Those analysts also agree that tapping David Auger — the former Time Warner Cable executive — as MI-Connection's CEO is just such a move.
"Well, my first thought is, did (MI-Connection) make Auger take a loyalty oath?" asks broadband analyst Craig Settles. "Time Warner has spent much of the past three years fighting MI-Connection in particular and community-owned broadband in general. Now, to hire someone from that fold to head up a community network that still needs a lot of TLC to me seems a little risky."
That's because leaders within behemoths such as Time Warner typically become indoctrinated in the big-is-best culture, Settles explains, but there are exceptions.
"I know that not all (big-broadband executives) have the same psychotic knee-jerk reaction against community networks," says Settles, author of two books on municipal broadband.
And Auger, who was appointed as CEO last week after serving as a consultant in the company's transition to local management, knows this community's cable systems well. As president of Time Warner's Charlotte Division until 2006, when he retired, it was Auger who planned the transition of the local Adelphia system to Time Warner, including the piece that eventually became MI-Connection.
While Auger wouldn't suggest he's channeling Joni Mitchell, he has looked at local broadband from both sides now.
"Running these networks is very difficult, so the towns are smart to find someone with strong experience in the field, particularly one who already knows the lay of the land in that market," says broadband researcher Christopher Mitchell, who has closely followed North Carolina's legislative efforts to limit municipal ownership of cable systems.
But Mitchell, director of the Telecommunications as Commons Initiative at the Institute for Local Self-Reliance in Minneapolis, Minn., also notes the irony of Auger's transition from industry stalwart to municipal startup.
"Networks like MI-Connection have a very tough path because their big competitors have significant advantages," says Mitchell, who as an advocate for municipal broadband has a built-in bias against Time Warner and its ilk. "But being in debt for the first few years is par for the course of a massive capital investment such as a broadband network. MI-Connection needed a lot of investment (nearly $100 million) to make it worth subscribing to for residents and businesses. That investment takes time to pay off, all the more so given the recession."
The debt tied to that investment continues to be the biggest drag on MI-Connection. Payments on that debt top $7 million both this year and next year. This year, Davidson alone is sending about $2 million in bailout funds to the company. That's 22 percent of the town's current operating budget, and contributed to a tax increase for most Davidsonians this year, and a new $200 per household sanitation collection fee that began last year.
The structure of MI-Connection's debt, however, makes selling MI-Connection all but impossible until 2017, at the earliest. Davidson's John Venzon, who was named board chairman at MI-Connection in April, says his goal is to make the company sellable by 2017, and that voters could then decide on whether the town should stay in the cable business.
For now, the company has finalized a new operating agreement with Bristol Virginia Utilities (BVU), which means MI-Connection will manage its operations locally rather than paying another company to do so. MI-Connection and BVU began negotiating a new agreement in December 2010, and had been transitioning to local control since then.
With the agreement, MI-Connection officials say they will add local employees and bring some services in-house. BVU will continue to provide customer service, billing and technical support for MI-Connection. The agreement also comes with a reduced management fee. The previous operating agreement called for a payment of $1.5 million annually to BVU. The new agreement includes a management fee that will decrease monthly until it reaches an approximate annual charge of $300,000 by 2013.
"This transition moves us closer to our vision of being the premier communications provider for this area," Venzon says. "It allows us to provide excellent services and products to our community, and it enables us to contribute to economic development efforts. It also strengthens our market competitiveness by providing local sales and marketing leadership to respond to the needs of our customers while reducing our operating cost structure."
Venzon and other directors will lean heavily on Auger to provide that leadership, and analyst Settles says they might have found the right person.
"The bottom line is, hiring (someone with) private sector and telecom industry expertise is a good move for any community network if these individuals are committed to delivering what's in the best interest of the communities that hire them," Settles says. "Great things should happen with these networks."
