PROVO -- The new Veracity Networks will have some tough critics from the start.
The planned merger of Broadweave Network, which owns the iProvo fiber-optic network, and Veracity Communications hinges on the Provo Municipal Council approving an $82,000-a-month deferment on the bond payments for 18 months. It's not a gift, participants are quick to say; it's a loan to give the new company a chance to start capitalizing on the iProvo network and the city a chance to earn 5 percent in interest instead of the 1 percent it's earning now.
Now, everything just has to go right for the deal to be in the clear.
Council Chairwoman Cynthia Dayton said the next step on their end is discussion, and probably a lot of it. Council members got the information about the proposed merger and what the companies were asking from the city and have gone over it with their fiscal policy officer. She said this deal is transparent, an adjective council members did not use a year ago when they were asked to approve the sale of iProvo to Broadweave.
"I have a lot of questions still, and we'll see what happens in the next few days," Dayton said. "It looks like it's going to be a good opportunity."
The deferral would require Provo to pay $820,000 in this fiscal year, which, considering the budget wranglings at a tight time, could have raised some eyebrows. That money, however, will come from the enterprise fund, which is where all utility-related money goes, not from the general fund, which is where all of the wrangling happened. The enterprise fund does have an emergency fund of several million dollars and when not being spent, it earns 1 percent interest in a state pool fund.
Councilwoman Midge Johnson said, when considering the worst-case scenario, which would be the city retaking control of the network, this deal looks pretty good.
"I think we have to think of what would be our alternative," she said.
Both companies are local, and this merger puts them in a good position in the marketplace for when the economy rebounds, so she sees this as having great potential for the city. She also believes the people involved have seriously thought about the merger and the potential shortfalls and have worked that into their analysis.
As for deferring part of the bond payments for a time, she said because the city will be repaid and at a better interest rate, she feels good about it so far.
"We've done that from time to time, turned around and helped other businesses that are good for the community," she said.
While this could be viewed as inappropriate by the network's competition, Comcast public relations director Ray Child said his company believes it offers an excellent product at a good price, and the leaders have chosen to not focus on specific competitors and how they do business. The company is set up to succeed by having a healthy market share, and that's what they aim to do.
"We operate under that model because we believe that's a great way to operate," he said.
Qwest spokesman Mark Molzen said the company does not comment on competitors' mergers.
Council member Steve Turley isn't sold on it, and never has been, he said. He has too many questions about this merger and too many reasons to not have iProvo in the first place that he's not convinced anybody wins.
"It was so easy to pull the trigger on a $40 million speculative idea for the city, and I tell you, before we knew it, we had lost $13.5 million that could have gone for any number of city priorities," Turley said.
He wants to know why the company couldn't get funding elsewhere and if the money saved by paying Provo less would be used on projects in other markets. Drew Peterson, who is CEO of Veracity and will become CEO of the merged company, said all of the rest of their projects are making money; Provo is the only one hurting for cash flow.
Turley also wants to see an end to the iProvo drama. Each time the fate of the fiber-optic network comes before the council, often in the form of an appropriation request, he said he wonders if this is the final payment the city needs, or if it's just another request for money that will soon be followed by yet another request for money.
Councilwoman Cindy Clark voted against the iProvo sale a year ago, and yet she thinks this merger is a good idea. Her feeling is that this is better than the last time iProvo was in front of the council, but she's talking to constituents and looking at the issue.
"Anytime you're dealing with taxpayers' money, you have to really make a studious effort to get all the facts and everything before you weigh off on it," she said.
Heidi Toth can be reached at (801) 344-2556 or htoth@heraldextra.com.
Posted in Provo on Friday, August 21, 2009 5:00 pm Updated: 8:09 am. | Tags: Provo, Iprovo, Broadweave, Veracity, Steve Turley, Cindy Clark, Cynthia Dayton, Midge Johnson, Internet Service
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