10.18.2009

Choke on this fiber: Further observations on the Burlington Telecom debacle

When I wear this Burlington Telecom T-shirt... I can literally drape myself in irony!

Burlington Telecom (henceforth referred to as 'BT') has been prominent in the news lately. Its business model has failed, and without additional financing it cannot continue as an ongoing 'entity' - as a weird amalgamation of public and private assets, BT cannot really be characterized as a business. BT required a $17 million cash infusion from the City of Burlington to stay afloat and the underhanded nature of this transaction is causing controversy.

Now, it's a cold gray autumn Sunday, and I could spend hours writing a trenchant analysis of this situation, but that would be not a good use of my time. So I will attempt to be concise.*

In May of 2008, some news reports surfaced about BT's deteriorating finances, and I wrote a blog post entitled Failed socialist daydeams by the lake that offered my perspective on the situation. That post concluded:

I just cannot see how an organization with 30+ employees working in a small and tightly defined market, saddled with $33M in debt will ever break even... and I do have a slightly informed opinion.

Contrast the harsh unvarnished realism of my post with this glib and pollyanna-ish recent statement from BT's current General Manager:

We are extremely pleased with our success to date despite the worst crisis in the national and international economy since the depression....Burlington’s customers and citizens can be confident that our finances are sound and Burlington Telecom is a viable business.

Here's why I think BT is a doomed business venture:
  • The basic premise behind BT was fatally flawed and required too much capital. Having a state of the art municipal telecom network is nice but building it is expensive. Estimates of BT's current debt load remain in the mid-$30 million range. [Correction: It's probably in the area of $5o million when the $17 million from Burlington is added in.]
  • BT has never been a lean, mean entrepreneurial organization. It operates as a regulated utility and as a quasi-municipal department. Such organizations are rarely small and nimble, and lots of employees equals high operating expenses. It's unlikely that current revenues cover existing operating expenses, let alone debt service. (I'm not a financial analyst, but I can play one on this blog.) Burlington City Government does not have the intellectual and managerial resources to adequately oversee this slow motion train wreck, and the recent controversy arises from inadequate financial controls.
  • Failed marketing. BT has less than 5000 residential customers. I think the citizens of Burlington made an impulse purchase when the decision to build the network was made. Voters were upset with the then-incumbent cable company, so they decided to approve building a state-of-the-art municipal fiber optic network. It appears that these same voters then neglected to sign up for BT's services. And I think even if BT had a high market penetration in Burlington it would still have a crippling debt burden. Finally, I don't believe that the current Great Recession is responsible for BT's lack of subscribers - though it probably does constrain their ability to borrow more money from newly-skittish banks.
To conclude: It's been said that the road to hell is paved with good intentions. Having a state of the art municipal communications network is nice. Paying for it is not so nice, especially when the business case for building the network was far too optimistic, and accountability is in short supply.

There is a decidedly utopian, socialist, not-grounded-in-reality streak to Burlington (and Vermont) politics and now the bills are coming due, and the outcome of the BT project is likely to be unpleasant and markedly non-utopian. Taxpayers - who, after all, did vote for this project, albeit with imperfect understanding - beware...

*Recently, my ability to write concisely and to a point has been harshly questioned, with this blog held up as a example of poor written communication.

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