Salisbury City Council Public Hearing on the Possible Leasing of Fibrant to Hotwire Communications

Posted on March 21, 2018

Todd Paris, RFP Contributor and Salisbury Attorney

♦ Tuesday’s Salisbury City Council Meeting included a public hearing on leasing Fibrant to Hotwire Communications. We’ve come a long way from four years ago when then Councilmember Maggie Blackwell was pushing Assistant City Manager John Sofley to claim Fibrant was “turning a modest profit” to the present attempt at a rescue mission for this failing broadband. RFP and I claim full credit for exposing the falsity of this assertion.

While no lease or contract was available for public review tonight, new Mayor Al Heggins promised the full 100 page lease will be available to the public before the public referendum in May. She also (a marked change from previous councils) allows citizens to ask questions and actually get answers. This hearing was seemingly transparent and for a change quite informative. The skinny so far:

Hotwire will lease Fibrant for 20 years with an option to renew for an additional 20 years.

Hotwire will take over maintenance and personnel costs. This will create unspecified savings.

Hotwire will NOT assume the $30M or so city debt on the certificates of participation outstanding which has a more than $3M per year city payment.

This change will mean that Fibrant debt will lose tax exempt status for investors and increase our interest rate from slightly under 3% to around 6%. Is this going to double the amount we pay to service the debt? Whatever the answer, taxpayers stay on the hook for this debt.

A few years ago Fibrant was earning enough to pay its operational costs, but not its debt service payments. Now Fibrant is no longer able to even do this. It’s effectively not covering its operational expenses and its debt payments. Fibrant is losing ground.

Hotwire will pay a rental fee based upon a percentage of its gross profits, not net. The definition of “gross profits” in the lease agreement will be “key.” The city has certain benchmarks in the lease that will allow the City to terminate the contract if they are not met. These benchmarks are not yet unspecified.

We learned that last year in the infamous secret closed door meetings two internet companies offered to buy Fibrant, but neither offer was enough to pay off the debt.

That the network will need millions in repairs and improvements over the next twenty years that will now become Hotwire’s responsibility and that could save us a great deal of money especially since the network was erected in violation of the National Electric Safety Code and subject to a pending Superior Court lawsuit filed by the city against the contractor.

It all comes down to these questions. Will Hotwire be able to generate enough gross profit to pay sufficient rent that when coupled with the city saving on maintenance and personnel, be enough to make up for the debt’s interest rate to be doubled? More importantly, will it exceed this benchmark and allow promised savings to be added back to the general fund to restore other services that have stayed under-funded? Will aggressive marketing and cheaper pricing by Spectrum make this success all but impossible?

My conclusion is this is a real “Hail Mary play” and such things tend to be either great successes or miserable failures. Like Momma says, “Pray for the best, but prepare for the worst.” We are waiting for the agreement to be published.

Hotwire Public Hearing:

Posted in: Articles