Sunday, May 10, 2015

Mi-Connection moving forward on refinancing - facing new challenges from competitors

Facing a rapidly changing competitive environment, Mi-Connection received some good news on the financing front this week when on Tuesday the Local Government Commission in the NC Department of the Treasurer approved refunding of the system’s originally issued debt.

In recent years the cable system owned by Mooresville and Davidson has made several operational improvements to reduce expenses.  However, since it's inception the large debt used to purchase the system has been the major driving factor contributing to the company’s ongoing losses.

Restructuring the company’s debt will be another step in the right direction on the long road to break even financially.

New debt will be issued at more favorable terms – reducing interest payments and potentially reducing subsidies from the towns of Mooresville and Davidson.  The exact amount of those savings will not be known until the final transaction closes – an event scheduled to occur before the end of June.

The annual savings could be substantial though.  At the recent Davidson Board work session, Commissioners and Staff were using $500,000 as a working number for the saving when discussing Davidson’s next budget.  Based on the ownership agreement between the two towns, that would reduce the subsidy from the  towns by $150,000 for Davidson and $350,000 for Mooresville in FY2016 which starts July-1.

This is on top of about $300,000 in savings this coming fiscal year from refinancing another piece of the company’s debt.

Exactly how the towns could or should spend these savings is a topic for another day.  The good news is that Commissioners will at least be able to have that discussion while putting together the next budgets.

The potentially bad news is that all of this is occurring in a rapidly changing business and technological environment which could eat up those savings as Mi-Connection is forced to keep up with its competitors.

At the system’s quarterly board meeting last week, Mi-Connection announced the region’s first gigabit data service available to its commercial customers.  This is certainly good news, but it does nothing to help residential users who have been paying the subsidies to the company over the last several years.

It is in this area that Mi-Connection may soon be playing catch-up.

In early April, Time Warner Cable announced the rollout of its TWC Maxx service in the Charlotte region beginning this summer.  This will include Huntersville and  Mooresville, and other areas right on the doorstep of Mi-Connection’s current footprint.
When this conversion to an all digital network is complete, TWC will be able to offer customers much faster data service at the same cost.  The top announced speed will be 300mb download.  That’s 5 times faster than Mi-Connection’s current top residential offering.

In response, Mi-Connection is currently “testing” their ability to match these 300mb download speeds.  This test is occurring in Mooresville’s Oaks on Main neighborhood.   Per an email from Mi-Connection CEO, David Auger, it could be expanded to include other areas as well.

One of the purposes of the test is to determine the capital costs (if any) necessary to roll the service out to the entire Mi-Connection footprint.  Depending on the results of these tests, those capital costs could eat into some of the operational and financing savings the company has recently achieved.  That would also mean more subsidies.

And in that situation, there lies an unfortunate irony.

Readers may remember, that one of the justifications used by Mooresville and Davidson officials in buying the remnants of the old Adelphia cable system and creating Mi-Connection was that Time Warner, who was  managing the operation in receivership at the time, was unlikely to upgrade the system.

If the towns had not taken control to offer better service, then nobody would have is how the story goes.

In fact, during a discussion in recent weeks on Mi-Connection both Davidson Mayor John Woods and Town Manager Leamon Brice referenced this idea as if it still had merit.

That Mi-Connection is having to conduct tests and potentially spend more subsidized money in an effort to keep up with announced improvements from Time Warner belies that original justification.

To put it another way, if Time Warner had been allowed to buy the system back in 2007, the average citizens of Mooresville and Davidson would be about to get for free the same service they might be able to get from Mi-Connection in the future.

Along the way, they could have also avoided the tens of millions in subsidies.

This post originally appeared in the Herald Weekly @

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