Vermont city gets into cable business, now facing criminal charges and insolvency

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Voters in Burlington, Vermont were sold a bill of goods ten years ago, when city leaders convinced them they could do a better job of providing telephone, Internet and cable TV service to residents. Voters passed a measure putting the city in the telecommunications business, something that they knew nothing about, with the launch of Burlington Telecom.

Ten years later, the business is bankrupt and the FBI is conducting a criminal investigation over how $17 million in city funds were illegally funneled into the operation. The private lender for the business, Citicorp, is threatening to repossess the equipment, after BT defaulted on the loan.

The City of Burlington, Vermont thought they could do a better and cheaper job providing cable and Internet to its residents. Now, it's broke and under criminal investigation.

In the year 2000, Vermont’s largest city, Burlington, decided that it shouldn’t wait for private provider of telecommunication services to bring fiber optics to the community. Officials felt that it could a better job, and since its left-leaning population would much prefer a public provider over private provider, they were convinced that they would get plenty of customers.

Once the system was built however, the system failed to sign up the required number of subscribers needed to make the venture profitable. Burlington’s sign up rate only managed to hit about 30 percent with residential customers, with the corporate rate much lower.

Critics familiar with Burlington’s problems point out how unaccustomed cities are to providing customer service in the same manner as competitive private enterprises. Consultants also claim that BT overpaid to build the system, and that it runs day-to-day operations poorly.

At the core of BT’s problems are its failure to maintain a sufficient customer base, and the amount of debt that it took on to build the system. The current outstanding debt totals $50.5 million, with $33.5 being owed to a lending arm of Citibank. The city’s failure to keep current on the debt has put it in default with Citicorp, and the lender has notified it that it intends to seek return of the equipment securing the loan.

A far more serious problem exists with the lender of the other $17 million of debt: the city of Burlington itself. When the city decided to get into the telecommunications business, the Vermont legislature approved the venture, providing that the city agree not to use any taxpayer funds.

In September 2009, BT notified the Vermont Public Services Board that the city had illegally provided $17 million in city funds to cover operating losses. Both the state and FBI are conducting criminal investigations for the misuse of public funds and a decision on criminal charges is expected soon.

Considering that the other telecommunications provider in the area is Comcast, the future of BT looks bleak.

The Associated Press

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