Burlingtonians Scrutinize Schurz Sale

Last week, Burlington’s City Council finally chose a buyer for Burlington Telecom (BT), their municipal network that began serving residents and businesses in the early 2000s. City Councilors and representatives from Schurz Communications and ZRF Partners hashed out the details of an agreement at the eleventh hour. The Letter of Intent (LOI) was released on December 6th; the public can now analyze the deal their elected officials chose for them.

Night Work

On December 1st, editors at the Burlington Free Press published a piece highly critical of the process that occurred in the late night and early morning hours of November 27th and 28th. They wrote:

Burlington residents have every right to wonder what happened to the promise of an open and public process for picking a buyer for Burlington Telecom.

Many city residents woke up Wednesday morning to find that their elected representatives had chosen Schurz Communications as their preferred buyer for Burlington Telecom based on a bid significantly revised just hours before the vote.

Editors went on to state that the City Council had “negated the months-long public process for the sale” of BT by allowing Schurz and ZRF to alter their bid and accepting it without giving the community time to review it or weigh in. After so much time and effort invested in a process that was intended to be transparent and include the entire community, Burlington leaders seem to have dropped the ball at the five-yard line.

The Letter Of Intent

People following the process know that Schurz was one of the four bidders that made it to the semi-finalist status but was eliminated when the City Council cut the list down to Toronto-based Ting Internet and the Keep Burlington Local Cooperative (KBTL). When the vote was split between Ting and KBTL, the City Council asked the two to try to work out a single offer, but the company and the co-op could not do so. Councilors decided to reopen the bidding and invite Schurz and another potential bidder that had dropped out under some controversy, ZRF Partners.

ZRF and Schurz were waiting in the wings; the two had worked together to craft a bid and presented it to the Council, as did Ting and KBTL. KBTL had been eliminated in the first round of voting on November 27th, which left Ting and the Schurz/ZRF bids. The latter was not satisfactory, but the City Council allowed Schurz and ZRF to make alterations to their bid that night. There were numerous breaks in the meeting and out of site discussions that culminated in significant changes in the Schurz/ZRF bid. The final proposal wasn’t revealed disclosed until soon before the final vote. The process, as the Free Press editors noted, flew in the face of all the careful steps for transparency the community had taken over the past year.

A significant change included a switch of the controlling partner, which was originally slated to be ZRF with Schurz as more of a financial backer. Ting’s bid remained the same and the final dollar amount from Schurz came to $30.8 million, which was what the company had offered in their original bid.

At the time, the details of the Schurz/ZRF bid had not been worked out, but the parties moved forward with the intention to fine tune the agreement in the days after the vote. On Wednesday, December 6th, the city released the LOI from Schurz and ZRF, which spelled out a framework of what had been worked into the final bid. 

The other basics of the Schurz/ZRF bid, as summed up by VTDigger are:

Schurz will relocate Burlington Telecom offices in Memorial Auditorium and will enter into a five-year lease on the main Burlington Telecom offices on 200 Church St.

No rate increases for at least five years

Retain local management and employees, and will grow locally as Burlington Telecom grows

Expansion of customer service hours to evenings and weekends

Continue Burlington Telecom’s Net Neutrality commitment

A $2.5 million investment in Burlington’s technology community over 10 years, likely through investment in the BTV ignite technology and innovation incubator

A $500,000 investment over five years for technology workforce training

Possible Burlington Telecom expansion to Winooski and South Burlington

Allow the city to buy up to one-third of the business

Agreement to an anti-monopoly restriction

Caveat Emptor

One of Burlington’s strongest concerns as they looked for a buyer for BT, was the threat of losing their network to a huge monopolistic ISP, such as Comcast. To avoid that possibility in the future, they required every bidder to agree to adhere to an anti-monopoly promise if the bidder were to flip the network.

Schurz promised in its LOI that it “…understand(s) the City’s concern on a future sale resulting in excessive market share greater than 75% for a new buyer and would agree to that threshold, and we would support the City’s desire to be involved in the regulatory review and approval process.” The extent of the city’s involvement is left unstated. In an earlier section of the LOI that discusses the city’s ability to remain engaged with decisions regarding the network, Schurz limits Burlington’s influence on the number of board members that might serve. Because the city’s limit of ownership is capped at one-third, their influence will not be determinative.

The buyers have big plans for the network and, in their LOI they state that they plan to “enhance BT’s profitability 2-3x organically in the near to medium term and significantly more if successful in partnership/acquisition opportunities.” If they don’t get the results they want as quickly as they want, we wonder if they will abandon the project and put BT up for sale.

Schurz states in its LOI that it intends to remain a family company and intends to stay that way, but we’ve seen similar statements and promises of long-term commitment become casualties of difficult finances or a generous offer. Schurz offers Burlington the right of first refusal, which we also saw when UC2B sold assets to  iTV-3. No one has a crystal ball, but the mood and financial situation in Burlington would probably need to change significantly before the city could exercise that right. Stranger things have happened, but not very often. 

Is This Really What You Wanted, Burlington? 

When the city established the Burlington Telecom Advisory Board (BTAB) to established criteria and recommendations for city leaders when looking for a buyer, they laid out issues that locals expressed as important. Including a commitment to network neutrality, people in Burlington want to be sure that BT doesn’t end up in the hands of a monopoly-style ISP, that rates remain affordable, and that they retain a sense of local control.

Schurz, a family owned media company, has been growing through consolidation over the course of decades. Most recently, they’ve started investing in ISPs, such as Antietam Cable and Orbital Communications. They are also known to have purchased and flipped radio stations and newspapers. If Schurz sells BT in the future, their decision would seem consistent with its treatment of other acquired assets. The communities served by Schurz ISPs often complain about poor customer service, as revealed on Facebook, Google, and Broadbandreports.com. Some of Schurz leadership hails from Comcast, including Bryan Lynch, who was with the cable giant for 16 years. Schurz companies have imposed bandwidth caps and they’ve gone on record with the FCC as opposed network neutrality.

The process to choose a successor for ownership of BT was exhaustive for the community and presented a problem to elected officials that seemed like a no-win situation. No doubt this decision will be one that City Councilors will rank among the hardest choices they’ve ever made during their terms. We can’t help feeling there was an element of decision fatigue and that political animosities influenced the final outcome. The Burlington City Council’s final decision to embrace Schurz appears to disregard BTAB’s advice and oppose the practices that make up the essence of what Burlingtonians wanted in a new Internet access provider.

Now that the community has chosen a buyer, the final agreement with all the legal details needs to be approved. The City Council expects to approve the sale at the December 18th meeting in order to meet the deadline established by the 2014 settlement with Citibank. Next, the state Public Utility Commission needs to approve the sale, probably in mid-2018. 

Read the LOI here.

Read the City press release here.

Listen to Christopher interview General Manager Stephen Barraclough about the rebirth of BT in episode 283 of the Community Broadband Bits podcast.

December 14th Update: A finalized LOI was developed between the city and Schurz Communications, with more detailed language, and is now available. Next, the parties will work toward a purchase agreement. Read the finalized LOI here.