Thursday, June 22, 2017

Mi-Connection comments raise the recurring question..."What is the plan?"

At the June 13th Board Meeting, there were some interesting public comments from citizens.  That's always a good thing to see.  One comment from Joe Seferyn of Davidson regarding Mi-Connection has been getting some traction on social media.  Seferyn asked a number of questions about plans for the system in light of the ongoing losses.  aShortChronicle has obtained a written copy of Mr Seferyn's comments in their entirety for your reading pleasure.

Mr. Mayor, Members of the Board:

On behalf of the tax payers in Davidson, I would like to offer comments on the situation regarding MI-Connection and its effect on the town budget and the tax payers.  (By way of background, I worked for 35 years in leadership positions in the voice, data, video and cell phone industry, so I have some knowledge about these issues.)

In the budget review presented by Pieter a few weeks ago, sadly the issue of MI-Connection got no attention.  It is shocking that a million dollar line item in the budget received no discussion at all.     

Since Mooresville and Davidson purchased the company about 10 years ago, the cost of the losses to the Davidson tax payers is over $10 million dollars.  Also, Mooresville has probably lost another $30 million dollars.  Let’s call it what it is--a financial disaster that has a huge negative impact on the town budget. 

Based on my experience, these losses are likely to increase over time, and perhaps escalate due to current negative trends in the industry and intense competition.  
The company keeps touting their growth in customers.  I have been trying for months to find out how many more customers they would need to achieve profitability.  The company has said it’s too complicated to determine, but I know that is just not true.

Without a plan to break even, what is the point of continuing to waste a million dollars a year on a company that has little hope of achieving profitability or even surviving!

Also, tax revenues are increasing due to continuing new construction as well as rising home values.   But, there doesn’t appear to be any effort on the part of the Town Board or the Town Manager to reduce or eliminate the trash fee that was imposed to cover the losses.

The attitude of acceptance of these losses is quite troubling!

The tax payers in Davidson deserve prompt answers from the Board and the Town Manager to the following questions:

1.  Are you going to do a detailed review of the MI-Connection status, develop a plan of action and share the results with the tax payers.

2.  Are you going to ask MI-Connection for a written documented plan to achieve profitability?

3.  How can you consider raising taxes to pay for a new town hall or going further into debt on a new bond issue, while wasting a million dollars a year on a company which may not be financially viable nor  has a plan to succeed?

4.  Why can’t you reduce or eliminate the trash fee that was imposed to pay for the losses?  This would give the tax payers a small return on their $10 million dollar lost investment.

5.  How many more years are you going to spend over a million dollars a year to keep this company afloat without a clear path to profitability?  Some might say continuing on this path would be reckless and financially irresponsible! 

6.  Should the taxpayers of Davidson expect to lose another $10 to $20 million dollars of their hard earned money on this company?  This eventuality is very concerning!

It would seem this is exactly the outcome we will get without a major change in direction.  Wouldn’t those millions of dollars be better spent improving Davidson?  Perhaps the time has come to shut this company down, cut our losses and stop the bleeding.  

There are other sophisticated voice, internet and video providers in the local market today, so the existing customers would not be left without service and would very likely have lower monthly bills.  

The tax payers of Davidson urge you to take decisive action and do this quickly so as to eliminate further losses to be passed on to the tax payers.

Thank you for the opportunity to offer comments

Clearly, after 35 years in the business Mr Seferyn has the background to make informed comments.  That's 35 years more industry experience than any of the Town's elected officials possess.  So, what were the responses from elected officials?

Near the end of the meeting, Commissioner Anderson, seemingly exasperated at having to even mention Mi-Connection, responded that taking Mr Seferyn's advice of shutting down the system by saying "we can't just dump it now because we'd go bankrupt".

That would seem to be quite the exaggeration based on at least one faulty assumption.  That assumption would be that shutting down the system would mean simply closing the doors and walking away.   Obviously that's not true. Instead, shutting down the system would obviously involve selling off the assets.  With the towns owing roughly $65 million as Commissioner Anderson stated, even if selling those assets only brought in 50% of that total it would leave Davidson owing $9.75 million to cover the shortfall based on its 30% responsibility for the company.  That's less than the $11.5 million Davidson will have paid in subsidies through FY2018 since buying the company.

All that taken together makes the claim of bankruptcy because of a Mi-Connection liquidation seem highly unlikely.

On the other hand, Commissioner Anderson did allude to something that probably is accurate which should disturb taxpayers more than the false threat of bankruptcy.  Anderson said Mi-Connection had taken "a couple of hits this year with competitors coming in".  This is the spectre that has been out there since the beginning and was even mentioned in Mr Seferyn's comments that Anderson seemed to be trying to refute.  Competition has always been the main concern from the towns' decision to enter the cutthroat telecom industry.

aShortChronicle recently raised questions in this post regarding the stall in the decline of Mi-Connection subsidies in the FY2018 budget.  If competition is heating up and the company is taking hits, there is absolutely no reason to think that will slow in coming years.  If the subsidy required stays at $1 million per year (or possibly more), Davidson may have little to lose by liquidating the company now.

Commissioner Graham followed Anderson by saying he agreed with Anderson's comments and added that "the questions that were asked are the questions we do ask of Mi-Connection", but because they are in a competitive situation the Board doesn't always ask them in public.

Mayor Woods, the only elected who actually voted for Mi-Connection back in 2007, chimed in with "our method is to encourage citizens to use the service."

None of the electeds answered Mr Seferyn's questions, and therefore it looks like the public still gets to know very, very little about one of its largest expenses.

Commissioner comments start at minute 87:15 of this video.


  1. If all Davidson taxpayers subscribed to MI connection, the company would be highly profitable- and Davidson would be in a much more solid financial position- without the worry of selling parkland, and other town properties. But people love shooting themselves in their feet to prove a point. Perhaps if the mayor and town board paraded up Main Street, every Friday at noon, whipping their naked backs with cat 'o nine tails, showing their sincere apologies for taking a progressive risk in buying the system, just maybe those angry anti-government folks will stop thinking of themselves long enough to subscribe to MI connection and do their community-- that they profess to love so much-- a favor, and sign up. This is the only real answer. Cancel directTV TWC, etc. and do your duty. I've talked to too many 'Davidsonians' who are vengeful, angry anti-government people seeking revenge... I just wonder, and the purpose of this lesson?

  2. Bob, thanks for the comment. While I disagree with it pretty much in its entirety, it does show the kind of thinking that got the town in this predicament with the decision to buy the company in the first place.

  3. They took a chance. Have you ever taken a chance, and screwed up-- especially other people's lives? Leaders do that, all too frequently. Wannabeleaders sit back and throw stones with 20-20 hindsight. Actually the MI deal, at the time was brilliant-- to many. It was idiotic to others. Granted one was very wrong, the other very right. I know many smart people who lost much in the totally unexpected financial crash and tech down-swing at the time. Also, there were some major corporate actors in this thing that purposely steered the purchase to fail, so that Davidson would fail, and would be an example to any other government entity that tried to interfere with their monopolies. After corrupting the deal, they had the nerve to use Davidson's "failure" as justification for forbidding any other NC municipality from owning utilities-- including cable and Internet. OK to screw up Police, Fire, and Water, but don't screw with a multi-billion $ industry. At the time, Adelphia and TWC, the two commercial players received terrible customer service ratings, were dragging their feet with digital upgrades. Davidson's Internet was terrible at the time-- and threatening its viability. Adelphia's executives were charged with massive fraud, and had to sell their neglected systems. So, given those realities the town tried something that would truly serve the community-- the way it did with police, fire, medic, water, sewer, roads, etc, etc, etc. So, my pov is just subscribe, and the problem will go away. If you feel so compelled to make a political statement that could really bankrupt the town, and have it de-chartered by the NC legislature, who will raise everyone's taxes much more that that simple cable subscription, which will therefore devalue property in Davidson, and leave everyone who needs to sell and in a really bad position. Would you rather be governed by Charlotte, or by Eastern NC counties? So, tell me how you disagree with this-- what is a better option for the future? I was there, and went to many meetings-- before and after, what did I miss? Another solution might be to give free Internet and basic cable to all Davidson residences-- and pay for it with a reasonable tax. Antiquity and many private developments do this, but then the Eastern NC counties would probably not allow this. Do you really want Davidson to become Kinston?

    1. Town Board members are trustees of the publics tax money. It is their responsibility to not take unnecessary risk with it. Prestige / Mi was unnecessary. "You don't gamble with other people's money".

  4. Bob, nobody wants the town to fail. The fact that you keep throwing that out to smear people who disagree with you is very telling however.

    Real solutions that operate in the real world need to be based in reality. Just telling people to sign up because it is their "duty" doesn't meet that criteria.

    MiC has decent penetration rates where it operates and the service is Ok. The EBITDA is slightly above industry average thanks to the work of David Auger who unfortunately is retiring. This shows that it currently is a decently run company from an operational perspective. (I am a subscriber to data services btw and am decently satisfied.) However, if your “plan” to make it profitable is for MiC to greatly exceed those industry metrics that is simply not dealing in reality. Plus, where do you draw the line? As I said, I am a data subscriber. However, I don’t have voice or video. We are a cell phone only household and use streaming services which better meet our needs. Does that somehow make me a bad citizen because I am not a Triple Play subscriber? Personally, I believe my “duty” is to my family, not to bail out the poor decisions of people who seriously damaged this town through a poor, yet “progressive”, decision as you put it.

    The underlying problem is the towns paid way too much for it because they were in way over their heads taking this "risk". Gambling with the town's future would be a more accurate description. Davidson chose to gamble. Cornelius and Huntersville chose to be responsible and not. Did they experience a technological disaster as you imply Davidson would have experienced because they chose not to go along with the MiC gamble? Of course they didn’t. People who truly care about their town and who care about its future don’t gamble with it over a “progressive” idea. The fact that you use the term progressive to describe the MiC deal shows who was/is truly playing politics here.

    You also hide behind the boogeyman of evil big corporations being behind the problems at MiC. The truth is that the telecom industry is massively capital intensive. A small player like MiC will always be playing catchup. It will never be an innovator when it comes to new services. That is the reality. Competition will only increase over time. Customer churn will only worsen. In the out years this stands to be potentially much worse than the situation is now, today. Fantasies of everyone signing up aren't going to change those realities.

    What I won't accept and you should not either are unsubstantiated threats of bankruptcy from the dais at Town Hall. If bankruptcy is a real possibility under all sets of reasonable assumptions, then the public deserves to know the details of why. The implication behind that threat is that MiC today is worth substantially less than even very low estimates. If that is the case, the public deserves to know.

  5. This comment has been removed by the author.

    1. Here is a link to a post this morning for a history of MiC.

    2. This comment has been removed by the author.

  6. Davidson cannot file bankruptcy without approval of the Local Government Commission (State Treasury) and the consent of a federally mandated percentage of its creditors. Because of this requirement I believe the talk of bankruptcy should not even be on the table. Nor should we go back in time and debate the wisdom in the decision that was made. In my opinion we should turn our debate to plans for extraction and the financial limitations we have because of the indebtedness. I am personally of the opinion that Davidson should not be in the utility business. We have all made bad decisions in our lives but the true test of our mettle is how we rebound. Market value will determine how and when we can experience the least hurtful withdrawal. It is an extremely difficult decision as to when you sell a business, entailing many variables. You may make a profit or you may take a big hit but at least you have stopped the bleeding. I would be very surprised if anyone could devise a set plan for how to deal with MI but would only hope we are pursuing a definable goal. Let's all be respectful of opinions of others which can always lead to productive debate.

    1. Thanks Sandy for the level headed response. And of course you are correct, true bankruptcy isn't really an option. Maybe a better choice of words from Town Hall would have been "extreme financial distress".

      Laurie Venzon's post at the link provided here gives a detailed account of the history of MiC. It also has current numbers. $67m in debt vs a $50m valuation. If those are true then the $17m shortfall under an immediate sale at that value would be divided $11.9m to Mooresville and $5.1 to Davidson. (Note, her numbers are better than the ones I used in the original post.)

      That $5.1m wouldn't even be described as financial distress if financed out for 20 years. (The proposed new Town Hall is twice that much by way of comparison.) Would taking an additional $5 million hit be good? No, it would not. It would however take the risk of unforseen business impacts from competition, economic downturn, and greater long term subsidies off the table. Of course a $50m value only exists if someone is willing to pay it. Finally,while the projections of a future break even date of 2022 provided in the same document might be good to hear, we've been hearing dates for many years. What happens of it looks like those dates won't be met 12 months, 24 months down the road? When do we change course?

      Answers to those questions and a realistic plan are what the town needs to hear.

  7. One correction to the outstanding question this Blog has to the towns is who is David Auger's replacement. Mayoral candidate Laurie Venzon just posted at Save Davidson Facebook group. Included is a statement that Auger has agreed to stay on for a while longer. When a response from the towns is received it will be posted here.

  8. Do your duty by signing up with the government provider?? I can't tell, is this sarcasm from Mr. Maier? What if the town bought a grocery store, or a coffee shop, or an insurance company, would it also be the duty of Davidson residents to patronize those as well? I complain a lot about the money pit that is HFFA here in Huntersville, but at least our town had the sense to stay out of the MiC deal.

    1. wish there was a 'Like' button for your response Eric.
      Are they still losing $1,000,000 every 90 days? how long would a private business do that before going under? Good thing they have big gov't to keep them afloat.

    2. Faron, it's more like $1m every 125 days.

    3. Faron, it's more like $1m every 125 days.