The people of Burlington have proven beyond a doubt that they believe in publicly owned Internet networks. They’ve fought harder than any other community we’ve seen to maintain a voice in the future of their much loved publicly owned fiber optic network, Burlington Telecom (BT). Now after months of ruminating, debating, and examining their options, the future of BT is still uncertain.
The Back Story
We’ve covered BT extensively and dived into both the numerous benefits the community has enjoyed as well as the problems caused by former Mayor Bob Kiss and his administration. Bad choices and a lack of transparency snowballed, leaving the city to contend with sizable debt. Through all the difficulties, residential and business subscribers have consistently praised their hometown publicly owned network and expressed an appreciation for accountability, good service, and BT’s local ownership.
In order to fend off a lawsuit from Citibank, the city of Burlington had to agree to find a buyer for the network. To maximize the funds the city will receive from the transaction, a sale needs to be finalized by early January.
On November 6th, the City Council was scheduled to vote on which entity would be allowed to purchase the network, but that would have been a dull ending to a story filled with drama and, as the fates would have it, that isn’t what happened. At all.
The Kiss Of Debt
The Kiss administration’s choice to hide cost overruns from the public and the City Council led to a $33 million obligation to CitiBank. In 2014, the two reached a settlement after CitiBank decided to sue in 2011 and the parties had haggled in court for three years. As part of the settlement, the community committed to selling BT. In order to obtain the largest share possible of the proceeds from the sale - 50 percent - Burlington must reach an agreement with a buyer by January 2nd, 2018. The longer it takes to find a buyer, the less of the net proceeds the city will retain.
As an added incentive to get a deal done by January 2nd, Blue Water, LLC, will take over the ability for the city to choose if the matter drags on longer. When CitiBank and Burlington reached an agreement in 2014, Blue Water provided bridge financing to the city. In exchange for $6 million, the city transferred temporary ownership to Blue Water and has leased the network from Blue Water ever since.
Since 2014, BT has continued to operate and make strides. Subscribers now have access to gigabit connectivity, the local transit center has free BT Wi-Fi, and a local apartment building became the first in the state with gigabit Internet access. Throughout, BT has served the community with quality connectivity and civic-minded activities.
Establishing The Criteria
In 2016 the Burlington Telecom Advisory Board (BTAB), which had been established to determine a working criteria for the next owner of BT, released their report. After gathering input from the community, the board determined that residents and businesses were most interested in maintaining local ownership for the network. They dreaded the possibility of a large corporate entity like Comcast getting its hands on the network that they depend on and had served them so well, regardless of past problems.
Burlingtonians have positive experience with public ownership (their City Market is a long successful cooperative). The possibility of the Keep BT Local (KBTL) cooperative purchasing the network has appealed to many citizens. KBTL was formed by Burlington residents in 2012 for the purpose of purchasing and operating BT. Ever since they announced that they would submit a bid earlier this year, supporters have consistently attended council meetings and voiced their opinions in favor of the cooperative.
Drama unfolded in Burlington even before the City Council made its way through choosing finalist bidders. Early in the fall, one of the original bidders dropped out and, according to local reports, the bidder had “valuable local relationships and extensive telecom experience.” At the time, none of the bidders had been disclosed to the public, including bidder No. 4, ZRF Partners. Controversy erupted because several City Council members accused Mayor Miro Weinberger of influencing ZRF to drop out without consulting the council.
One council member compared Weinberger to former mayor Bob Kiss. It was the past administration’s unilateral decision to secretly use $17 million dollars in city funds during difficult economic times that led to the current situation. Weinberger denied having influenced ZRF’s decision to withdraw, but bad feelings remained when the mayor revealed that he had discussed a possible conflict of interest with ZRF but would not offer more details.
ZRF had appealed to several City Council members who considered the company’s bid attractive for the community. Faisal Nisar operates ZRF and had proposed “investing heavily” in the local BTV Ignite program and partnering with Burlington High’s technical center.
"They had an aggressive plan in regard to economic development and small business development in the community," Wright said, noting that the company had also planned to expand beyond city limits. "Many of us were very interested in them as our No. 1 or No. 2 choice."
In 2009, the city hired Dorman & Fawcett to help the network overcome its financial problems. The firm is still working for the city aiding in the bidding process; each of the bidders expressed to the city that they intended to keep Dorman & Fawcett on if they won the bid. When it was time for the city to seek bids, consultant Terry Dorman reached out to several people he knew, including Nisar, to let them know about the opportunity. Dorman and Nisar have known each other for more than a decade and worked together at one time for a technology firm.
Attorneys working for the city felt that the ties between Dorman and Nisar raised questions and they alerted the mayor in a September 1st memo. He shared the opinion with only two council members and Dorman; the City Council scheduled a meeting so the entire body could get details in mid-September. Just three hours before the meeting, Wienberger emailed the council to tell them that Nisar had withdrawn his bid.
The incident held up the process further and added more bitterness to an already difficult situation. Half of the City Council accused Weinberger of interfering with the process to advance his choice bid and the other half was eager to get on with it.
"I'm blaming the mayor, the attorney's office, the president of the City Council," [Councilor Dieng] said. "The whole process about this deal was not well done."
The loss of the fourth bidder was "somewhat unfortunate," [Councilor] Shannon said. "I don't think they're nefarious actions."
The City Council and Weinberger appealed to ZRF to return, but Nisar wasn’t interested in being pulled back into the process. Burlington had reduced its options to three.
And Then There Were Three
City leadership had anticipated choosing from the original eight bids during the early days of summer, but the process dragged on. In addition to political turmoil, the City Council was caught between the desire to keep the public engaged, the public’s demand to be informed, and what the Mayor perceived as a need to retain confidentiality about the bids.
“Each bidder is working hard to convince the city they can meet those criteria, and they don’t fully know how they stack up against and what the others are offering,” Weinberger said. “That dynamic creates a strong negotiating position for the city.”
KBTL acknowledged that they had publicly released information about their bid on the network as a way to shore up support by residents and keep potential future subscribers informed. By late September, the Mayor and the City Council decided to release the details of all three remaining bids.
Ting, owned by Toronto company Tucows, offered $27.5 million; Indiana based Schurz Communications id $30.8 million; KBTL offered $12 million which included $12 million which included partial city ownership. Each bid included details of other contributions to Burlington and plans to expand the network. We covered the bids in detail and provided copies of the offers back in September.
The next step required the city to eliminate one of the semi-finalist three and as the process pushed into October, Mayor Weinberger came out publicly against the KBTL option. About a week before the City Council vote to narrow the field, he held a press conference to express his concerns and described the KBTL proposal as “not viable,” saying that either of the other two proposals would be a better choice.
At an October 16th City Council meeting with strong public comment on both sides, the City Council eliminated Schurz Communications from the bidding process. They planned to choose a final bid at the next meeting two weeks later.
Taking Sides, Fending Off Lawsuits, Kicking The Can Down The Road
After two weeks of community anticipation, the October 30th meeting still didn’t resolve the issue that had been dogging Burlington for years. A large crowd attended the council meeting at City Hall, but members began with a closed meeting to discuss interference by CitiBank.
Two days earlier, the company had sent an email to the council threatening to sue if they approved the bid to KBTL. Blue Water had also contacted the city and expressed concerns about the possibility that the KBTL bid might win out. Blue Water didn’t think KBTL could pass Vermont’s regulatory process, which will be a requirement for a winning bidder. At the meeting, the council discussed whether Blue Water would exercise its right to “disapprove” if KBTL wins the bid. The company has that right under the terms of the agreement put in place when Blue Water provided funding in 2014. Blue Water’s recourse if it disapproves is vague, according to the City Council. Rather than test the limits, the council seeks a bid to satisfy Blue Water.
The meeting also reviewed issues with the KBTL financing plan. Maine Fiber and KBTL had decided to collaborate and Maine Fiber, which had extensive experience in managing and operating fiber infrastructure, would provide advice and consultation to KBTL if KBTL comes out as the new owner. In order to pay $12 million to the city for the network, Maine Fiber also planned to loan the cooperative $10.5 million at a 12 percent interest rate. KBTL had tried to boost its chances by attempting to negotiate an eight percent interest rate, but the effort failed by the time of the intended vote.
In another twist, Councilor Karen Paul revealed that she would recuse herself from the final vote because she had a professional conflict of interest. She wouldn’t reveal what the issue was; several of her colleagues expressed derision at the fact that she had participated in preliminary votes. The City Attorney, who knew the source of Paul’s concerns, told the council that she did not believe the conflict could have influenced Paul’s prior votes.
The threat from CitiBank echoed throughout the ranks of the council. Even after assurances from the city’s legal staff that they would not be held personally liable, at least one Councilor opposed taking a vote. He had planned to support KBTL. After deliberation and several votes, the council voted to postpone the final decision until Monday, November 6th.
The Final Vote (Or Not?)
Three days after the meeting, Councilor Paul announced that she had quit her job with an accounting firm, which removed the conflict of interest, in order to free up her position and vote on the final bid. The community expected her to cast a vote for Ting, which she had done in earlier voting.
On the evening of the 6th, the meeting began with each member of the City Council offering the reasons for their votes. Councilors backing KBTL focused on retaining local control, stressing that if Ting was the final choice, the community would probably never regain ownership of the network. Supporters of the Ting proposal described KBTL’s bid as risky.
After two separate votes ended in 6-6 ties, the council recessed around 10 p.m. Seven Days described what happened next:
At that time, representatives of both bidders, Mayor Miro Weinberger and a few councilors gathered behind glass doors in the offices outside City Hall Auditorium. The city attorney looked on to ensure there wasn't a quorum of councilors, thus triggering public meeting laws. After a few minutes, [Council President Jane] Knodell strode out, muttering: "There's some kind of bullshit going on in there."
When the meeting resumed, representatives from Ting and KBTL announced that the group had decided to spend the next several days working together to come up with a new, joint venture. Councilor Dave Hartnett didn’t take to the proposal, voicing his opinion that KBTL had “sold out” in agreeing to sacrifice public ownership in order to remain a contender.
The council voted 11-1 to give the two organizations until Friday, November 10th to come up with an agreement. They also decided that if Ting and KBTL could not reach a mutually agreeable solution, Burlington would invite Schurz Communications and ZRF Partners back and the bidding process would start anew with four potential bidders.
One Step At A Time
KBTL and Ting could not craft an agreeable solution that would allow both to own and/or operate Burlington Telecom. An official statement from Mayor Weinberger stated that Ting had offered 20 percent ownership to the cooperative in addition to a percentage of ownership that the company had offered to the city in its original bid. KBTL wouldn’t approve the proposal because it would not allow the cooperative to retain a community membership organization model.
“Ting and Keep BT Local have very different business models, so it should come as no surprise that a mere five-day effort to find a way to fuse them didn’t succeed. However, that we were able to identify several potential paths toward a solution in our limited discussion over the past five days should be celebrated as a success, albeit a limited one.”
With no agreement between the parties, the City Council met on November 13th to establish a way forward. They’d already decided to open the bidding again to the four semi-finalists, but felt the need to pass a resolution that clarified the process as the city moves forward.
The resolution creates a subcommittee that will determine the final voting process. It also prohibits anyone on the council from communicating with any bidders; Terry Dorman from Dorman & Fawcett will serve as a liaison between the council and bidders during negotiations. According to VTDigger, Knodell had communicated with ZRF Partners separately within the past few weeks, which made other council members uncomfortable.
Even though one of the Councilors suggested a similar communications ban for the Mayor’s office, the measure did not pass. Those voting against it considered the measure impractical and inappropriate. “The mayor’s office does not work for the council, it works for the people of Burlington,” said Wienberger during discussion.
The resolution establishes November 27th as the date the City Council will choose a buyer for Burlington Telecom.
A Fresh Look: New Bids Roll In
As Councilors consider the future of their network under the pressure of a tight timeline, they're reviewing new bids.
A revised bid from KBTL increases their offer to $18 million and increases the cooperatives investment in the local tech economy. They also describe their agreement with Maine Fiber as more favorable, should the cooperative default on the loan. You can view specifics of their new offer here.
Ting’s second bid increased by $2 million to $32.5 million and in an unexpected move, ZRF Partners and Schurz Communications joined forces to submit a joint venture bid.
The ZRF/Schurz bid includes $25 million and a sizable local investment of $1.75 million in seed capital over seven years for local tech start-ups. If their proposal is accepted, they will also invest $350,000 in training for tech jobs to contribute to the technology industry in and around Burlington. Schurz would have a minority ownership and ZRF Partners would manage the network with the current BT staff remaining on board.
It's been a difficult road for the people of Burlington and their elected officials. Now its time to make a difficult choice and move forward.