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DavidsonNews.net: MI-Connection Revenues Weak On TV Customer Losses

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Growth remained slow at MI-Connection Communications System in the fiscal year that ended June 30 as continued expansion of the company's telephone and internet businesses was not enough to overcome a sluggish cable TV market. The financial report at Thursday night's monthly meeting of the MI-Connection board brought expressions of disappointment from some board members. Revenues rose just 3 percent, to $15.3 million, in the fiscal year that ended June 30, a far cry from the 20 percent growth system officials budgeted a year ago. MI-Connection, which is owned by the towns of Davidson and Mooresville, lost $5.7 million last year. That was 16 percent less than the $6.8 million net loss in 2009-10. As previously reported, the towns made up for the shortfall with subsidies totaling $6.46 million - $2.02 million from Davidson and $4.44 million from Mooresville. "At the end of the day, the revenue growth is disappointing," MI-Connection chair John Venzon said during Thursday's meeting. "Next year's gonna have to be a very aggressive year." Board member Dawn Huston also raised an eyebrow after listening to the financial report by General Manager Alan Hall. "I guess the key question I have is, we were anticipating a much higher growth rate for this year, just even from a month ago," she said. A loss of cable TV customers, especially early in the 2010-11 fiscal year, was a key factor. MI-Connection has reported losing several large apartment and condo complexes to competitors. As of June 30, the company had 14,500 customers overall in the towns, as well as Cornelius and parts of Iredell and Mecklenburg counties. That fell 71 just from the end of May 2011. All of the losses came in cable TV, where MI-Connection now has 12,461 customers, or 89 fewer than May. Internet lines grew by 126, to 9,603, while telephone customers now total 2,551, up 96, from May. Individual products sold, known as revenue generating units, rose 133 during June, to 24,615. Mr. Hall also said a major project to bring fiber-to-the home at the 171-unit Lake Norman Cove at Jetton in Cornelius was not completed in time to add new customers by June 30. "We really had hoped that project would generate subscribers and revenues by now," he said. Customers have now begun signing up, and new revenues should begin to appear in the financial results this quarter. Not all the numbers were disappointing. Expenses grew slightly, but operating profits - what's left over before interest payments and other non-day-to-day expenses - nearly doubled from a year earlier. That figure, known as EBIDA (earnings before interest, depreciation and amortization), totaled $2.4 million in the just-ended fiscal year, compared with $1.3 million in 2009-10. Results in the fourth quarter also were a drag on the yearly totals, mainly because of some big one-time expenses. Revenues were down 0.4 percent, to $3.83 million in the last three months of the fiscal year, and the system posted a $1.7 million loss. The one-time expenses included what board member Brett Ellis described as a series of "catch-up items." One involved an unpaid programming fee from a local television station that dated from 2007 when the towns bought the system, Mr. Venzon said. MI-Connection also spent $71,470 in the fourth quarter on expenses related to its takeover of most business functions of the company from its outside contractor, Bristol Virginia Utilities. The two companies are in the final stages of negotiating a new contract that will shift about 40 BVU employees to MI-Connection. The transition is designed to save money and increase local control over marketing, hiring, finances and technology, the towns have said. Also at Thursday's meeting, the MI-Connection board: Revised the ratio establishing the two towns' financial interest in the cable system as of June 30, as required under the "interlocal agreement" between the towns. The towns share ownership (as well as any profits or losses) according to the ratio of customers in each town. (The calculation does not include customer in Cornelius and unincorporated areas.)This year, Davidson's relative ownership increased to 35.21 percent, while Mooresville's fell to 64.79 percent. Last year, Davidson had 33.1 percent, Mooresville 66.9 percent."Davidson has through our efforts, and the towns' embracing this product, grown over the past year as a percentage," Mr. Hall said.Mr. Venzon said Davidson has become the most highly penetrated of the three towns, with subscribers in about 43 percent of the homes passed by MI-Connection's network. In Cornelius, penetration is about 38 percent, while Mooresville's penetration is only the low 30s, according to Mr. Hall.Mr. Venzon suggested this could become a business risk for the company, if Davidson residents began discussing whether they should stop supporting the system, to prevent the town from taking on too large a share of the system's debt. Originally, he noted, the prospect of a bigger share of profits was an incentive for the towns to add subscribers. But the system's losses have changed the picture. "In this one, the unintended consequence is the more successful your town is, the bigger part of the debt you carry," he said. Ultimately, the board voted 7-0 to approve a resolution setting the new ownership ratio. But a line was added recommending that the two town boards consider revising the way they calculate financial interest. Heard from Mr. Hall about MI-Connection's ongoing campaign to identify residents who are stealing cable service - a problem that plagues all cable companies. Mr. Hall said as many as 8 percent of the homes passed by MI-Connection's lines are tapped into the network illegally. The system offers an amnesty to those who turn themselves in, and has a new audit program to identify theft. Those who are caught can face prosecution and fines up to $500, he said. Heard a report from Mr. Hall about fourth quarter growth in business customers, an area system officials believe is critical to the company's growth. The company added $3,276 in monthly income from new business customers in the quarter. Discussed coming marketing plans, including possibly offering significant discounts for cable TV or other single products. Transition consultant David Auger said the so called "beacon price" strategy, which is already used by satellite TV providers and other competitors, would lure potential customers to inquire about service. The company then would try to "upsell" customers with additional products. Heard Mr. Venzon report that the board had approved spending an undisclosed sum to increase capacity on the local communications network. He said that would keep technology and capacity up to date locally. DOCUMENTS AND LINKS July 28, 2011, MI-Connection 4th quarter and FY2011 financial statements July 28, 2011, MI-Connection monthly operations summary