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Some Make the Case to Keep Burlington Telecom 

click to enlarge TIM NEWCOMB
  • Tim Newcomb

The local response verged on rejoicing six months ago, when Mayor Miro Weinberger announced at a celebratory press conference that Citibank had agreed to settle its lawsuit against Burlington Telecom.

Progressives and independents on the Burlington City Council joined Weinberger's Democratic allies in welcoming the deal. Citibank had agreed to accept $10.5 million to end a five-year legal struggle over the $33.5 million it claimed to be owed by the city-owned telecom network. The deal called for $6 million of the settlement to come from a "special-situation lender," with local businessman Trey Pecor, owner of the Lake Champlain ferry system, stepping forward in March in that role. The Citi-city settlement also stipulated that BT would eventually be sold to a buyer to be determined.

The settlement contained no provision for repaying Burlington taxpayers any of the $16.9 million improperly borrowed by the administration of former mayor Bob Kiss in an effort to prevent BT from going bankrupt. Even so, Weinberger won plaudits for carrying out at least a partial cleanup of the BT financial mess. "Good riddance" seemed to be the prevailing sentiment among Burlingtonians in regard to the prospective sell-off.

Meanwhile, a backlash has been building. Some local activists and politicians are urging the city to find a way to retain control of Burlington Telecom, which, they argue, is an undervalued, underappreciated and irreplaceable public asset. And it appears the state Public Service Board may not give its needed approval to the Citibank deal unless it contains stronger safeguards of the public interest.

Under the management of the Dorman & Fawcett financial advisory firm, BT has not only been stabilized; it's on the verge of becoming a profitable enterprise. More subscribers than at any point in its history — a total of 4,740 — are now paying for access to BT's high-speed internet service and its cable TV offerings. As a key measure of its much-improved financial status under Dorman & Fawcett, BT earned nearly $1 million in fiscal 2014 after accounting for all expenditures other than debt service.

Burlington Telecom has also proven "a proactive and supportive" partner to the local public-access television network, says CCTV's director, Lauren-Glenn Davitian. "Thanks to BT, we've been able to add channels and to build a 'public cloud,'" she notes. The telecom provider is making noncommercial server space available for web developers to create community-oriented apps, such as an archive of local music, Davitian explains. "This has only been possible because BT is locally owned and therefore responsive to the community. They've also built a network that private companies can't match," she adds.

Bradley Holt, co-owner of the Burlington-based web development firm Found Line, has been a leader in efforts to enhance the economic and educational advantages of what he calls BT's "powerful gigabit infrastructure." He joins Davitian in suggesting it would be shortsighted of the city to cede control over its telecom business. "If we didn't have this network today," Holt says, "we'd be talking about building it." He notes that 89 municipalities around the country have created publicly owned telecoms. "This is an opportunity of the century for us," Holt declares.

Progressive City Councilor Jane Knodell adds that her takeaway from last week's Public Service Board hearing on the Citibank deal is that the three-member body "is clearly looking for ways of recovering as much as possible of the $16.9 million" in taxpayer funds. "The only way to recoup it," Knodell adds, "is to arrange some ongoing public ownership share that is not trivial."

Weinberger, for his part, affirms "the possibility that the city will retain a meaningful long-term interest in BT." But, he pointed out in an emailed statement, "preserving BT as a wholly public asset is legally impossible under the Burlington City Charter, state law and BT's Certificate of Public Good. The opportunity for full public ownership of BT was lost during the years leading up to 2010 when public money was spent without authorization and when the city signed a lease with Citibank that it could not service with BT revenue."

Those obstacles to continued city ownership are formidable, critics of the Citibank/Pecor arrangement agree. But, they add, the mayor isn't willing to expend the political capital needed to initiate and win a campaign to preserve city control. "If we have the will, if we see this as important to the future of our community, we can do it," Holt insists. "It's a challenge that can be overcome."

But the city is now prohibited at the state and local levels from spending any more taxpayer money on BT, city officials point out. And the pending deal with Citibank would require the city to raise millions of dollars to buy back BT from Pecor, who is now its de facto owner.

What about a revenue bond? Members and staffers of the Public Service Board wanted to know about that in their questioning of Burlington's chief administrative officer, Bob Rusten, last week. Such a bond would be secured with revenues accruing to BT, not with taxpayer funds.

Rusten told the board that Citi would not agree to wait for the six to eight months it would take to determine whether a revenue bond could be issued. Mike Kanarick, Weinberger's chief of staff, added in an emailed comment that a consulting firm the city uses in accessing the bond market had advised that "it did not believe there would be a buyer for a BT revenue bond."

Public Service Board utilities analyst Jay Dudley expressed skepticism, however, over the city's decision not to go the revenue-bond route. While questioning Rusten, Dudley noted that bond markets have demonstrated "strong demand for speculative-grade, high-yield debt for several months." Interest rates for that type of bond have been dropping, he added. The city might have had the option of paying 5 percent interest on a revenue bond rather than the 7 percent it has agreed to pay Pecor in the deal financed by Merchants Bank, Dudley suggested.

Persuading more than 50 percent of voters to support a BT revenue bond wouldn't be easy, all parties agree. Alan Matson, a leader of a currently moribund group seeking to buy BT and reconfigure it as a member-owned co-op, suggests that no amount of political capital should be expended on an effort to preserve BT's current ownership structure. Local residents are seen as unlikely to react favorably to such a move, given that BT's bungled operation led to a steep downgrading of the city's credit rating — a Wall Street action that is costing taxpayers more money.

Weinberger further suggests that the city is inherently ill-suited to running a business that involves intense competitive pressures. "Telecom, internet and video present unusual dynamics where business practices are constantly subjected to disruptive forces from changes in technology, market demands, and mergers and acquisitions," the mayor said in written comments to the Public Service Board. "Exposing further taxpayer funds to speculation in this marketplace is simply not prudent."

Many Burlingtonians no doubt agree with that assessment.

Or do they, wonders Davitian.

"I don't know that the voters are sick of BT," she says. "The city and the press have never explained to them what exactly is involved." She urges that a transparent, inclusive process be undertaken to give residents an opportunity to learn about BT's options and decide on its future. "That hasn't happened so far," Davitian says.

Knodell agrees, saying, "We shouldn't be afraid to take it to the people and see what they think." It could be pointed out, she adds, that ownership and management of BT need not be the same. Dorman & Fawcett currently manage the company successfully and could continue to do so if the city were to retain ownership, Knodell suggests.

Yes, many people were enraged by the way BT was being run a few years ago, the Ward 2 city councilor acknowledges. But she warns: "If we end up selling BT at a fire-sale price to some private investors who make a windfall profit from it, that anger could quickly shift to the other side."

The original print version of this article was headlined "A Giga-Mistake? Some Make the Case for Keeping Burlington Telecom"
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About The Author

Kevin J. Kelley

Kevin J. Kelley

Bio:
Kevin J. Kelley is a contributing writer for Seven Days, Vermont Business Magazine and the daily Nation of Kenya. He is an adjunct professor of journalism at Saint Michael's College.

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