Blue Ribbon Panel: Burlington Telecom Not Viable without Outside Help

A special panel created by the Burlington City Council to examine the viability of Burlington Telecom has come to a simple conclusion: The utility is not viable as it’s currently being run.

That said, the seven-member Blue Ribbon Committee does not believe that Burlington Telecom should be sold outright to the highest bidder, or that the fledgling utility should be allowed to take on more debt on its own.

The committee — comprised of three councilors and four citizens — met Thursday to discuss its draft report. It will deliver a final report to the City Council at a special council meeting next Thursday night.

“The committee does not recommend an outright sale of Burlington Telecom as it’s not in the best interests of the community and taxpayers,” said David Parker, operations director of Dealer.com, and a member of the special committee.

“I think it’s also important to note that we’re not going to get our money out of it that way,” added Councilor Joan Shannon (D-Ward 5).

Committee Chairman David Provost, the vice president of finance at Champlain College, said putting BT for sale up to the highest bidder would recoup only a fraction of what is currently owed to the taxpayers and CitiCapital.

Instead, the committee will recommend that BT find a third party investor, form a separate corporation and yet allow the city to retain a minority stake in the new enterprise. Any restructured corporation would have to pass muster with the city council as well as state regulators.

Under this scenario, the roughly $17 million owed to the taxpayers would be paid out over time rather than in one lump sum. However, the committee stressed that under this scenario the city taxpayers could reap sizable profits over the long-term life of the company.

The committee relied upon the reports provided by two outside consultants, as well as one from Burlington Telecom to gather the information it needed.

Pat Robins, one of the committee members, said the panel didn’t agree with many of the financial projections, and assumptions, and will spell out why they disagree in their final report.

“Both reports said you need more money, but what is missing out of both paths is how do you get there?” said Robins. “Both fell short in that regard.”

Given BT’s debt load, its cash flow needs, operational costs and necessary profit margins it cannot possibly grow fast enough to pay down its debt, said Robins. BT’s current debt is roughly $51 million, and it is estimated that it will take another $15 million to complete its buildout.

“Nothing that I see in the business plan of Burlington Telecom gets me comfortable that that debt load can be supported,” Provost said of the $51 million. “And, if we’re not comfortable with the debt load of $51 million, then we really get uncomfortable with $65 million.” 

Robins said BT’s own financial pro formas seemed “incredibly optimistic”.

Shannon said the committee needs to spell out clearly in its final report why it’s taking an approach that’s different from the one outlined in the consultants’ reports and recommending against adding to BT’s debt load.

Despite the financial pitfalls ahead for Burlington Telecom, the committee did find that the fiber network is “one of the bright spots of the analysis we’ve done,” said Provost.

Fiber is the right technology, and is an asset to the city’s economic development plans to attract and retain businesses, said Parker.

“Fiber will be important for the city in attracting and retaining businesses and providing additional competition that drives down the pricing of all providers,” said Parker. 

The panel expects to have the public version of its report available to the public before the special council meeting next week. At that meeting, it is expected that the Blue Ribbon Committee will make a short presentation, allow the public to comment, and then brief the city council in secret on more sensitive matters related to Burlington Telecom.

The seven members met for about two hours in City Hall.

Councilors serving the committee are: Shannon, Karen Paul (I-Ward 6) and Clarence Davis (P-Ward 3).

The citizens committee members are:

• David Provost, senior vice president for finance and administration at Champlain College, who will serve as the committee’s chair;
• David V. Parker, operations director at Dealer.com, a Burlington company which provides online marketing services to the automotive industry;
• Patrick Robins, chairman and co-founder of Symquest Group, a South Burlington company focusing on technology services; and,
• Bill Shuttleworth, who recently served as the executive director for the Vermont Telecommunications Authority.

The Blue Ribbon committee was charged with assessing BT’s viability in terms of:

• Its current debt load;
• Additional financing necessary to comply with its certificate of public good;
• Industry and technology trends; and,
• Developing projections based on these trends and financial analysis of BT to determine its ability to repay such financing, and to preclude the necessity for relying on the resources or full faith and credit of the city.

This article appears in Feb 3-9, 2010.

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