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Utah State Auditor Reviews UTOPIA, Ignores State Role in Handicapping Network

| Written by Lisa Gonzalez | No Comments | Updated on Aug 3, 2012 The content that follows was originally published on the Institute for Local Self-Reliance website at https://ilsr.org/utah-state-auditor-reviews-utopia-ignores-state-role-in-handicapping-network/

Just this week, the Office of the Legislative Auditor General of the State of Utah released a report to the Utah Legislature on UTOPIA. The report, titled A Performance Audit of the Utah Telecommunications Open Infrastructure Agency rehashes prior criticisms of UTOPIA and tells the abridged story of the Auditor’s understanding of UTOPIA’s financial troubles.

While one can accept the report as truthful, it certainly is not comprehensive. Jesse Harris, of FreeUTOPIA notes that leaving out certain pieces of information taint the presumed impartiality of the report. From Jesse:

The Legislative Auditor General has published an audit of UTOPIA, and, as expected, it drags a fair amount of ancient history back into the spotlight.  The report concludes that additional accountability will alleviate the problems that UTOPIA has experienced, but it missed the mark on a number of points.

The Audit Scope and Objectives are spelled out in the beginning as:

Members of the Utah Legislature asked for an audit of UTOPIA so residents of UTOPIA member cities might know how the organization has used its funds. Legislators also asked for a review the organization’s general management practices. To address their concerns, we developed an audit plan to review the following areas:

  • The size and use of UTOPIA’s debt financing
  • The causes leading to UTOPIA’s current financial 
condition
  • UTOPIA’s management and board governance practices

While there are many bar graphs, pie charts, and dollar signs in the report and it seems to meet the scope and objectives, financial information alone does not explain UTOPIA’s troubles. The first place to look is close to home.

From the beginning, UTOPIA has had to overcome difficult odds in a hostile legislative environment. As we note on our Community Broadband Map, the State of Utah effectively requires that community networks function as wholesale-only. The mandate puts them at a significant financial disadvantage from the beginning, severely limiting the amount of revenue they can collect early in the life of the network.

Another state law prevents community networks from bonding for more than 50% of the cost of the network. The only choice, thanks to the Utah Legislature, was to plan on using revenue from the early phase to complete further expansion of the network. The 50% rule, combined with the wholesale-only requirement prevents the robust expansion needed to breath life into a new network. Auditor staff failed to examine the effects of these two laws taken together.

The auditors gloss over efforts by the incumbents to deliberately disrupt UTOPIA. For instance, Qwest dedicated its significant might to preventing UTOPIA to access poles that it had a right to use. From the audit:

After eighteen months, UTOPIA and Qwest finally resolved their dispute over access rights. By that time, however, UTOPIA staff report that the agency’s construction contractors had moved on to other locations and the financial resources had been committed elsewhere. As a result, the financing was no longer available to complete the partially built neighborhoods. The result is a patchwork of service with some neighborhoods receiving services and with other, adjacent neighborhoods without service. 

UTOPIA Logo

It should read, “Qwest was able to delay UTOPIA’s rollout by 18 months by forcing an unnecessary court proceeding. During that time, UTOPIA had little choice but to strand some of its investment and move on to areas where Qwest could not use legal tactics delay UTOPIA.” The audit uses neutral language to avoid the important question of why they had a dispute to resolve — it was because Qwest was using dirty tricks to bleed UTOPIA dry. And it worked.

There is no separation between pre-2008 and present UTOPIA. There are many examples of what hindsight can label as bad management decisions, but not enough examples of the implemented fixes. The report casually mentions a few – “stranded assets” being recovered and connected and efforts to better market the service to increase subscription rates. The Auditor could have and should have included more instances of remedial management action to give an up-to-date picture for the state legislature.

The Auditor’s four recommendations revolve around management policy, practice, and greater accountability. Accountbility is always a good thing, but adopting those recommendations may or may not improve UTOPIA’s financial health.

The report should have also included a recommendation to the Utah State Legislature – to remove state barriers and let local communities decide for themselves if they need, want, and can invest in broadband. Perhaps if UTOPIA was not restricted from day one, this report would not exist today.

In all, the report only considers part of the reasons for UTOPIA’s struggles. There is no balancing discussion of the benefits UTOPIA has brought to its communities in return for the public money they have had to spend on the network. Those connected to the network have access to some of the fastest connections in the nation at very competitive prices. Residents and businesses can choose among more providers than literally 99% of America

None of this excuses the prior management of UTOPIA, which indeed made many mistakes. But to focus only on those mistakes only explains a piece of how UTOPIA arrived in such a deep financial hole.