The city of Coquitlam is dissolving the corporation it set up more than a decade ago to increase and speed up traffic on the information highway but that doesn't mean the distribution vehicle is being parked.
The Coquitlam Optical Network Corporation, branded as QNet, was established in 2008 to take advantage of the extra capacity on the city's fibre-optic cable network. QNet was created with a $4.95 million loan from the city with the intention of providing the high-speed technology to businesses.
In 2009, Coquitlam IT manager Rick Adams told The Tri-City News he was confident QNet would repay the loan in five years and would be making $5 million annually by its 10th year (2018).
As it turned out, the first time it turned a profit was in 2013 when it made $75,000. In 2018, QNet generated $828,000 in revenue, with the surplus reducing the net debt it owed the city from $4.64 million in 2017 to $4.39 million. QNet's financial report to council in April made a "conservative" estimate of the loan and interest charges being repaid to the city by 2027.
But the corporation, whose board of directors and officers are all city employees, has decided to dissolve and turn its operations, agreements, assets and liabilities over to the city to run in-house.
"We currently have a board of directors that technically manages it, but it isn't a very good governance structure,” Mayor Richard Stewart told The Tri-City News. “QNet isn’t an intuitive structure. It has duplication that can be elevated simply.
“My main motivation was to allow the public to have a better understanding of what it is. Residents might have viewed the structure as more complex than it needed to be and might not comprehend the advantage QNet provides to businesses in Coquitlam.”
Stewart was a councillor when QNet was created but said he doesn’t recall the expectation of a quick repayment of the loan and the predicted big profit.
"We didn't set up a business model to be profitable, we set it up to recover its costs,” he said. “When it was first created, we felt it would recover its costs essentially as a utility and treated it as a utility like any other in our community.
“It probably could have been done in five years if we had charged more. Our intent was to provide it not as what the market would bear, but as a service to our residents and businesses.”
A recent report to council stated: "The original financial objective has not materialized due to changes in technology and the overall business model of QNet." The report noted Coquitlam was the only local government in the region to set up a separate corporation to sell the service while everyone else does it in-house.
According to the report, dissolution of the company would result in less direct costs with less time and effort spent on governance, accounting, reporting and administration. The new model would be similar to the one the city uses for its cemetery, "which is also based on an internal loan that is repaid with surplus from its operations." The cemetery's operations are included separately in the city's financial systems and is not subsidized because revenues cover the operating and loan repayment costs.
"QNet currently generates enough financial return to be a viable self-sustaining activity (covering its capital and operating costs) but does not position it to compete in the internet service provider market nor generate significant profits," said the report.
Going in-house will also allow marketing and promotion to be done in collaboration with the city's economic development branch, said the report, which added that QNet is focusing on providing faster internet service through lower cost suppliers to both residential and commercial stratas.
Michelle Hunt, the city's financial and technology manager, told council despite the dissolution, the service and branding will be maintained and QNet's budget will be included in the city's 2020 financial plan.
– with files from Janis Cleugh
