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Burlington Sells Burlington Telecom, Continues to Operate the Network
In November, Burlington's City Council approved the much anticipated settlement with Citibank. Burlington Telecom, a nearly citywide gigabit FTTH network owned by the city, was run into the ground by a previous mayor. That Mayor's Administration hid major cost overruns from the public for years, resulting in a challenging situation for the community. In the the world of municipal broadband, this is a significant anomaly.
The City found itself owing CitiBank some $33 million with no clear path on how to pay it. After years of arguing in court, the situation is largely resolved. Early in 2014, Citibank and Burlington reached a settlement [PDF] in which the the city would pay $10.5 million and a share of BT's future value in exchange for Citibank to drop its $33 million lawsuit. The obligation will include funds contributed by the city's codefendant, McNeil, Leddy & Sheahan P.C. law firm.
BT revenues, net cash flow, and the city's insurance carrier will contribute to the city's obligation, but the lion's share will be paid for with bridge financing from a local source. Trey Pecor, a Burlington business owner, has secured funding and created Blue Water LLC. The city will transfer ownership of the network to Blue Water in exchange for $6 million and will continue to lease the network from Blue Water at about $558,500 per year for a maximum period of five years. The goal is to find a partner to purchase the network. At that time, Blue Water and the city will divide any proceeds from the sale.
As part of the agreement, the City Council and the Vermont Public Service Board (PSB) needed to approve the terms. The PSB is the state entity tasked with regulating utility rates and related financial matters in Vermont. On November 3rd, the PSB approved the transaction unanimously [PDF of the Order].
A Vermont Digger article reported that several organizations, including the Center for Media and Democracy, the Regional Educational Television Network and Vermont Community Access Media, requested a six month public engagement process before the deal be approved. The groups, known as Burlington Access Management Organizations (BAMOs) were concerned that a distant corporate owner that may purchase network, will not be community-minded in its decisions. The BAMOs also requested that three to five people with experience in telecom, alternative corporate structures, and public engagement, be added to the Advisory Board. From the VTDigger article:
The Public Service Board did not agree to the request. The board said it would be premature to impose conditions on a prospective sale, and that any future owner will be expected to comply with the same public access obligations the city must meet now.
“While the conditions requested by BAMOs may provide a useful mechanism to explore issues in connection with a prospective future sale of BT’s Assets, the Board declines to impose such conditions,” the PSB wrote.
Unfortunately, the PSB missed the fundamental point - the required public access obligations are quite small. Burlington Telecom, like most municipal fiber networks, went above and beyond the bare minimum required by law. The only way to ensure Burlington continues providing great customer service, high quality connections, and additional services to the community is by making it sure it is accountable to the community, not distant shareholders.
We cannot help but be disappointed at the continued pain caused by the failure of Mayor Kiss's administration to be honest with the people of Burlington - a reminder of how important transparency is for local governments.
We strongly support the efforts of local groups to ensure that when the network is next sold, it is to a locally rooted entity that will ensure the high level of service BT has delivered will continue.
The PSB did grant the city's requested reprieve from a condition that the network connect every address in Burlington. There are still approximately 3,250 addresses that BT does not reach, often in areas with underground utilities or condos where the owner is not cooperative. In order to make the system more enticing to potential buyers, the PSB removed the obligation from the utility's certificate of public good.
On November 17th, the City Council approved the settlement along with bridge financing documents, which will allow the process to move forward. The Council also decided to expand the BTAB and approved operating guidelines. WPTZ reported that there were local residents attending the council meeting who spoke out against the sale, but the Council voted to approve unanimously. From WPTZ:
"Given the circumstances that we were faced with over the past five years, this settlement is the best solution, the best possible outcome from our saga with Burlington Telecom," said Karen Paul, a Burlington city council member.
Local coverage on the City Council settlemet approval from WPTZ: