Why is Mayor Mystrom making a third attempt to bring the sale of ATU before the voters? This question is at the forefront of my mind as his office consistently blocks my attempts at access for over three weeks, saying the mayor isn't ready to speak publicly about the issue.But in spite of his motivations being up in the air, the Mayor has made his intentions clear - through introducing the sale before the Assembly, and through consenting to two stipulations that opponents say will cripple ATU's position in the telecommunications marketplace. This probably couldn't have come at a worse time for the Mayor; this year marks ATU's highest dividend ever: $8.1 million, and the company's cellular business and slick new services are booming.
"This is going to be a big, ugly battle," says Bill Faulkner, a former member of the Anchorage Assembly active in previous ATU sale propositions, "It's very divisive for the community to go through this a third time." (See the historical sidebar for important background information.) Faulkner, like most who believe the Municipality should keep ATU, says the utility is a valuable municipal asset, a growing company with a strong position in its market, and is damaged every time the question of selling it comes up.
Sale supporters fall into a couple of camps, with Alaska's competing phone companies leading the pack, at least financially. Large campaign contributions and a promotional/lobby effort have paid off, especially for GCI.
The phone companies support the sale for a variety of reasons which basically boil down to a more profitable bottom-line for them. The main reason lies with two stipulations in the Invitation to Bid document, arrived at through a series of discussions between government and the phone companies. If ATU is sold, the buyer will have to (a) not compete in the long distance market for a period of three years and (b) not enter the NECA pool for a period of three years.
The what? The National Exchange Carriers Association (NECA) is a pool of local exchange carriers. These carriers charge other phone companies to access their local lines whenever a long distance call is made, forcing long distance companies to pay two phone companies, one at each end, for each phone call. The pool serves to distribute the costs and charges associated with local exchange billing - every member of the NECA pool charges the same rate per minute to other phone companies, and the difference/profit is absorbed by the pool and redistributed. ATU currently charges 1 cent per minute for connecting long distance companies with the outside world. As a member of the NECA pool, the long distance companies would pay 4 cents per minute, costing AT&T $11 million per year, and GCI $6 million per year.
ATU has publicly advanced the position that it wants to enter the NECA pool as a move against its competitors, and as a step towards entering the long distance market, which could prove highly profitable for the voter/ratepayer-owned utility. GCI feels this would be rude, and doesn't have the cash flow to handle such a fee increase - they'd be seriously impacted if ATU entered the pool.
GCI hasn't been shy about these issues - they've spoken at assembly meetings and worked directly on the wording of the Invitation to Bid. "GCI has been very active in politics," says Former Mayor Tom Fink, "They've had lots more influence in local government than they should have."
GCI spokesman David Morris described the issue as, "a bold stroke in the color of Anchorage politics over the last few years." GCI previously opposed the sale of ATU because its competitor, Pacific Telecommunications, Inc. (PTI), owned Alascom. Because owning the local exchange is of tremendous advantage to a long distance carrier, GCI knew it couldn't stand up to Alascom if it owned ATU. In both the '89 and '91 campaigns, the combined power of GCI and IBEW played a large part in the defeat of the sale.
With a great incentive to switch sides (a three-year moratorium on what GCI fears worst) their support of the sale could make a dramatic difference in the final vote if a decent bid comes in.
Gaining political leverage against the sale is easy given a 60% requirement. And since GCI's opposition to the sale would prove as fatal as it was in the last two elections, they got the specifications in the ITB. "We've been expressing what we think," says Morris, "and there's always different opinions about public policy, but we think our merits are clear. "
"We're supporting the ITB with the specifications, and we think they're important," Morris continues, "Whenever you have a local exchange carrier, it's a bottleneck facility and when they sell access to another market, it gives them an unfair advantage. Our position increases competitiveness and brings out the best in this business climate."
Others don't see it that way. "When the ITB was written, AT&T and GCI were in a back-room deal with the mayor," says Assemblymember Mark Begich, "You think that when they sold CBS, they invited ABC and NBC in to work on the contract? It's basic common sense - if your competitors come up to you and say you should sell the business, you probably shouldn't."
Other supporters of the sale simply believe that government can't manage business effectively. Though the establishment of the Authority has helped remove ATU from political influence, some are skeptical. "The Authority is neither fish nor fowl, public nor private," says Fink, who believes communications utilities should be privately held as a matter of political theory.
Mayor Mystrom has expressed doubt that ATU will be able to maintain its position in an increasingly competitive marketplace. He made an extraordinary tactical error when he said recently said that cables were going out of style - everyone in the telecommunications world knows cable is the sure route to high-bandwidth, reliable transmission for some time to come. Mystrom thinks the city will be better off with a fund that provides stable growth - his detractors say he's just looking for a large sum of cash.
From most indications, the sale is set up to crash-and-burn because the bids will be low, and the voters' incentive to sell ATU depends on the bid amounts. There are a number of theories on this, but almost everyone I spoke with predicted the bids would come in lower than ever before. One of the best theories for why bids will be lower this time is that PTI no longer owns Alascom and doesn't stand to win a total monopoly over Alaskan phone service. Why did Citizens bid so high? Some point to a dearth of local phone companies for sale at that time - right now, a number of local exchange carriers are for sale, and few of them are as sketchy to participate in as this one
Bidding is a complex process, requiring far greater investment than the simple $25,000 processing fee for a bid. Corporations must spend months investigating the prospects and putting together a bid document at a cost of well over $1 million. "A company like Citizens spends $3 million trying to acquire the company, and they get a little gun-shy the next time around," says ATU Shop Steward Mike Burns. Burns and most others opposed to the sale also believe that the specifications GCI insisted on will reduce the bids dramatically.
However, the bids could come in higher than expected. ATU is in a critical position in the telecommunications marketplace and can obviously attract bids far in excess of its book value. Three years is arguably nothing to companies thinking in terms of decades, and owning the local exchange carrier seems tantamount to owning the oxygen in the atmosphere. Prospective bidders are not only buying the state-of-the-art cables and customers, but also an important position in cyberspace and the telecommunications marketplace.
If the bids aren't low, voters will be forced to question why. Given the opportunity to hold on to an asset like ATU, which has great market potential and an aggressive, successful corporate strategy, why would voters choose a fund? Certainly this is how the Municipality portrays the company in the ITB. ATU is profitable already and growing stronger. With a surprisingly gigantic dividend this year, voters are even less likely to give it up.
Moreover, the Municipality is in a great position to totally screw the long distance companies on connect rates through participation in the NECA pool. If ATU pulled a double-whammy and entered the long distance market, they'd surely hurt the competition, become more entrenched in their markets, and make even greater profit. In this sense, it could be a battle centered around voter self-interest versus a dedication to the free market - with a voter/ratepayer-owned ATU probably paying off more to Anchorage residents. If people seek to maximize their utility, they may well decide to keep it.
When he's not working at The Anchorage Press, Chris Ridder is mired in a world of misplaced priorities. Busy overextending himself with freelance articles, speaking engagements and grueling outdoor adventure, Ridder struggles to survive in a sleep-deprived haze - nourished solely by fast food and good company.