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Burlington Telecom ‘Not Financially Viable,’ Panel Urges Partially-Privatizing Municipally-Owned Fiber Service Provider

Burlington Telecom (BT), the city owned-and-operated fiber-based cable, broadband, and telephone provider is mired in debt and is not financially viable in its current form.

Those are the findings of a “blue ribbon” committee tasked with answering questions about the future of the financially-troubled municipally-owned provider serving 4,600 Burlington customers in Vermont.

In an 11-page public report, the committee recommended the city partner with a commercial entity that would assume a majority interest in BT.  As a minority stakeholder, the city could eventually recoup the 17 million dollar investment it has made in the company.

Although some residents have lobbied the city to abandon the 100 percent fiber network to stem ongoing losses, the committee advised against it.

“The city has a considerable asset in BT, and should not give this asset away at a fire sale price,” notes one independent consultant working with the committee. “BT is too important to be jettisoned, in part because it keeps the competition honest.”

Burlington Telecom building and staff

But carrying forward as-is is not a good idea either, the report concludes.

“BT is not viable in relationship to its current debt load of $51 million and its ability to generate earnings to repay this debt. BT cannot meet its principal and interest obligations at this time,” the committee concluded, noting that the company’s current business plan can’t meet future financial challenges either.

As if to underscore that notion, BT this month asked the city of Burlington for a $386,000 loan from to make an interest payment to CitiLeasing by Wednesday, to prevent the company from technically defaulting on its $32 million municipal lease purchase.  On Friday, a judge issued a restraining order forbidding such a loan unless the Vermont Public Service Board agrees.

The committee noted that the reasons for BT’s financial problems weren’t rooted in its “first-class” fiber optic network, or its usefulness to the city.

In summary, the committee and its consultants blamed the problems on these factors:

  • HBC found BT overpaid for its fiber network, spending $1,000 per home passed, when fiber build-out prices have dropped in the past few years.

  • BT is spending too much money on customer installations.  HBC reports BT could save more than $600 off the $1,600 the company pays to hook up each customer.

  • The company uses the same door-to-door marketing company Comcast uses to get new customers.  Additionally, BT contracts with a third party service company to handle installations and service calls.  This work should be done in-house, HBC recommends, as paying a company based on how many installations are performed provides a built-in incentive to cut corners and quality.

  • BT’s broadband products are too slow for a compete, handing incumbent cable provider Comcast an unnecessary competitive advantage.  Fiber can blow cable modem service out of the water when competing on speeds, but BT foolishly charges too much money for too slow service topping out at just 8Mbps/8Mbps, for a whopping $71.80 a month.  BT calls that “the ultimate Internet experience.”  It’s not.  HBC predicts broadband will become BT’s most important service, so it is critical for the company to make the product more attractive to customers.

  • BT is mired in politics that has nothing to do with its service to the community, and it creates unnecessary distractions that commercial providers do not have.  Some who oppose the municipal fiber project or the current city council use BT as a political football.

  • Because it is a public entity, too much financial and strategic business information is open to public review, which includes BT’s competitors.  That gives Comcast and FairPoint advance notice of BT plans, pricing, and growth strategies.  Restructuring as a semi-private entity under local government oversight would help guarantee competitive business information stays out of the hands of the competition.

  • BT lacks an effective marketing strategy to convince residents and businesses to change providers.  Without a compelling lineup of services, and a marketing effort to sell them, customers will be reluctant to go through a disruptive switch to BT service.  The provider’s bundled service packages are often compelling (a triple play with basic television and phone service only costs $89 a month, less than $20 more than standalone broadband service), but they often lack the services, speed, and channels consumers want.

  • The company does not pay enough attention to customer service strategies.  Customers complain BT does not accept cash payments from walk-up customers, who are told to return with a money order.  From a confusing automated attendant that answers customer calls to inconvenient hours and appointment scheduling, BT needs to hire marketing experts to help restructure how it serves potential and subscribing customers.

Burlington Telecom's fiber broadband speeds are the same uploading and downloading, but there is plenty of room for improvement in speeds at a lower price

  • BT utilizes a 200-megabit backbone at a cost of $6,000 a month and a 350-megabit backbone at a monthly cost of $16,331. It is HBCs belief that backbone costs can be reduced considerably, as much as $6,000 per month should be saved through re-negotiation. Costs should be in the neighborhood of $25 to $30 per megabit, as compared to the $40 per megabit of speed now being paid by BT. HBC buys twice as much bandwidth per month than BT and pays only $7,000 more for the additional capacity.

  • Finally, the company leaves a lot of potential earnings on the table.  It doesn’t provide local-ad insertions on cable channels and doesn’t leverage its excess broadband capacity with businesses by selling them web hosting, co-location, and speed critical services.  It doesn’t provide value-added services that cable companies now offer, such as caller ID on TV.

The Burlington mayor, Bob Kiss, expressed skepticism at some of the conclusions in the committee’s findings.

Kiss believes refinancing BT’s debt would give the telecom company more time to implement better marketing and service improvements, which could attract new customers and revenue.

For Burlington business leaders, the entire affair is an embarrassment.  Many believe significant harm will come from a city gaining a reputation for defaulting on its obligations.

The conclusion many have reached is that Burlington Telecom was naively planned, without sufficient regard to realistic projections of expenses and revenues, and lacks expertise to effectively compete with other local providers.  Building an advanced fiber network for your community is only as good as the services offered at a price that makes sense.  Alienate customers with ineffective marketing or out of touch product packaging, and your future will be in doubt.

WCAX-TV in Burlington has followed the BT saga for months.  This video includes five reports covering the company’s future viability (13 minutes)

  1. Burlington Telecom Saga Continues (12-15-2009)
  2. Burlington Telecom Forces Changes In Burlington City Government (02-01-2010)
  3. Burlington Telecom Not Financially Viable (02-05-2010)
  4. Burlington Council Gets Blue Ribbon Committee Report (02-11-2010)
  5. Burlington Telecom’s Fate Under Discussion (02-11-2010)

WFFF-TV in Burlington reports the telecom company’s future is unclear. (1 minute)


WPTZ in Plattsburgh covered the contention over an upcoming interest payment BT needs to pay by Wednesday.  (3 minutes)

Read our complete coverage on Burlington Telecom.

Currently there are 5 comments on this Article:

  1. Daniel Gwozdz says:

    Just to correct an error, I work for a business that has colocation space with Burlington Telecom and leases 1GB fiber channels to connect several of our locations.

    Also, I find it humorous that an “independent” panel with a strong private telecommunication presence find that the service is financially nonviable, and then immediately suggest it be sold to a private telecommunication company. I wonder if there are other motives in play.

    • I think politics plays as much into this story as the financial viability angle. I have grown discontented with Vermont’s public utility board which managed to sing praises of FairPoint right up until the company provided third world phone service. They finally changed their tune, but it was far too late for northern New England. I would be very concerned the same people that defended FairPoint’s takeover of Verizon lines are now overseeing BT’s issues on the state level and the restructuring of the state’s largest phone company.

      Why are we letting the people who failed New England now represent themselves as the people who will review and approve the proposed solutions?

      Our earlier coverage on BT noted the politics between the mayor’s office and some of the political parties in the state all jockeying for a position of attack, or engaging in finger-pointing over who dropped what ball.

      As to your point, I had to significantly simplify many of the recommendations regarding value-added services like co-locations and other business services that were highly technical. The broader point of the recommendation was that BT could be doing a far better job selling their excess capacity, if marketed correctly. I recognize BT has some interconnections and other arrangements, but one of the consultants indicated they were not aggressively leveraging their biggest asset – amazing capacity, as well as they could be.

      I think the most useful recommendations come from the HBC Report (linked above from the text “HBC found” (in bold).

      Hiawatha Broadband Communications — a company actually in the business of building and running fiber-based broadband networks, made recommendations that made up the bulk the “problems and solutions” part of my report.

      For the record, I think municipal broadband projects can deliver success stories to communities left in a broadband backwater by their “just enough for you” incumbent providers.

      But it’s critical for these networks to be planned realistically and they need to hire people who have direct experience planning, building, and running them. The problems at BT, which everyone agrees are real even if they disagree with the solutions, only feed the narrative that “government can’t run anything” and discourage other communities from considering municipal networks as a solution to intransigent providers.

  2. Ian L says:

    You know, I agree with the assessment. Not sure about the side of it saying that the company should stop being a muni, but everything else makes sense. $2600 per customer is WAY too much to be paying for a connected customer…$2000 is where that number should be. Maybe lower. On the bandwidth side, BT should be renting transport to a carrier hotel in NYC if they aren’t already, then buying bandwidth there, rather than paying InterNAP and Vermont Telephone Company at the end of the last mile.

    Heck, if it’s required to stay solvent, switch all bandwidth to a gigabit of Hurricane Electric ($1500 + transport per month) unless they have long-term contracts with InterNAP and VTC, which would present a bit of a problem. Sure, latency will suffer but with a gigabit BT could raise internet speeds significantly and incur lower back-end costs, both of which are good things.

    As for pricing of broadband, it should stay the same. However the 5/5 should be 15/15 to compete with Comcast’s 12/2 service and the 8/8 should be 25/25 to compete with Comcast’s 22/5 DOCSIS 3 tier, even if it’s not yet deloyed in Burlington. Additionally, a 50M symmetric tier should be offered for $100 or so, so power users have no reason to choose Comcast.

    The bottom line is that the hard part of BT’s work (laying the fiber) is done. Now they just have to market it correctly. They don’t need to change prices. They just need to lower back-end costs and provide more front-end services. Here’s hoping that BT is successful despite these early problems, whether it ends up in public or private hands (as a right-wing/Libertarian I’d tend to prefer the latter but whatever works).

    P.S. If BT had those prices and services in my area I’d sign up for the 8 Mbps symmetric tier right now. $70 is about what I’m willing to pay for internet and I’d love 8 Mbps up…

  3. I think there is a lot going on behind the scenes that is difficult to follow for those not in Burlington and familiar with the economics of these networks. The amount they have spent on connecting customers is too high – but most of those expenses increased dramatically around the time the Administration decided to make everything secret. I do not think it settled that BT really spent that much money and I hope the results of the forensic audit are made public. It would not surprise me if BT problems are worse than the Mayor has suspected because something else is happening behind the scenes

    That said, I think your comments on BT failing to really capitalize on its strong architecture are correct. They have done a poor job competing with Comcast. I think the solution is to spread the costs across a wider geography – allowing it to generate the revenues needed to pay its debts. But clearly, it also needs reform so the Mayor cannot hide the numbers from Council and lie about BT’s health.

    • In the last go around on this matter, I strongly criticized BT for trying to play the “executive session” secrecy card far too often, keeping citizens in the dark about the true costs of constructing a municipal network. A public project like this requires that a community never lowball cost estimates or just rely on guestimates like Burlington did on several occasions. If there is an appearance of secrecy, people assume the scandal made public thus far is just the tip of the iceberg.

      I believe in municipal broadband, and problems like those in Burlington only cast such projects in a bad light, leaving even supporters to question their viability when the track record in some communities has not been good.

      Of course, faith is the one thing private investors have when they risk their money. It’s an emotional, not always analytical belief in something that drives investors to risk a lot, hoping for a payoff. Obviously, public taxpayer money cannot be used to roll such dice (unless we’re bailing out certain investment banks who thought they were casinos), so the bar can and should be somewhat higher for these public projects.

      Now that the entire affair has become political, the different parties are jockeying for position and the one in charge is finger-pointing and ducking. Vermont has three significant parties to contend with — the Republicans, the Democrats, and the Progressives. The latter party enjoys support in Burlington, something I’m sure the other two would like to change.

      In the middle, inevitably, will be BT and its 4,000+ subscribers, who have to wonder what will ultimately happen to their service. The Republicans would be happy to sell the whole thing to Comcast and use it an example of overactive government. After a thorough independent review to ensure there is no more funny business, a better idea might be to establish some sort of authority that is beholden to the BT system and its subscribers and not directly to city administration and council’s political games.

      Remember, the more information you do make public, the more Comcast and FairPoint can use against the system, so people should be looking for accountability more than every detailed number and business strategy.

      I also think a partnership that provides either an equal split between the public and private participants, or at least clearly defines absolute requirements for BT to serve the public interest, if the administration is to hold a minority stake, are essential to consider.

      BT could start by hiring HBC, or someone with a proven success story in muni-broadband as a consultant BT should have many more customers than it does today, and if they can manage it, today’s headlines can be tomorrow’s fish wrap.

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