Letter responding to state officials’ concerns will include projections of town subsidies for at least two more years; treasurer calls 2011 ‘high water mark.’
Updated Thursday, March 3, 2011, 5:16 p.m.
Directors of the MI-Connection Communications System on Wednesday approved hiring a consultant to oversee the system’s transition from its third-party manager to a new company managed by the board. Meanwhile, in a telephone meeting, the board also discussed a draft letter to be sent later this week to the state Local Government Commission in response to the LGC’s concerns over the system’s finances.
That letter, which won’t be made public until Friday at the earliest, will include new financial projections that show the system’s deficits continuing – but declining slightly – through 2013. Board members said the new projections will include a planned – but not yet approved – restatement of the 2011 budget. The numbers weren’t made public, and don’t go farther into the future than 2013.
The Local Government Commission approves and oversees borrowing by the state’s municipalities. In 2007 and 2008 it approved a total of $92.5 million in financing that allowed the towns of Davidson and Mooresville to buy and upgrade the former Adelphia Communications cable system. Last year, and again on Feb. 4, the commission sent letters to the system expressing concern over the system’s audited financial statements.
During Wednesday’s telephone call, board treasurer John Venzon of Davidson said new projections that MI-Connection plans to send to the LGC will show an “increasing free flow of cash and EBIDA” (earnings before interest, depreciation and amortization).
Although MI-Connection has been able to cover its day-to-day operating expenses with revenues over the past few years, it has not generated enough extra cash to cover payments on the system’s debt. That’s the major concern of the LGC and of officials and citizens in the two towns. Because of multimillion deficits, the towns have had to dip into their own funds to subsidize the system’s debt payments. This fiscal year (2011), the subsidy will cost the towns $6.46 million – $2.018 million from Davidson and $4.44 million from Mooresville.
Mr. Venzon said Wednesday the towns likely won’t see any larger subsidies than those during the coming years. “We believe 2011 was the high water mark in terms of contributions from the two towns,” Mr. Venzon said.
CONSULTANT’S CONTRACT APPROVED
The board voted 4-0 to hire David Auger, a former Time Warner Cable executive who now runs his own telecommunications consulting firm. Mr. Auger is expected to sign the contract this week and begin work immediately. [Update: Mr. Auger signed the contract and his hiring was formally announced on Thursday, March 3.]
The contract would pay Mr. Auger $17,867 per month, plus expenses. It would run through June 30, though it could end earlier or be extended.
Mr. Auger was publisher of the Los Angeles Daily News from 1989-94 and the following year helped launch a cable operator in southern California. He worked for Time Warner Cable from 1995 to 2006, holding management positions in Los Angeles, Minneapolis and Charlotte, where he was the division president.
Since leaving Time Warner in 2006, Mr. Auger has owned and operated Auger Media Group LLC, where his major client was Charlotte-based American Broadband.
MI-Connection is owned by the towns of Davidson and Mooresville and managed for the towns by Bristol Virginia Utilities, a management company that also operates a local communications network in Bristol, Va. BVU has run the system for the past three years, hiring the system’s manager and all its employees and making most day-to-day decisions. The towns oversee BVU through a citizen board that over the past year has taken an increasingly active role in seeking a path to erase big financial losses.
In December, the towns and BVU reached an agreement in principle to reconfigure their relationship, a move designed to give the towns more oversight and control over MI-Connection.
Mr. Auger’s task will be to oversee that transition, which will include transforming MI-Connection into a stand-alone entity, taking on about 40 of BVU’s local employees and increasing local management of the system, which offers cable TV, high-speed internet and telephone service to about 14,660 customers in the north Mecklenburg and south Iredell area. Among other things, MI-Connection must plot how to take over hiring, payroll, and finance.
The MI-Connection board also is hoping to negotiate a new 3-year contract with BVU that would replace the original 2007 operating agreement. The agreement would reduce BVU’s role in running the system, making it more of a services vendor, providing customer service, billing and technical support.
MI-Connection said in December it hopes a new agreement can be reached by the “second half of 2011.”
BOARD ADDING TWO MEMBERS
Meanwhile, the towns of Mooresville and Davidson soon will begin seeking applications from citizens interested in serving on a reconfigured board of directors for the communications system.
The towns have amended the agreement governing the system to expand the board by two members, which would add a seat for each town’s town manager.
The towns also plan to appoint a new selection committee to recruit new board members for possible appointment in April. It’s not clear yet which, if any board members might be stepping down, or whether there will be openings.
Also, board members’ terms now would be staggered, so the whole board would not change all at once.
Read more in our Feb. 10, 2011 report “Towns approve changes in MI-Connection board.”
RELATED DOCUMENTS
March 3, 2011, formal announcement of the hiring of David Auger as a consultant to MI-Connection. (PDF) CLICK HERE>
Some thoughts about the excellent article written by David once again. Lots of information in a special neeting called to order supposedly only to approve a response to the NC Local Government Commission’s request for information. I guess I might have to become a part-time employee in order to attend these suddenly important meetings called on 48 hours notice!
A quick Google search of “American Broadband” identifies the company as:
American Broadband Communications – committed to energizing communities and communications through strategic acquisitions of local exchange carriers serving rural areas of our country. By selecting small, often family-operated firms with a history of service and dedication to their communities, American Broadband keeps the emphasis local.
Their website announces their strategy as follows:
Large telephone holding companies often forget that the success of the local exchange carrier is intrinsically tied to the success and economic vitality of the community it serves. That’s why we can serve this market so effectively.
Apparently they grow their business through acquisitions. Nowhere on their website does it discuss significant internal customer and profitability growth.
Also, it appears the focus of their business is rural telephone exchanges, owned by “mom and pop” operators … and probably marginally profitable at that.
As a former senior member of management with Time Warner in Charlotte, will Mr. Auger be able to get them to “back off” on their aggressive competition for MI-Connection customers, or will his presence as an advocate for MI-Connection motivate them even more to gain market share in the Towns?
I remember the last “consultant” study which told the Towns there would be little to no interest in competitors moving into the marketing area of MI-Connection. Someone forgot to tell Windstream and Time Warner about that conclusion!
On a positive note, it appears the financial projections to be released (maybe??) for the next three years will no longer contain the wildly optimistic (ie, turning a profit!) projections of the last few years. In other words, the Towns’ taxpayers can expect to continue making financial contributions to the losses generated by MI-Connection. Even decreasing the losses by 8% per year over the next three years will result in accumulated losses of $5.9 million in 2012, $5.4 million in 2013, and $5 million in 2014.
The most immediate problem MI-Connection faces is an inability to grow their customer base. Three years of operations have failed to correct this and the problem is getting worse, not better. The longer management of the company continues in turmoil caused by negotiations to end their relationship with BVU, the more the losses will continue. At some point the cumulative effect will have an increasingly negative influence on profitability, as there will be too few customers upon which to spread the fixed costs of the business. Every employee of MI-Connection must refocus their efforts on growing the business now if there is any chance to salvage this business for the future.
MI-Connection has been a financial disaster from the get-go. It appears our elected officials believed they were going to be able to create a fantastic ‘cash-cow’ from the cable TV and internet businesses (and this due to a near-monopoly!).
It is a shame that we fail to learn from the past. State-owned businesses will inevitably be inefficient and not be subject to market forces, as the ‘owner’ simply has to raise taxes to cover any shortfall caused by inevitable mismanagement. There is little or no penalty for not making a profit. We fail to learn that private enterprises is best left in private hands.
We as taxpayers will pay for the ineptitude our of elected officials and their mistakes for years to come. Libraries close, and schoolchildren are cheated of a well-deserved education due to these mistakes. The only answer our town has to this ‘company’s’ woes is to hire an expensive consultant and hope for the best?? And MAYBE MI-Connection might show a profit in a few years?? Come on!!! How about doing some basic financial calculations such as NPV and IRR analysis to determine the real loss to Davidson and Mooresville?
Unfortunately, instead of just cutting their losses and licking their wounds, our elected officials will likely continue pouring money into this turkey and we the taxpayers will continue to pay the price.