Wednesday, May 23, 2012

New Mi-Connection Agreement - What does this really mean?

Let me say right up front, the decision made by Davidson and Mooresville to revise the interlocal agreement on Mi-Connection is a good thing. 

Davidson's finances were nearing the tipping point where real negative impacts would be seen.  If the proposed budget had gone through without this change.  The Town fund balance would have been near a low of 30% after this budget year.  If next year had taken the town into the 20s that would have put Davidson into a group of towns in the State nobody wants to be in financially.  The Local Government Commission would likely have begun taking a much harder line with the Town - tying its hands.  I commend all the work that went into getting this decision over the finish line.

However, this doesn't mean the system is out of the woods yet - not by a long shot.

When public mention of this change first came up last week, a reader emailed in a few points that are worth mentioning.

  1. Why does Mooresville want (some of) Davidson’s share of Mi-Connection? They aren’t imagining that Mi-Connection will someday be profitable or that hey will be able to sell someday for anything but a loss, are they?
  2. Are they really implying that they haven’t tried to increase membership?
  3. AT&T U-verse recently became available in my neighborhood, so I checked into it. They offer more channels, more premium channels, wireless connections so that you can connect any TV anywhere in the house, and a faster internet connection. When combined with our land line phone the savings is $120/month. Plus you get whole house DVR and HD free (which we currently don’t receive from MI-C). And their network is 100% underground fiber optic. Do you know some reason to expect MI-C to gain market share?
In fairness, I could not fully replicate this emailer's stated cost savings using the bundling tools on available on the Mi-C and ATT websites, and the ATT offer probably included some cash back as a new customer.  However, the points are still very valid.  Competition in this industry is fierce, and this new financial agreement does not change that.  If anything, the competitive landscape will only get tougher in the next few years as wireless technology gains more ground and more people drop land line phones and even wired home internet connections in some cases.  That means it will be difficult for Mi-C to gain market share.

So what does this really mean?

In addition to throwing Davidson a lifeline, this helps set up selling the company in the next few years - even at a significant loss. Setting the ownership percentages at a fixed rate now would make that transaction easier.  At least there would not need to be a negotiation between the owners at that point.  Davidson has 30% Mooresville has 70%.  Remember, selling this enterprise has been the stated goal for a while now.  The MI-C board chair and the Towns have all said the goal now is to get this enterprise to a point where it can be sold. They aren't looking for a profit center anymore regardless of what they say otherwise.

Liability for any losses incurred on a sale would also likely use these same percentages.  At least now, everyone knows what they are, and they are no longer moving targets.

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