Kampis: Coalition approves contract transfer of troubled OptiNet

Johnny Kampis
Posted: Sep 01, 2017 3:09 PM

The last hurdle to the sale of a money-hemorrhaging government broadband project in Virginia to a private provider was finally cleared recently, paving the way for rural broadband expansion in the southwest part of the state.

The Virginia Coalfield Coalition voted earlier this month to approve a contract transfer of Bristol-Virginia Utilities’ broadband division to Sunset Digital Communications of Duffield, Virginia. The telecom providers will acquire BVU’s OptiNet for $50 million, far short of the approximately $130 million that taxpayers forked over to build the network initially.

The path to the sale has been a long and cumbersome process, taking more than a year to complete due to some disputes from various government agencies about fulfilling the terms of grants used to build OptiNet.

First, Virginia Assistant Attorney General Liz Myers issued an opinion that BVU had the right to negotiate the sale of OptiNet without going through the Virginia Procurement Act, a law that requires government entities to seek bids when buying or selling goods and services.

But then Cumberland Plateau Co. (CPC), a nonprofit corporation created in 1979 to help facilitate economic growth in southwest Virginia, expressed reservations about four counties in its service area – Buchanan, Dickerson, Russell and Tazewell – that were part of the sale.

Sunset Digital co-owners Paul and Ryan Elswick, father and son, met with staff members of the National Telecommunications and Information Administration (NTIA) and U.S. Economic Development Administration (EDA) in Washington, D.C. last year to discuss the concerns. Those agencies and the Virginia Tobacco Revitalization Commission provided the grant funding for the part of the sale in dispute.

Sunset Digital had to provide information showing how the company would fulfill the initial terms of grants and maintain the existing BVU network to get approval from the EDA and NTIA.

“They don’t want the assets they created to die on the vine, which makes sense,” Ryan Elswick told Watchdog.org last November.

CPC also met with those federal agencies and wanted to get the OK from D.C. before signing off on the sale. The Virginia Coalfield Coalition, of which CPC is a part, voted on Aug. 2 to approve the transfer of a tower backhaul contract from BVU to Sunset Digital, the last local approval needed for the BVU purchase.

“We are grateful for the trust these entities have put in us to now move forward with our plan to expand broadband accessibility to Southwest Virginia. It will create more jobs, more opportunities and stronger future for our home region,” Paul Elswick said.

Bristol city leaders expressed disgust in June they wouldn’t get any of the money from the proceeds. A 2009 agreement between Bristol and BVU stipulated they would split any proceeds from the sale of OptiNet once all debts were satisfied, but this sale doesn’t come close to satisfying those debts. For example, the Virginia Tobacco Revitalization Commission provided $30 million to create the network, but will only get back $8.7 million, while the EDA gets a return of $1.23 million on its $7.3 million buy-in.

The failure of OptiNet, launched in 2002, is one of the case studies in the folly of government-owned networks. That broadband division made Taxpayers Protection Alliance’s list of broadband boondoggles.

In other areas, municipal networks want to expand outside their legally permissible coverage zones, and lawmakers in several states have tried in vain to change laws to make that happen.

Free-market advocates worry that municipal network expansion could push out private providers by discouraging them from competing with government broadband and its nearly limitless resource of taxpayer cash.

But in southwest Virginia, the opposite is happening – and the sale of BVU to Sunset Digital could be a boon for rural residents. Sunset Digital hopes to expand high-speed internet to some 10,000 customers in southwest Virginia the next five years, focusing first on high-density areas to benefit the greatest number of residents. Download speeds will range from 10 megabits per second up to 1 gigabit per second.

Counties that will be included in the expansion include Bland, Buchanan, Dickenson, Lee, Russell, Smyth, Tazewell, Washington, Wise and Wythe counties.

The sale will also create 50 additional jobs for the internet expansion.

Paul Elswick pointed out to Watchdog that BVU never felt comfortable expanding broadband far outside Bristol because of political pressure.

“It was politically untenable to spend [city money] to connect people who weren’t in the city,” he said.

It also didn’t help that two former vice presidents of the utility got prison sentences for various financial crimes, including falsifying invoices and money laundering.

BVU marketing director Sharon Kyser previously said the sale made business sense for Sunset Digital because BVU had the existing infrastructure in place.

“This gives OptiNet as a private company the chance to service those underserved areas,” Kyser said.

Sunset Digital now serves about 90,000 customers, most of which are wholesale customers who buy internet from the company to resell it to residents and businesses in southwest Virginia and northeast Tennessee.