Sale of OptiNet: BVU Caught Between Virginia's Rock And A Hard Place

For more than a decade, the people of Bristol, Virginia have enjoyed what most of us can only dream about - fast affordable, reliable, connectivity.  In recent days, we learned that Bristol Virginia Utilities Authority (BVU) has entered into a deal to sell its OptiNet triple-play fiber network to a private provider. The deal is contingent on approval by several entities.

As we dig deeper into the situation, we understand that troubles in southwestern Virginia and Bristol have led to this decision. Nevertheless, we urge the Bristol community to weigh the long-term consequences before they sacrifice OptiNet. Once you give up control, you won’t get it back.

"...A Few Bad Apples..."

If the people of Bristol surrender this valuable public asset to the private market, they run the risk of undoing 15 years of great work. None of this is a commentary on the private provider, Sunset Digital Communications, which may be a wonderful company. The problem is that Sunset will be making the decisions in the future, not the community. 

OptiNet has helped the community retain and create jobs, attracting and retaining more than 1,220 well-paying positions from Northrup Grumman, CGI, DirecTV, and Alpha Natural Resources. Businesses have cut Internet access and telecommunications costs. Officials estimate around $50 million in new private investment and $36 million in new annual payroll have come to the community since the development of OptiNet. The network allowed public schools to drastically reduce telecommunications expenses and introduce gigabit capacity long before such speeds were the goal among educators.

Schools and local government saved approximately $1 million from 2003 - 2008. Subscribers have saved considerably as well, which explains OptiNet's high take rate of over 70 percent. Incumbent telephone provider Sprint (now CenturyLink) charged phone rates 25 percent higher than OptiNet in 2003. The benefits are too numerous to mention in one short story.

However, BVU is emerging from a dark period marked by corrupt management. This sad reality actually makes its considerable achievements all the more remarkable. Last summer, several officials from BVU's OptiNet utility were indicted and found guilty of a number of federal charges including falsifying invoices, taking kickbacks, and misusing funds all for personal gain. Four people were fined and sentenced to prison. One other official is still being tried for her involvement in misuse of funds and tax offenses.

When this small number of officials violated the trust in Bristol that accompanies a locally managed utility, their actions negatively impacted the entire community. The actions of a few bad apples may have put the entire barrel at risk.

An Unsolicited Offer

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A few months later, Sunset Digital Communications approached BVU with an offer to purchase OptiNet. Sunset had its financing in place prior to making the offer.

Sunset worked with the LENOWISCO Planning District Commission on its 2001 Fiber-to-the-Home (FTTH) project in Lee and Wise Counties in southern Virginia and Tennessee.

The company, based in Duffield, Virginia, serves 80,0000 residents and businesses. They also provide services to anchor institutions, and other Internet service providers. Sunset wants to use the OptiNet infrastructure to start an expansion into rural areas. In a recent Herald Courier article, Sunset President and CEO Paul Elswick described the relationship between OptiNet and Sunset as "friendly competitors."

Virginia Doesn’t Care About Rural People

BVU has been effectively prevented from expanding into nearby rural communities by Virginia law, which limits which business models BVU can use despite an utter lack of interest from existing providers improving their services in that region. 

BVU Authority Board Chair Jim Clifton told WCYB:

"We have peaked in our ability to compete, and again, if we can't get grants, and even with the grants, we can only go into certain areas. We can only go into a 75 mile radius of our footprint," Clifton said. He said as a public utility, they have reached the peak for providing those types of services.

Bristol's neighbors want OptiNet because of the great things it has accomplished for Bristol but state legislators will not allow the city to share the wealth. The pressure to expand through privatization is testament to OptiNet's success in a harsh, anti-muni environment.

In Steps Richmond

Rather than allowing BVU to bring its high capacity connections to those who desperately want it, legislators are using the actions of a few corrupt officials to further harm one of the few sources of economic growth in southwest Virginia.

While Sunset was pursuing BVU, State Senator Bill Carrico (R-Galax) was preparing a bill the Bristol Herald Courier described as a "wrecking ball for a job better suited to a hammer." The bill, a knee jerk reaction to the federal indictments, would reduce the size of the BVU authority and effectively transfer broad decision-making to state leadership by appointment. The editorial board described it as a way for the state to revoke local authority from Bristol for more than just OptiNet. From the Herald:

At the same time, Carrico wants to reduce to just two board members the representation from Bristol, Virginia, where the customer base represents 46 percent of OptiNet, 86 percent of wastewater, 98 percent of water, and 53 percent of electricity service business. 

We believe stronger oversight is required — and new blood on the board is essential — but not necessarily appointed from the governor’s office.

The City Council also opposed the bill but managed to get an amendment that allowed more Bristol representation on any new Board. Those members would only vote on water and sewer issures. SB 329 has passed through the Committee on Local Governments and now awaits a vote by the full body. It is not clear what will become of the bill if the sale of OptiNet is finalized.

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A Tempting Offer But At What Price?

Sunset has offered $50 million to purchase OptiNet, which now carries approximately $24.4 million in long-term debt, reports the Herald Courier. A portion of that includes interdepartmental loans from the electric division to OptiNet. The electric system, water and sewer systems carry about $20.9 million combined, the bulk of which belongs to the electric system. BVU CEO Dan Bowman told the Herald Courier that the sale of OptiNet "would enable BVU to pay off all its $48 million in long-term indebtedness in all four divisions." There is some debate about whether or not this is possible, according to the agreement between the city and the BVU Authority.

The idea of becoming debt free is intrinsically appealing, but at what cost? BVU generates the necessary revenues to service its debt. Should Sunset decide to sell to one of the big corporate providers like Comcast, subscribers will be subject to the same price hikes and sub-par customer service like the rest of us. The purchase agreement has not been made public yet, but unless Sunset agrees to retain ownership or BVU is allowed a right of first refusal if Sunset decides to sell OptiNet, the risk is real.

Moving Along

On Tuesday, the Bristol City Council quickly approved a 2009 agreement between the city and BVU to clean up loose ends so the purchase can move forward. The agreement ensures that after debts are paid, half of all proceeds from a sale of OptiNet will go to the city. The City Council seems poised to approve the purchase, which must also be approved by the Cumberland Plateau Company (CPC), U.S. Department of Commerce Economic Development Administration, National Telecom and Information Administration and Virginia Tobacco Commission. 

CPC is part of the Cumberland Plateau Planning District Commission, an entity established by the state legislature to improve economic development. CPC has the right of first refusal to purchase OptiNet because it was a partner in its deployment and its infrastructure is located in the CPC service area. If CPC and the other entities approve the transaction, the sale is expected to be finalized in May or June.

Rocks Carefully Placed For Maximum Effect

The deal is not over but momentum is moving toward the sale. No one can deny that BVU is under intense amount of pressure from several fronts. Virginia legislated a hostile environment that pushed OptiNet to privatize if it wanted to continue expanding to meet the needs of neighbors. The only interests served by this policy have been the big cable and telephone companies that maintain lobbyists in Richmond so they can pay less attention to the rest of the state.

When legislators are too cozy with big corporate Internet access providers, the only choice for expansion may be privatization. If the Virginia State Legislators were considering their constituents first, they would do what it takes to grow more networks like OptiNet. In other words, remove all barriers in the form of onerous requirements that limit expansion and discourage public investment in Internet networks.

The actions of a few corrupt BVU officials have played right into the hands of those that want to limit local Internet choice.