Burlington Telecom to Regulators: We've Got a Plan (We Can't Tell You About Yet)

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When is a telecom not a telecom? We may soon find out in the case of Burlington Telecom.

Burlington Telecom told state regulators at an hourlong hearing that its state-of-the-art fiberoptic network is now owned by CitiCapital thanks to the utility's decision to cancel its lease with the global financier.

How BT replaces CitiCapital's equipment — and when CitiCapital will demand its return — remain open questions. BT offered no answer to repeated questions on either front.

Talks with CitiCaptial to renegotiate its $33.5 million lease agreement broke down last month and the city cancelled the lease; by default, CitCapital now owns all of BT's equipment.

BT attorney Wiliam Ellis told the three-member Vermont Public Service Board that it is in talks with private equity firms and in-state telcom providers to stay in business now that it's cancelled its lease. He did not name those firms.

"There are a number of private equity firms that have expressed an interest," said Ellis. "And these firms have experience in the cable and telecom business. As well, we are talking with strategic telecom partners in the state."

Ellis projected BT will be about $600,000 in the black by the end of FY 2011 given its current customer base of more than 4500. Of course that "profit" doesn't account for lease payments or paying down any of the debt it owes taxpayers. Quarterly lease payments to CitiCapital alone were roughly $750,000, Ellis noted.

Repaying taxpayers is a key component of discussions without outside financiers.

"One of the aspects of those discussions is ways in which we can make the taxpayers whole," added Ellis, referring to the $16.9 million BT owes to the city's checkbook.

City Hall officials, including Chief Adminsitrative Office Jonathan Leopold and Mayor Bob Kiss, okayed the diversion of nearly $17 million in funds to BT over a period of several fiscal years, without explicit approval from voters, the city council or regulators. BT's certificate of public good — its license to do business in Vermont — requires it to repay any borrowed taxpayer money within 60 days. It also forbids the city from saddling the taxpayers with losses from the telecom operation.

Officials from the state Department of Public Service, which represents ratepayers in all cases before the quasi-judicial PSB, said their months-long financial review of Burlington Telecom's operations should be made public tomorrow.

A separate criminal review being conducted by Orleans County State's Attorney and federal law enforcement officials is not due to be released until later this month.

PSD attorney Geoff Commons told the PSB that the review's release has been delayed because the contractor became seriously ill. He also said that the PSD and city have agreed to withhold minor bits of information contained in the report.

"Any of these minor redactions do not affect the report," Commons noted.

After the hearing, PSD Commissioner David O'Brien told reporters that the review will demonstrate "wanton foolishness" and "careless" spending by city officials, but he said nothing in the report will point to illegal activity. Minutes later, however, O'Brien said Burlington taxpayers had millions of dollars "stolen from them in broad daylight."

O'Brien said it's the department's position that the city should hold no interest in Burlington Telecom as a way to protect ratepayers and taxpayers.

City Councilor Kurt Wright (R-Ward 4) said he's not sure he agrees with Commissioner O'Brien that the city should cleave itself entirely from owning BT.

"If the city doesn't retain some interest, there's even less chance that we'll see that money repaid," said Wright. "I think that even a minor stake in whatever comes next has to be considered if we are to make taxpayers whole."

Wright said he would not be in favor of the city retaining a majority stake in a reconfigured BT given the risks.

Wright was one of several city councilors in attendance. Also in the room was City Council President Bill Keogh (D-Ward 5) and City Councilors Ed Adrian (D-Ward 1), Karen Paul (I-Ward 6) and Joan Shannon (D-Ward 5). Mayor Kiss was also at the meeting, along with outside consultant Terry Dorman, BT external affairs manager Amber Thibault and several attorneys. Leopold was not at the hearing. He did attend a hearing before the PSB in February.

Just how much time Burlington has to find a new partner and new equipment seems to be a mystery, and is partially based on when CitiCapital will seize BT's assets.

Ellis also told the PSB that CitiCaptial informed Queen City leaders on Monday that it has hired an outside firm to help it begin to assess and value the equipment it plans to repossess as a result of the city's termination of the lease. "They told us they would let us know when that process will begin," said Ellis.

PSB members repeatedly pressed Ellis on whether the city owes anything else to CitiCapital other than the equipement. Ellis said no, the city technically doesn't owe anything to CitiCapital other than all of the equipment it purchased under the lease agreement. However, that equipment includes 186 miles of fiberoptic cable, set top boxes, remote controls, the "head end" (or brains of the entire network) as well as other installed equipment.

"However, it does not include customer lists, customer accounts or any real estate interests," Ellis noted.

When and how CitiCapital will want that equipment returned — at the city's expense — has yet to be determined. CitiCapital has hired a firm to help it assess exactly what it now owns; BT, too, is in the process of conducting an inventory of what it will need to replace in order to keep operating.

The scrap value of BT"s equipment is about $300,000 to $600,000, said Ellis. He expects it will cost $6 to $8 million to replace the equipment, however, in order to stay in business.

Before any final restructuring or switchover of services occurs, Ellis noted, the city will present the plan to the Public Service Board for approval. A plan was supposed to be in place by December 31, but Ellis said the city may need more time to develop a detailed plan. The delay, he said, is due to the city's long-term focus on trying to renegotiate with CitiCapital.

Ellis said he did not know if CitiCapital would sue for damages or use of the fiberoptic network between the time that the city terminated the lease and when it provides Citi with replacement equipment.

"I can't speak for CitiCapital," said Ellis.

As it stands now, CitiCapital owns the entire BT fiberoptic network. It had tried to charge a monthly rental fee of $311,000, but city officials balked at the price. They countered with an offer to pay $40,000 a month. CitiCapital rejected that deal.

Commons said the PSD wants assurances that any costs borne by BT to return equipment or defend lawsuits from CitiCapital will not be charged off to taxpayers.

Ellis said BT's interim management team is making that caveat clear to any potential strategic or investment partner. The cost of returning equipment, replacing equipment and any damages would be part of a new financing deal with new partners, Ellis noted.

Common also said BT customers needed plenty of warning regarding any service stoppage or interruptions due to either complete cessation of activities or switching over to new equipment.

Ellis said any plan for switching over customers to new equipment would be part of a "cure" plan approved by state regulators and the PSD.

"We anticipate only brief interruptions of two or three hours over a period of a few days for some customers," said Ellis. Any interruptions would be based on what kinds of equipment the city needs to replace. Again, Ellis noted, CitiCapital hasn't said what equipment it wants returned.

Comcast's attorney told the board that it was prepared to provide any help necessary to BT customers — including businesses and city operations — to ensure there was no loss of service during a switchover.

On the issue of the 186 miles of fiberoptic cable, Ellis said the city plans to offer new spools of replacement fiber to CitiCapital rather than digging up the existing fiberoptic network.

Commons said the department believes the PSB should place limit the amount of time it gives BT to "cure" or fix its problems rather than allow it to continue indefinitely.

PSB Board Member John Burke suggested the PSD and BT come to a mutual agreement on setting a deadline for filing a complete reorganization and refinancing plan.

PSB Chairman Jim Volz asked Ellis if CitiCapital is aware that it needs a certificate of public good to own a fiberoptic network in Vermont. Ellis said the city had informed CitiCapital of state law, but was unsure if the financier would apply for a CPG. Commons said the PSD had not yet taken a position on whether it would seek to force CitiCapital to apply for a CPG in order to own the fiberoptic network.

"That is a point that we have not pursued to date," said Commons. 'Developments have been coming in pretty quickly and we were not sure where this was going to land."

Comments

[oy]

It's pretty obvious, particularly today, that Marrisa Caldwell is right: O'Brien is a political hack. All along the implication has been that laws were broken. Then today he says there was no illegal activity and then following it with "money was stolen in broad daylight".That might have been a good time for a follow up question, like "what the hell are you talking about?" It's gone on and on, like Cheney saying over and over that Saddam Hussein was responsible for 9/11. Say it long enough and people believe it. Why isnt' it obvious to anyone in the press that O'Brien is against publicly owned operations like BT. This story has been a joke without anyone in the press smart enough to tell the story.

[frank frank]

OY:
WHo is Marrisa Caldwell....you?...and who cares?

Obrien didn't bring the City of Burlington to its knees over this. If you want to talk about hacks take a look at City Hall. Bob Kiss is a major league hack when it comes to managing a crisis. Jonathon Leopold - the genius - not only did he play fast and loose with his $17 million dollar "asset" that the taxpayers now own, but he also managed BT right into the ground with his brilliant business and marketing acumen. Between the two of them the City is now royally f-ed. BT has failed and it wasn't Obrien that f-ed it up. It was Kiss and Leopold end of story.

[Morgan M]

I bet there are lots of funny "cable guy" emails bouncing around the Citigroup building on E. 53rd. St. "Hey can I drive the bucket truck? :laugh: "

$33M is not alot of coin for these guys, but municipal financing is a big business--and Citigroup does not want to set a bad precedent. One way or another they will go after their $33 million (or $32.4 million after they redeem the wires) and they will do whatever it takes for as long as it takes to get it back, all of it.

[Talkabouthacks]

"One way or another they will go after their $33 million (or $32.4 million after they redeem the wires) and they will do whatever it takes for as long as it takes to get it back, all of it."

And why shouldn't they?

[Buster]

Oy,
We were ripped off there is no doubt, Obrien is not a prosecutor or a judge making accusations in a hearing could queer a judicial procedure and taint the process.

Clearly Leopold, Kiss, Burns, Thaibult,and Ellis were involved in a coverup of their illegal cashpool activity.
There is a public record of Leopold and Thaibult Burn's mistress covering up the transfer of funds and the bankrupt situation of the BT and the City dba/BT. None of this is new news.
What is also evident is that Ellis and Kiss are living in a fantasy world were bankers set precedent with a bunch of hayseeds who screw them out of their vig. It aint gonna happen. Ellis is no match for the lawyers and the resources that Citi will throw at this case.

Nulty's team is also tainted as a blind city counil man who is now claiming to have financial and telecom acumen and the man who established the company wish to take it over for pennies on the dollar. Swooping in after the crash, it looks like an inside job to an outsider.

Who are the other suitors as a taxpaying citizen I would like to know by all appearances I have skin in the game and the citizens have a right to know. Nothing Kiss says appears as more than fantasy lies and incompetence.

[Tim]

I may be mistaken but the employees of Burlington Telecom are Burlington city employees. Many, if not most are unionized which raises some questions:

Will the employees go with a purchase?
Will the new telecom remain unionized?
How much will the City's pension fund have to pay to cash out departing employees?
Will senior union members be able to transfer to other city departments at the expense of less senior union members?

[dale tillotson]

Over the last many months going back to the winter of 08 and the Mayoral campaign, to the spring of 09 when the tapping of the 17 million or so started to go full tilt, to the fall of 09 when the Mayor dissed veterans with his poor choice of a substitute speaker, to the election of March 2010 when anyone that disagreed with him became a naysayer, to recent weeks when someone questions him he places the blame and fault on the questioner the true colors of Mayor Kiss are out their in full view..
What started with his first election by many saying he was really a good person whether you agreed with him or not his disposition was always of quite seemingly honest demeanor.
The 17 missing million has now ruined his reputation, and he continues to let it do so by not being upfront and simply saying which depts. suffered from the missing millions. Was it all depts? Some depts?. Missing federal bond money?(Is this why the FBI may be involved?)
He continues to stumble stammer and not have any reasonable sensible answers for any subject in recent weeks.
Of course his failure to not have any answers probably is based on the simple fact that he has really no clue. The ball has always been in Leopolds hand, and Kiss is nothing but a tee in the ground being beaten on with every swing.
Faith is lost, trust is gone the only way to repair the damage is without the presence of Kiss and Leopold anywhere to be seen unless it is front of a grand jury.
I again urge and demand their resignation and urge all councilors to urge this as well as their reputations are also on the line.

[Italian Napoleon]

Are ya kidding me? BT will be in the black by end of 2011? Yeah, sure, if they continue to not pay for any of their equipment. How many millions spent for 4500 customers? let's see...17m lost already, 6m to 8m for new equipment, thats 24m minimum to stay running. thats $5111.00 per customer, plus do your really think CITI is going to take their equipment and leave quietly? How much more in lawyers and penalties? This is a complete joke. If this were Wall St someone would be in jail but since its the Progs all is well and they are going to push forward. Wasn't the whole point to make high speed access etc. more affordable for Burlingtonians? Is it? I doubt it. How "Evil" does Comcast look now? Looks like they could have saved the city 30 million or so during a recession. Brilliant!

[Buster]

PSB members repeatedly pressed Ellis on whether the city owes anything else to CitiCapital other than the equipement. Ellis said no, the city technically doesn't owe anything to CitiCapital other than all of the equipment it purchased under the lease agreement. However, that equipment includes 186 miles of fiberoptic cable, set top boxes, remote controls, the "head end" (or brains of the entire network) as well as other installed equipment.

Unless Ellis has in his hot little hand a contract that negates section 11 of the Master Lease contract, Ellis is talking out of his keister.
That Clause says that City Capital has claim to every bit of money generated from the use of their cable equipment and the list of customers.
The entire meeting with the PSB was a massive coverup.
I don't know what matchbook cover Ellis got his law degree from but he will have his head handed to him in court.

WE have to wait how long for a plan??? This train has been in a slow motion wreck since they exposed the cash pool "liar loan". Citi Capital is in first position for every bit of the equipment and revenue from said equipment.

To think I am paying all of these morons salary's so they can rip us off and tell bold face lies makes me livid.

Bt would have been great if the city had spent two years incubating the idea and then spun it out of the city into private hands. BT is a case of too little too late, now we get stuck with a massive bill and a fiberoptic migraine hangover.

[murphy]

If there were no "public sector" employment system, and no rigged election system (IRV) in a backwater place called Burlington, VT, where third-rate taxi drivers can hold public office, some unqualified guy named Robert Kiss would be in his squalid apartment collecting unemployment and playing video games.

But in Burlington, even though he's not qualified to wash dishes at McDonald's, he's "Mayor."

Does it get any sadder than that?

[frank frank]

With all due respect to Bob Kiss and his good intentions he is so far over his head. He is surrounded by passionless bureaucrats haplessly and ineffectively defending his rudderless sinking mayorship.

It is sad.

As a taxpayer and supporter of BT from day one, I am exceedingly angry about what he and Leopold and the Council have squandered.

As a human being, though, I cannot help but feel pity for the Chauncey Gardener who sits in the corner office on the second floor at 149 Church Street.

[Gay Bob]

"where third-rate taxi drivers can hold public office" - not sure who this comment is aimed at, but, if true, maybe it's because all the prospective, smart, intelligent, qualified candidates are too busy pointing fingers and throwing up their hands. Why not put your time to a better use and run for office? You seem to have all the answers and know what should have been done and what needs to be done. Someone's got to do it and if only "third-rate taxi drivers" are the only ones who run - that's who we get.

[Murphy]

@ Gay Bob: I don't need to run for Mayor myself, and in fact, although I am more qualified than Bob Kiss, it wouldn't have made any difference if I had. In fact there *were* other qualified candidates who ran against Bupkis in 2006 and 2009 -- every one of them was. But under the Prog-rigged IRV system, we got Kiss anyway.

[Gay Bob]

Well Murphy, if not Mayor, how 'bout city council? Are you more qualified than your present representative? Are you willing to spend countless hours at meetings where the decisions you seem to enjoy to deride take place? Seriously, what effect are you having on the situation by posting here? The action takes place at City Hall.