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.

[flv width=”368″ height=”228″]http://www.phillipdampier.com/video/WCAX Burlington Telecom Saga 12-15 02-01 02-05 02-11-2010.flv[/flv]

<

p style=”text-align: center;”>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)

[flv]http://www.phillipdampier.com/video/WFFF Burlington Burlington Telecom’s Future Unclear 02-11-2010.flv[/flv]

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

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/WPTZ Plattsburgh Burlington Telecom Not Viable.flv[/flv]

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.

A controversial proposal by Montana’s largest cable operator to use public funding for construction of a fiber optic network linking the state’s seven Indian reservations has been rejected by federal officials.

Bresnan Communications sought $70 million broadband stimulus grant to construct the 1,885-mile fiber-optic network to improve broadband connectivity.  Independent and cooperative telephone providers objected, claiming the proposal would duplicate services they already provide.

The debate over broadband stimulus funding in rural Montana has been contentious, particularly after incumbent telephone providers accused Bresnan of lying on their application — implying funds would directly improve broadband service to Native American communities.  They accused the cable operator of using public funds to enhance their own “middle mile network,” infrastructure that helps Bresnan distribute broadband traffic between its central offices and data centers, but not “the last mile” connection customers actually rely on to obtain service.

Montana is not alone in the debate over how federal broadband stimulus money should be spent.  With a limited pool of funds, and an overwhelmed National Telecommunications and Information Agency tasked with processing an unexpected flood of applications, funding decisions have become increasingly political, and many incumbent providers have learned they can jam up an applicant just by flooding federal agencies with comments opposing projects that impact on their service areas.

[flv]http://www.phillipdampier.com/video/KULR Billings Montana Broadband Workshop and Broadband Speed 1-19-2009 and 8-30-2009.flv[/flv]

KULR-TV in Billings covered the NTIA Grant Broadband Workshop held last January and also covered Montana’s woeful existing broadband speeds in these two reports. (1/19/2009 & 8/30/2009 – 2 minutes)

Because “last mile” projects are the most threatening to incumbent providers, these applications typically get the most opposition.  The NTIA, in an effort to reduce their workload, has in turn started focusing on “middle mile” projects which often benefit incumbents, pushing public tax dollars into pre-existing private networks.  That looks great on provider balance sheets — that’s money they don’t have to raise from stockholders or other investors.  Diverting those funds away, even from currently unserved areas, also protects providers’ flanks from the potential threat of competition, both now and in the future.

In Montana, chasing few potential customers spread out over vast distances in rural areas makes the potential threat from competition even scarier.  There, many small phone companies exist as co-ops, less concerned with raking in profits.  They fear the potential threat Bresnan Communications could bring to their viability if the cable operator gets a stronger foothold in their territories, especially when using tax dollars to do so.  But is the threat that large for well-run, customer-oriented companies and co-ops?

Many rural areas served by co-ops and other small independent companies actually receive better and faster broadband service than their more urban counterparts, argues Bonnie Lorang, general manager of Montana Independent Telecommunications Systems, an independent phone company trade group.  That’s because the state’s large urban phone company – Qwest, does not provide DSL into more distant suburban and rural service areas, and has only reached 75 percent of its customers with broadband service.  Smaller independent providers, particularly member-owned cooperatives, are accustomed to serving residents Qwest has been slow to reach.

While true for those forced to rely on Qwest DSL service, those with access to cable modem service can do better.  Bresnan provides up to 8Mbps service for residents in its mountain west region covering parts of Wyoming, Montana, and the western slope of Colorado.  Expanding Bresnan’s service where economically feasible remains a priority for the company, and broadband stimulus funding may make the difference between an “unprofitable” area and one that can be profitable if certain infrastructure costs are underwritten.

“Bresnan has a history of investing in communities that are not considered larger communities,” according to said Shawn Beqaj, spokesman for Bresnan. “Our philosophy is that smaller communities deserve every bit of the services that large communities have.”

Bresnan’s grant application received support from Montana governor Brian Schweitzer, the state’s Native American population, and some consumers unhappy with their current broadband choices, if any.

Montana's phone companies are running these print ads objecting to the broadband stimulus proposal from Bresnan Communications (click to enlarge and see the full ad)

On the other side, the phone companies and their trade groups: the Montana Telecommunications Association and Montana Independent Telecommunications Systems, and the state’s utility oversight agency.  They protested Bresnan was unnecessarily duplicating existing service, and potentially getting taxpayer money to do so.  They also hinted Bresnan exploited Native Americans in an application tailor-written to appeal to federal officials seeking improved service for disadvantaged and challenged minority groups.  Besides, the phone companies argued, Bresnan broke the rules from the outset by only agreeing to provide $6 million in company-provided matching funds, less than the 20 percent in matching dollars required by the stimulus program.

“If an area is unserved, prove it and spend the money on that,” Geoff Feiss, a representative of the Montana Telecommunications Association (MTA), told the Billings Gazette.  “But don’t spend $70 million on an overbuild network that’s going to deprive investment from existing networks and leave behind collateral damage that we’ll never recover from.”

Montana’s Public Service Commission ended up on the side of the MTA, calling Bresnan’s proposal “seriously flawed.”

Bresnan and their allies shot back that phone companies complaining about federal dollars being spent on broadband projects was hypocritical, considering many of those companies receive government assistance from the Universal Service Fund to stay in business themselves.

Consumers looking for broadband were left in the middle or left out entirely.  Many residents of the state are forced to rely on dial-up, satellite, or have been left indefinitely on waiting lists for future DSL expansion projects that take forever to materialize.  Choice is an option too many residents don’t have.  The Great Falls Tribune shared a story familiar to many Montanans:

Tim Lanham can’t get Qwest DSL at his eastside Great Falls home. It’s available to his neighbors across the street and at his office a block away.

He’s called Qwest about the situation, but typically can’t get through to a real person. The whole thing is frustrating, he said.

Lanham used to use Sofast. After its service went down, he switched to a Verizon Wireless card, but that can only be used on one computer at time. Now he has broadband Internet through Bresnan. Still, he wishes he had more options.

“I’d like the different options,” Lanham said. “Essentially they leave us with very few choices.”

At the heart of the debate is how to address the “digital divide” between those with Internet access and those without, and improving connectivity for those stuck with outdated, expensive, and slow “broadband.”

The state’s utility commission believes Montana’s primary problem exists in “the last mile,” namely getting broadband service to rural residents who currently are forced to use dial-up or satellite fraudband service that offers slow speed, tiny usage allowances, and a high price tag.  In most cases, telephone companies have deemed these rural residents too few in number and too far apart to make investments in DSL service worthwhile.  Using broadband stimulus money to subsidize the costs of providing service to rural America provides a direct path to broadband for those who may not obtain access any other way short of moving.

Larger providers have been urging that less money be spent on “last mile” projects and that funding be redirected into “middle mile” projects, which could dramatically reduce the costs companies have to pay to maintain and upgrade their own backbone infrastructure.  Examples of these kinds of projects include installing fiber optic cables between telephone company central offices or extended service “remotes” which reduce the distances between customers and telephone company facilities, extending the distance DSL can cover in rural areas.

For now, Montana will have to wait for both.

Bresnan officials will meet with tribal and state commerce officials before deciding what to do next.

Walter White Tail Feather, director of economic development for the Assiniboine and Sioux tribes on the Fort Peck Indian Reservation in northeastern Montana, told the Gazette he hopes Bresnan reapplies for the funding.

“We think we can make a better proposal this second round,” he said. “This first one was a learning experience. … What we really are doing is working with the state to empower ourselves as a tribal government to create a business, to create opportunities that we don’t have.”

The state’s small phone companies may have won the battle, but are now concerned they could ultimately lose the war over obtaining broadband stimulus money themselves, at least from the NTIA.

Jay Preston, chief executive officer of Ronan Telephone Co., told the Gazette two federal agencies now will be deciding who gets broadband stimulus money: The National Telecommunications and Information Administration and the Rural Utilities Service.

The NTIA “seems to be really, really focusing on the middle-mile idea,” Preston said, while RUS probably will approve funds for rural telephone companies that already are the federal agency’s customers. The RUS loans money to rural co-ops for a variety of projects.

Regardless of where the money comes from, frustrated Montana residents just want better service.  The state ranks dead last, tied with Alaska, in broadband speed, according to a study from the Communications Workers of America.  Residents enjoy an average broadband speed of just 2.3Mbps.

[flv]http://www.phillipdampier.com/video/KFBB Great Falls Montana ISP Flounders 11-10 – 11-13-2009.flv[/flv]

Already-broadband-challenged Montana residents faced a major headache when one of the state’s large Internet Service Providers, SoFast, suddenly shut down last November.  KFBB-TV in Great Falls followed the story over three days in these three reports from November 10-13th, 2009.  (5 minutes)

The Billings Gazette mapped out Montana's fiber landscape

President Barack Obama reiterated his support for Net Neutrality policies and expressed concern about providers trying to charge higher fees and extract more money from consumers for broadband service.

In a post State of the Union question and answer session held on YouTube, the president responded to a question regarding policies that would forbid broadband providers from tampering with Internet traffic, typically for monetary gain.

“We’re getting push back, obviously, from some of the bigger carriers who would like to be able to charge more fees and extract more money from wealthier customers,” he said. “But we think that runs counter to the whole spirit of openness that has made the Internet such a powerful engine for not only economic growth, but also for the generation of ideas and creativity.”

The reference to charging higher fees and extracting more money from wealthier customers may signal Obama recognizes that Internet Overcharging schemes like usage limits and usage-based billing represent an end run around many Net Neutrality prohibitions.  By charging excessively high prices for broadband traffic, Internet providers can effectively choke off potential competition to both its phone and television programming businesses, as well as higher bandwidth innovations still to come.

The Obama Administration’s support for Net Neutrality dates back to the early days of the presidential campaign, when then-Senator Obama expressed support for Net Neutrality.  The Federal Communications Commission has been tasked to develop a Net Neutrality policy to be enforced by the Commission.

Critics contend the FCC has no authority to enforce such provisions.

Robert McDowell, one of the two minority Republican commissioners at the FCC predicted any attempt by the Commission to enact sweeping Net Neutrality policies would likely face a rapid challenge in the courts. One popular venue for such cases has been the DC Circuit Court of Appeals, which has a track record of deciding cases in favor of providers.

Such a ruling could partially or completely derail an FCC Net Neutrality policy until Congress passed legislation to specifically authorize the Commission to regulate broadband policy.  Congress can also pass Net Neutrality legislation itself.

President Barack Obama answers a question about Net Neutrality policy in his administration.

[flv]http://www.phillipdampier.com/video/WSYR Syracuse Cut Your Phone, Cable and Internet Costs 1-25-10.flv[/flv]

Consumer Reports February 2010 issue rates service providers and gives advice to consumers about where and how to get the best deal for telephone, cable, and broadband service.  WSYR-TV in Syracuse breaks it down.  (2 minutes)

DC Circuit Court

Once again, the United States Court of Appeals for the District of Columbia Circuit is proving to be the best friend corporations have to unravel regulatory policy and consumer protection laws that might violate corporate free-speech or trade rights.  It has become a favored venue for telecommunications providers who want to be rid of pesky prohibitions or reasonable regulation.

After a series of arguments, universally considered disastrous for the Federal Communications Commission’s authority to regulate broadband, the cable operator may want to send flowers to the Court… a lot of them.

Earlier this month, attorneys for the FCC defended their right to tell Comcast it cannot throttle its customers’ broadband speeds.  The FCC maintains it has regulatory authority over broadband service, claiming such power could be inferred from Title I, Section 230(b) of the Communications Act, which states that it is the policy of the United States “to preserve the vibrant and competitive free market that presently exists for the Internet” and “to promote the continued development of the Internet.”  From that the FCC wrote a policy statement stating it was, “necessary to ensure that providers of telecommunications for Internet access or Internet Protocol-enabled (IP-enabled) services are operated in a neutral manner.”  That was the basis for their crackdown against Comcast’s speed throttle.

After the arguments between Comcast and the FCC concluded, court-watchers believe the Commission’s days of broadband oversight are numbered.

Ars-Technica’s Matthew Lasar documented the probable train wreck for those who seek to rein in provider abuses.

At issue is whether the FCC has been granted direct legal authority for Internet regulation by Congress. Comcast, and as it turned out many on the Court, believe the FCC is relying on policy statements, not written law, for their regulatory authority over Internet Service Providers.  The Court transcript says it all:

Randolph

“In looking this over I found a good many situations in which Congress has instructed the FCC to study the Internet,” said Justice A. Raymond Randolph, [appointed to the Court by President George H.W. Bush in 1990], “and taxation of transit sales transactions on the Internet, and this, and that, and the other thing. But what I don’t find is any congressional directive to the FCC to regulate the Internet.”

It wasn’t hard for [Comcast attorney Helgi G.] Walker to summon a response to this observation. “That’s right,” she declared.

And with that, Comcast had won. Even before the FCC’s attorney got to the bench, the judges were doing Walker’s job, swatting aside arguments on behalf of the agency’s Order sanctioning the ISP. Pro-FCC briefs to the court had noted that the Supreme Court recognized the Commission’s ancillary authority in its Brand X decision, a crucial ISP access case. Randolph threw this bullet point into the trash icon, referring to the “offhand statement” in Brand X. “And the Supreme Court has moved so far away from that kind of an analysis in today’s modern jurisprudence,” he added, “it seems antiquated.”

By the time Commission lawyer Austin C. Schlick began his rebuttal, Randolph moved in for the kill.

“May it please the Court,” Schlick began. “Ms. Walker hasn’t attempted to defend the actual network practices that were employed here, and so I won’t spend time just… ”

Sentelle

[Justice David] Sentelle cut him off. “Well, her position is that she doesn’t have to,” he tersely noted. “She’s here to say that you don’t have any business inquiring into those practices, ergo we don’t either.”

That’s true, Schlick conceded. “Right,” Sentelle warned. “So you may want to move on to something that’s at issue then, Counsel.”

And that was largely that.  The Court is very likely to hand down a ruling that strips the FCC of its ability to regulate or oversee broadband service in the United States.  Even Schlick knew what has forthcoming:

By the end of the discussion Schlick was bargaining with the judges. “If I’m going to lose I would like to lose more narrowly,” he confided. “But above all, we want guidance from this Court so that when we do this rule-making, if we decide rules are appropriate we’d like to know what we need to do to establish jurisdiction.”

“We don’t give guidance,” Randolph grumbled, “we decide cases.”

Comcast should have bought lunch for everyone.

So now public policy groups and advocates of FCC oversight over broadband, particularly as it relates to Net Neutrality, are scrambling to figure out what to do next.

It comes down to four possible outcomes:

1. One of the parties appeals the case;
2. Corporate control of broadband without oversight is assured, as the FCC is stripped of any regulatory authority;
3. The FCC manages to find some other wording from laws Congress passed that justifies lawmakers wanted the agency to oversee and regulate broadband services;
4. Congress passes new laws specifically enacting broadband regulatory authority for the FCC.

Of course, today’s bland authority over broadband comes as a result of legislative compromise from the great regulatory battles over telecommunications during the Clinton Administration.  Providers argued less is more, and have grudgingly accepted limited FCC authority over some of their services, except when a challenge threatens to cost them control or a lot of money.

With a hostile reception at the Court, and the FCC’s “surrender first, fight later” legal argument, an appeal may only delay the inevitable.  The FCC does have plenty of Congressional directives to review which may permit it to enact Net Neutrality protection, but another provider lawsuit opposing Net Neutrality is inevitable.  In fact, without the passage of a clear, concise federal law providing the Commission with explicit broadband regulatory authority enacting Net Neutrality and other protections, the aptly-numbered “2” is the likely outcome for consumers.

Thankfully, Rep. Edward Markey’s (D-MA) Internet Freedom Preservation Act would solve much of this problem, by forbidding Internet service providers from doing anything to “block, interfere with, discriminate against, impair, or degrade” access to any lawful content from any lawful application or device.

Getting it passed in a Congress mired in division is another matter.  The best way to overcome that is a strong showing of support for Markey’s legislation in calls and letters to your members of Congress, and that you are carefully watching their votes on this issue.