As cable and Internet networks go, MI-Connection Communications System is small, with about 16,800 customers from Mooresville to Cornelius.
But it’s a large asset for the towns of Mooresville and Davidson, which bought it in 2007 after a previous owner’s bankruptcy.
The $80 million purchase was controversial eight years ago and remains a sore point among some residents who don’t think the towns should be in the communications business. They point to the system’s massive debt and say they’d like to see the towns sell the system, possibly as soon as September 2017, when debt repayment restrictions end.
Whether that makes financial sense and whether the towns consider a sale will be up to Mooresville and Davidson elected officials. For now, MI-Connection leaders are focused on keeping the system financially healthy and technologically competitive, CEO David Auger said Oct. 19.
“I can’t speak for everyone in the towns, but generally speaking, what I’ve heard at the local government level is that they (town leaders) like the fact that we have a plan and that we’re meeting our plan. And they’re confident that we’re getting there as quickly as we can,” Auger said.
The former Adelphia cable TV system was badly run down when the towns bought it out of bankruptcy in 2007. Now, many of the original arguments for the purchase have borne out: Customer service is better, the network has been been modernized and super-fast Internet speeds are an economic development lure.
New services are on the way: MI-Connection will boost Internet speeds at no extra charge in mid-November, staying ahead of its Lake Norman-area competitors. Top download speeds now will be 300 megabits per second for customers with traditional cable connections and 1 gigabit per second for those with fiber connections.
More high-definition video channels and a next-generation, whole-home digital video recorder also are coming in January. Even faster Internet speeds are in the works for 2016.
“I think it’s going extremely well,” said Larson Jaenicke, who chairs the MI-Connection board of directors. “We’re improving the video platform, and I think we’re remaining competitive on the technical side of the business. At the same time, we’re growing the revenues. … I’m personally very pleased with the progress.”
The system struggled financially and lost customers in its first few years. An economic downturn stymied growth. Town leaders discovered soon after the purchase they needed to rebuild the cable network, which meant borrowing another $12.5 million. And governance was an issue, with a lack of cable industry savvy among local leaders and board members.
So officials went to work, revamping the board by adding people with expertise in the telecommunications industry. In 2011, they hired Auger, a cable industry veteran who once ran Time Warner Cable’s operations in Charlotte.
Now, the system’s revenues and customer base are growing, in part with renewed population growth in the Lake Norman area.
Revenues were up 7.4 percent in the 2015 fiscal year, which ended June 30, to a record $19.8 million. Auger is fond of pointing out that’s a faster growth rate than most of the cable TV industry’s big players. Revenues for 2016 are expected around $21 million.
MI-Connection had an operating profit of $4.8 million for the fiscal year ending June 30, up 18.7 percent from the year before. Including the debt and other non-operating costs, the system lost $3.5 million, or 20.2 percent less than a year earlier.
The system has grown its customer base by 32 percent over the past five years, from 12,693 customers at the end of 2010 to 16,775 as of last week.
Another measure of growth is the number of services (video, phone and Internet) each customer buys, called “revenue generating units,” or RGUs. MI-Connection had 30,888 RGUs as of this week, up 28 percent from 24,087 at the end of 2010.
Most of that growth is driven not by the company’s traditional business – cable TV – but by Internet access, also known as broadband services.
“We’re really not a cable company anymore,” Auger said. “We’re a broadband company, and we provide video.”
The biggest issue for the towns has been how to pay for system’s $74.6 million debt, which has cost $7.2 million a year. The company hopes eventually to cover the full cost of those payments, but in its early years, there was no extra cash, so the towns had to cover it through subsidies.
But that picture has improved as well.
A refinancing in May reduced the annual cost of the debt by about $900,000 to about $6.3 million.
Meanwhile, MI-Connection’s growth now is fueling higher payments toward the debt – and reducing the annual subsidy from the towns. The company’s budget calls for contributing $2.8 million of the $6.3 million this year, up from $2.4 million last year.
The figure has been rising steadily, along with MI-Connection’s revenues. It paid just $1.6 million in 2013, $955,000 in 2012 and $276,000 in in 2011.
Conversely, the towns’ subsidies have shrunk from $6.3 million in 2012-13 to a budgeted $3.5 million this year.
“Next year, we will for the first time in the history of the company be funding the majority of the debt payment,” Auger said. “That’s just a huge milestone and a huge step in the right direction.”
Some want a sale
Though the towns’ subsidies are declining, some elected officials would like to sell the system.
Mayor John Woods of Davidson, which owns 30 percent of the system (Mooresville owns the other 70 percent), said the company’s financial improvement will determine whether a sale makes sense.
“We should reach a point in the next couple of years where we can begin to make a decision on the future of the system, in concert with our partners in Mooresville,” Woods said.
Davidson Commissioner Beth Cashion said she wants Davidson to get out of the business. While the company “is running very well,” she said, “I still think the town of Davidson should not be involved in the ownership of MI-Connection.”
But Mooresville Mayor Miles Atkins said an early sale of the company could lose taxpayers millions of dollars.
“The 2017 date keeps coming up, but the system will not be in a position to sell,” Atkins said. “It would have to sell for close to $80 million for the towns to break even, to pay off the debt.”
It’s not clear who might buy MI-Connection. It could be one of the big national cable companies, a smaller regional phone company or private investors.
Atkins sees benefits in local ownership, from economic development to customer service.
“I believe MI-Connection can provide an economic edge in the recruitment of business and industry. Locally owned and operated equals better responsiveness and better customer service,” Atkins said. “The townspeople in both communities are MI-Connection shareholders.”
David Boraks is a freelance writer: firstname.lastname@example.org.