Since nobody has pointed out the obvious: buying things for $1 in the business world means that the thing has negative book value (= its liabilities exclude its assets), but not so much that you'd want to structure the sale the other way around (= Provo paying Google to get rid of the thing). So Google's not getting $39m worth of stuff for $1, they're getting $39m worth of assets plus $Nm worth of liabilities (where n > 39) for $1. See also: http://en.wikipedia.org/wiki/Peppercorn_(legal)
Also, paying $39m to build something doesn't mean the resulting asset is actually worth $39m any more, but that's another story.
(And obligatory disclaimer: I have no personal knowledge of how the valuation was actually made.)
I think the issue is that the city paid a bunch of money to build the system but still cannot run it for a profit. So the city has to keep paying ongoing losses for the system in order to run it. They can shut it down of course, but that would be a big black eye for the politicians. So they gave it away to Google, who promised to run it and provide free internet to people for a very low setup fee.
A $39M fiber service that has been a constant drain on the city's coffers and is in serious need of upgrading. I read that the fiber pull is about half the cost of this; the other half is the routers, switches and other equipment it takes to make it work. I'm sure Provo City is breathing a sigh of relief at getting that weight off their back.
And I'm hoping that Googke will decide to extend its market to outlying communities. Much of American Fork was wired by the same original company, and my town is next to American Fork.
Come on, Google, it's only 12 miles! (My wife already prohibited a move for better Internet connectivity. :)
Dang, your wife won't move to Provo either? Ok, I don't really want to move there either. But sometimes sacrifices have to be made in the name of fast internet!
On a more serious note. I had heard that Lehi did make a pitch to get Google Fiber when this first started. I wonder if there's still enough interest. This area is growing like crazy and it's rural enough to make installation easy.
I can't imagine Provo by itself is a big enough market to be interesting to Google. The entire county isn't much more than half the size of Austin. I have to believe that they see Provo as the starting point for entry into the Wasatch Front.
I definitely see that happening. The big question in my mind is how they're going to interact with Utopia. Both Orem and Lindon have Utopia already. So will they go head to head with them? Or are they just going to skip those cities and hit all the other ones?
Also that Provo residents receive free 5 Mbit/sec internet for the next eight years. I assume that is to offset the $39M, which I read was equivalent to $8/mo/resident for the next seven years.
For $1 and a guarantee that they'll upgrade the network to gigabit speeds. Most of the fiber has been laid, but they still need to do a lot of infrastructure changes.
I am sure many more companies would have been interested in this deal. When it comes to selling the infrastructure built with tax-payer money, the government should be more transparent in its dealings. The city of Provo should have advertised the sale or lease of its fiber infrastructure and let companies bid on it. And the fiber should have gone to the highest bidder. Or at least, accept offers from multiple companies and let the residents decide (through voting) which company they want to give the infrastructure to.
Provo has been trying to unload their fiber network for a long time. I don't see this as a backroom deal that only benefits Google, but rather somebody finally putting the "under contract" sign above the "for sale" sign.
That nobody else came calling (or offered deals as good as Google's) is not Google nor Provo's fault.
From a taxpayer perspective, they get to stop paying for the upkeep on what is currently an unprofitable system. And those who keep paying for it get a significant upgrade.
Don't forget that this is a big marketing opportunity for Provo as well. As someone that is house hunting in Utah county the announcement of Google Fiber is the only thing making me consider Provo itself as a viable option.
Are telephone lines and cable lines leased from the public as well? Or the right to? I'm a bit ignorant here, but I would think that in those situations there is no free bidding on infrastructure deals.
Typically not. Usually companies lease the right of way (power lines, conduits between manholes, etc) on extremely long terms and pay to install the fiber / copper themselves. Cities that "own" the fiber directly are what would be considered "municipally owned."
Cities may also provide "franchises" so that only one telco or cable operator gets the right to lay cable pathways, and all other companies are denied the rights. This is usually coupled with the company picking up the cost for actually building and maintaining the rights-of-way (ie, actually building the manholes/conduits, or whatever). There's thousands of cities, and many hundreds (if not thousands) of companies in the game, so its expected that there are many different variations between each municipal area.
All the news about where Google is rolling out GFiber seems to indicate they're getting their feet wet with smaller communities first, which makes logical sense in many ways.
On one hand the logistics of managing smaller municipal networks is easier, the politics is a lot less murky, and they establish a history of cooperation and reliability.
Where they start to ramp up in cities with >1M people is a mystery though, only time will tell. It may be Philadelphia, Cleveland, Atlanta, St Louis, Minneapolis, or even Dallas.
The first two places ( I know it isn't much data points) were Silicon Prairie-ish places. Provo I was a bit surprised by, but I think the main draw there was the in-place fiber that just needs bought for the $1 and then upgraded.
All of the major companies have a decent presence in Utah. Adobe just opened up a 1,000 shop in Lehi (15 minutes north of Provo). Utah is one of the larger growing secondary tech hubs in the nation. No where close to Silicon Valley or NYC, but still growing and doing quite well.
This is something I've seen before, and expect more of.
Municipalities[taxpayers] paying to build out infrastructure, "mismanaging it"[then usually underfunding the administration because everyone wants 'small government', and then having the infrastructure scooped up for peanuts by a private company who makes a killing.
It's actually happening right now in slow motion in my hometown.
Given your derision for the term "small government", I'd guess you think this is a corrupt practice and that such infrastructure shouldn't be sold. But--at least to a small-government-er like myself--this seems like even better evidence that the municipality shouldn't be trusted with building these things in the first place.
Yea, I read that part. Unfortunately, great governments supported by a steady stream of good decisions is not an option on the table. We need to decide whether to begin government projects given that crappy and corrupt decisions will be made in the future.
Efficient implementation and operation of infrastructure does not happen by fiat, and is not improved by throwing more money & personnel at the problem - especially when individuals involved benefit from prolonging and expanding the problem, assuring job security and expanding their bureaucratic fiefdom by extracting ever more funds from taxpayers. It's not a consequence of "small government", it's that the project will fail (or, worse, just not die already) regardless of funding. Such projects are better run by those with an incentive to succeed at low cost, who can afford to find & hire people good at making such projects succeed, and who will soon suffer significant consequences if they don't.
Of course the infrastructure gets scooped up with peanuts. Insofar as it exists, those running it are unable to complete it or operate it, much less break even. Best to consider it "sunk costs" needed to jump-start private completion & operation thereof where the startup cost was prohibitive. Google had no incentive to put an awesome network in that particular town until the municipality basically gave Google $39M to make it happen.
This notion of "we don't know anything about the subject, but we can do it faster, better, and cheaper than somebody who gets paid very well to do it" must be eradicated from governmental thinking, both because it's stupid for obvious reasons, and subject to abuse by those who see great profit therein. Don't confuse legitimate opportunistic taking over a failing project with illegitimate opportunistic creation of the problem: I doubt Google was pulling strings behind the scenes in Provo Utah just so they could get $39M of infrastructure for a buck; far more likely the town discovered the hard way they didn't know squat about implementing and operating a broadband WAN at any price, and realized the best way to salvage their failing investment was to sell it to someone who does know for $1.
It's kinda like the old joke about home repair pricing of "$100/hr to do the job, $200/hr if you tried to do it yourself first".
Also, paying $39m to build something doesn't mean the resulting asset is actually worth $39m any more, but that's another story.
(And obligatory disclaimer: I have no personal knowledge of how the valuation was actually made.)