SunRiver St. George Development Co. creates a triple-play utility and forges partnerships for home technology offerings ... all built around a community intranet.

Knock...knock.

No. It's not the beginning of a joke. It's the sound that new buyers in the active-adult community of SunRiver St. George hear soon after they move into their new homes. The knocking is usually coming from a member of the community's computer club, welcoming the new resident and asking the burning question, "Do you have a computer?" If the answer is "no," it's not uncommon for the computer club to help the resident buy one so they can "get connected."

That "knock-knock" sound is also music to the ears of Darcy Stewart, managing partner of SunRiver St. George Development Co., who can probably hear the echo of opportunity knocking among the striking red sandstone cliffs that surround the jobsite in burgeoning St. George, Utah.

It's Stewart's ear for the sound of opportunity that's made residents in this 850-home (on its way to 2,500-home) development so anxious for new buyers to get connected to the community intranet.

In the end, it's the dollars and sense of the solution that makes the argument for other builders to investigate establishing ongoing, recurring revenue relationships with homeowners vs. building and walking away.

Six Profitable Partnerships

Opportunity did not come knocking on its own. Stewart sought out and established key partnerships with large manufacturers, a utility service provider and a local integrator.

Using the intranet as a portal, SunRiver St. George, which is about 300 miles from Salt Lake City in the extreme southwestern portion of the state, offers a number of lifestyle-enhancing benefits to residents that translate into profits for the developer.

First, the community has affordable fiber-based triple-play utility service of video-on-demand cable TV, high-speed Internet service and phone. SunRiver St. George co-owns the three combined utilities in partnership with Triaxis, the Kaysville, Utah-based company that installs the fiber and manages the system. Homeowners are able to receive a better-quality service at a much lower monthly rate than the same combination of services from the local phone (Qwest) and cable providers (Charter and DISH Network) ... $99 a month vs. an estimated $130 to $150 per month.

SunRiver and Triaxis jointly footed the bill to construct the head-end and other necessary system elements. With a projected take-rate of 90 percent, the deal could prove lucrative, as SunRiver receives a proprietary percentage of all incoming revenues. Moreover, Stewart is creating an ongoing revenue-producing relationship with residents that he can eventually choose to sell off if he wishes. The triple-play service is even more lucrative when the homeowner wants monthly monitoring of alarm signals (another $35 per month in recurring revenue).

Second, the community has a packaged home technology option that combines security, thermostat control and lighting control based on standardized structured wiring. The package is based on a total integrated solution from big-name manufacturers Honeywell, Lutron and B&W.

Third, using a Web-based system from In2 Networks, like interfaces are created for the security, HVAC, lighting and audio control from the manufacturers. Those common interfaces are the basis for a vibrant community intranet (managed by Triaxis) that puts homeowners in touch with their electronic amenities on a frequent basis, enhancing the value and breaking down the technophobia.

Fourth, the community offers an upgrade path for homeowners that drives them into home tech amenities such as central vacuum, built-in audio, home theater and more via a partnership with Visual Imagery, a high-end integration company, through Triaxis.

Fifth, SunRiver St. George has its own fully staffed design center, as well as a second technology "experience center" on site built in partnership with Visual Imagery.

Sixth, the community is based on a platform of fiber-optic cable, with conduit run in the streets and inside homes to "futureproof" the community against changes in technology.

All of these factors and more are why SunRiver St. George has earned the designation as the first Platinum Community in Honeywell's new builder program. (See box on p.32.)

Futureproofing Mindset

Stewart's initial foray into futureproofing was a leap of faith not supported by any revenues. He just flat-out believes in building houses that will still be cutting-edge 100 years after they are built.

"Back in 2000, I tried to evaluate what homes were like in the year 1900. Then I tried to think what homes are going to be like 100 years from now in 2100. So that spurred the whole research of the future of technology. I wanted to see if we could take a leap into the future with the technology in our community and futureproof the homes that we're building to give people something that would last more than 10 years or 15 years," says Stewart.

The first two phases of construction began without a real technology plan, so Stewart had conduit run in the streets, but not to individual homes. Today, that conduit sits dormant and SunRiver's utility partner Triaxis is retrofitting the community by stubbing fiber to those homes that were built first.

Does all this added work and expense pay off? "Today, it probably doesn't add a lot of value," admits Stewart. "But as the technology becomes more widespread, it will have a huge effect. And really that's the reason we've done it. We don't want our homebuyers four or five years from now to come back and say, 'Why don't we have it when these other communities have it?"

In the long run, Stewart says, "It helps us against a downturn in the economy, and if we're doing it and someone else is not, then we believe people are going to buy homes here."

Homes in the community range from 1,100 square feet to 3,500 square feet with prices from approximately $175,000 to $380,000.

Creating a Triple-Play Utility

Build it and get out -- that's the builder's mantra. But not at SunRiver St. George. Why? Stewart recognizes the value of ongoing revenues. "The huge issue that developers and builders deal with is they build a house, sell it and it's over. This [triple-play service] allows us to potentially have residual income," says Stewart.

That revenue also acts as an insulator if housing sales slow. But more importantly, Stewart and Triaxis have an asset that is sellable in the future. If Qwest, the local phone company in the region, ever decides to run fiber in the area, it is much more likely to purchase the system from SunRiver and Triaxis than go to the expense of trenching to run its own fiber. How much will a phone company pay to get 2,500 homes that are forking out $99 a month? Who knows? But likely a lot. Homeowners also have the option of receiving alarm monitoring service for another $35 per month.

"Obviously without Triaxis we would not be doing what we're doing," says Stewart.

SunRiver receives a percentage of all revenues based on the nature of its construction and maintenance deal with Triaxis, but Dwayne Nielson, CEO of Triaxis, says partnerships with other builders can be set up multiple ways.

Triaxis was formed in August 2004 and SunRiver is its first project. The company has other projects starting this year in Bluffdale, Utah, and Pasco, Wash. "In short, we provide the triple play that everyone's looking for -- the gigabit to every home -- with the flexibility and scalability to adjust to what the future brings," says Clint Brower, chairman.

The three principals -- Brower, Nielson and Sergio Salgado, vice president of business development -- individually have expertise in computers, phone service and satellite/cable TV.

"Developers want to develop and get out, but they want the recurring revenue," says Nielson. "We provide for them a turnkey solution to get what we call mailbox money. We take care of all the overhead and liabilities that come with being a service provider, which they don't want to deal with."

Triaxis is one of the few companies in the country that designs and builds these networks, and acts as the service provider. "In the past, a lot of companies have sold these to developers, but then they turn the network over to the builder and there's nobody to run it," says Nielson. In the meantime, the existing cable TV company and the existing telephone company build a similar infrastructure on top of the existing one. It's been a disaster. We offer a complete turnkey package: We'll design it, we'll build it, we'll operate it, and we'll provide the developer with an ongoing revenue stream."

What are the differences between Triaxis and the local phone company or cable TV company? First, Nielson points out that fiber is the basis of the network. Nothing is being "forced over old infrastructure," as many phone companies try to do on their existing copper networks. On the TV side, the channel package is suited to the demographic of the community. Why would an active-adult community like SunRiver need MTV? The 80-channel package at the community is tailored to their demographic.

The specific business model is proprietary, but in a nutshell Nielson explains that Triaxis creates a local telephone exchange for the developer. "The developer puts in the money, hires us to build the network, and then we lease the network from the LLC. The developer gets 100 percent of the revenues from the lease of the network. That network lease arrangement varies, depending on how much money the developer spends upfront."