Who is Paying AFN's Debt?

Current Fiscal Year
Unrelated court settlement - $375,378
AFN - $356,000
Electric Department - $252,300
Public Works Department - $180,900
Ashland Police Department - $111,896
Ashland Fire & Rescue - $102,160
Community Development - $44,444
Municipal Court - $8,300
TOTAL - $1,431,378

Next Fiscal Year
AFN - $730,000
Electric Department - $252,300
Public Works Department - $180,900
Ashland Police Department - $111,896
Ashland Fire & Rescue - $102,160
Community Development - $44,444
Municipal Court - $8,300
TOTAL - $1,430,000

The city of Ashland's new Information Technology Director Rob Lloyd said he doesn't think the Ashland Fiber Network will ever be able to shoulder its full debt load, but it will pay more toward its debt in the coming fiscal year than it has ever done before.

Lloyd said this week that he doesn't think AFN will ever be able to cover its operating and capital expenses and also make its annual debt payments without help.

The last debt payment is scheduled in 2024, Ashland Finance Director Lee Tuneberg said.

Other city departments have to chip in every year to help pay the debt, which mounted to $15.5 million during AFN's early years because of higher than expected expenses and stiff competition from Charter Communications. Both AFN and Charter Communications offered below-market rate cable television service in Ashland for years.

The city government began building its Internet and cable television service in the late 1990s, but later privatized the money-losing television side of the enterprise. Lloyd said many private high-tech businesses selling the same services also amassed debt, with many declaring bankruptcy.

Although he delivered an unvarnished prediction about AFN's debt situation, Lloyd said he does think he can increase AFN's revenues by selling new services to local businesses and residents, such as telephone services.

Lloyd was the chief of information technologies for the Colorado Division of Wildlife before starting work this spring as head of AFN and the city's internal computer services division.

For the coming fiscal year that starts July 1, AFN plans to use a big chunk of its carryover funds to pay a larger share of the annual debt payment than it has ever paid before.

The total debt payment for the coming fiscal year is nearly $1.43 million. AFN will pay $730,000 of that, up from its contribution of $356,000 this fiscal year, city officials said.

"We want to take on as much of the debt as possible," Lloyd said.

However, AFN will not have substantial excess carryover funds to make such a large payment in the future, Lloyd and Tuneberg said.

AFN's share of the debt payment will drop down to $477,000 in subsequent years, although that is still more than it has paid in the past, according to long-term budget projections.

In the current fiscal year, the city of Ashland used $375,378 from an unrelated court settlement to help pay AFN's annual debt payment. AFN and other city departments paid for the rest.

There will be no more court settlement money in the coming fiscal year to use.

The electric, public works, police, fire and community development departments, as well as Ashland Municipal Court, will continue to bear the majority of AFN's debt burden. The proposed budget for the coming fiscal year calls on them to pay $700,600 of the debt payment, the same as this fiscal year.

Ashland Citizens' Budget Committee member Lynn Thompson said AFN's ability to share in its debt burden remains a concern.

"As a citizen, I continue to worry about this enterprise we've got and if there's any hope of getting it closer to the mark," she said.

Mayor John Stromberg said the city of Ashland needs to do a better job getting the message out to residents and businesses that when they buy Internet services through AFN, the money stays here to help pay AFN debt and reduce the debt burden on the community.

AFN has about 40 percent of the Ashland market, Lloyd said.

"We need to sell the local angle," Stromberg said.

Getting that message out is complicated by the fact that AFN doesn't offer Internet services directly to customers. Instead, it wholesales its Internet system to local high-tech companies that then retail services to customers.

Lloyd said he wants to adopt new contracts with the Internet retailers — known as Internet service providers, or ISPs — that include customer acquisition incentives.

The question remains whether AFN should get into the business of directly retailing its services, he said.

"The city would make a higher revenue margin. But the ISPs can be more agile and quick in developing new services," Lloyd said.

City officials adopted the Internet wholesale model from AFN's inception to promote economic growth in the local high-tech industry.

Meanwhile, Lloyd plans to trim AFN's advertising budget since AFN is not the entity that sells directly to customers.

Charter Communications, which sells its own Internet service and is not a retailer of AFN Internet, regularly sends out mass mailings and runs television ads to try and attract new customers. It also offers discounts for bundling Internet, television and phone services.

Lloyd plans to present a draft strategic business plan to the Ashland City Council in June.

He has put the continued construction of a Wi-Max wireless Internet system on hold for a few months to see how that service would fit into the business plan.

AFN also is faced with rising costs to buy additional bandwidth as customers download movies and do other activities that use up big parts of the Internet pipeline.

Staff writer Vickie Aldous can be reached at 541-479-8199 or vlaldous@yahoo.com.