MI-Connection board wants towns to address interlocal agreement

by Frank DeLoache

DAVIDSON – Ironically, because MI-Connection continues to have greater success signing up customers in Davidson, the town’s responsibility for the company’s debt continues to grow.

At its monthly meeting Thursday, July 28, at Davidson Town Hall, the MI-Connection Board of Directors approved an annual operating resolution showing that, as of June 30, Davidson’s financial interest in the cable TV-broadband company has grown to 35.21 percent, 2 percentage points higher than June 30, 2010.

At the same time, Mooresville, which bought the bankrupt company with Davidson in 2007, saw its financial share of MI-Connection drop from 66.76 to 64.79 percent.

Though its revenues are growing, MI-Connection is still years away from covering annual payments on about $89.9 million in debt. Davidson’s share of the 2011-12 debt payment is $1.94 million, or about 21 percent of the town’s budget.

MI-Connection’s debt load on Davidson already has taken center stage in the town’s upcoming election’s, and MI-Connection board Chairman John Venzon said Thursday night the current arrangement allowing the debt load to shift from year to year could, in the end, put MI-Connection “at risk.”

Venzon and Davidson Town Manager Leamon Brice, who sits on the MI-Connection board, suggested the shifting debt load could embolden MI-Connection critics in Davidson. Those critics, Brice observed, have suggested before that residents should avoid subscribing to MI-Connection to prevent the town from assuming a greater proportion of ownership – and responsibility for debt – of the company.

At Brice’s suggestion, the MI-Connection Board of Directors passed a resolution asking the town boards in Davidson and Mooresville to consider revising the interlocal agreement between the towns and stabilize the financial obligation of each town.

As written, the towns’ financial share is reset annually based on the proportion of customers living in each town on June 30. Even though Davidson is the smaller town, MI-Connection has much stronger “penetration” in the town than its other two markets: Mooresville and Cornelius.

General Manager Alan Hall told the board MI-Connection captures 44 percent of the cable TV-Internet market in Davidson, compared to 40 percent in Cornelius and 34 percent in Mooresville.

Hall and Venzon credited Davidson officials’ support for the company with helping the company sign up more customers in the town, and Venzon said he doesn’t want to see Davidson and its customers penalized for that support.

Board member Ken Essex suggested the best way to solve any imbalance between the two towns is signing up more customers in Mooresville. Indeed, since the Town of Cornelius has no ownership interest in MI-Connection, company officials believe the company’s success in Cornelius shows that its products and service can compete.

The board is pushing Hall and his management team to aggressively market MI-Connection’s services, and consultant David Auger, a former Time Warner Cable executive, said bringing phone marketers in-house will drive sales. MI-Connection currently contracts most of its services through a Virginia company, but MI-Connection has all but concluded an agreement to take over most its services and transfer the employees.

“We need to get the phones to ring and be confident enough in our sales ability,” Auger said.

At Thursday’s board meeting, Hall also presented figures for the end of the 2010-11 fiscal year and the fourth quarter, with both bad and good news. The report shows:
• Revenue for the year increased only 3 percent, much lower than previously projected, at $15.3 million. Hall said some new customers, like residents of Lake Norman Cove at Jetton in Cornelius, have not shown up on the balance sheet yet.
• The company reduced expenses by 5.1 percent, and increased its gross margin by 20.3 percent.
• The crucial measure of cash flow – earnings before interest, depreciation and amortization – rose 87 percent, to $2,430,000.
Cash flow is a key measure by which companies will judge when MI-Connection might become a good buy, Venzon said.

Some candidates and the newly formed Coalition for Fiscal Responsibility are talking about defining an “exit strategy” for getting the town out of MI-Connection, and at least two candidates have suggested forming a new task force to study MI-Connection again.

But Friday, Venzon said a capable citizen group – the citizen board governing MI-Connection – already is taking the best route to selling the company by building it.

At the board meeting, Venzon and Brice said the company needs to put together a detailed projection of growth and revenue that will help residents better understand the board’s own strategy. Ellis, the board treasurer, promised to bring such a presentation to the next MI-Connection board meeting on Aug. 25.