[B]URLINGTON — On the eve a of a hotly anticipated City Council vote to select a buyer for Burlington Telecom, both the fiber and mobile company Ting and the Keep Burlington Telecom Local co-op made their final pitches.
The two bidders released final letters of intent, which were posted on the Burlington Telecom website Thursday afternoon. The City Council is expected to vote Monday to select a buyer for the fiber internet, phone and cable provider.
At a news conference and rally on the City Hall steps Friday, close to 40 co-op supporters urged councillors to go with Keep BT Local’s $12 million offer, over the $30.5 million final offer from Ting.
They said the benefits of local ownership outweigh the larger sale price, arguing that Ting, which is a subsidiary of the publicly traded Canadian company Tucows, would manage Burlington Telecom in the interest of its shareholders — not local residents and subscribers.
“They will bend and sway and blow in the wind in whatever direction their stockholders and equity investors demand, so that they can make more money,” said co-op backer Melinda Moulton, CEO of Main Street Landing.
Other speakers raised concerns that Tucows would sell Burlington Telecom to Comcast or another telecom giant.
Tucows CEO Elliot Noss said Ting has demonstrated a commitment to working in the interest of local communities where it operates fiber networks, and its offer includes an anti-monopoly provision that would preclude selling to Comcast.
That clause would prevent Ting from selling Burlington Telecom to any entity that would, as a result, have more than 75 percent market share in Burlington. With BT currently holding mid to high 40 percent of the market, that would effectively preclude selling to a major competitor, Noss said.
Other large telecom providers, such as Time Warner or Charter Spectrum, are unlikely to enter the market or attempt to purchase Burlington Telecom anyway, Noss said, because “those guys do not compete with each other in the same market.”
“I’d say the best protection, though, is our history and our practice. Anyone who knows me knows I’d be loath to sell to a major telecom,” Noss said.
The majority of Burlington’s business community is supporting Ting’s bid, with business leaders holding their own dueling press conference Friday at the same time as the co-ops.
The Lake Champlain Regional Chamber of Commerce said beyond the capital and experience Ting offers, there are legal and regulatory issues with the co-op bid that make it a risky proposition.
Those concerns are echoed by Mayor Miro Weinberger who came out against the co-ops bid on the grounds that it Citibank, a former Burlington Telecom creditor which will get a portion of the sale proceeds, is likely to sue if the city sells to the co-op.
Weinberger said Friday that his opinion has not changed, and he still believes KBTL has not done enough to address the financial, regulatory, legal and operational concerns he and others have raised.
At the same time, the mayor said he believes the Ting was substantively improved, putting writing a pledge to invest $50 million in Burlington Telecom over the next decade.
Weinberger said in addition to having industry leading customer service and support, Ting’s plans to grow its business in Burlington will be a boon to the local tech economy.
Noss said that’s an undervalued aspect of Ting’s Burlington Telecom offer, noting that Ting would make Burlington its eastern headquarters for cable video, bringing additional jobs to the city.
The company is also making Burlington a hub for research and development on ambient connectivity, holding out the potential for more tech jobs in the future, helping city and state to retain skilled young people, including graduates of Champlain College’s cybersecurity program, Noss said.
City Councilor Max Tracy, P-Ward 2, said he felt the mayor raising legal and regulatory concerns late in the process amounts to the “moving the goalposts,” to undermine the co-ops bid.
If the city were interested, it has the resources and expertise to ensure the KBTL bid is viable. That sentiment was echoed in a statement from Progressive State Auditor Doug Hoffer, who said the chance to ensure local ownership by selling to the co-op is a “once in a generation opportunity.”
Among the regulatory concerns raised by city officials is whether the Public Utility Commission would allow Burlington to retain an equity stake in Burlington Telecom going forward.
While both Ting and the co-op have left open the possibility of the city retaining an ownership stake, the KBTL bid no longer requires city to keep 12.5 percent, or $1.5 million investment in the new entity.
To cover the $1.5 million from the city that was required in its original offer, should regulators decide the city can’t keep a stake in Burlington Telecom, the co-op would increase its borrowing from Maine Fiber Company, bringing the loan up to $11.5 million from $10 million.
The co-op bid would also allow Citibank to retain an equity stake in lieu of the cash it is to receive in the sale, but co-op board members say they think it’s unlikely the bank will take them up on that offer.
The remaining $500,000 in the KBTL bid would come from in excess of $600,000 the co-op has raised through the local crowdfunding site Milk Money.
To further shore up concerns raised by the City Council as to how KBTL would survive an economic downturn or pay unexpected costs while strapped with millions in debt, the co-op secured a lower 8 percent interest rate from Maine Fiber.
The interest rate on the loan was previously 14 percent. To secure the lower interest rate, KBTL agreed to make additional payments contingent on Burlington Telecom’s financial success that would essentially bring payments up to a 14 percent interest rate, but only if things are going well, said KBTL board chair Alan Matson.
KBTL also sought to assure customers and the City Council that if it were to go into default on its loan, Burlington Telecom wouldn’t fold or have its assets sold off to a telecom giant or other buyer.
If the co-op defaults on its debt, a provision in their offer would give Burlington the opportunity to purchase Burlington Telecom’s assets by assuming the loan and making the payments to Maine Fiber, Matson said.
“The city would basically have to make good on minimally the 8 percent,” he said.
In a statement, Maine Fiber CEO Dwight Allison said his company “has no interest or intent in owning and operating Burlington Telecom — not today tomorrow, or in 10 years.”
Allison said it’s business model is to partner with customers and community partners to extend fiber internet access in rural areas or those underserved by national competitors.
Ting’s offer reaches the $30.5 million mark with its pledge to cover the cost of capital improvements to the Burlington Telecom network during the period from signing a deal, should they be selected, to when that deal closes — an estimated investment of $2.5 million.
“If we’re lucky enough to win the vote on Monday, there’s going to be this long period where Bluewater and the city still own the asset,” Ness said, “Burlington Telecom would have zero incentive to continue its build out during that period, so we’ve offered to reimburse them.”
A separate $500,000 payment that was previously contingent on Burlington Telecom hitting certain performance targets this year will now be part of the cash payment at closing, Noss said.
Combined with $800,000 they’ve pledged to cover the cost of moving equipment out of Memorial Auditorium, should that be necessary, and Noss contents the total Ting offer is $30.5 million. Schurz, which was considered the high bid originally, had included that $800,000 in its $30.8 million offer price.
Ting has committed in its letter of intent to put $250,000 annually into community benefit projects. KBTL has pledged to make a similar investment, and Friday, co-op board member Andy Montroll said it would match Ting’s offer of $250,000 per year. That commitment isn’t explicitly reflected in the co-op’s letter of intent.
Ting would give $60,000 to innovation nonprofit BTVIgnite and $50,000 in free advertising on premium cable channels for startups and community events. The remaining $140,000 would be spent on community programs at the direction of the city and residents.
Those payments would be on top of Ting’s sponsorship of local events and the provision of free wi-fi to some public spaces or charities, Noss said.
KBTL is offering $25,000 to BTVIgnite in the first year, and $50,000 thereafter. It would commit to providing training and support to Burlington’s tech community, Matson said. The additional money Montroll said KBTL would invest will be directed by residents, he said, but among the ideas the co-op is exploring are partnerships with local schools and colleges to provide scholarship and internship opportunities, board members said.
The co-op also offers subscribers the benefits of member ownership, including a role in the telecom’s governance as well as account credits and possible patronage refunds, Matson said. Those benefits would extend to the city and school district, which would be given co-op membership.
Both Ting and KBTL said they would retain all current Burlington Telecom employees.
KBTL said it’s committed to keeping phone and internet rates at the current level, while expanding access to gigabit speed internet across the city, Matson said.
Ting is making a similar commitment, saying it will not raise phone or internet prices for 2.5 years and will only raise cable prices to pay for content cost increases, or increases passed on by networks such as ESPN or others.
Noss said one aspect of Burlington Telecom’s future is being “trivialized” in the sale process, and that’s the actual day-to-day operation of a fiber network.
“People are acting like operating an ISP (Internet Service Provider) is just instant soup, like you just add water, but it’s more complicated. You need fresh vegetables and the right spices,” Noss said.
Ting has a proven track record of operating fiber networks well, he added. Among the questions Burlington business leaders and officials supporting Ting have raised about KBTL is whether it will be able to bring to bear similarly expert management.
Supporters, including Allison, the Maine Fiber CEO, say it will. “I have been impressed by the tenacity, enthusiasm, professionalism and knowledge of the current KBTL board, and have no reservations that they will hire in a top tier management team,” Allison said in his statement.
In a thread on the website Reddit, a person who said they are a Burlington resident and BT customer for feedback from Ting customers in Charlottesville, Virginia, one of the cities where it operates a fiber network. The responses were overwhelmingly positive.
“Wow, thanks for all the replies everyone,” the poster wrote, “While I’d love for us to be able to keep our fiber network locally owned, it sounds like Ting would be a decent option if that turns out not to be possible.”
Burlington Telecom is owned by the holding company Bluewater Holdings and its assets are leased back to the city, an arrangement reached following a settlement with Citibank. The 2014 settlement with Citibank ended a $33 million lawsuit brought by the bank, which had loaned money to Burlington Telecom.
Burlington’s agreement with the holding company allows the city to select a buyer. If Burlington is to keep the largest possible portion of the proceeds, the sale must be completed by year’s end.
Correction, Nov. 7 at 10:40 a.m.: An earlier version of this story misstated when the city entered an agreement with Bluewater Holdings.