Grace Leong

A top executive of Broadweave Networks on Thursday said its breakup with Veracity Communications isn't likely to jeopardize the conclusion of the $40.6 million iProvo sale.

"The merger was scheduled to close on June 30 subject to completion of certain contingencies which did not occur -- the main one being the deal didn't close as scheduled," Drew Peterson, Veracity's CEO, said Thursday.

He said the company also opted out because of "difficulties in merging the two companies' systems and cultures."

"We could have extended the terms of our contract if we had wanted, but we didn't because our last quarter was one of the best quarters we've had from an operational and revenue standpoint and we want to continue with our success," he said. "We're doing what we feel is best for our customers and employees. At this point in time, it's better for us to continue as Veracity."

But both companies say they intend to continue working together to serve Veracity's business customers on the iProvo fiber-optics network, and are in the process of ironing out a new working arrangement.

Steve Christensen, CEO of Broadweave, downplayed the impact of the breakup.

"Broadweave had committed to buy iProvo long before proposing to purchase Veracity, and the Veracity transaction was not and is not a condition of the successful conclusion of the iProvo sale," he said in a statement Thursday. "The purchase of Veracity is not an integral component in the purchase of the network."

That also means it may take longer for Broadweave to build its business customer base -- a large revenue segment that remains largely untapped by iProvo to date. Veracity has 3,000 business customers in total including 350 customers on iProvo. The company has between 150 and 200 business customers on UTOPIA, a municipally owned fiber-optics network that is backed with sales tax revenue pledges of 11 cities in Utah including Orem, Lindon and Payson. The majority of Veracity's customers are on its CLEC or Competitive Local Exchange Carrier network.

"It would have been exciting for Broadweave to have access to Veracity's momentum in the business play. If they can't buy Veracity's customers, then Broadweave has to have a marketing strategy to build its own business base. That would have happened more quickly had the Veracity buyout gone through," said Provo Mayor Lewis Billings.

Broadweave still has 10,245 residential customers from Mstar Metro and Nuvont Communications, two other iProvo service providers on the iProvo network.

Billings maintains that the city's sale of iProvo to Broadweave isn't contingent on the company's acquisition of Veracity or any of the other retail service providers.

"If in addition to buying iProvo, they could also buy some complementary business, that's good. If not, that's fine too. Maybe with Veracity gone, it would simplify things," he said. "It's understood that Broadweave has to be a wholesale provider on the network even if they can't buy the retail service providers."

Sorenson Capital declined to comment on Veracity's pullout and what impact, if any, that has on Sorenson's surety agreement to guarantee Broadweave's bond payments and other obligations.

The surety guarantees that should Broadweave fail to meet its financial obligations, Sorenson will have to step up to undertake its bond payments and other obligations for up to $6 million each for the first two years, and then $3 million for subsequent years. But the surety agreement isn't final until Sorenson completes its due diligence and the deal is finalized.

As far as Billings is concerned, he believes the deal is still viable and both Sorenson and Broadweave are still committed.

"When Sorenson said they needed more time to do their due diligence, it was to fulfil their responsibilities as fund managers. It wasn't like they wanted more time to determine if the deal was good," he said. "On July 1, Broadweave took over the iProvo bond payments and operations, and the employees have been transferred to them. That indicates to me that they are serious about the deal."

Likewise, Nuvont founder and CEO Brandon Grover downplayed the delayed conclusion of the iProvo sale and Veracity's departure.

"That may not be a bad thing at all," Grover said. "Broadweave needs to focus on building its residential services, because that's where the bulk of its customer base are right now. Veracity doesn't own any fiber-optic networks, so Broadweave will still be offering wholesale bandwidth services to Veracity. Broadweave could have acquired more commercial accounts quicker. But buying Veracity wasn't part of the original plan. That was just icing on the cake."

Nuvont is selling its 2,100 voice, video and data subscribers on iProvo to Broadweave, and hopes to close on the deal by next week. Nuvont has a little more than 1,000 phone and data customers on UTOPIA.

"The June 30 closing is not a big deal. In fact, it's better for me to close later based on all the different pieces we're trying to get together to ensure a smooth transition," he said. Once the transfer to Broadweave is done, Grover plans to launch a new company called Viapath, which will offer Voice over Internet Protocol services via Broadweave's telephone switch, as well as video and data services to residential customers.