Mountain America Credit Union, RC Willey and the United Way Agencies of Utah.

Sorenson founder Fraser Bullock acknowledges that Broadweave faces challenges in making the transition from a wholesale network model where service providers pay iProvo to run services over the network to customers, to an integrated network model where Broadweave would become both network owner and service provider.

"But the new consolidated model will eliminate inefficiencies and duplication of effort, problems differentiating one service provider's services from another, and make it easier to troubleshoot if something goes wrong," Bullock said. "The transition will transform the current model into an economically viable one."

The company also faces challenges ramping up to provide services to the 13,500 customers from its 1,100 existing customers at Traverse Ridge in Lehi and Sienna Hills in Washington. Broadweave will take over providing retail services to the 13,500 customers once its acquisition of the iProvo network closes by July 1.

"The transition of the customers from Nuvont and Mstar to Broadweave is the most important task to date. Our top priority is to improve customer service and the reliability of service," Christensen said.

Brad Daley, a council member from Payson, which is part of UTOPIA's 16-city consortium, said Broadweave could ease its potential customers' apprehension by making sure it "provides as good or better of a service than the customers have been getting, and that rates aren't going to go up."

"I'm also hoping that the service providers on UTOPIA would have entered into non-compete contracts, so that in the event they get bought out, it won't be a detriment to UTOPIA," Daley said.

Paul Recanzone, UTOPIA's project manager, said he hopes Broadweave will become a service provider on the network.

"But if Broadweave elects not to be on our network, then we will do everything we can to retain those customers of Veracity," he said.

This would not be the first time a service provider left the UTOPIA network. In 2006, AT&T, the first service provider on the UTOPIA network, left after its acquisition by SBC Communications, Recanzone said. "AT&T had 100 subscribers at the time they left. Both AT&T and UTOPIA sent those customers several letters giving them the option to go to other service providers, but all of them, except for three, opted to stay on UTOPIA, and elected to pay a few dollars more for expanded fiber services with Mstar, Veracity and XMission," he said.

Peterson said Veracity will now focus more on growing its residential customer base on iProvo -- an area it hasn't focused on in the past because of uncertainty over the network's finances, and technology issues that made providing reliable service on the network difficult.

"Getting the city's equipment to 'talk' to the service provider's equipment was hard," he said.

Nuvont founder and CEO Brandon Grove agreed, saying he saw certain advantages to the iProvo sale.

"Under the old wholesale model, it was difficult and inefficient to adequately service customers. We saw this first hand as a service provider," he said. "With Broadweave buying Veracity, they will have lots of technological synergies to smooth out the transition. Veracity's strength is coping with complex technology transitions."

"One of the biggest challenges is that even though iProvo is a great fiber network, it had horrible equipment. The city had invested in a gateway device or adapter made by World Wide Packets, which is supposed to enable service providers to deliver phone and data services over the network," he said. "But it turned out to be good only for data, not for voice."

Getting more business customers on iProvo -- now mostly taking only data services -- to take voice services, is key to making the fiber-optics system work, Christensen said. "If your voice services aren't up to snuff, you can't compete."

Grove said Nuvont has 2,300 residential customers subscribing to triple play services on iProvo, and 1,200 residential customers subscribing to phone and data services on UTOPIA.

"We have signed a letter of intent for Broadweave to buy those customers from Nuvont. That's part of an asset purchase agreement being drawn up now," he said.

Once the acquisition is completed by July 1, Grove intends to launch a new company called Viapath, which will offer VOIP services via Broadweave's telephone switch, as well as video and data services to residential customers. He said Nuvont will be renamed Viapath and likely retain its current 25 workers in Provo.

Meanwhile, Mstar officials did not return calls for comments after Friday's announcement. "We will continue selling, servicing and supporting our customers on the UTOPIA network as well as our longstanding dial-up and DSL customers," Kirk Tanner, Mstar's vice president, said in a statement Friday.

In an interview last week with the Daily Herald, Tanner said the company had undergone several rounds of layoffs in the past few months, and currently has around 13,000 customers in total.

Mstar is currently undergoing an investigation by the Utah State Auditor after Provo's annual financial report, released late last year, showed the company owed the city $950,000 in delinquent payments.