Rules Matter - Burlington Telecom

As someone who has long researched and followed developments in Burlington Telecom (BT), the city-owned triple-play full fiber-to-the-home network in Vermont, recent developments between BT and the Mayor's office have been deeply disappointing. For those who haven't heard, BT is in the middle of a major controversy -- and it is hard to tell just what is going on (for background prior to current problems, read my Burlington Telecom Case Study and Fact Sheet).

I have wanted to comment on the situation for many weeks but have been waiting as each day seems offer another piece of the BT puzzle. I'll be offering more commentary about it in the future. However, I do not want to the let the current problems lend any credence to the idea that BT has failed. BT is caught in the middle of a political controversy around the Mayor but should continue providing the best telecom services available in the community.

BT has two main problems currently:

  1. It has not passed the entire city within the timeline to which it agreed in receiving its Certificate of Public Good (CPG)
  2. BT has, apparently, borrowed $17 million from the city's pool (used generally for short-term financing of projects) in contravention of its CPG which states that any money borrowed from the City must be paid back within 60 days.

    This CPG condition makes running a network more difficult for BT than it would for a company like Comcast - who can readily self-finance short-term borrowing. Across the U.S., communities have to deal with laws and regulations that benefit private companies over public networks.

    When the economy fell apart, BT was unable to refinance its debt to continue its expansion and chose to borrow from the City to continue connecting new customers. This was the right decision - the CPG did not anticipate such conditions and the terms for outside financing in late 2008 were wretched.

I say "apparently" borrowed above because it is far from clear if all of those funds actually went to BT. As Steve Ross explains here, it is not even clear if BT really required all that it borrowed from the City. Until the Mayor can produce a thorough explanation, I think it prudent to note that this is more of a political controversy surrounding the Mayor than a fiscal problem for BT.

The biggest problem is that Mayor Kiss (elected in 2006, after BT had initiated its residential services) and his Chief Administrative Officer (CAO), Jonathan Leopold, have decided to run BT as though it were privately owned.

After Tim Nulty, founding General Manager, left in 2007, the CAO became much more involved in the network and stopped sharing much of the network information with City Councillors and the citizen-oversight boards. These boards noted that they could no longer oversee BT properly as they were never allowed to see the documents and get information that Nulty had routinely shared.

To be fair, running a network like BT against a behemoth like Comcast is difficult under the best of circumstances -- which encouraged BT to hide any information that could be used to Comcast's advantage in competition. However, as a publicly owned entity, BT has certain obligations that it has failed to uphold. And this lack of transparency has led directly to the problems of recent months. (I do not want to cast CAO Leopold as a villain in this, evidence from Burlington suggests he has greatly helped the city in ways unrelated to BT but the utter lack of transparency on BT creates many questions).

Perhaps most troubling is not what information has been restricted from public consumption, but what information has been - and continues to be - denied to the City Council. See a recent article noting the Mayor's refusal to share its business model with the Council under any reasonable circumstances:

That may be why a key document requested for review — BT’s financial pro forma and foundation of its current business model — can only be viewed in Leopold’s office. Councilors are forbidden from taking notes or taking it home to read.

Nonetheless, BT has been a great success in many ways. As noted in several of the citizen forums in Burlington since this controversy began, the BT services have proven far more reliable to everyone and the speeds offered by BT to local businesses (unmatched by Comcast and FairPoint locally) have resulted in new businesses moving to town and expansion by existing businesses.

Further, the city-owned network has saved millions for the city since it replaced the leased lines Burlington used to rely on. The schools and city buildings have far greater access to bandwidth at a fraction of the cost, improving educational opportunities and making city services more efficient.

We are organizing our resources on BT currently and will launch a page that includes much more information about the situation. For all that it has done right, BT also offers many lessons for other communities that want to build a next-generation network.

In particular, municipally-owned networks must be balanced with an appropriate amount of both freedom and oversight from the City government. That the City Council cannot gain access to key documents and explanations is frustrating. Just as public power agencies are regularly audited, city-owned communications networks need oversight. However, as telecom is a fast-paced world, the network must have the freedom to act quickly on contracts and be able to hire salespeople based on commission, for instance. Communities developing a governance structure for their network should pay attention to Burlington.

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