High churn leads iProvo to hire consultants

The city council of Provo, Utah, is conferring with consultants it hired this month to help determine why its fiber-to-the-home (FTTH) network isn’t performing as hoped and to overhaul the model.

The city of Provo sells use of its government-owned and operated FTTH network on a wholesale basis to triple-play service providers MStar and Veracity. The rate at which end users have opted to leave that network in recent months has troubled city council members, prompting them to re-evaluate the iProvo project.

According to Provo City Councilman George Stewart, iProvo’s network saw an estimated annualized churn of 14% this year. (December numbers were based on an average of prior months. Between January and November, iProvo lost 1320 subscribers, or an average of 120 per month, leaving it with more than 10,300.) In November, for example, the network gained 126 new subscribers while losing 56. In October, it lost as many subscribers as it gained.

Churn is a particular drag on iProvo’s finances because the city, not the service providers, pay the roughly $800 it costs to connect each subscriber. And although the city can recover some of the equipment from a cancelled service, at least $500 in fiber installation cost goes down the tubes, so to speak, every time iProvo loses a customer.

In June the city voted to allocate an additional $1.2 million in sales tax revenue to help pay down the project’s debt. The city secured a nearly $40 million bond in 2004, and this summer it projected the network’s deficit—the gap between its costs and revenue—to peak at $1.7 million in the fiscal year ending July 2009, shrinking to less than half a million dollars by 2011.

“I think we’re in over our heads,” Stewart said.

One of the factors to which Stewart attributes iProvo’s churn is large corporate competitors Comcast and Qwest Communications dropping their prices in the hopes of not only gaining and keeping market share but also making an example of the muni fiber model. The town’s incumbents are offering $99 triple-plays, Stewart said, while comparable offerings on iProvo are probably around $120.

“I’m getting a mailer from Comcast almost weekly and a monthly one from Qwest,” Stewart said. “These other two retail providers are small and probably underfunded.”

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