How A Promising Idea Went Terribly Wrong In Groton

It started as a promising idea with a potential return: Build an independent cable company, give viewers choice against Comcast and eventually turn a profit.

Groton City, with its record of managing successful public utilities, went all in.

From 2006 to 2008, the city borrowed $34.5 million to build and expand a network called Thames Valley Communications from Gales Ferry to the Rhode Island line. Then they set about making the company profitable.

Right about then, the national economy tanked. AT&T announced it was moving into the Groton market, and Comcast began ferociously defending its territory. The relatively new and small Thames Valley Communications fought in the middle of it.

'Like a bar fight'

“I like to tell people essentially it was a bar fight,” Groton Utilities Director Paul Yatcko, told residents at a meeting in November. “We were in there swinging, but we were also getting hit, too.”

The company needed to double its customer base to become profitable, but after 18 months, ended with flat sales, he said. The city found itself subsidizing the operating expenses of the company at a cost of about $2.5 million a year.

“We had to get out from under that,” Groton Mayor Marian Galbraith told residents at the November meeting.

And so it did. On Dec. 17, the mayor and City Council approved an ordinance authorizing the sale of Thames Valley Communications to CTP Investors, LLC for $150,000.

'No better offer'

“This is no better offer out there,” Galbraith said in explaining the deal. “I wish there were. But there isn’t.” The sale allows for any additional offers that may come in before Jan. 7.

The decision regarding the cable company is expected to be among the topics discussed at Representative Town Meeting at 7:30 p.m. on Wednesday in the Groton Senior Center.

The city began seeking private investors to buy the company in 2011, Galbraith said. It reached out to 35 entities and it received two offers. One was for $150,000 to the company that ultimately got the deal. The second was for partnership with the city.

Galbraith said there were basically four choices. They all left the city with the debt.

Hard choices

These were the options:

• Partner with the private company. Groton would continue to pay to support the utility but give up control of the operations.

• Keep the status quo. Groton Utilities would take over the debt, and Thames Valley would have to cover its operating expenses. But Galbraith said she knew the cable company would be unable to invest in new technology and products needed to remain competitive.

• Liquidiate. It would have cost $1 million to $3 million for Groton Utilities to liquidate the company, and its assets are relatively old in the technological field. The city estimated it would get 10 cents on every dollar invested. Employees would be laid off.

• Sell to the buyer, now called CTP, for $150,000. Galbraith said this offered several advantages: It would relieve the city of subsidizing the yearly operations of the company, avoid layoffs, allow the cable service to be provided, and make CTP responsible for any additional investment to make Thames Valley competitive in the future.

Bankruptcy for Thames Valley was not an option. Since the company is part of Groton Utilities and the utility is a city department, the communications company could not declare bankruptcy unless the city itself declared bankruptcy.

Negative outlook

Meanwhile, the city had another reason to sell.

The bond rating houses that evaluate the financial health of cities and towns had honed in on the problems with Thames Valley Communications.

Moody’s gave Groton City a AA2 rating in 2011 with a negative outlook, asking how the city planned to improve.

Then in 2012, the agency lowered the city’s bond rating to AA3 with a negative outlook, largely due to the failure to the communications company.

“You hear the term, ‘Stop the bleeding,’” City Finance Director Michael Hillsberg told residents in November. “This has been pushed upon us by the new reporting requirements in Moody’s.” Muncipalities pay for downgraded bond ratings through higher interest rates.

No one's losing cable

The deal between CTP includes these provisions:

Thames Valley Communications offices will remain in the Groton municipal building. Rent will be free the first year, half the cost in the second year, and full cost the third year.

For three months the city will continue to provide administrative services like processing payroll.

Groton Utilities will assume the company’s current debt, The debt, minus what the cable company has already paid is $27.5 million. The city plans to refinance about $15 million of the total, which would bring its payments down below $2.5 million.

Galbraith said no one tried to cover up problems with the company. The spending for Thames Valley is in Groton Utilities budget.

“Those things are there,” she said. “Did we shout it from the mountaintops? No. Because that would have undermined consumer confidence. And that wouldn’t have been good for anybody.”

She believes that under the new deal, Thames Valley will not only survive, but flourish.

She emphasized also that no one will have service cut off and Thames Valley Communications will continue to run as it always has. She's keeping her subscription.

"There is not going to be any change," she said. "The customer will not see a change in (Thames Valley) except overtime as it improves.”

Timeline of events

• 2001: Freemen authorize $6.9 million to design, plan and build a telecommunications system. (The bond was first passed in 1999).

• October 2005: Freemen authorize $10 million to build out the Thames Valley Communications structure.

• 2006: The city borrows $6.5 million for the cable company.

• 2007: The city borrows another $10 million.

• February 2007: Freemen authorize another $10 million to expand the network.

• May 2008: Freemen authorize another $8.5 million.

• 2008: The City borrows $18 million based on all the prior authorizations

• 2009: The city decides not to borrow any more money to cover the cable company.

• 2009-2011: The cable company decides to focus on building its customer base to become profitable.

• 2011: City reaches out to private investment firms to seek a buyer for Thames Valley. It gets two offers: one for $150,000, and one to enter into partnership with the city.

• 2011: Moody’s bond rating agency gives Groton a AA2 rating with a negative outlook.

• 2012: Moody’s lowers the city’s bond rating to a AA3 with a negative outlook, citing the cable company as a reason.

• December 2012: City Council approves ordinance authorizing sale of Thames Valley Communications for $150,000.