November 28, 2017: Progressives Dump KBTL, Select Schurz as Buyer for Burlington Telecom
The Burlington Free Press, WCAX, Vermont Public Radio, NBC5, Seven Days, VT Digger, and MSN reported on November 29, 2017 that in a final vote in an 8 hour marathon session that ended at 2 am progressives voted in a Schurz Communications/ZRF partnership beating out co-op Keep BT Local by a vote of 8-2. ZRF and Schurz decided on a joint venture with ZRF as majority stakeholder after they were brought back into the process earlier this month, when the council couldn't decide between Ting Tucows and KBTL. In an 11th hour reversal Schurz became the majority stakeholder in a new joint proposal with ZRF that was presented to the council after it became obvious there were serious questions about ZRF's secret investors, who would make the decisions when ZRF chose to sell the utility after a few years, and whether Citibank would sue if the council chose ZRF's $25 million bid. The decision to go with Schurz followed a 90-minute public forum and hours of debate in which many spoke out in frustration over the process.
Faisal Nisar of ZRF Unable to Answer Questions About Secret Investors
During initial questioning of Faisal Nisar of ZRF, concerns emerged about secrecy around the investors who would be financially contributing to purchasing Burlington Telecom, who would make the decisions when ZRF chose to sell the utility in a few years, and whether Citibank would sue if the council chose ZRF's $25 million bid. Nisar was unable to give satisfactory answers to the questions put to him, prompting observers to conclude that the ZRF/Schurz bid might not prevail if it went to a vote.
Schurz and ZRF Switch Places in Backroom Deal
The City Council began the night with three bids. Keep Burlington Telecom Local, the cooperative that sprung up with the sole goal of buying the utility and Ting, the wireless services and fiber internet arm of Canadian-based internet services company Tucows, Inc. were the two finalists who the council deadlocked over at the beginning of November. Both ZRF and Schurz were eliminated earlier in the process, but were invited back after the council reached an impasse in deliberations between Ting and the co-op. Under a proposal submitted last week, ZRF, a private equity firm, would own and operate Burlington Telecom, with Schurz as a $10 million investor. There were two commercial bidders for Burlington Telecom in the final round: ZRF Partners with financial backing from the formerly independent bidder, Indiana-based Schurz Communications, and Toronto-based Ting. Ting offered $32 million, ZRF $25 million, and KBTL offered $12 million to $16.5 million.
Schurz's eventual winning bid, with ZRF Partners as minority owner, did not exist when Monday's City Council meeting commenced. At the start of the meeting, ZRF Partners was listed as the major bidder with Schurz as a minority partner. The flip came about after a Councilor David Hartnett approached Schurz and Nisar in the hallway during a recess and asked them to consider switching who would be the majority owner. He said he believed it was the only way to avoid another deadlock.
During a break at the meeting, ZRF and Schurz decided to flip their bid, making Schurz the primary owner and ZRF an investor in the cable and internet provider. This changed ZRF's $25 million offer to nearly $31 million. The winning offer, a hybrid of previous bids submitted to the city, did not exist when the meeting began on Monday evening, but was worked out in the hallways and backrooms of City Hall while the council was in recess. Some broad strokes of the deal were presented to councilors, such as the dollar amount of the cash offer: $30.8 million, and that Schurz would be the controlling partner while ZRF's promises of community investment would remain. Other details, like ZRF's exact role as a minority partner, were left unfinalized. The new letter of intent will be submitted later on Tuesday, said Ralphine O'Rourke, a lawyer representing the city, during the meeting.
During a recess, city attorneys worked with Faisal Nisar, founder of ZRF, and Todd Schurz, of Schurz Communications, to mark up a previously released proposal. It was posted online at 1:40 a.m. Tuesday.
The selection of the Schurz bid came as a surprise – especially since the bid that the council considered at the start of the meeting wasn’t the same bid that they ultimately voted on. At the start of the night, ZRF was offering $25 million, with $10 million coming from Schurz, who would be a minority partner. But after councilors raised concerns, ZRF and Schurz renegotiated their proposal in the halls of Contois Auditorium and presented a new proposal to the council. While Todd Schurz, CEO and President of Schurz, admitted that since the new deal had been worked out in about 15 minutes, there are still some details to nail down. But essentially, he said his company would make the same offer they had originally made to buy Burlington Telecom. “What we’re proposing is taking elements out of Schurz’s last LOI [Letter of Intent] and melding them with the LOI that you received from us Monday of last week and the updated one today," Schurz said. “So it would be the old Schurz price of $30.8 million… and all the elements of the ZRF bid.”
"I had to do the right thing," Nisar said after he decided to essentially "step aside" and give up his own bid to allow the city to reach consensus. Councilor David Hartnett said he approached Nisar and Schurz with the idea because he was concerned about the council reaching an impasse over Ting and Keep Burlington Telecom — again. "I'm okay with giving up transparency knowing we can get a better operator," Hartnett said about the last minute change. When the councilors reconvened, they made a final decision with no public input on the winning bid.
But some councilors did not agree with Hartnett's assessment. "I feel incredibly uncomfortable with this," said Councilor Max Tracy, speaking about the 11th-hour switch. "It’s just a slap in the face to the public process that’s happened here."
Ranked Choice Voting System Favored Schurz
Shortly before 2 a.m., the council voted twice. In the first round, councilors could cast two votes using a ranked choice voting system where the lowest vote-getter would be eliminated. The top two vote-getters moved on to the second round. The first round ended with 8 votes for Schurz, 7 votes for Keep Burlington Telecom Local, and 5 votes for Ting. "It was the ranked choice voting system," wrote poster on Reddit. "The Schurz voters on the Council had a bullet proof strategy provided that the ranked choice voting system remained intact. That's why two of the other Councilors abstained...they didn't think it was a fair method at that stage and they knew Schurz was already the winner. It sucks. It was more about spite than anything, as evidenced by Hartnett's manchild routine." All Schulz and KBTL's six supporters on the council had to do was vote for Schultz and KBTL to eliminate Ting even though progressives had no intention of voting for KBTL in the final round.
After Ting was eliminated, the final vote was 8-2 for Schurz. Councilors Sharon Bushor and Sara Moore, who have supported the co-op throughout the process and voted KBTL as their first choice and Schurz as their second in the first round, both chose Schurz in the final vote. Dieng and Tracy cast their votes for the co-op, while Deane and Shannon declined to cast votes for either option. Deane said he considered his vote a "No" vote, rather than abstaining. "I did not feel it was responsible on my part to vote for something I did not understand," he said, citing the lack of public support and his own lack of understanding of a bid that had come together only hours before. Shannon also characterized her vote as a "No," rather than an abstention.
"The outcome is a disappointment to me and those councilors who supported Ting or KBTL and believed that they were the best option for Burlington," wrote Councilor Chip Mason. "The winning bid represents a compromise as neither KBTL nor Ting were able to generate majority support from the City Council despite months of effort. I am committed to insuring that the final agreement and relationship with Shurz/ZRF is favorable to the City of Burlington, its taxpayers and BT customers and provides all of the protections we demanded, and they agreed to, on net neutrality, privacy, anti-monopoly future sale, right of first refusal and put right."
Dave Hartnett's Behavior Criticized
Joan Shannon questioned Schurz's commitment to net neutrality, and ZRF's refusal to divulge the investors funding the purchase and the meeting grew testy when she raised questions about councilors who met individually or in small groups with Nisar and Schurz. "You're out of control, Councilor Shannon!" yelled Councilor Dave Hartnett, pointing her finger at her. At another point in the proceedings, Hartnett shouted an expletive and stormed out of Contois Auditorium during the first long break from public deliberation, with Councilor Chip Mason following close behind. Reporters could overhear the two talking in the hallway. Hartnett told Mason he did not want to vote for any of the three bidders. “This is crazy,” Hartnett said to Mason.
Shannon told reporters about a meeting between Nisar, City Council President Jane Knodell and Councilor Kurt Wright at the Burlington Airport last Wednesday. The rendezvous appeared to break a resolution that barred councilors from reaching out directly to the bidders. The gag order was designed to keep individual councilors from influencing bidders, creating the impression that they were speaking for the whole council, and undermining the work of the city’s negotiator, Terry Dorman. When asked about the meeting, Wright said everything was on the level. “All we were ever told is we couldn’t meet individually,” Wright said. Wright explained that Dorman set up the meeting, and he checked with city attorney Blackwood. They met at the airport out of convenience, because Nisar was leaving town. They talked about potential problems with Nisar’s bid, Wright said. Later, when Nisar was in front of the council, Shannon asked him about the meeting. After initially dodging the question, he tepidly said he did not meet with councilors. Several councilors tried to interject, sensing Nisar was in hot water. “You’re out of control, Councilor Shannon. You’re going down the wrong path,” screamed Hartnett.
"The rendezvous (between Kurt Wright and Jane Knodell with Nisar) appeared to break a resolution that barred councilors from reaching out directly to the bidders. The gag order was designed to keep individual councilors from influencing bidders," wrote Eileen Andreoli at VT Digger. "Yet Kurt Wright's response was, 'All we were ever told is we couldn’t meet individually.'"
"The actions of Councilor Dave Hartnett have been particularly distressing" said former City Counciler Tom Ayres. "Bellowing expletives, storming out of meetings, personal attacks, and self-congratulation have unfortunately become standard fare for Councilor Hartnett, regardless of whether the topic is BT, commission appointments, transportation initiatives, smoking in parks, or support for organized labor. Given Daves frequent pronouncements trumpeting transparency, it was particularly hypocritical for him to play a closed-doors role in leading Schurz/ZRF to the BT trough. Kudos to Councilor Joan Shannon for standing up to Dave."
"It's not only the corruption of a secret, last-minute, unwritten, and unformed bid that Knodell, Wright, and Hartnett concocted," said one comment on Seven Days. "It's also the unhinged personal behavior of one councilor throughout the night -- yelling and storming out of the meeting; yelling at and berating the Mayor; interrupting and bellowing while Shannon had the floor (asking fair and appropriate questions about the brand new, secret bid), and accusing them both of lying. Shouldn't he have been ejected from the meeting for such behavior? But I guess Knodell needed his vote for Schurz so she did nothing."
Motives of Progressives Questioned
"Regardless of the merits of Ting, they became associated with the Dems, and as such, had to be opposed at all costs," wrote Dave Gibson. "Pretty sad. Anti-Dems teamed up and pulled out all the stops from jigging the voting process to shameful verbal assault on Joan Shannon as she tried to do her job to vet the 12th hour orchestration last night. They chose to sacrifice BT to avoid allowing Dems to win a fight - that really wasn't theirs in the first place. While Progs selected their choice (before offers were even revealed), Dems as a Party did not choose anyone - it just appeared that way because a majority of Dems chose Ting. So for Anti-Dems, I guess its Party before City. We've seen this in Congress over the past 8 years of Obama, and here we see it in Burlington. Burlington is smart and engaged however. Those tactics are revealed in this environment, and they back fire. Just watch. We will not forget."
Later in the week, City Council President Jane Knodell tried to brush off questions about the process by saying she was too busy with her day job and a sick dog to speak at length about details of the winning bid, but said she fully understood what the city council did, and that she assumed "other councilors did their homework." Knodell said she pushed for Schurz over Ting because Schurz is a family-owned company, and because it would allow "a locally-based, Burlington-centric telecom." Local control and ownership has been a major consideration, with many Burlington residents telling the Burlington Telecom Advisory Committee that it was their primary concern at a meeting at the start of the year. "It’s not the same as local control, it’s not the same as local ownership," Knodell said. But, she said, Schurz has a philosophy of decentralization.
Many Uncomfortable with Lack of Transparency in Process
Councilor Max Tracy said that he was uncomfortable with how the bid had been negotiated. “We came into this meeting thinking we were going to be debating one LOI and midstream, out of the view of the public, we got a completely different LOI that was negotiate out there in the hall,” Tracy said. “I think it’s incredibly unfair to the citizen of Burlington who have not had a chance to look at this LOI…it’s just a slap in the face to the public process that’s happened here.”
"Before highlighting the substantive and procedural outcomes from last night’s City Council meeting, I wanted to apologize for being unable to convince a majority of my fellow councilors to support what I believed to be the most viable of the bids for Burlington Telecom - the bid from Ting/Tucows," wrote Council Member Chip Mason. "I believe Ting offered the highest return for the Burlington taxpayers, a commitment to bringing jobs and investment to Burlington, a proven record of excellent customer service, competitive pricing and a commitment to net neutrality and privacy protections. I am disappointed that I was faced with the choice of voting in a flawed and opaque process, in a last minute setting, with little public vetting of a bid that changed several times over the course of the evening. My fiduciary and ethical responsibility to you obligated me to select an adequate but imperfect entity to purchase BT last night. Ultimately, I believe that I made the right fiduciary decision for Burlington, its residents, taxpayers, BT customers and employees. I am also sorry that the way we reached this compromise and the decision to move forward and vote was deeply flawed and confusing."
Councilors Max Tracy and Ali Dieng, who voted in favor of KBTL were uncomfortable with the lack of transparency in the process. “Burlington residents are going to wake up tomorrow morning and be furious that they did not get to weigh in,” Tracy said.
"I can't think of a less transparent process than coming up with-- after years of developing offers and months of bringing finalists to the table-- develop a new offer on the backs of envelopes and napkins after midnight," Shannon said.
"Keep BT Locals proposal was the weakest from the outset of deliberations this past spring, when I was still on the council. It was troubling to hear Councilors Tracy and Dieng imply that all for-profit entities are conspiratorial capitalists interested only in fattening up BT for Comcasts ultimate consumption. This was disingenuous on three counts: first, Ting/Tucows has a reputation in both Canada and the U.S. for being precisely the kind of successful, socially responsible company Vermonters have long championed. Second, the advocacy for KTBL was a slap in the face to the present employees of BT, who strongly preferred Ting. And third, the power-to-the-people rhetoric ignored the fact that it was a Progressive administration that got Burlington so deeply mired in the BT debacle in the first place," said former City Counciler Tom Ayres. " The reported failures of Schurz to commit to net neutrality and ZRF to reveal its investors should be subjects of grave concern for the City Council as it ponders a final BT purchase agreement in the coming days."
"Burlington, once again, got backdoored," wrote Faried Munarsyah. "Last night's last-minute hallway deal-making handing an important public utility to a private entity that did not exist when the meeting started, happened when most members of the public who came to spoke at the public input portion (KBTL supporters outnumbered Ting's 6-1, none had spoken in favor of ZRF/Shurz) had mostly left. Some of those remaining, including myself, a state rep, and a reporter - were literally locked out of City Hall. Of all the sketchy political maneuverings I've seen the council engaged in my 20+ years here, this one takes the cake. The mayor and Shannon saw their pet privatization project blew up in their faces when the other Miro democrats chose expediency after the old guard Knodell, Wright, and Hartnett parlayed the public's genuine, and their own fake support for KBTL and Bushor's signature flippability to squeeze Ting out, scoring a political victory. Those four should really have their own party designation (the City Council OG, anyone?) At least Shannon stuck to her guns, Mason and Paul made a lot of noise about unfairness and how they couldn't, in good conscience, explain how all this is OK to their constituents, yet in the end voted for it anyways."
According to an editorial in the Burlington Free Press, Burlington residents have every right to wonder what happened to the promise of an open and public process for picking a buyer for Burlington Telecom. "By taking the vote before the revised Schurz offer could be fully vetted by residents and other stakeholders, the City Council essentially negated the months-long public process for the sale of the one-time municipal Internet telecom,"said the editorial. "The move was a power play – Schurz and its minority partner, ZRF Partners, had the money that gave them the financial nimbleness to revise their offer. Competing bidders were left with no time to cook up their own counter proposals." "Now this last minute back room deal brings a dark horse over the finish line," wrote Michael Long. "Revealing the feather weight of public input and of serving the public interest or of valuing democracy."
Progressives Dump KBTL
KBTL was the big loser in the process. KBTL only received two votes in the final tabulation from Councilors Max Tracy and Ali Djang after Councilors Richard Deane and Joan Shannon abstained from the final vote after voting for Ting. "Just two weeks ago KBTL had the opportunity to partner with Ting with 20% equity in the joint venture but the partnership failed to materialize after the motion to partner with Ting failed to pass the KBTL board by a single vote," said BTWatcher. "I am amazed at how obtuse the board members of KBTL have been. KBTL didn't realize until the game was over that they had been nothing more than 'useful idiots' of the Progressives who dumped them as soon as they had served their purpose. Now KBTL has nothing and city of Burlington is left with a buyer who has received poor ratings for customer service, has lobbied against net neutrality, and as a closely held family owned company has little transparency."
Mayor to Sign Letter of Intent with Schurz
Council Chair Jane Knodell said Mayor Miro Weinberger will sign a letter of intent within the next week to finalize the sale. The city attorney said council must sign the agreement by Dec. 31. The vote authorized Mayor Miro Weinberger to enter into a purchase agreement with Schurz and Nisar. Weinberger promised he would not sign without a "very tight and well-written" document. "This is a surprise to me," he said. "I had no idea this was going to transpire." He called the process a spectacle and said he believed the people of Burlington deserved to weigh in, but said he believed the new Schurz/ZRF bid was a stronger offer. The council will vote to approve the signed purchase agreement next month according to the planned timeline.
Weinberger said this was the most challenging vote he's seen the council take. “While I was as surprised as anyone by last night’s outcome, I am relieved that after weeks of uncertainty, the City Council has finally selected a winner that does not breach prior Council-approved Burlington Telecom agreements that would have exposed the City and taxpayers to another round of lawsuits," he said. "With last night’s vote, we are now in a position to close the book on Burlington Telecom’s decade of financial challenges and achieve long-term benefits for BT customers, taxpayers and the City."
"In the coming days, I will be working hard on behalf of Burlingtonians and BT employees to negotiate in writing what Todd Schurz and Faisal Nisar verbally committed to at last night's City Council meeting" said the Mayor in a statement. "I will ensure that the final agreement includes clear provisions regarding internet affordability, customer service, net neutrality, bridging the Digital Divide, and other items that reflect our community's values." According to an editorial in the Burlington Free Press, the mayor, in essence, is saying that the city chose an offer without locking down the details and without knowing the details of the final agreement, there is no way of knowing the full impact on the community.
The final letters of intent — documents outlining promises Schurz is making to the city — aren't public yet, as the mayor's office and city attorney are negotiating with Schurz. Weinberger said his office on Wednesday received the documents — an amalgamation of previous bids. He said it's unrealistic to expect a sales agreement to come to a council vote by Dec. 18, the last scheduled meeting of the year, but is optimistic that unless something goes wrong, the city will find a way to make the end of year deadline. The city's share of the proceeds will drop from 50 percent to 35 percent if the purchase agreement is not signed by the end of the year.
Questions Remain about Schurz Offer
According to an editorial in the Burlington Free Press, the timing of the final Schurz bid left the public with no time to question the bid and evaluate the various provisions to consider their impact on customers and the community, as well as on the city’s balance sheet. Major questions remain. Councilor Joan Shannon asked Schurz who would operate and manage Burlington Telecom and Schurz CEO Todd Schurz said he was not sure who would manage BT day to day. “I wasn’t expecting to answer that question," said Schurz. Schurz said that under the bid, his company would pay cash to the city, retain existing BT staff, and allow 20 percent — or potentially higher — city equity. Schurz will not increase broadband costs for five years. "The last [deal] we didn't have all sorted out because it took us four days. This one was 15 minutes." Schurz told the council when he stumbled over questions.
Tuesday afternoon, Katie Vane, a spokeswoman for the mayor, said she did not expected Schurz and ZRF would provide updated documents to the city until the end of the week. She said, prior to releasing the documents publicly, the mayor and the city attorney planned to review the documents, which are expected to be a hybrid of already-submitted bids, to make sure what was conveyed at the council meeting is represented on paper.
According to Councilor Chip Mason the details of the Schurz bid were: (1) Schurz is the owner and ZRF an investor; (2) purchase price of $30.8 million with a potential increase based upon 2018 performance; (3) the City of Burlington has the right to roll over cash proceeds from the sale into a 20% ownership interest in BT; (4) committed to full buildout of Burlington and neighboring communities on same time frame as proposed by BT; (5) $250,000/year contribution for 7 years to create a technology innovation fund and $50,000/year contribution to basic technical skills education for workforce/high school students; (6) no price increases on broadband for 60 months; (7) greed to anti-monopoly future sales restriction (no sale to Comcast); (8) committed to net neutrality; (9) put right in favor of the City if it rolls over to equity; and (10) a right of first refusal in favor of the City on the future sale of BT.
Jess Aloe reported that Burlington Telecom will also have a local board who will play a role in financial and strategic decisions, Schurz said. Who will sit on that board has yet to be determined, although the midnight summary put together by the city's lawyers had as members Schurz himself, Nisar, possibly Gary Evans, the former CEO of Hiawatha Broadband and has consulted for Burlington Telecom, and an industry expert appointed by the city.
Questions remain about Schurz's policy on net neutrality. In 2015, Brian Lynch, who serves in a dual role as Schurz's senior vice president in charge of the broadband division, signed a letter as general manager of then-named Antietam Cable arguing that it would be too arduous for small rural telecommunications companies to be subject to the FCC's regulations, and that they supported a free and open internet without blocking content. In July 2017, Lynch sent another letter to the Federal Communications Commission recounting how pleased the company was that the commission was considering rolling back the regulations because being regulated had caused them to pull back on their expansion plans. In his September letter of intent that was submitted for the eliminated October bid, Todd Schurz said he was committed to net neutrality for Burlington Telecom. 
- Youtube Video of 8 Hours Meeting of Burlington City Council Meeting November 27, 2017
- MSN. "Burlington City Council decides on new Burlington Telecom owner" November 28, 2017.
- VT Digger. "Councilors OK Schurz Communications purchase of Burlington Telecom" by Cory Dawson. November 28, 2017.
- Burlington Free Press. "Burlington City Council chooses last minute bid from Schurz Communications to buy BT" by Jess Aloe. November 28, 2017.
- Seven Days. "Council Selects Schurz, ZRF to Buy Burlington Telecom" by Katie Jickling. November 28, 2017.
- NBC5. "Burlington City Council decides on new Burlington Telecom owner" November 28, 2017.
- Vermont Public Radio. "Schurz Selected As Buyer For Burlington Telecom After Being Brought Back Into Sale" by Liam Elder-Connors. November 28, 2017.
- WCAX. "Burlington City Council chooses a Burlington Telecom buyer" by Priscilla Liguori. November 28, 2017.
- Telecompaper. "Schurz buys Vermont's Burlington Telecom for USD 30.8 mln" November 28, 2017.
- WCAX. "The wheeling and dealing that led to the Burlington Telecom deal" by Kristin Kelly. November 28, 2017.
- Reddit. "No one in City Hall knows the details of the BT sale to Shurz" November 26, 2017.
- Burlington Free Press. "How Schurz went from reject to winning Burlington Telecom bidder" by Jess Aloe. December 1, 2017.
- Burlington Free Press. "Editorial: Broken promise on BT" December 1, 2017.