DavidsonNews.net

Davidson and Mooresville elected officials met Thursday, May 29, in Mooresville for an update on the town-owned MI-Connection cable system and a discussion of how to come up with an extra $12.5 million needed to complete a planned upgrade of the network.

The towns borrowed $80 million to buy and upgrade the system last December. At the time, MI-Connection had about 13,500 cable TV subscribers. It now has about 15,800 cable TV and 9,000 internet customers in Davidson, Mooresville, Cornelius and parts of north Mecklenburg and south Iredell counties. DavidsonNews.net reported in April that the system had asked the towns for more money because of a higher-than-expected purchase price and because the cost of upgrading the system was more than anticipated.

JOHN WOODS

Davidson Mayor John Woods said the towns are studying several options for borrowing the additional money.

“Mooresville could borrow the money and (Davidson would) pay them back. We (Davidson) could borrow it. We each could borrow half. We’re sorting out which is the most sensible,” Mayor Woods said. He said it appears that it may make the most sense for Mooresville to borrow, since it is larger and has greater borrowing power than Davidson, and might be able to get a lower interest rate.

EVAN WEBSTER

Evan Webster, MI-Connection’s chairman who is also a Davidson Town Board member, said the additional debt, in whatever form and whoever the borrower, ultimately would be paid for by MI-Connection system revenues, not the towns’ general funds - just as revenues are paying off the original $80 million.

MONEY FOR UPGRADE

Cable system officials say they need the extra money to complete the planned – and badly needed – upgrades to the former Adelphia system, including new cable and equipment both in the field and at the company’s Mooresville headquarters.

The towns had included money for the upgrade in their original $80 million debt offering. But that was before they learned last fall that the system would cost $11 million more than expected. The cost, which was based on a per-subscriber price, rose because the system had more subscribers than the towns had been told previously.

To pay the higher purchase price, the towns had to dip into funds intended for the upgrade.

Meanwhile, the upgrade also is turning out to be more expensive than planned. In April, MI-Connection general manager James “Junior” Miller told DavidsonNews.net the system’s underground cable network needs more work than previously thought.

The additional cost and extra upgrades mean the system altogether needs about $16 million more. The remaining $3.5 million would be paid for through cash the system already has.

SYSTEM PAYS FOR ITSELF

Some residents in the two towns opposed the purchase, in part out of a philosophical belief that town government should not be in the cable TV business. Opponents also have worried the purchase is a bad investment, which could wind up costing taxpayers.

The towns’ business plan, drawn up before the system purchase in December, showed that the system remained profitable, even as previous owner Adelphia went bankrupt. The plan predicts the system will continue to pay for itself during the upgrade and eventually should generate a profit for the towns.

So far, the venture appears on track. In its first quarterly report issued May 8, MI-Connection said it was ahead of budget targets.

Although the report contained few financial numbers, it said subscribers increased 4.9 percent since the towns acquired the system in December. And MI-Connection said it had $644,345 in income for the first quarter ending March 30, excluding interest, taxes and depreciation of assets. That was 27 percent more than the budgeted, according to MI-Connection. (That figure, known as EBITDA, is what many analysts look to for signs of the strength of a company’s cash flow.)

Ongoing operating expenses, as well as debt service on the original $80 million loan, so far have been covered by the system’s operating income, and have not cost the towns anything.

Davidson’s 2008-2009 budget does not include any cable-related expenses, according to Mayor Woods. And Town Manager Leamon Brice said during a budget discussion at the May 27 Town Board work session that he is anticipating the town will receive a reimbursement from MI-Connection soon for expenses it incurred in 2006 and 2007 while studying the cable system purchase.

Meanwhile, MI-Connection is projecting that its cash balance will remain healthy – dipping no lower than $915,000 in 2011 - and begin increasing in 2012.

GOAL: A MODERN SYSTEM

Mr. Webster said the upgrade, on track for a February 2009 completion, would position the system for the future. Besides increased capacity, the upgrade would let the system offer new services, such as local telephone service and video on demand. Those new products would increase MI-Connection’s per-subscriber revenues – and profits – Mr. Webster said.

“We have the opportunity to create an asset that will be of great value technologically and financially for the towns,” he said. “If we don’t upgrade, we’re going to create a wasting asset.”

Mr. Webster said the upgrade would help to transform the company from an old-fashioned cable system into a modern telecommunications provider.

“The towns started by buying a cable company. But what we’re getting is a company that’s more than half internet,” he said.

MI-Connection gets about 60 percent of revenues currently from the competitive cable TV side of the business, where it already faces challenges from satellite providers. In the coming years, it will face new competition from local telephone companies such as AT&T (formerly BellSouth), which is laying plans to upgrade its network to offer TV services.

In the future, Mr. Webster said, MI-Connection will get less than half its revenues from TV, as the more profitable data communications services grow.

BUSINESS OPPORTUNITY

That will help MI-Connection target an important segment of the local market: businesses. One of the major shortcomings of the system under Adelphia, the former operator, was its poor service and products for business customers, MI-Connection officials have said.

Once the network is upgraded, MI-Connection is planning to boost marketing to those customers, who represent an untapped opportunity. According to the presentation at the May 29 meeting, MI-Connection lines currently pass about 2,000 businesses, nearly all of which are small- and medium-sized businesses. The company now serves just 14 percent of those customers.

The goal, according to MI-Connection officials, is to increase that to 30 to 40 percent of the market. And the upgrade also will allow existing companies a better range of services.

Among other things, the upgrade will speed internet and data speeds on the MI-Connection network and give the company the ability to provide large businesses “any type of (speed and capacity) they need,” Mr. Webster said.

That could include extending high-speed fiber optic lines directly to a large business, if needed.

Local officials say that would MI-Connection become an economic development tool, as area towns try to recruit large businesses to the area.

PREVIOUS COVERAGE

May 9, 2008, “MI-Connection issues first quarterly report”

April 11, 2008, “Cable system seeks $12.5 million more”

Nov. 28, 2007, “Cable system price tag rises”

Filed under: Cable TV, Davidson business, Davidson town board, Mooresville