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AP&T to Sell Telecom Divison – To whom?

Alameda Power & Telecom has announced its intention to find a buyer for its foundering telecom division. The utility has some $80 million of debt, including a $43 million transfer from the electric division to the telecom division. But who would buy the telecom division and take on all of that debt?

Comcast is two generations of technology ahead of what AP&T has in the ground, and AT&T has no interest in hybrid-fiber-coax technology for video delivery – their U-verse TV system is based on “Fiber-to-the-Node” technology that uses twisted copper pair wiring – not coax – for the final run to the home. And Verizon is deploying FiOS, which runs fiber-optic cable to the home, not coax. Because it’s been supported by the bottomless well of taxpayer money, AP&T’s telecom division is the “last man standing” from the 1996 telecom deregulation act, which spawned a number of competitive telecom carriers, the majority of whom – funded by private enterprise – folded years ago.

Speaking of that taxpayer money – it’s gone. The $43 million transferred from the electric division to the telecom division? Gone. The $2.2 million loan from the City of Alameda General Fund to the telecom division? Gone. Write it off the books. It’s unlikely that anyone is going to step in and take on all this debt to get at the 9,000 some-odd cable TV subscribers, and 7,000 Internet subscribers. AP&T vastly overpaid to acquire those subscribers – in a time when leading cable TV operators (e.g. Cox Communications, Time Warner) were building their business by buying companies for less than $4,000 per subscriber, AP&T was off building a network at twice the expense – $80 million / 10,000 = $8,000 per subscriber. Is that good economics? Paying twice the going rate?

Several years ago, a Fiber-to-the-Home trial run by the City of Palo Alto Utilities (CPAU) was a very hot topic. At the time, SBC (now AT&T) fought against CPAU’s competitive entry into the telecom market, on the basis of unfair competition – municipalities have an endless supply of taxpayer money to subsidize their utility to compete against private companies like AT&T. Alameda Power & Telecom has now become the poster child of everything that AT&T said was wrong with municipalities funding telecom businesses. Do Alameda residents think that AT&T is going to come to our rescue and bail out $80 million of debt for 10,000 subscribers?

Here’s a prediction – AP&T will have no viable option other than default on the bonds, or somehow structure a deal to get rid of debt and the network for pennies on the dollar. Either way, it will be bad for Alameda, because the default will make borrowing costs more expensive for the City, meaning more of our tax dollars will go to bond interest and bond insurance payments instead of city services. One silver lining may be that it makes it harder for the city to issue redevelopment bonds – unapproved by voters – so perhaps that’s a good thing.

Thank goodness that Action Alameda members successfully persuaded the Public Utilities Board to stop Alameda Power & Telecom from throwing good money after bad by using more debt to fund a wireline voice service. If they had gone forward with that project, the problem we face today would be even worse.

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