Burlington Mayor Miro Weinberger. File photo by Alexandre Silberman/VTDigger
BURLINGTON — When city officials unveiled the final bidders for the Burlington Telecom fiber network Wednesday, the field had winnowed from four offers to three.
An offer from a person officials described as a private equity investor with “valuable local relationships and extensive telecom experience” was absent from those presented to the public and has been withdrawn, according to City Attorney Eileen Blackwood.
It was not immediately clear why the bid was withdrawn. Blackwood indicated that a non-disclosure agreement with the private equity investor prevented officials from saying what happened.
City Councilor Kurt Wright, R-Ward 4, said there had been “significant interest from the council in the bidder that’s been removed.” Wright says the way the bid was withdrawn amounted to a “breach of trust” between the mayor and the City Council.
Wright, who attended Wednesday’s news conference, said councilors were informed that the private equity bid was withdrawn during an executive session Monday, and only after the offer was taken off the table.
City Council President Jane Knodell, P-Central District, said she “unequivocally” backs Wright’s assertion that there was strong interest in the private equity bid, and that she feels the council’s trust was violated.
Mayor Miro Weinberger said Blackwood advised him that “it would be incorrect to characterize the reason for the withdrawal.”
After the news conference, Weinberger issued a statement saying that he valued his good working relationship with the City Council, and he would “do what I can in the weeks ahead to work our way through this.”
“Running a city is an exercise between 13 different people and two co-equal branches of government, and communications between everyone is challenging, especially when the stakes are high and timing is short,” he said.
At the news conference, Weinberger said there are still three attractive bids for the city to consider. “This is an exciting day for the city, a day that many did not think we would get to back in the darker times in Burlington Telecom’s history” in the 2000s.
In 2009, Weinberger’s predecessor took $17 million from city coffers, without approval, to prop up Burlington Telecom. That ultimately led to a settlement with Citibank, the network’s creditor, for $10.5 million and entitles the bank to a share of the proceeds from the upcoming sale.
The remaining bids
All three bids would include anti-monopoly protections to prevent Burlington Telecom from being sold to a company already providing service in the region, according to City Attorney Blackwood, though the precise nature of those provisions are still being negotiated.
Their purpose would be to ensure Burlington residents have choice among broadband and internet service providers, one of Burlington Telecom’s original aims, not necessarily to prevent its sale to a national telecom giant in the future, Blackwood said.
All three offers also include plans to expand service in Burlington and the region, pay for the infrastructure needs of the company and commitments to net neutrality, or equal access to all online content.
The bidders also say they’re uniformly committed to leaving Burlington Telecom’s management team largely in place, while also maintaining or expanding local customer service.
More information on all three bids can be found here. Blackwood noted that some aspects of the bids are subject to change as negotiations continue.
As previously reported, two offers come from established telecommunications companies. One is from Ting and its Toronto-based parent company Tucows. Tucows is publicly traded (NASDAQ: TCX).
Ting’s bid is a $27.5 million cash offer with an additional $500,000 if Burlington Telecom exceeds financial targets in the current fiscal year. They would also cover the estimated $800,000 cost of removing Burlington Telecom equipment from Memorial Auditorium. The company would give $250,000 toward Burlington Ignite, and other local tech ventures and community projects.
Ting provides service to 280,000 mobile devices in the United States and operates fiber networks in Charlottesville, Virginia; Westminster, Maryland; Holly Springs, North Carolina; and is building networks in Sandpoint, Idaho, and Centennial, Colorado.
In a letter of intent, Ting officials write that they have “never subsequently sold an asset we’ve acquired.”
Indiana-based Schurz Communications, which operates Antietam Broadband, is offering $30.8 million cash with a possible increase if Burlington Telecom exceeds financial targets this year. The company is also willing to discuss paying to remove equipment from Memorial Auditorium.
Schurz Communications is a privately held fifth-generation family-owned business, with a publishing company that includes more than a dozen outlets in the Midwest, and broadband services.
The third offer is from Keep Burlington Telecom Local, which is offering $12 million, with $10.5 million cash. The proposal relies on a $1.5 million investment from the city, which would allow Burlington to retain a 12.5 percent ownership stake.
KBTL is proposing a co-operative ownership model, wherein all existing subscribers would automatically become co-op members, eligible for rebates and a role in Burlington Telecom’s governance.
Both bids from the telecommunications companies would allow the city to retain a 20 percent ownership stake in Burlington Telecom, or possibly more if regulators and other parties to the sale allow it.
The lion’s share of the co-op’s cash would come as a $10 million loan from Maine Fiber Co. Maine Fiber would also serve as a partner with experience operating a fiber network that serves national telecom companies, local service providers, businesses and the University of Maine.
The co-op has an additional $500,000 it raised through the local crowd-funding site Milk Money. Its bid has enjoyed vocal support from residents at public meetings.
Sale process going forward
The city has an accountant and a telecommunications firm analyzing the bids, and it hopes to have that analysis available to the City Council for a special Oct. 2 meeting, where the bids will be winnowed to two finalists.
Members of the public can weigh in on the bids by emailing their comment to BTfeedback@burlingtonvt.gov. Submissions will be provided to the mayor and City Council.
At an Oct. 16 meeting, the council is expected to select a buyer for the fiber network.
Burlington will retain a larger portion of the sale proceeds if a final agreement with one of the bidders is reached by January.
The deal will be presented to the Public Utility Commission, which would need to sign off on any final sale by issuing a certificate of public good. Blackwood said that process could take more than a year, and doesn’t need to be complete before the end of the year for Burlington to receive its maximum payout.
Forty percent of the sale proceeds will go to Bluewater Holdings LLC, a firm operated by local financier Trey Pecor. Bluewater technically owns Burlington Telecom’s assets and has leased them back to the city for its continued operation.
Ten percent of the sale proceeds would go to Dorman Fawcett, a consulting firm the city hired to manage Burlington Telecom. City officials credit the firm for Burlington Telecom’s improved finances, and it’s likely to help the eventual buyer during a transition period.
Bluewater could reject a sale, but only if the price doesn’t meet a minimum threshold, according to City Attorney Blackwood, who said all of the bids meet that price, though she wouldn’t disclose its amount.
After Burlington splits the remainder with Citibank, it will have to reimburse attorneys fees and reimburse Dorman Fawcett for deferred management fees.
The mayor said if the city goes with either of the larger bids from telecommunications companies, Burlington will net roughly $5 million to partially pay back the money that was improperly spent on Burlington Telecom almost a decade earlier.
“Some people may compare that to the $17 million, and think that isn’t enough. I am pleased we will be in a position to consider options that would get millions back. I think there’s skepticism we would get any of that back,” Weinberger said.
He said the sale proceeds should also be viewed in the wider context of the city’s overall improved finances since settling with Citibank, which initially sought $33 million and received far less.
If the KBTL co-op is selected, Weinberger said the city would keep its share of the proceeds as equity in the co-op, and would also be in a position to see a cash return if Burlington Telecom is successful going forward.
Correction: An earlier version of this story misstated how sale proceeds will be split between the city, Bluewater Holdings and Dorman Fawcett.
