Blue Ribbon Panel: Burlington Telecom Not Viable without Outside Help

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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.

Comments

[Haik Bedrosian]

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.

Who would want to invest if the city won't back the note?

Selling to the highest bidder and eating the loss may still turn out to be the city's best option.

[Banana Peel]

Also, the muni lease holder (Citi or GE, I forget) of the "orginal" 33 Million dollar note has a stake. Their muni lease is based on a benefit received because its funding a muni project. One can't simply transfer ownership of a muni "business" to another entity without satisfying the primary lienholder's interest -which will likely mean paying off the giant 33M lease.

Who is going to invest additional capital in order to revamp the BT business? It's saddled with so much debt (Thanks JPAL!)that there would have to be some forgiveness of debt to attract any interest. This means that taxpayers would be on the hook and that is unacceptable to the State and BTV citizens. So what you have here is an intractable situation. No one wanted to say it - and I don't blame them- but the best option may be to have a fire sale and find the best and most capable operator to keep it going.

What a mess!!

[shad]

Shay, when are you going to finally find your spine and tell the readers that BT will not work anymore? You are clearly a prog party memeber and through your writing, it shows.

[ward 2 resident]

Essentially the only politically safe conclusion from every consultant and committee is that BT is viable but not currently--with variations on what needs to happen. The difference isn't perception, but instead who's making the recommendation. The mayor says move ahead, the city council pleads ignorance, consultants suggest marketing, David O'Brien prefers selling BT off entirely, and the latest citizen committee suggests distributing financials liability in a public-private partnership. Underlying these are essentially all the same conclusions reached 2 months ago: BT is struggling under debt but is a successful operation that only needs to get better.

If selling BT is not "not in the best interests of the community and taxpayers" then why would selling half of it or a fraction be less worse?

[Darned Straight]

BT is the right technology, we just have too much of it (the hub was overbuilt). We need to have BT serve a larger area... say all of Chit. Co. But to do that, we need professional management (missing in action for 1-2 years), a better-performing governance structure (maybe something like CSWD), a real marketing effort, and restructured debt. Then we should be able to dig out of the financial hole we're in while still reaping the benefits of this great tech asset. But I don't know if any the players who have the political capital to make this happen have the smarts or the motivation... trouble.

[Jimmy]

"Then we should be able to dig out of the financial hole we're in while still reaping the benefits of this great tech asset."

So basically, just get in a time machine, go back two years and do everything differently. That ship has sailed.

[Thomas]

The Toyota (BT) is a great car (network) except the accelerator sticks (CAO loaned $18Million clandestinely) and the brakes fail(CAO hid his loan from everyone).

The City is out of most options in this debacle. One certainty: taxpayers of Burlington will pay for it.

Our once golden image is tarnished. Thank you Bob Kiss & Jonathan Leopold.

[dale tillotson]

No matter what we do the Mayor and CAO's actions must be monitored with a microscope. The past facts of these two not presenting the taxpayers with proper information ways heavily on my mind.
So heavily each and every project in Burlington must be micro managed, questioned and not allowed to go forward until all facts are put on the table. This will bring our city government to a crawl, but it needs to be stalled because of the actions of the Mayor and CAO. I have no trust in them.

[Morgan M]

As noted in today's BFP, Bob Kiss seems perfectly willing to go down with this ship. I don't know if I should pity or admire him. I am faintly optimistic that BT can indeed survive with a commercial partner, and for the mayor to reject the panel's recommendations out of hand is beyond belief. Are there no respected Progressives out there who can stage an "intervention" with our Mayor? The Progressive movement itself is at risk here.

[Buster]

The problem is not the overbuilt technology it is the mismanagement by the CAO his illeagal "loan" which is carried on the city's books as an asset. it is a liar loan with no assets backing it up.
We the taxpayers are on the hook to the tune of fifty million dollars. There is no way that Bt uin its current form with the current level of debt and the crooks who are managing it will ever be able to one service the debt and two expand and three maintain and upgrade the infrastructure.
The ward two resident who wants to continue the operation fails to understand that paying ten thousand dollars a resident to maintain cable service makes no economic sense at all. it is wasting valuable resources we need to maintain the city. if you have unlimited funds to continue this charade buy the company and the debt.

With Leopolds secrecy it makes one question the integety of all of the citys finances under his managment. he has continually copped to being incompetent and not able to face the challenges of his job.
The consultants said as much. it is like trying to swim across the lake with a seventy five pound belt strapped to your waist.

[MisterGuy]

This "blue ribbon" committee seemed like a joke from the start, and it's turned out to be so with their report, which goes *against* the stated wishes of their own "experts" that they hired to give them opinions in the first place! One forms a so-called "blue ribbon" commission to take on issues that one doesn't want to deal with one's self...with the "one" in this scenario being the Burlington City Council.

It's time to wake up people...BT is NOT owned by the City of Burlington. It's owned by Citi Leasing for heaven's sake, so a "sale" of BT was NEVER a viable option in the first place! It's also no surprise that a "sale" BT would not get the City of Burlington the millions of dollars that were spent (in a totally *legal* fashion I would add) from the so-called "cash pool".

As someone that knows a fair amount about technology & as a casual observer of the many machinations that have gone on about BT over these last many months, it's been exceedingly obvious what's been going on here:

-people on all political sides of the issues involving BT have no freaking clue what they were talking about when it came to the real viability of an all-fiber network. Can you say *unlimited bandwidth*?? Please tell me when providing bandwidth that has NO limits will become obsolete in either the near or long-term future?!

-people on all political sides of the issues involving BT have been trying to score political points to be used in future elections. The GOPers & "free-market" business people (that were *never* in favor of BT in the first place!) have been getting to say "I told you so" to those that don't know any better. Dems (especially Ed Adrian, who I've admired for quite some time now) have been able to smear a Prog administration for not being as forthcoming & specific about negative issues that were related to BT in the past. Progs have been able to successfully label all of their opponents as ignorant (my word, not their's specifically) for not being able to understand the financial & technological issues that apply to BT. Enough is enough now kiddoes...it's waaay past time for political bickering & time for some *real action* in order to save BT!

-many of the above political foes are being used by a Right-wing, pro-private-sector-at-all-costs state administration (can you say let's give VT Yankee just one more chance?) & their allies in big business in order to de-rail BT so that they can get their hands on an all-fiber network at cut-rate costs. Once again, it's waaay past time to see the forest for the trees here people!

Even the BFP was willing to report that, from Hiawatha’s perspective, "moves must be made NOW to refinance the debt to add an additional $15 million in resources for the business over the next 24 months, and to rapidly and dramatically accelerate customer and revenue growth."

Also, BOTH Hiawatha & Stratum that BT could successfully change "with debt refinancing and the city’s continued support for another two to three years, if it implements a new more aggressive strategy and marketing approach."

http://www.burlingtonfreepress.com/article/20100207/NEWS02/100206013/-1/TOPICS0201/City-Council-awaits-report-on-Burlington-Telecom

To those out there that love to intentionally over-blow the so-called current & future "risk to the taxpayer" from BT I say the following:
Great news! You'll be happy to know that the Burlington City Charter says explicitly that *any* BT losses CANNOT be borne by Burlington taxpayers, AND the Right-wing VT Public Service Commissioner has said that they will block ANY refinancing plan for BT that ultimately rests on the taxing power of the city! You have absolutely NOTHING to worry about! You can all run along now...and you're welcome...

How would converting BT into a "joint-venture corporation with no ties to the city" would allow for an *immediate* repayment of the ~$17 million of public money BT has already used, or how it would meet its *current* financial obligation on the $33.5 million debt it owes to CitiCapital?? Answer: It won't!

Also, who will this "joint-venture partner" be, Comcast, Verizon, etc., etc.?? Do you really want to hand over the effective control of BT's all-fiber network to one of those behemoths??

The ONLY viable, available action that the city can take is unfortunately what's been proposed by the Kiss administration all along:
-to completely refinance BT with additional debt and give it 2-3 years either to expand its subscriber base both within & without the City of Burlington. The time for action is NOW! There is a debt payment due very, very soon, and default is absolutely NOT an option!

[MisterGuy]

"Who would want to invest if the city won't back the note?"

LOL...the city has already gotten a number of offers for refinancing which do not allow for having ANY taxpayers on the hook, period end of story. To try & tell large, well-established investment companies that BT is a "bad" investment flies in the face of their expertise on this issue in the first place.
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"Also, the muni lease holder (Citi or GE, I forget) of the 'orginal' 33 Million dollar note has a stake."

No, they OWN the entire pie! There's a *big* difference.

"Who is going to invest additional capital in order to revamp the BT business?"

Exactly. Who indeed??

"It's saddled with so much debt (Thanks JPAL!)that there would have to be some forgiveness of debt to attract any interest."

Nonsense.
-----------------------
"Underlying these are essentially all the same conclusions reached 2 months ago: BT is struggling under debt but is a successful operation that only needs to get better."

Exactly.
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"One certainty: taxpayers of Burlington will pay for it"

...if BT goes into default, and that's just a maybe at best.
--------------------------
"The problem is not the overbuilt technology it is the mismanagement by the CAO his illeagal 'loan'"

There was absolutely nothing "illegal" about the so-called "cash pool" payments. The City was faced with two options a while back:
-make payments from the cash pool, since the massive financial collapse in the USA would not allow for any refinancing
-default on BT's necessary payments & lose an all-fiber network to Citi Leasing, who would likely sell it to one of BT's competitors

"We the taxpayers are on the hook to the tune of fifty million dollars."

This is a lie, and a repeated lie at that, which is horrendous at this point.

[sean]

Hey, MisterProg: fiberoptic-to-the-house could become obsolete if everything moves to wireless.

[Jimmy]

""We the taxpayers are on the hook to the tune of fifty million dollars."
"This is a lie, and a repeated lie at that, which is horrendous at this point."

We are on the hook for at least $18m, and will feel the effects if we default on the other $33m.

"the city has already gotten a number of offers for refinancing"

Name them. We've not been told of any, and you would think that would be something that would have come up. I assume you understand that the Piper Jaffray letter was not an "offer for refinancing."

[MisterGuy]

"Hey, MisterProg: fiberoptic-to-the-house could become obsolete if everything moves to wireless."

LOL...I'm a life-long Democrat, and, as the "blue ribbon" commission's report states very nicely:
"A comparison of current and future bandwidth capacity between fiber and cellular networks would favor fiber."

In other words, you're full of baloney.

http://www.burlingtonfreepress.com/PDF/20100210_BTblueribbonreport.pdf
----------------------------------------

"We are on the hook for at least $18m, and will feel the effects if we default on the other $33m"

...which is exactly why refinancing is the ONLY option to get that money to the city back & to prevent a default, which will kill ANY chances of getting financing for BT in the future.

"Name them."

Sure, they came from Piper Jaffray & five other major U.S. & Canadian financial firms. All are willing to put up money for BT, period end of story. To try & substitute one's own bias against BT & say that there's no way that BT can get refinancing *right now* is to tell our free market system that it's wrong, which is silly.

[sean]

MisterProg, you're full of baloney. There was absolutely no "offer" from Piper Jaffray. You're just making s**t up to apologize for the Kiss/Leopold dictatorship.

[Jimmy]

"five other major U.S. & Canadian financial firms."

Oh yeah, I have my 401(k) with those guys.

BTW, as Sean notes the PJ thing was smoke. It wouldn't have survived the due diligence.

[Shay Totten]

Just a quick note to all. In fact, six financial firms did respond to the RFP issued by the city to refinance the existing lease-purchase deal with CitiLeasing, and provide new capital to BT.

The City Council asked for that to happen after it rejected the idea of moving forward with Piper Jaffray's letter of interest and negotiating a deal.

They were: Piper Jaffray, BMO Capital Markets, Bank of America/Merrill Lynch, Wells Fargo Securities and Stern Brothers & Co, as well as Roosevelt & Cross.

The Blue Ribbon Committee was to have examined these offers to help inform their final report.

[Jimmy]

Response to RFP <> "offer of refinancing." As the PSB said, it's telling that BT didn't even go back to Citi to refinance. Citi knew what the asset was actually worth.

[MisterGuy]

"There was absolutely no 'offer' from Piper Jaffray."

Yea...right...because financial firms make offers to refinance things without being really "serious" at it...sure, sure...that's the way things "really" work in the financial world...lol...please...
------------------------------------------

"The Blue Ribbon Committee was to have examined these offers to help inform their final report."

And instead, they chose to basically ignore them all & substitute their uninformed opinions over the opinions of six major financial firms that were very, very willing to refinance a hi-tech enterprise that was on the verge of becoming profitable!
--------------------------

"As the PSB said, it's telling that BT didn't even go back to Citi to refinance."

Huh? Citi already basically *owns* BT, since they hold a lease-purchase arrangement with BT right now. If BT defaults, Citi will get BT outright, which will benefit Citi in the long run! You don't seem to have much financial knowledge there "Jimmy"...

[NotMisterGuy]

Hello Mister Guy, you are arguing into the wind.

Leopold lied, acted in the best interests of no one and Kiss backed him up. Citizens and councilors are right to be outraged. Only a partisan would disagree. Reality check, MG: There's no confidence left in the City to run this operation. Nor have Kiss and Leopold offered any plan other than refi. They don't even acknowldge that they are over their heads and have no business running the company. If Kiss were to fire Leopold that would be step one in gaining some confidence back. However Kiss has only created more uncertainty in his ability to lead. Practically speaking, teh City has bungled this beyond their abilty to repair it and Bob Kiss and his party are going to be lame ducks for 2 years while BT either is sold at a fire sale or some white knight comes along with a better plan in a timely manner.

[Jimmy]

If you think Citi wants BT to default you're out of your mind. They'd be out $33m and left holding an asset that they can get maybe half that for.

BTW can we please knock it off with this "offers" nonsense. A response to an RFP is the first step down a fairly windy road, which goes off a cliff if (when, in this case) the lender finds out that the asset being financed is worth less than the amount being borrowed. There have been no "offers of refinancing."

[sean]

@ MisterProg: There have been no -- repeat, NO -- offers of refinancing, if by "offer" what is meant as an agreement, promise, or commitment.

Those ads you see in the paper or on TV for refinancing your mortgage, do you believe those are commitments by anyone to refinance your mortgage?

You really are a blind Kiss apologist.

[MisterGuy]

"Leopold lied, acted in the best interests of no one and Kiss backed him up"

...sez an Internet Troll...lol...keeping BT afloat during a time when there was no financing available due to one of the worst economic collapses since the Great Depression was certainly in the best, long-term interests of the City of Burlington. Just look at how much money the City saves on Internet & phone services right now.

"There's no confidence left in the City to run this operation."

Really?? So how many people have dropped their BT servies then??

"Practically speaking, teh City has bungled this beyond their abilty to repair it"

I agree...BT is burning while the Burlington City Council fiddles. Enough is enough!
------------------------------

"If you think Citi wants BT to default you're out of your mind."

Riiiight, because Citi getting to sell BT, which is an all-fiber network that can serve around 100,000 people (or roughly 1/6 the population of VT or almost 2/3rds the population of Chittenden county!) to the highest bidder would be really, really "bad" for them...not...

"There have been no 'offers of refinancing.'"

"There have been no -- repeat, NO -- offers of refinancing"

Repeating the same LIES over & over again is meaningless, partisan folly.

---------------------------------

"Those ads you see in the paper or on TV for refinancing your mortgage"

Speaking of TV ads, have you seen those ads from Power & Tel, VtTel, and East Central VT Community Fiber Network?? Seems like quite a few companies are having no problem making an all-fiber network work in VT...hmmmmm...

[Jimmy]

"Riiiight, because Citi getting to sell BT to the highest bidder would be really, really "bad" for them..."

Selling a $15m asset to recover $33m? Yes most people would consider that non-ideal.

Hey Progs, you're really scraping the bottom with this guy.

[MisterGuy]

BT is *not* worth only $15 million on the open market, but you'll never admit that "Jimmy".

[Jimmy]

Present some evidence to the contrary and maybe I will. Or keep spewing nonsense, up to you.

[sean]

MisterProg's pro-Kiss, reality-denying, partisan nonsense really establishes a new low for Progs. And his response to posters who question his nonsense is to call them an Internet troll, even though he posts his nonsense anonymously. Way to go, Progs.

[MisterGuy]

"And his response to posters who question his nonsense is to call them an Internet troll"

Yea, an Internet Troll that tries to post under a name similar to mine in order to intentionally cause confusion, Mr. "Sean" Anonymous. BTW, keep lying by saying that I'm a "Prog" when I'm not...that's really going to help out your cause...ugh...

[sean]

You're a Prog. Pretending not to be a Prog in a pathetic attempt to establish "credibility."

[MisterGuy]

LOL...you're hopeless...