Can a Pledge Drive Save Burlington Telecom From Corporate Ownership?

Burlington may be big on buying local, but a Queen City campaign to raise millions of dollars to purchase Burlington Telecom [1] might be coming up short.

Organizers Don Schramm and Alan Matson have set a goal of collecting $250,000 by February 14 toward purchasing BT and reorganizing it as a member-owned cooperative, similar to City Market. Schramm was a key player in bringing the food co-op to its downtown location and suggests that a BT cooperative could provide handsome returns to any investor who makes the initial $250 pledge.

“Telecom companies are far more profitable than food stores,” Schramm notes.

But to date, the Keep BT Local [2] campaign has secured just $54,200 from 188 pledgers. Organizers are urging locals to “show your love” for the telecom co-op, by pledging the remaining $195,000 by Valentine’s Day.

That deadline could involve genuine urgency, given that Burlington Mayor Miro Weinberger recently held two days of court-sanctioned settlement talks with lawyers for CitiCapital. That arm of Citibank is suing the city for failing to make lease payments on Burlington Telecom infrastructure that supports its cable, phone and internet services. Last week’s session ended without a deal, but both sides will return to the negotiating table on February 8.

Citing the nondisclosure agreement required of all parties in these talks, Weinberger declined to comment on the progress of the discussions with Citi and would not respond to questions about the co-op initiative.

Citi hauled Burlington into court to force repayment of the $33.5 million it loaned BT for installation of the municipally owned fiber-optic system. Burlington Telecom is insolvent and has been unable to pay Citi more than a tiny fraction of that sum. Similarly, BT lacks the means to repay $16.9 million in city taxpayer money that was loaned to the company in violation of state regulations during the administration of Mayor Bob Kiss.

Documents on file with regulators suggest that there are at least three prospective suitors to buy BT: an out-of-state company and a Vermont-based or regional enterprise — both unidentified — along with the nascent local co-op which is tentatively calling itself Green Mountain Broadband Fiber. But no bid for BT will be made until a settlement is reached with Citi, which is asking the court to let it repossess the guts of the network if BT doesn’t pay in full.

What are the odds of Citi and the city reaching an out-of-court settlement? They could be pegged at four in 10.

Since the launch in 1994 of the Burlington federal court’s mediation process, known as Early Neutral Evaluation, a total of 647 sessions have resulted in settlements, or 40 percent of the 1697 that have taken place. Another 2 percent of cases reached partial settlements, while 58 percent have failed to result in agreement.

If a Citi-BT settlement is reached, the co-op will need access to about $10 million to be considered a serious bidder, says Matson, who works as an independent financial consultant. He suggests this formidable sum could be raised through $1 million in member pledges, $4 million in loans from co-op supporters and $5 million in traditional financing from banks.

Assembling that kind of money would hinge on convincing local businesses to ante up big bucks, Matson says. Discussions with potential business backers will be getting under way soon, Schramm adds. In addition to persuading 1000 individuals to pledge $250 by V-Day, co-op promoters are seeking commitments from at least 50 local businesses by then.

“Capitalists should love co-ops, even though they generally don’t,” Schramm says. Customer loyalty is highly prized by any enterprise, and “no one is more loyal than a member of a co-op.”

A former board president of City Market [3], Schramm points to the 40-year-old enterprise, also known as the Onion River Co-op, as a prime example of how a member-owned business can succeed. City Market racked up a profit of about $1.75 million last year. Part of that sum was distributed as a “patronage dividend” to the co-op’s 8700 active members based on how much they spent at the store. Last year’s average refund check came to $84. It costs $15 a year to be a member of City Market.

Schramm says investors in Green Mountain Broadband Fiber could expect a bigger payback, noting that the telecom co-op would be incorporated as a for-profit entity.

To build support, Schramm, Matson and other volunteers have been stationed behind a table in City Market’s baking supplies aisle for parts of the past two weekends, handing out pamphlets to shoppers and encouraging them to sign the $250 pledge form. Many shoppers have expressed support, but only a few have pledged money on the spot.

A common reaction is the one of Mike Thomas, a business student in Champlain College’s master’s degree program who paused at the Keep BT Local table at City Market two weekends ago. Thomas described himself as a satisfied BT customer who receives regular come-ons from Comcast, which he regards as “a really terrible corporation.”

“They get you to sign up for something and then they raise the rates,” Thomas said of Comcast, adding that isn’t the case with BT. “A co-op seems like something that could work in a place like Burlington,” he said.

Still, Thomas was non-committal on pledging money to the co-op, telling promoters that he’d “definitely consider” it.

Louise Brill, another BT subscriber, agreed at City Market that a telecom co-op could succeed and did sign a pledge form. Gesturing toward the shopping carts shuttling past, she declared, “Just look at this place. It works beautifully.”

The co-op notion didn’t appeal to Mary Abbott, the minister of the Malletts Bay Congregational Church in Colchester. “That model isn’t important to me,” Abbott said after listening to Schramm’s appeal. But she added that she might be willing to sign a pledge because “local control is very important to me.”

Playing up Burlington Telecom’s local identity was a prime recommendation made by Hiawatha Broadband Communications, a Minnesota-based telecom company hired by the city in 2010 to strategize ways BT could rebound. The firm suggested that BT strive to “leverage more effectively” the buy-local sentiment that has contributed significantly to the success of many retail businesses in the Queen City.

But Burlington Telecom has lacked the resources to conduct any sort of marketing campaign. As a result, its subscriber list has remained static at around 4200 residential and business customers — out of a possible 17,000 — for the past couple of years. Steve Barraclough, who manages BT on behalf of a consulting firm brought in to stabilize the utility, suggests that holding steady can actually be considered positive, given the tsunami of bad publicity that has washed over BT.

The co-op’s organizers are handicapped by the same spending limitations that have stunted BT. Schramm, Matson and a few other angels have lent the start-up about $5000 to cover attorney and consultant expenses, but there’s no money available to do marketing. The co-op’s outreach to date has consisted of blurbs blasted out on social media, a December community meeting at Edmunds Elementary School, the info table at City Market and an appeal for membership that Matson and another organizer made at the outset of the January 28 city council meeting.

Matson worries that these efforts may not be enough to overcome the skepticism that organizers admit they encounter outside City Market. “There are some people who say they’ll never be customers or members of BT, no matter who owns it,” Matson acknowledges. “But once others hear that we’re not talking about having it be municipally owned, they’re like, ‘OK, now tell me what it is you want to do.’”

City Councilors Karen Paul (I-Ward 6) and Norm Blais (D-Ward 6) could be considered members of that camp. Both express support for the co-op effort but say new managers would need to run BT professionally and effectively to sustain public support. Blais believes the BT co-op could acquire the telecom expertise it would need, noting that “Burlington Electric has been run successfully by professionals for many years.”

A co-op’s structure could saddle it with inherent disadvantages in the fiercely competitive telecom sector, adds Syd Eren, owner of the Vermont Sky wireless broadband network. “You have to react quickly in this business, and sometimes a co-op entity can’t react quickly,” Eren observes.

He nevertheless counts himself as a supporter of the initiative. A telecom co-operative could succeed in Burlington, Eren suggests, if it partners with other providers such as his own company.

One additional obstacle can be added to those facing the co-op. Matson says that in order for the effort to have a fighting chance of success, state regulators must agree to lift a restriction — included in the so-called certificate of public good, or operating license — that prevents BT from running its lines beyond Burlington’s borders. The fiber-optic network was built to accommodate 100,000 customers and the co-op would need more subscribers than it has now to be viable, he says. “It’s got to be bigger,” Matson comments. “It probably can’t work on the basis of just 4000 members.”