Recent headlines indicate that the local municipal fiber-optic consortium known as UTOPIA continues to experience lean financial times. And Provo, which launched its own network project known as iProvo back in the heady days of the broadband startups, is in a similar bind.
Like the UTOPIA consortium, Provo fared poorly with "fiber to the home" -- so poorly that it sold the system last year in a nuanced deal to Broadweave Networks, a company that thought it could make a credible run at profitability.
That deal cooled the immediate financial heat on the city but kept it on the griddle for repayment of bonds, the vehicle that enabled initial construction.
Now, as business continues to limp, Provo is assessing the best way to handle its entanglements with private enterprise.
Broadweave (the network manager) and Veracity Communications (a service provider) have proposed a merger. And they're looking for a quick jolt of new financing to get their new combine off the ground.
They want Provo to approve a 30-percent reduction of monthly payments so they can use the retained cash to ramp up customer installations. The payment break would total $1.5 million over two years. Then full payments would resume, with a view toward eventually retiring the debt in full.
Broadweave and Veracity would merge to form Veracity Networks if the municipal council OKs cutting monthly payments from $277,000 to $195,000 over the next 18 months. The payments would then revert to the original amount for two years, then rise to $302,000 a month for the next seven years. This is a reimbursement to the city, which is obligated to pay the bonds.
If all this goes as planned, the city would receive more money than it would have under the original terms of the $40.6 million sale of the network.
The deal has promise, as many other aspects of iProvo have had. Veracity will bring resources and customers, and the new, combined company looks as if it would be stronger than Broadweave on its own. City officials say that the risk of financial problems will be reduced.
Nevertheless, while the proposal may represent the best option, the need for it reveals disquieting facts about the overall situation. No matter how you slice or dice it, when a debtor pleads for reduced payments, alarms go off. The proposed revision suggests that the deal could be subject to changes later.
Legally, Provo will remain on the hook for the $277,000 monthly bond payment until that debt is retired. And because iProvo was a money loser, the city really doesn't want the network dumped back in its lap.
These factors will give the merged company leverage to plead for help yet again. If problems persist -- say one, two or five years down the road -- it could again seek reduction of payments or other form of relief.
Yet it should be noted that as debt is paid down, future liability for the city decreases should it be forced to take back the network. So a little government assistance by way of payment relief doesn't seem to have much of a downside except that it hurts Provo's cash flow a little for a year and a half.
Provo taxpayers and system users can be forgiven for worrying about the arrangement. Broadweave has struggled since it first took over iProvo. City officials say that the monthly payments have all been made, which is good, but Broadweave has done so at times by drawing on letters of credit put up as security.
Imagine telling your landlord, "I can't pay the rent this month, so just use my security deposit." That wouldn't ease his anxieties about getting paid regularly.
It might also be wondered why the city would consider providing such assistance to a private company. Councilman Steve Turley wanted to know why Broadweave and Veracity couldn't secure their own loan from private sources if their business prospects were rosy.
It's a fair question, but on balance the debt forbearance seems a reasonable risk in light of possible collapse and reversion of the network to the city. Private parties could simply walk away and leave the city with a larger burden than it would have if it plays ball.
All indications are that a good-faith effort is being made to create a workable business model. But if private lenders won't take the risk, why should the city? The answer may be that two medicines taste equally bad, but one is slightly more likely to cure the patient.
Provo taxpayers should be rooting for this deal to work. It's hard to see a better alternative than a merger, which could outlast the recession and end up fulfilling all obligations. At that point -- at long last -- the city would be able to bid the system adieu and focus full attention on its core responsibilities.
The larger lesson in all this is clear. Government should steer clear of enterprises that properly belong to the private sector.