This FAQ will be regularly updated (current update as of Nov. 1, 2017)
Frequently Asked Questions about Keep BT Local
How will Keep BT Local invest in Burlington’s Tech Economy to keep it thriving and growing?
As a stand-alone local company, the co-op telecom is already embedded in our tech community and has the ability to work directly with local tech innovators to manage investment in the most efficient and effective way possible.
KBTL will continue to support initiatives such as BTV Ignite at the current levels and beyond. It will develop earmarked funding mechanisms working with our members to support the tech economy and target specific needs working with local partners who represent our community. KBTL seeks to ensure that:
- There is targeted tech training, mentoring, and co-working spaces for the growing needs of the tech economy;
- Local educational institutions are supported in hosting tech competitions and innovation grants;
- Annual opportunities such as scholarships and internships are available to local high school students;
- The BHS Tech Center receives support to offer tech-focused training; and,
- Public Educational and Governmental Access channels are supported in the long term even as the world moves from cable subscriptions to directly streaming content via the internet.
A local Tech Leadership committee is being fostered with home grown experts who have taken our local tech economy to the level. They will guide and advise the KBTL Tech Innovation program. Early leaders who will join this group are Jan Schultz, CTO of Front Porch Forum, Michael Nedell, Founder and COO of Localvore.co, and Bradley Holt, formerly of BTAC and the BTV Ignite Advisory Committee, among others.
Will current management at BT continue if Keep BT Local Acquires Burlington Telecom?
As KBTL continues to meet with members of the Burlington Telecom (BT) staff as part of due diligence related to the possible purchase of BT, the Board of KBTL would like to clarify its intentions as far as the ongoing management of Burlington Telecom is concerned.
“It has always been our desire and intent to maintain as much of the management team in place as possible, yet we have no knowledge of the desires nor commitment from any members of the BT team, including Stephen Barraclough.” — Alan Matson, KBTL Board Chair.
Can Keep BT Local receive a Certificate of Public Good (CPG) from the Public Utility Commission (PUC)?
Absolutely. Keep BT Local’s bid has a very good chance of receiving a CPG, and none of the current legal analyses claim otherwise. The PUC has different levels of due diligence for telephone and cable. The requirements to receive a telephone CPG are basic and Keep BT Local would easily meet the criteria. For cable CPGs a financial pro forma is required together with a review of management. In both cases, Keep BT Local would meet the criteria, as we are acquiring a competitive entity that already meets CPG standards. KBTL’s bid does not change BT’s day-to-day operations and it has been noted by the City’s consultant Terry Dorman that Keep BT Local’s pro formas meet present standards for acquiring BT.
While all legal analyses are required to point out risks, they do not estimate the level of probability that any one party will receive approval. The City is using typical legal language to raise the sense of perceived risk to our citizens. Solid legal analysis by our Vice Chair, Andy Montroll, a respected telecom attorney suggests a high probability that Keep BT Local will be granted a CPG.
Will the Public Utility Commission (PUC) require net proceeds in cash and would that favor outside companies with higher valuation and not Keep BT Local?
There is nothing in state regulations that would prevent KBTL’s bid from succeeding. It is unlikely that the PUC would favor outside companies because they are offering more cash or have a higher valuation. In the Keep BT Local bid, the City receives 12.5% of the value of the bid and the rest in cash from a loan our Coop will receive from Maine Fiber and from the equity investment raised from Vermont investors via Milk Money. The long-term value for taxpayers and subscribers is far greater in the KBTL bid, which is why we remain confident that our bid will receive PUC approval.
Does a potential Citibank lawsuit disqualify the Keep BT Local bid?
The Mayor of Burlington has suggested that Citibank will potentially sue the City if it does not select one of the two higher value bids being offered by private corporations. The likelihood of this is open to question. It is our position that the potential problem with Citibank can be cured, but it requires cooperation with City Council and the Mayor. We are fully prepared to respond to this concern and are confident that with the City’s help we can clear these hurdles.
The Settlement says there must be a sale, but stipulates nothing about the buyer, except that it be a “private entity.” It says nothing about the purchase price, except that:
Burlington agrees to share any of the Net Proceeds which Burlington would receive or be entitled to under the Financing equally with Citibank and shall cause to be paid or conveyed, solely from the share which Burlington may receive or be entitled to upon such sale of the System, 50% of the Net Proceeds received by, or that would otherwise be payable to, Burlington from such sale. Upon the payment or conveyance of that 50% share, all of Burlington’s obligations to Citibank shall be deemed complete and final, and if Citibank has accepted its 50% share in cash, Citibank shall have no further interest in any proceeds from Burlington Telecom or the System
Is Ting/Tucows the right fit for Burlington in the long-term?
It is important to understand the goals and objectives for companies that seek to purchase Burlington Telecom. This gives us important information about why they hope to operate in our market and what they may do with BT in the long term. Ting / Tucows, based in Toronto, is now a $350 million company, and they are on a mission to increase their holdings. They have purchased four companies, with similar high-value, high-speed internet platforms, in the last few years. This is only 4% of their holdings at present. They are principally a domain name and hosting service. They do not hold any cable or land line telephone companies in their portfolio. What does this mean for Burlington?
It is likely that Ting / Tucows might seek to shed the telephone and cable part of BT, as their current business platform clearly is based on Internet. While this may be the future for Ting / Tucows, and it is undeniably the direction national and multinational companies seek to move, but does this mean that we will ultimately see another company purchase our cable and telephone platform from Ting / Tucows? What does this mean for our outstanding local service, and consider what will happen if they do shed our telephone and cable service. It is likely we those services would not be so highly valued, and we could end up with a less than optimal local provider. That provider will likely raise rates and leave us with poor service, as many communities have had to experience through out the U.S. Just check out the consumer ratings of the companies that we all want to avoid, such as ATT or Comcast. Another important problem is that a sale of our cable asset will likely threaten our valuable Burlington public and educational media groups, and those organizations such as Channel 17 and RETN would likely be facing a fight for proper support for their community services.
The overall question is; does Ting / Tucows have the best interests of our community at heart? As a multinational, investor-owned utility that is traded publicly, they are bound to meet the fiduciary needs of their shareholders first, and Burlingtonians last.
Who benefits in the long-term from the BT sale, a comparison of bids
The tables below show just how the Keep BT Local Cooperative builds on the taxpayers’ initial investment and returns equity, and cash, to the community in a variety of ways. The first table reflects KBTL’s conservative projections of growth, as detailed in the pro forma accompanying our bid. The second uses BT’s own growth projectons, instead. We modeled lower growth to show that, even if growth is not as robust as BT predicts, we could comfortably pay the bills and service our debt. Whichever scenario actually occurs, this is value that will leave Burlington if it’s sold to a private, out-of-state or foreign bidder.
Can the right contract with Ting / Tucows or Schurz ensure that Burlington’s interests are protected?
Terry Dorman, the City’s advisor and current leader of the company that is managing BT, has said several times that a contract with the right company will protect the interests of the City to ensure rates remain competitive and that BT is not sold off either entirely in the future or in pieces.
It would be very difficult to protect the City’s interests with a contract particularly with Schurz, a private company that has no public accountability and has a record of raising rates and metering rates for Internet service. There is also no reliable way to ensure that data privacy will be ensured with a private company. It would also be difficult to protect the City from Ting / Tucows’ future sales, because they are beholden to their investors and they will want to maximize their investments, no matter a future buyer. Both competitors are in the business of buying and selling companies. There is little reason to believe that they are not buying BT to improve their corporate portfolios in the short to medium term, with a plan to sell and harvest these profits in the medium to long term horizon. No contract can protect Burlington from this standard corporate practice.
In contrast, no such contract would be necessary to protect Burlington and BT subscribers from KBTL’s owners, because they would be the owners.
Should Keep BT Local’s bid be characterized as all debt while the other two bids are characterized as “cash”?
No. Our bid is not all debt. Our bid is 87.5% cash as we are offering the city a 12.5% equity stake in BT as a way for taxpayers to recoup their original investment in BT.
In addition our bid includes $1 million in equity, of which over $590,000 has already been pledged through Milk Money VT.
In the case of the Ting /Tucows offer, it is clear that based on public records, they do not have enough cash on hand to offer a bid based on “cash” to purchase BT. Instead they are offering their bid based on funds they can raise from a line of credit they have from lenders to make acquisitions. Because one of the bidders Shurz is a private company, it is more difficult to learn about the amount of cash on hand the company has to purchase BT. To suggest that the Keep BT Loan is all “debt” while the other buyers are all “cash” is an inaccurate way of characterizing the difference between bids.
Is there greater probability that Keep BT Local’s bid will not result in a competitive, profitable business?
Quite the opposite: BT has demonstrated that it can be both profitable and competitive, with a current profit margin of $3 million annually. There is a reason there is national, if not international, interest in purchasing BT—because there is money to be made in our market with BT’s model of excellence. We are at risk of losing that competitive advantage by becoming just another purchase in an investment portfolio.
Keep BT Local will achieve competitiveness in its own market by maintaining BT’s excellent service and outstanding Internet speeds in the long term. It will expand opportunities for local businesses to grow by focusing on their needs, and ensure the community has both net neutrality and subscribers’ data privacy as founding principles of our operations. City advisors intimate that an outside corporate bidder will have more capital to ensure that BT grows competitively in the telecom market, but the only question is how quickly do we as citizens want BT to grow and at what price? Rapid growth with the help of outside capital would likely lead to higher rates. Our plan allows for growth, albeit more slowly, to ensure we keep rates low, while keeping BT’s assets and equity in our community.
Does Keep BT Local lack experience to run BT or be unable to hire an adequate management team?
It is inaccurate to suggest that the board of Keep BT Local will seek to manage Burlington Telecom. Rather, the Keep BT Local board will be elected to oversee management and review performance of the management team in charge of BT.
Keep BT Local presently has an acquisition board, which is dedicated to purchasing Burlington Telecom and is comprised of leaders who have started and built companies of greater value than BT and have extensive finance and logistical experience. If Keep BT Local is successful in its bid to purchase Burlington Telecom, it will elect new board members (and re-elect some of the existing board members) who will hire a new BT management team. The current board is in touch with a number of candidates, and in addition the new board will interview the best telecom managers in the region and even nationally if required to ensure the new cooperatively owned telecom has a top management team. To suggest that Keep BT Local cannot find good management for our outstanding telecom is not accurate—just look at the national interest from other bidders. National interest in a locally owned telecom, such as BT, which seeks to meet the highest standards of service, has some of the fastest internet speeds in the U.S., and is dedicated to preserving community equity will likely attract some of the best talent available. Keep BT Local will also seek to retain as much of the current staff of Burlington Telecom as possible—who have a combined expertise in delivering fiber-to-the-home services that is far greater than the private bidders, both of whom have been in this market for less time than BT.
The Keep BT Local bid includes a $10 million loan at 14% interest rate – isn’t that an expensive loan?
Yes. The payment terms for KBTL’s loan from Maine Fiber include graduated payments, keep earnings before interest, taxes, depreciation, and amortization (EBITA) at 1.5 to 2 times the loan payment, and are a manageable use of debt. Our loan from Maine Fiber is nominally 14%, but if you back-compute the effective interest rate based on the payment schedule and final balance, the effective interest rate (assuming monthly compounding) is 13.55%. Now, if you if you consider the total cost of the sale/leaseback deal with Bluewater to the city using KBTL’s bid the effective interest rate the city is paying to Bluewater is near 14.4%. With a sale to Ting or Shurz the effective interest rate the city would pay Bluewater is near 36.2%.
We have the ability to refinance the Maine Fiber loan after several years of operating experience, and could also at that time be able to find commercial loans at a far better rate than the MF loan. We see this MF loan as a bridge loan to help us retain BT as a core public and community utility of the future.
The Keep BT Local bid seems to take on a lot of debt – can BT sustain that debt?
One of our supporters, Brian Pine, who works as a utility and energy finance consultant offered these comments to the City Council: “I analyze income statements and balance sheets, along with a loan applicant’s financial projections to accurately assess and minimize risk. One of the most important measures of a company’s ability to meet its debt obligations is the Debt Service Coverage Ratio (DSCR). This measures how much net operating revenue is generated to meet regular debt service obligations. A DSCR of 1.2:1 means that $1.20 is available for every $1 of debt service. This shows a lender that there is an operating cushion in case revenues/expenses fail to meet projections.
According to Moody’s, AA-rated telecom companies should have a DSCR of between 1.5-2.0. Based on BT’s current Earnings Before Taxes, KBTL’s proposal demonstrates that the cooperative achieves a DSCR of 1.5-2.0. KBTL’s DSCR is better than average and better than many deals that secure private debt and equity financing.
Another underwriting criteria commonly used in the energy industry is called ‘net societal benefits.’ This means measuring the social and economic multiplier effect of things like local and livable wage jobs, and keeping BT profits circulating in the local economy. When weighing net societal benefits, KBTL is head and shoulders above the for-profit, investor-owned bidders, which have a fiduciary responsibility to their shareholders, not taxpayers. KBTL’s offer marries the long-term financial interests of taxpayers with the social returns that only a truly community-based company can offer.”