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MI-Connection cable bleeds Davidson, Mooresville coffers

In December 2007, the towns of Davidson and Mooresville went into the cable business. They spent $60 million to form a company called MI-Connection (MY-Connection) and take control of cable service for their towns, Cornelius and the surrounding area. The venture is generally praised for improving service to communities that had been served by bankrupt Adelphia Communications. But it's also proving to be a money pit. You have to know the history of cable service in the Lake Norman area to understand why local governments would even consider running a cable system. A string of cable operators provided awful service. By the time Adelphia went bankrupt, Davidson Mayor John Woods says, it was time to consider alternatives. "It has never been my goal, however, that government had to own the system. It's just that several years ago, the market was not supporting a first-class system and we knew that we deserved better," Woods says. Davidson and Mooresville borrowed $92.5 million to buy and upgrade the system, and service certainly has improved. MI-Connection now offers what's known in the industry as a Triple Play - TV, high speed internet and phone service. But the system is losing money, and the two towns recently had to come up with a combined $576,000 to cover a budget shortfall at the system. Mooresville is tapping its reserves. Davidson cut its budget, which included laying off a part-time town hall employee and putting off hiring a police officer and a clerk. Now, opponents of the purchase, like Huntersville Town Commissioner Charles Jeter, are saying "I told you so." "Here's the outcome of the decision in Davidson: You have less police because you had to pay for cable. That's what I warned them about. You never want to look back and say I told you so, and hindsight's always 20-20, but I rang this bell from day one." Huntersville decided against being part of the cable purchase. Instead, it let Time-Warner Cable take over Adelphia's customers in town. That decision almost killed the deal. Mecklenburg County, Cornelius and Troutman also dropped out. At the heart of the system's troubles is a lack of growth. The economic downturn halted new home construction in the region. But critics say the economy isn't the only issue. Customers once had only two choices for TV: The cable company or over-the-air broadcasts. Now residents' mailboxes are filled with discount offers from satellite providers. AT&T and other telephone companies have introduced their own TV-and-internet bundles. Other competitors, including Time Warner Cable, are extending their networks into MI-Connection's turf. Davidson business owner Rodney Graham says the town and its consultants failed to understand how new technology was changing the TV business. "The one assumption that was written there in the consultants' report was this assumes that there'll be no competition in MI-Connection's service area. Well, this hasn't happened, and I think that was a faulty assumption to begin with," he says. Here's the system's biggest problem. It started the year with about 15,150 customers, about 4 percent fewer than it started with in 2007. There are bright spots, though. Revenues are rising. Existing customers are signing up for additional services, and MI-Connection has begun winning contracts from businesses, institutions and local governments. Alan Hall is the system's general manager. "The economy being so soft right now has really hurt us on the residential side," Hall says. "But it's also helped us on the commercial side. So that's where we've at least temporarily turned our focus." But it's the debt payments that are stressing the town's budgets. This year, those payments were about $4.6 million. Next year's payments balloon to $7 million. In the short term, town officials admit they'll have to continue to subsidize the system to make those payments. Davidson's town manager has even warned his employees that layoffs are possible. The situation is a major political issue in both towns. Chris Montgomery won Mooresville's mayoral election last November by accusing the former mayor of ignoring citizens' wishes on the cable deal. "The overall consensus with people that I talked to ... they were not for buying the cable company. And I still stand by that, just from a fundamental approach, inasmuch as I don't think government should be involved in private business." Montgomery would like to see the towns get out of the cable business, but the town's own finance director says selling isn't an option - at least not now. Davidson Mayor Woods says they need to grow the system before considering a sale. Like a homeowner whose home is not worth its mortgage, they can't afford to take a big loss.