November 17, 2005

City reviews options to decide fate of network

By Vickie Aldous
Ashland Daily Tidings

OPTIONS EXPLORED The Ashland Fiber Network options committee identified seven possible scenarios for the city-owned television and cable Internet franchise. Their rankings in three areas are listed below, with green bars noting intensity of positive and red indicating intensity of negative impact.

The Ashland Fiber Network Options Committee will recommend that the city pursue selling AFN while also working to spin it off as a separate nonprofit.

While the two-pronged approach seems contradictory, pursuing both options at the same time could help the city get a higher price if it sells the cable television and high-speed Internet service, according to a draft options committee report.

Potential buyers would know that the city has a plan to spin off AFN as a nonprofit if bids are not acceptable, according to committee member Paul Collins.

“It’s a good plan to go ahead with both options at once,” Collins said. “It’s important to note that trying to sell it without trying to continue it means the value would go down. The buyer could just wait us out. It’s important to be serious about going forward.”

Alan Oppenheimer, who owns Open Door Networks in Ashland and retails AFN’s Internet products, said he opposes selling AFN, but still thinks the options committee has come up with a business-savvy strategy.

“It’s very smart of the committee to have two parallel options, not only to save time, but to get a better price if that’s the way they go,” he said. “If buyers don’t offer enough, the city can say, ‘We will do a spin-off.’ That’s a major bargaining chip.”

The options committee will present the final draft of its report to the Ashland City Council during a special study session at 5 p.m. Nov. 29 in the Ashland Civic Center Council Chambers, 1175 E. Main St. The meeting is open to the public.

Collins said the draft report obtained by the Tidings is essentially complete.

The council formed the AFN options committee, which began meeting in August, to examine alternatives for the future of AFN. Committee members have expertise in high-technology, business and financial fields.

The council did not ask the options committee to come up with recommendations, but the committee took that extra step.

Although AFN is roughly breaking even on current revenues and expenses, it is saddled with $15.5 million in debt.

The AFN options committee will recommend against keeping AFN while trying to invest in new services in an effort to boost revenues, according to the draft report.

Among other drawbacks, keeping AFN would require more money to provide new technologies like high-definition television, Charter Communications would continue its fierce price competition and AFN would have to continue operating under public meeting and records laws that allow competitors access to AFN business information, the committee reported.

“As a consequence of these findings, the Options Committee strongly recommends against pursuit of the Maintain and Enhance Option as it is likely to result in continued financial shortfalls, continued requirements for City subsidies, limited, if any, progress in capturing additional market share, and a further decrease in the value of the asset,” the draft report states.

However, the committee noted in the report than none of the options are perfect.

If the city sold AFN, committee members estimated it could bring $5 million to $10 million — not enough to cover the full $15.5 million debt. The city would be left to make up the difference.

But selling AFN is the option with the most financial certainty, according to the draft report.

City staff members already are holding discussions with three entities that might be interested in buying AFN. The purpose of the discussions is to have the potential buyers submit non-binding letters of intent stating proposed purchase price ranges by Dec. 15, according to the draft report.

The committee is recommending that in addition to working with potential buyers, the city should contact three or more investment banking firms specializing in the sale of television and Internet systems.

The firms would provide input on AFN’s salability, possible sales prices, estimated time-frames for such sales, the cost of the sales process and how to put additional pressure on possible buyers to complete the purchase, according to the draft report.

If the city spins off AFN as a nonprofit, the committee will recommend that the nonprofit possibly assume $6.5 million of the $15.5 million debt, leaving the city responsible for $9 million. The nonprofit probably could not survive with the full debt load, according to committee members.

The options committee gave some examination to a proposal, dubbed “common carrier,” that essentially would have businesses pay to use AFN’s infrastructure to carry high-tech services to customers. AFN would not sell the services directly to customers.

The common carrier approach could be coupled with a spin-off option or if the city council decided to keep and enhance AFN, but the approach would need further study, according to the report.

The committee also explored options to immediately shut down AFN without trying to sell it, buy out Charter’s customers to reduce competition or keep the operation running as it is now, but concluded those are not viable alternatives.

Staff writer Vickie Aldous can be reached at 479-8199 or valdous@dailytidings.com.