Burlington Set To Begin Process Of Selling Locally Owned Burlington Telecom

Jun 1, 2017

This month, letters of intent from groups looking to buy Burlington Telecom are due, marking what could be the opening of a new chapter for a city-owned utility that’s had a tumultuous past.

The letters are due on June 5, and the city hopes to have a buyer lined up by the fall.

The process that will unfold over the next few months is the culmination of years of litigation, financial troubles and public debate that have followed Burlington Telecom.

In 2009, the public learned that the city quietly took $16.9 million from the general pool to support Burlington Telecom.

At the time, the company was struggling and the city had spent $50 million when it had only budgeted for $33 million. The utility eventually couldn’t make payments under its lease agreement with Citibank, and in 2011, the bank filed a lawsuit against Burlington, suing the city for $33.5 million.

If the city had lost the lawsuit, it would have been quite a threat to Burlington’s finances, said Mayor Miro Weinberger.

Weinberger, who took office in 2012, believes a major reason he won in the first place was because of the problems with Burlington Telecom and his promise to resolve them.

To that end, under his administration, Burlington reached a settlement with Citibank in 2014 and is now poised to sell Burlington Telecom.

In the settlement, Citibank got $10.5 million, and city agreed to sell Burlington Telecom. Of the settlement, $6 million came from a bridge-financing agreement with Blue Water Holding, a company formed by local businessman Trey Pecor to finance Burlington Telecom until a permanent buyer is found.

"It would be great if we can find someone who has already direct ties to Vermont and Chittenden County and Burlington, and we have been having those conversations with some people." — David Provost, Burlington Telecom Advisory Board chair

The settlement also set a timeline for the city to sell Burlington Telecom — the city has four years to direct the sale. If the city isn't able to complete the sale in the four year timeframe, Blue Water Holding will be able to pick the buyer. Additionally, the longer Burlington doesn't sell, the less money the city recoups in the sale.

That’s why the city hopes to have a buyer by the fall — because the first deadline, January 2018, is approaching.

If the city has a buyer for Burlington Telecom by the start of the new year, 50 percent of the sale proceeds will come back to the city — though half of the city’s share goes to Citibank.

The remaining proceeds from the sale will be split among Blue Water Holding and Dorman and Fawcett, the company that has been managing the operations of Burlington Telecom.

No matter when the sale occurs, Dorman and Fawcett will get 10 percent of the sale. Blue Water Holding will get 40 percent of the sale if it happens by January 2018.

“We made a decision not to auction Burlington Telecom, but that through Dorman & Fawcett and through relationships that BTAB [the Burlington Telecom Advisory Board] had, that we were going to identify a series of potential partners and buyers,” said David Provost, chair of the Burlington Telecom Advisory Board. “So we’ve probably reached out to, in all, probably 15 to 20 potential suitors who would meet the criteria.”

BTAB has been working on the sale of the company. 

Besides Provost, the advisory board is made up of three other community members and four members of Burlington’s city council.

Once potential buyers have submitted letters of intent to buy Burlington Telecom, BTAB is in charge of reviewing them and bringing the finalists before the city council.

“It will be the city council's decision on who will end up being the the buyer or partner,” Provost said.

The board will use sales criteria approved by the city council to vet the potential buyers.

The criteria state that the purchaser of Burlington Telecom must, among other things, have a local presence, be committed to net neutrality and public access and keep a strong partnership with the city, including the option that Burlington to have some equity in the company. 

“It would be great if we can find someone who has already direct ties to Vermont and Chittenden County and Burlington, and we have been having those conversations with some people,” Provost said.

Provost didn't name any specific groups or companies that had been approached about purchasing Burlington Telecom, but he said they have talked to regional telecom providers and that they’re “not entertaining ... the large national organizations who might just be looking to invest and then flip it in five years.”

"I think it's really important that we continue to have competition in this area after this transaction is complete and that we protect that going forward." — Mayor Miro Weinberger

Weinberger also said the city isn’t “seeking a lot of interest” from national companies, such as Comcast, not because he has a problem with those companies but he doesn’t want to see a monopoly on the telecom industry in Burlington.

“I think it's really important that we continue to have competition in this area after this transaction is complete and that we protect that going forward,” he said. “[Competition] keeps prices lower and it also helps ensure that service to Burlington businesses and residents is done well.”

One group has been public about its intention to put in a bid for Burlington Telecom: a cooperative called Keep BT Local.

Alan Matson, the chairman of the co-op, said the group will submit a letter of intent, though he expects there will be strong competition.

“We're trying to find a way to keep BT ... within the community so it doesn't just get sold and all of the ... potential success of the telecom go away from the community," Matson said. "[We want to] try to keep returns on the investment coming back to the citizens of Burlington in the future.”

Matson said his group decided on the co-op model because it would keep the company within the community and he said that co-ops have extremely loyal customers and low turnover, which is a good for the profitability of a telecom company.

According to a timeline on the Burlington Telecom website, BTAB will spend June reviewing the offers and make recommendations to the City Council for consideration in July.