Tag: MLGW

Categories
Cover Feature News

It’s Now or Never for Networx

CREDIT: Richard Thompson

Who made the best bid for Memphis Networx? Was it the well-funded seven-month-old holding company from Colorado — Communications Infrastructure Investments (CII)? What about New York’s proven infrastructure firm American Fiber Systems (AFS)? Or was it BTi Corporate (BTi), the darkhorse candidate that wants to turn Memphis into the bio-tech research hub of the Americas?

MLGW’s board says CII won the bid fair and square. The other bidders say the fix was in from day one.

It might be helpful for the City Council to hear all three companies explain why they think they made the best bid. But given the long, strange saga of Memphis Networx, such an occasion might distract from the unspoken question that loomed like a family curse over last Thursday’s vote by the MLGW board to sell Networx for a cash return on its $29 million investment of just $994,000: Namely, how in the world did Memphis Networx become lodged so inextricably between the frying pan and the fire?

Networx representatives made the case that delaying the company’s sale any longer will send it into a tailspin of irreversible loss. “It’s now or never” has been a reoccurring theme in the Networx debate. But when “now” is a paltry return of $994,000, “never” isn’t much of a threat.

The MLGW board meeting did reveal several apparent flaws in the bidding process. A presentation delivered by the McLean Group — the consulting firm hired to assist Networx through the sale — may have done more damage to the credibility of the consultants’ ultimate findings than anything brought to the podium by angry representatives of AFS and BTi.

McLean Group chairman Dennis Roberts and junior consultant Tom Swanson made the losing bidders sound so bad it became impossible to imagine how such nonserious bidders could have made it to the final three in the first place.

As the deal was explained to the media by Nick Clark — who sits on the boards of both MLGW and Memphis Networx — the bidding process was managed quietly through the McLean Group to weed out frivolous bidders and to avoid conflicts of interest. In a sneering assault on BTi’s credibility, one McLean Group consultant announced that a BTi principal had been making his living installing stereo equipment. (BTi founder and CEO Paul Allen has since stated that nobody in his telecom company has ever installed stereo equipment.)

The McLean consultants also said Allen’s company didn’t follow the rules and that its bank letters were unconvincing. They said BTi representatives didn’t show up for a scheduled due diligence meeting. (BTi has given the Flyer a letter from Thomas Murray of Fifth Third Bank reconfirming its interest in financing the Networx purchase based on a thorough process of due diligence.)

AFS’ problem, as identified by the McLean Group, was basically that they couldn’t show anybody the money. AFS has filed a declaratory action suit to prove their seriousness.

No BTi representatives were present when McLean consultants trashed their company’s bid, but AFS CEO Dave Rusin was visibly disturbed by the McLean Group’s findings. He shook with anger at times while explaining in measured words how his company survived the dot-com crash in 1999, weathered the telecom meltdown of 2001, and is a serious and reputable company.

He convincingly answered charges that his company wasn’t good for the cash by asking what was wrong with the $60 billion available to AFS’ historically cooperative financiers: Sierra Venture Partners, Lucent Venture Partners, North Atlantic Capital, and Hamilton Lane.

Dave Danchak, AFS senior vice president of corporate development, angrily said that the McLean Group’s figures didn’t look like anything he’d ever seen before.

Germantown resident David McCabe, a representative of BTi Corporate, arrived for the second half of the marathon meeting.

“They’re hiding something,” he insisted, accusing the McLean Group of spinning the facts.

McCabe also challenged the McLean Group’s assertion that BTi missed its due diligence meeting. He said that Networx representatives called unexpectedly on a Wednesday afternoon and asked if BTi could assemble its team and be in Memphis the next morning. According to McCabe, doubts were expressed on the front end as to whether or not his people could make it on such short notice, but they said that they would be in Memphis as soon as possible.

McLean consultant Swanson admitted that the due diligence process had been “accelerated,” a fact conveniently left out of the McLean Group’s original narrative, which alleged that the stereo-installing bunglers of BTi just couldn’t follow the rules. “Their story keeps changing,” McCabe declared.

After listening to McCabe’s indignant rebuttal of the McLean’s Group’s analysis, the MLGW board concluded that the McLean Group and BTi had had “a miscommunication.”

Although Rusin and Danchak of AFS had initially refused to comment on BTi’s proposal, the AFS reps returned to the podium and expressed sympathy for their competitor.

“Mr. McCabe talks about how the story keeps changing,” Rusin said. “Well, guess what? We come here today and find that the numbers have changed.”

Rusin and Danchak then unveiled their company’s lawsuit. MLGW board chairman Rick Masson expressed concern that the suit was part of an intentional ploy to further devalue Networx, which has only enough operating capital to survive for a month to 45 days.

CEO Dan Platko then delivered a grim assessment of Networx’ financial condition, and Clark described what might happen if the sale was delayed. Staff cuts would be necessary, he said, service would then decline, and customers would flee. According to Platko and Clark, it was doomsday eve for Networx, and the clock was ticking.

In spite of potential conflicts of interest, Clark maneuvered back and forth between his dual roles as MLGW governor and Networx board member. He spoke of the need for a transparent process and occasionally played the role of devil’s advocate, despite the fact that the Networx board had approved the sale to CII and had signed a binding agreement with the company.

Clark cited a Flyer story and asked a series of questions supposedly based on this newspaper’s ongoing coverage of the Networx sale. But Clark’s Flyer-based line of questioning left out the same embarrassing facts about possible conflicts of interest that were raised in the article that he’d omitted in a previous report to City Council chairman Tom Marshall.

After confirming that Platko had once been employed by Intira, a company co-founded by former Networx CEO Mark Ivie, Clark moved to another subject, without mentioning the fact that Swanson — the McLean Group’s allegedly unbiased third party — had also been a vice president at Intira. Nor did Clark mention that Swanson, prior to assuming his McLean Group duties, may have accepted a lucrative, paid consulting gig with Networx via his personal firm, TJSwansonCo.

After Clark’s omissions were noted, Platko and Swanson admitted that they’d worked together at Intira. Swanson later said that prior to the Networx deal, he and Platko hadn’t done business together since leaving Intira. However, a contract signed by Platko on October 5, 2006, suggests that Networx’ chief executive offered Swanson $2,000 a day for consulting with Networx’ sales division, a month before the McLean Group was called in to assist in Networx’ eventual sale.

The information becomes doubly troubling in light of Networx officials’ repeated failure to identify Swanson as having any duties above and beyond the work he was doing through the McLean Group. (Detailed questions submitted by the Flyer to Swanson and Platko have yet to be answered.)

“It was an imperfect process, but it’s an imperfect world.” This, more or less, was the opinion MLGW board members unanimously expressed prior to finally signing off on the sale of Networx to CII.

In a two-to-one vote with one abstention, the board passed a resolution to go forward with the sale of Memphis Networx to CII. In light of AFS’ lawsuit and mounting concerns within the City Council, it’s unclear what that resolution ultimately means.

Documents dating from 2004 show that Networx executives and at least one board member were actively negotiating to sell Memphis Networx to AFS in an unpublicized all-stock deal.

Although sources conflict on the details, it appears that Networx officials’ enthusiasm for closing the original deal may have faded when it was discovered that the offer would be small and paid in stocks, especially in light of the fact that MLGW, as a publicly held company, is prohibited from owning stock in a private company.

When asked last Thursday, Networx board member Andrew Seamons said it was highly unlikely that any of the private investors would have an interest in absorbing the AFS stock into their share of the sale. Seamons is professionally affiliated with Pitt Hyde’s Pittco investments. Hyde, who recently stepped down from his position as AutoZone chairman, is one of the original private investors in Memphis Networx.

Over the weekend, one highly placed proponent of the Networx sale to CII circulated news items intended to prove BTi was in over its head on the Networx deal.

Considering the board’s vote to sell Networx to CII, it’s hard to imagine what anyone stands to gain by further discrediting BTi. Unless it’s the fact that continuing the debate over who placed the best bid shifts focus away from the only questions that matter: When did Networx’ executives know the company was in a tailspin; and how were the company’s finances managed from that point on?

If the McLean Group was contacted to assist with the sale of Networx in December, as reported, serious concern over the company’s finances had to be growing by the time Platko offered Swanson $2,000 a day for services that have yet to be sufficiently explained.

Networx’ history of questionable decision-making ranges from disastrous technology purchases to a miscalculated deal with ServiceMaster that cost the telecom thousands of dollars a month for nearly a year. How did that history change when new CEO Platko found out that his company was in serious trouble? Did he tighten up the company’s belt or did he enable spending that further exacerbated Networx’ dire situation?

Platko and his predecessors had the advantage of using Networx’ private status to withhold information whenever anyone attempted to delve too deeply into the specifics of the company’s spending practices. The choice Networx executives have given its public owners — nothing or next to nothing — demands answers not available in the financial postmortems Clark has delivered to the press.

Epilogue: When Platko replaced his former colleague Mark Ivie as head of Memphis Networx in 2006, MLGW’s ratepayer/owners were not notified of the change. Clark, an appointed steward of the public’s interest in Networx, has described the lack of attention given to such changes at a company funded (in part) by public dollars as “fortunate.” To interpret his comment as “the less the public knows about what’s being done with its money, the better” may be unfair, but it’s also unavoidable.

Clark says he recognized that Networx was experiencing trouble when he joined the board in 2005. Ironically, given the final outcome, he says he kept quiet for fear of scaring off potential customers.

MLGW has fully enabled this disaster. Its board members have harbored concerns about Networx’ financial well-being for at least two years but allowed Networx to keep a low profile while the telecom was clearly wasting away. Silence and complicity in the name of maintaining Networx’ “competitive edge” precipitated MLGW’s recent “damned if you do, damned if you don’t” decision, wherein the only thing worse than selling its valuable telecom asset for a $28 million loss is not selling it right now … for a $28 million loss.

On Tuesday the Memphis City Council voted to discuss Networx-related issues at a meeting of the MLGW committee. Details of that committee meeting were not available at press time.

See MemphisFlyer.com for updates on the Networx story.

Categories
News The Fly-By

Why the Rush?

The clock is ticking. On Thursday, July 5th, MLGW’s Board of Governors will vote whether to sell Memphis Networx to a Colorado-based holding company, Communications Infrastructure Investments (CII), for $11.5 million — a loss for MLGW exceeding $28 million. Networx representatives have cautioned that any significant delay could negatively impact a deal that, for MLGW ratepayers, is already negative.

Before the vote, however, some serious questions should be asked regarding potential conflicts of interest and the business practices that led MLGW to this juncture.

First, if MLGW is already prepared to eat almost all of its $29 million investment, what do the ratepayers stand to lose by delaying this decision long enough to ensure that the sale is on the up and up?

Question two: Who exactly is Tom Swanson, the McLean Group consultant who assembled the list of Networx potential buyers and helped facilitate the deal? Last week, when City Council chairman Tom Marshall asked that same question, Networx board member Nick Clark responded by quoting Swanson’s McLean Group Web bio, which leaves out an interesting piece of information. Swanson’s bio for his own private consulting business (TJSwansonCo) lists his involvement with a now-shuttered company called Intira, where, according to SEC records, he served as vice president of sales. Intira was co-founded in 1998 by former Networx CEO Mark Ivie and employed former Networx controller Jeff Rice as well as current Networx CEO Dan Platko. Given his background, should Swanson have been the broker for the deal?

An official contract signed by Platko and obtained by the Flyer suggests, and other sources verify, that late last year, Platko offered Swanson $2,000 a day to consult with Networx’ sales division through his private firm. Swanson’s compensation may have dropped by about one-third when he took on the job of assisting with the sale of Networx through the McLean Group in December 2006.

More questions: Who stands to profit from the sale of Networx? Certainly not MLGW ratepayers, currently taking a $28 million bath. Will any Networx executives have employment opportunities with the new ownership or with companies related to the new ownership? Have there been any arrangements made behind the scenes that may have tilted the scales in CII’s favor?

This isn’t the first time Memphis Networx has been positioned for sale. American Fiber Systems (AFS), the New York communications infrastructure company that submitted a bid for Networx valued at $13 million, has been trying to acquire the company since 2004. AFS’ initial bids involved no cash, but Networx execs and at least one board member showed substantial interest.

More recently, AFS placed a higher combined cash-and-stock bid for Memphis Networx than CII, but it wasn’t the highest. Ohio-based BTI Corporate, a communications firm looking to partner with Memphis Bioworks and strike a deal with MLGW that could allow the local utility to recoup some of its losses, submitted a bid valued at $20 million.

Whose best interests have been served in the rush to unload Memphis Networx? The ratepayers? The private investors? Or someone else? Ultimately, selling Networx — even at a loss — may be in MLGW’s best interests. But given the history, it’s important that MLGW’s ratepayers know who profits from the botched $29 million investment and why.

Categories
Cover Feature News

Unplugged

Talk about your bitter ironies. Days after MLGW announced that it would eat a multimillion-dollar loss and sell its 49 percent share in the public/private telecom venture Memphis Networx, subscribers to Business Week were reading all about the telecom industry’s triumphant comeback.

The magazine’s cover story — “Telecom: Back from the Dead” — cited a growing body of research indicating that investments in high-speed communications play a more vital role in “stimulating economic growth and productivity” than money spent on “roads, electricity, or even education.” If all of this is true, how can MLGW even consider dumping its $29 million investment in Networx for the paltry sum of $994,000?

At least part of the answer can be found in the third paragraph of the story, in which Business Week cites the example of a video clip being uploaded in New Jersey. The video exits Google by way of Level 3 Communications’ 47,000-mile fiber-optic network, is then “handed off” to a “new fiber loop” run by Verizon, and “milliseconds later,” the video is showing in an apartment in New Brunswick. What does any of this have to do with Networx? Plenty.

Communications Infrastructure Investments (CII), the Colorado-based holding company that’s trying to buy Memphis Networx for $11.5 million, was founded by Dan Caruso, a founding executive of Level 3 Communications. Caruso is also the former CEO of ICG Communications, which Level 3 bought out in 2006, adding 2,000 miles of fiber in Colorado and the Ohio Valley to its already substantial holdings.

ICG’s backers — Columbia Capital and M/C Venture Partners — picked up $30 million in cash on the deal and $127 million in Level 3 stock. Columbia Capital and M/C Venture are two of the five venture-capital groups backing Networx’ potential buyer, Communications Infrastructure Investments.

The bottom line? Big venture-capital money is being invested in telecoms again. And it seems likely that Memphis Networx fiber-optic cable is destined to become just another piece of the increasingly valuable conduit for moving YouTube clips of bathtub farts and nipple slips from Google central to your computer.

If you build it …

In the film Field of Dreams, Iowa farmer Ray Kinsella (played by Kevin Costner) was told famously, “If you build it, they will come.” The analogy isn’t exact, but Memphis Networx built a broadband fiber network for Memphis, ran out of money, and now “they” — in the form of venture-capital communications companies — are coming.

It’s important to understand that the telecom failures of 2001 — the year Memphis Networx became operational — represent the largest industry crash since the Great Depression. The spectacular decline has been blamed, in part, on overaggressive investment in expensive infrastructure. And now, holding companies like CII and American Fiber Systems can acquire and resell ready-made infrastructure systems and customer bases of companies like Networx for a fraction of the build-out and maintenance cost.

“It’s interesting to me that [Networx] is where it is,” says Herman Morris, the soft-spoken mayoral candidate who served as president of MLGW when Networx was created. “It’s an asset that’s been built out with 50 or 60 years of life left in it, and probably less than 10 and certainly less than 20 percent of that asset is being used.”

Morris asserts that in spite of Networx’ failure to turn a quick profit for its private investors, the company has already achieved its primary goal, which was to improve Memphis’ communications infrastructure by building an underground loop of high-speed fiber.

“When we got the loop, it took us from a third- or fourth-tier city in terms of infrastructure to a tier-two,” Morris says. “We’re not New York, clearly … but we were doing what we needed to do in terms of building an attractive component for businesses looking to relocate or expand here. It’s kind of like building out an airport so FedEx can expand its operations. And it was important that we weren’t the last city with an infrastructure that would serve the high-tech sector in the 21st century.”

Morris describes Networx’ public/private partnership as “a marriage of convenience” and says he knew on the front end there would eventually be a “divorce.” “Venture capitalists are high-risk investors,” Morris says. “They want big fluctuations [in market value], and they want to catch [the market] on a high. We were kind of like savings-bond investors. When you’re investing for 50 years, the investment doesn’t have to kick out more than 1 or 2 percent a year. That’s a good steady return, and stability is important.”

The big payoffs in this kind of investment, Morris notes, aren’t necessarily measured on a spreadsheet listing Networx’ profits and losses.

“When [a business] relocates to or expands its operations in Memphis, [MLGW] gets more revenue from old infrastructure,” Morris says. “From the wires, the pipes, and the gas.

“It’s not just that a company comes to town and folks get jobs and all that good stuff. The utility company now has a customer that instead of having a 200-square-foot operation has a 20,000-square-foot operation or a 200,000-square-foot operation. And that operation is filled with computers and air conditioners and all the things it takes to run a business. It’s not exactly a self-feeding system, but there is a lot of synergy.”

The wisdom of Morris’ decision to launch a telecom venture at a time when every market analyst was predicting a crash is debatable. But in spite of a marketplace burned by everything ending with “com,” Networx survived and grew at a reported rate that was at or above anticipated levels. The company showed a miniscule profit for the business cycle ending in 2005 and seemed to be on its way to making the 1 to 2 percent return that would have made Morris happy.

Small, slow profits, however, are less meaningful to the private investors who assumed a majority stake in Networx in 2005, when the City Council turned down MLGW president Joseph Lee’s proposal to secure a $6 million loan and prevent MLGW from losing its superior equity status in Networx. Now Networx is on the auction block, and Memphis is positioned to lose big in what appears to be a winning field.

City Council Concerns

Last week, MLGW’s board decided to remove the vote to approve Networx’ sale from Thursday’s board agenda. The decision was made to satisfy concerns raised by the City Council, particularly that the $11.5 million offer made by Communications Infrastructure Investments was not the highest bid. According to MLGW commissioner and Networx board member Nick Clark, the delay is risky but shouldn’t impact the deal.

The council’s concerns come in light of a odd arrangement between Networx and CII: that Networx’ sale price will drop by $1 million if the Memphis City Council gets too deeply involved in the process. And although he agreed to provide the council with requested information about the top companies bidding for Networx, Clark offered words of caution:

“It’s like when you’re selling a house,” he said. Tipping your hand on the low bids might give the winning bidder second thoughts about the asking price.

The council’s stepped-up interest in the Networx sale comes in the wake of last Tuesday’s news that American Fiber Systems (AFS) of Rochester, New York, claimed to have offered a bid for Networx valued at $13.5 million. And it was recently revealed that another company submitted a bid valued at $20 million.

Clark was mildly dismissive of the council’s concern, noting that the AFS offer included stock. He drew a round of knowing laughter from observers by comparing AFS’ stock options to promises made by Memphis’ all-purpose bogeyman Sidney Schlenker, the smooth-talking chiseler from Denver who sold Memphis on The Pyramid, a rideless theme park on Mud Island, and, predating a memorable episode of The Simpsons, a monorail.

But, Clark’s dismissiveness aside, the venture firms behind CII were quite pleased to receive $36 million and $127 million in stock when Level 3 bought Caruso’s ICG. The Rocky Mountain News reported that the venture capitalists behind CII acquired ICG for $6 million, along with the assumption of $100 million in debt, adding that the firms “stand to profit handsomely from the Level 3 deal.”

Prior to last week’s council meeting, Clark held a digital “press conference,” where traditional media and bloggers such as Richard Thompson of Mediaverse-Memphis were given equal access to e-mail questions.

But Clark’s explanations about how Networx lost so much value in so little time leaned heavily on private business concerns, without explaining MLGW’s failure to control the company’s inexplicable spending or to find a business model that served both the public and private interest.

The Business Model Ate My Homework

There were moments last week when Clark sounded like a CD with a nasty scratch. “The ‘business model’ was failing,” he said repeatedly. “We realized we had to change the business model” … “The business model had to change” … “Changes to the business model weren’t working.” Etc.

Until we understand what Clark means exactly when he references Networx’ various misfired plans, his explanation explains … well, nothing. Meanwhile, the City Council has to mull over a deal they can’t stop, concerning an investment they could never control.

Herman Morris

For eight years, Memphis Networx had a basic pass to operate without media and rate-payer scrutiny. The company kept some rather large decisions under the radar, specifically to avoid the theoretically watchful eye of the City Council. There was no announcement made when original Networx CEO Mark Ivie left the company in 2005. Nor was there any public announcement of Ivie’s replacement, Dan Platko.

Clark has described the tight-lipped approach as “fortunate.” He said the decision not to publicize the departure of Ivie was political in nature, citing “the longstanding concerns [about] Networx’ financial strength,” “the negative press [Networx] tended to receive due to MLGW’s ownership,” and “politics at City Council.” Clark said “the desire was for a simple transition in executive management.”

Clark further explained that Networx made Platko COO because he was already employed in the Networx sales division, and the board didn’t think it was financially in a position to search for or attract a potentially better candidate.

In comments at Mediaverse-Memphis, a blog that parses what local media is and isn’t reporting, Clark claimed that secrecy about Networx’ various misfires and misfortunes was probably in the “best interests” of the ratepayer. If “best interests” means MLGW taking a $29 million bath without any public oversight, he would be correct.

In 2005, Doug Dawson, president of CCG Consulting, studied Networx’ fair-market value, and his determination was grim. According to Dawson’s report, the company was overstaffed, overpaid, and overvalued.

“Wholesale companies in any industry by definition live on slim margins,” he was quoted as saying. “It’s the nature of being wholesale … and Memphis Networx pays about the highest commissions I have ever seen anywhere.”

But Networx wasn’t only secretive about its generous compensation packages and its excessive overhead. The company’s marketing strategy was also a catastrophe — one that did nothing to earn public confidence. It was a partly municipally owned company that ate truckloads of money while doing nothing to woo or wow the public — a recipe for political disaster.

In addition to spending issues, there are also questions about the zeal with which Networx approached some potentially lucrative business relationships.

Conversations with Clark revealed that Networx may have missed out on some big opportunities … or liabilities, depending on whom you ask. Clark confirmed rumors that had circulated throughout 2006, that Networx had been approached by Atlanta-based Internet provider EarthLink concerning a potential build-out and municipal wi-fi deal. This is relevant, particularly if the deal in question was anything like the recent partnership struck between Earthlink and Wireless Philadelphia, a not-for-profit organization committed to making Philadelphia the most wired city in America.

In October 2005, about the time Networx stopped communicating with the public, Earthlink signed on with Wireless Philadelphia to create the largest wireless network in the nation. Shortly thereafter, Earthlink started building a 135-square-mile wi-fi mesh connecting the entire city. Earthlink’s investment in the Philadelphia project has been valued at $15 million to $18 million.

Clark was cagey in his descriptions of how such a deal might have affected the value of Memphis Networx and how it ultimately fell through. He cited various competitors in the wireless market as a potential reason for cold feet on both sides. But Clark’s final concern is somewhat puzzling in light of recent news. According to Clark, there was some concern that if a deal was struck with Earthlink, that company or some other competitor might eventually try to buy Networx.

“The challenge [was whether or not] Networx could control the muni wi-fi system so it could profit, or would an outside entity just attempt to buy Networx on the cheap for the benefit of its fiber ring and not recognize value elsewhere.”

There’s one tiny problem with Clark’s answer: By the time negotiations with Earthlink broke down in 2006, the decision to sell Networx on the cheap was only months, if not weeks away. The decision to hire a private consultant to broker the deal had likely already been made.

Morris says MLGW “planned for the utility to be in the equity superior position and have a super-voice in the decision to continue operations or sell or to accept a new partner.”

Clark says finding private investors who want to answer in any way to a public utility is hard. He has yet to show that Networx ever actually answered to the utility in any meaningful way.

The Deal

There are a number of questions that beg to be asked before this deal goes down. What high-profile investors like Fred Smith and Pitt Hyde made or lost in the deal may turn out to be less important than the value Networx infrastructure may or may not have brought to FedEx and AutoZone at a time when nobody else would build such a network.

From a public utility’s standpoint, Networx’ ability to attract companies like ServiceMaster may reflect a more substantial loss than the $29 million MLGW has invested in the project. These are just some of the things both the media and the City Council need to wrestle with before MLGW’s board puts Networx’ sale to a vote on July 5th.

Perhaps all the suspicious behavior surrounding the sudden anouncement and haste of the Networx sale amounts to nothing more than the death throes of a failing venture struggling to find a quiet exit strategy. But telecoms are back, MLGW is out, and such a spectacular crash couldn’t have come off better if it had been planned.

Categories
News

Networx: Will The City Council Get the Real Story? Will Anyone?

MLGW Commissioner and Memphis Networx board member Nick Clark should be commended for the tech-savvy openness he displayed this week. He managed a digital “press conference” where traditional media and bloggers like Richard Thompson of Mediaverse-Memphis were given equal access.

But Clark’s generous candor wasn’t always as candid or generous as it seemed. His explanations about how Networx lost so much value in so little time were often cloaked in the less than transparent language of business.

“The ‘business model’ was failing,” he said repeatedly. “We realized we had to change the business model” … “The business model had to change” … “Changes to the business model weren’t working.” etc. etc. etc.

Ah! It was the plan that failed, not its creators or executors. That explains … nothing. What, exactly, is Clark talking about when he references Memphis Networx’s various misfired business models? And how can an understanding of those models provide insight into the nature of the company’s impending sale to Communications Infrastructure Investments, a telecom-related holding company headquartered in Boulder, CO? Let’s take a look:

For eight years, Memphis Networx had a basic pass to operate without media and rate-payer scrutiny. Reporting by Andy Meek, in today’s Daily News, looks a little deeper into some of Networx excesses.

Meek’s reporting turns on the testimony of Doug Dawson, president of CCG Consulting, who studied Networx’s fair-market value in 2005 and determined that the company was overstaffed, overpaid, and overvalued.

“Wholesale companies in any industry by definition live on slim margins,” he was quoted as saying. “Wholesale companies typically pay low salaries all around — it’s the nature of being wholesale … and Memphis Networx pays about the highest commissions I have ever seen anywhere.”

But Networx wasn’t only secretive about its generous compensation packages or its excessive overhead. The company’s marketing strategy was also a disaster — one that did nothing to earn public confidence. It was a partly municipally owned company that ate truckloads of money while doing nothing to woo or wow the public — a recipe for disaster.

In addition to spending issues, there are also questions about the zeal with which Networx approached some potentially lucrative business relationships.

Conversations with Clark revealed that Networx may have missed out on some big opportunities — or liabilities — depending on whom you ask. Clark confirmed rumors that had circulated throughout 2006 that Networx had been approached by the Atlanta-based Internet provider, EarthLink, concerning a potential build-out and municipal wi-fi deal. This is relevant, particularly if the deal in question was anything like the recent partnership struck between Earthlink and Wireless Philadelphia, a not-for-profit organization committed to making Philadelphia the most wired city in America.

In October 2005 — about the time Networx stopped communicating with the public — Earthlink signed on with Wireless Philadelphia to create the largest wireless network in the nation. Shortly thereafter, Earthlink starting building a 135-square-mile wi-fi mesh connecting the entire city. Earthlink’s investment in the Philadelphia project has been valued at $15 to 18 Million.

Clark was cagey in his descriptions of how such a deal might have affected the value of Memphis Networx — and how it ultimately fell through. He cites various competitors in the wireless market as a potential reason for cold feet on both sides. But Clark’s final concern is somewhat puzzling in light of recent news. According to Clark, there was some concern that if a deal was struck with Earthlink, that company or some other competitor might eventually try to buy Networx.
“

“The challenge [was whether or not] Networx could control the muni wi-fi system so it could profit, or would an outside entity just attempt to buy Networx on the cheap for the benefit of its fiber ring and not recognize value elsewhere.”

There’s one tiny problem with Clark’s answer: By the time negotiations with Earthlink broke down in 2006, the decision to sell Networx on the cheap was only months, if not weeks away. The decision to hire a private consultant to broker the deal had likely already been made.

In December 2006, Memphis Networx hired the McLean Group, a private banking firm headquartered in McLean, Virginia, to create a list of 50 potential buyers. CII, who, according to Clark, had been systamatically approaching companies like Memphis Networx for some time, in an effort to increase its infrastructure holdings, was one of those potential buyers.

Cut to the present: Last week, as Memphis media chattered endlessly about snakes, strippers, and a mayoral sex tape that didn’t exist, it looked like MLGW’s decision to sell Memphis Networx for a $29 million loss would go unchallenged. It was something of a surprise when MLGW’s board decided to remove the Networx vote from Thursday’s board agenda, and reschedule the vote for July.

The decision was made to satisfy concerns raised by the City Council, particularly that the $11.5-million offer made by Communications Infrastructure Investments was not the highest bid. According to Clark, the delay is risky, but shouldn’t impact the deal.

Theoretically, the board was under no binding obligation to answer the City Council’s concerns, and their decision to do so comes in light of a odd arrangement between Networx and CII — that Networx’s sale price will drop by $1 million if the Memphis City Council gets too deeply involved in the process. But it’s unlikely that a cursory investigation into the bidding process by the council will yield anything definitive.

Although he agreed to provide the council with requested information about the top companies bidding for Networx, Clark offered words of caution:

“It’s like when you’re selling a house,” he said. Tipping your hand on the low bids might give the winning bidder second thoughts about the asking price.

The council’s stepped-up interest in the sale comes in the wake of Tuesday’s news that American Fiber Systems of Rochester, NY, claimed to have offered a bid for Networx valued at $13.5 million.

Clark was mildly dismissive of the council’s concern, noting that AFS’s offer included stock. He drew a round of knowing laughter from observers by comparing AFS’s stock options to promises made by Memphis’ all-purpose bogey-man Sidney Schlenker, the smooth-talking chiseler from Denver who sold Memphis on The Pyramid, a rideless theme park on Mud Island, and — pre-dating a memorable episode of The Simpsons — a monorail. Anything that can be compared to a bad guy like that must be extra radioactive. Right?

Maybe. MLGW and Networx did find CII via McLean Group consultant Tom Swanson. Swanson’s participation adds another layer to the onion, and at least suggests that MLGW’s decision to sell to CII rather than AFS is both impartial and justified. On the other hand, AFS is a serious company, and Memphis wouldn’t be its first municipal buyout. When Marietta, Georgia, decided to eat its $25 million investment in a Networx-like venture, AFS was there to take the tanking telecom division off the city’s hands.

While determining whether or not the Networx sale is on the up and up, the City Council needs to look beyond the technical process leading up to the sale. The company made a point of operating under the radar to avoid the theoretically watchful eye of the council. Clark has confirmed as much.

And as the Flyer has reported previously, Networx was never run like a business bent on success.

From December 2005, until the present — a period of total media blackout for the company — Networx seems to have been engaged in a process geared toward reducing value while preparing for an eventual sale. Neither the media or the City Council was notified when Networx CEO Mark Ivie stepped down in 2006. Nor did the company announce that Dan Platko had been named COO, specifically to run the company during the period leading up to and through its eventual sale.

Perhaps all the suspicious behavior amounts to nothing more than the death throes of a failing venture struggling to find an quiet exit strategy. But such a spectacular failure couldn’t have come off better if it had been planned. And if Networx’s ever-changing, ever-failing business models are any indication, it’s possible that it was.

— Chris Davis

Categories
Editorial Opinion

Learning from Networx

After years of secrecy (to preserve the company’s competitive edge, we’re told), MLGW has finally released Memphis Networx’ financial statements for public scrutiny. No doubt, many interesting revelations will turn up in those pages, which document MLGW’s disastrous plunge into the telecom business.

Not that it matters anymore. Now that MLGW is on the verge of selling its $29 million investment for around $1 million, it’s too late to do much of anything but smack your skull and cry, “Oy!”

For anyone familiar with the history of confidence rackets, the tale of Memphis Networx offers a more-than-passing resemblance to “the Spanish Prisoner,” a classic con that originated in Europe during the Inquisition and which has since become quite popular among Nigerian e-mail writers.

The scam works like this: The con man endears himself to his mark by entrusting him with something that is allegedly of great value. He tells the tale of his friend, a generous nobleman, who has been falsely imprisoned by the king of Spain. The con man says he knows whose palms need greasing in order to release the nobleman, and he assures the mark that the rewards will be beyond imagining … but he’s broke. The rube ponies up some coin. After all, he’s got the valuable object as collateral. Unfortunately, the money the rube provides is never quite enough to spring the prisoner, and so the game continues until the rube gets wise or runs out of dough.

The metaphor isn’t perfect. By participating in a dubious public/private partnership that shut out public oversight and by hanging onto its worthless shares to the bitter end, MLGW played the dual role of rube and con man. It’s an object lesson that should remind us of why seeing where the money goes — when it’s going — is far more valuable than hearing about where it went.

It also reminds us just how empty and artificial modern “competitive” business practices can be. It is accepted that executives should receive big salaries, nice bonuses, and perks, even when they fail to grow the company’s bottom line. Networx played the game by the rules, rewarding its first-generation executives quite nicely, even though the company tanked. The taxpayers, of course, who represent the “public” side of this partnership, were denied access to the company’s numbers — until it was too late.

The private investors — including Memphians Fred Smith and Pitt Hyde — will be repaid at least a portion of their investment. Both of these men have done a lot for the city, and it’s likely they thought they were doing a good deed when they responded to MLGW’s overtures and attached their names to Networx. Their participation in the telecom venture was more symbolic than anything else, solicited primarily to create confidence in the venture. The real suckers in this deal — and unwittingly so — were the taxpayers.

Now we’re faced with a Hobson’s choice: We can either put more money into the venture, betting that Networx has finally turned the corner and that the fiber-optic infrastructure it has created will bear fruit, or get out and watch a private company reap the rewards of our public investment.

Oy.

Categories
News News Feature

Networx Down

Let’s begin with a very simple statement of facts: MLGW, Memphis’ taxpayer-owned public utility, has invested somewhere in the neighborhood of $30 million in a fiber-optic system called Memphis Networx. It has co-owned Networx for eight years with a group of prominent Mid-South business leaders incorporated under the name Memphis Broadband LLC. MLGW is now selling its share in Networx for $994,000 to Communications Infrastructure Investments (CII), a telecom-savvy holding company in Denver, Colorado.

To be more accurate, CII is paying $11.5 million for the company and the majority of its assets. After debt retirement, the private investors get to split $2 million among them while the city of Memphis gets a hard rock to suck on. To date, MLGW’s accounting for this unprecedented mishandling of rate-payer money amounts to little more than an official “oopsie.” Yet somehow, public outrage seems minimal.

If people are confused, it’s little wonder. Networx has always been something of a mystery, and media coverage of the hastily announced sale has been skeletal at best, conflating at every turn the interests of the private investors (profit) with the public concern and the historic function of a civic utility (sustainability and service). Reports of the sale have further confounded the issue by questioning the wisdom of MLGW’s initial entrance into the telecom industry, rather than exploring the circumstances surrounding its hasty, financially devastating exit. Again, let’s take things slowly.

Memphians don’t know what Networx is, and it’s tempting to suggest that’s by design. The company was never intended to be a service provider, though it sold itself to the city with fairy tales about bringing high-speed communication to underserved areas and — as one member of the City Council put it — “the Internet to poor people.” If our civic leaders had bothered to read the fine print, they would have known that the company’s promises were predicated on Networx turning a profit. And, from a net perspective, it never did.

So what exactly is Memphis Networx? Pretend that the market for drinking water is fragmented, with many different providers each claiming to have the tastiest, cleanest, best water. The problem is, they don’t have a way to get their product to the customer. The providers don’t want to cut their profits by spending the capital to install a better delivery system, so the city builds its own pipeline and rents that system to the providers, who in turn sell water to the citizens. Some of the providers sue the city, fearing that it will become a competing water provider with an unfair advantage over the private sector. Replace the word “water” with “digital technology” and you’ll have a rudimentary understanding of what Memphis Networx does.

Memphis Networx is a loop of 144 high-speed fibers running underneath the entire city. In addition to the subterranean fiber, Networx’ major physical assets include a secure, earthquake-proof data center with a satellite hookup and a pair of 2,000-gallon diesel generators in case the power goes out and a lot of high-tech gadgetry.

So what went amiss? According to MLGW commissioner and Networx board member Nick Clark, the technology and business plan began to fail in 2002, but that’s merely a signpost pointing the way to the current precipitous juncture.

Private venture capitalists and public utilities have a very different set of expectations. Public utilities plan over a 50-year horizon, according to Herman Morris, who was president of MLGW when Networx was created in 1999. Venture capitalists expect to see a return in three to five years. To that extent, Networx was handicapped out of the gate when the licensing process was drug out over 18 months by telecoms like Time Warner, which wanted to prevent Memphis from obtaining a competitive edge in the industry. By the time Networx was fully launched in 2001, the telecom-industry boom was nearing collapse. But the problem cuts deeper.

Networx could have started out on a better foot by doing some of the good things it promised, like bringing Internet connections to underprivileged neighborhoods. The profits wouldn’t have shown up right away, but such a move would have given the company a civic-oriented face. It would have built brand awareness and pride within the community. But all of these positive developments were predicated on eventual profits. However, big bonuses for executives were not tied to profits, and neither were generous housing expenses, instantly vested retirement plans, or fat, private-sector salaries. And all of this rampant spending was going on back when MLGW still owned an 80 percent share in the company it couldn’t watchdog or control.

In June 2005, MLGW president Joseph Lee, who was no fan of the Networx deal, put his personal reservations aside and lobbied the city to put more funds into the company.

“We don’t believe that having a $32 million stake in [Networx] and failing to get a $6 million loan guarantee should result in us losing such a strong equity position,” he said, stressing the value of the Memphis utility’s majority share in the public/private telecom venture. But the City Council, unable to see where all the money had gone, refused to provide Networx with additional finances. At that point, MLGW’s 80 percent share dropped to 49 percent, and Networx became virtually invisible. As projected, however, Networx posted its first, miniscule profit for the 2005 business cycle. The news went largely unheralded.

Clark admits that he’s harbored concern for Networx’ fiscal health for over two years. Why didn’t he say anything about it? Because “that information was not required to be publicly revealed.”

Responding to mild, if somewhat misdirected, criticism posted by media critic Richard Thompson at mediaverse-memphis.blogspot.com, Clark wrote, “The very act of publicly commenting on the financial stresses of a venture capital entity can have the adverse consequences of causing the opposite of what is in the best interest of the rate-payers.” So instead of commenting, and potentially scaring off, a few Networx customers, Clark and MLGW CFO John McCullough kept mum.

Clark recently released all of Memphis Networx’ financial summaries to the media, but the broad numbers don’t retroactively explain even half the story. Clark was simply playing by the rules as they were established on day one. What’s private is private, and what the private side does with the public’s money is also private.

What’s frustrating is that there were provisions in the Networx operating agreement that would have allowed MLGW to break off its relationship with Memphis Broadband to seek other partners or operate the network independently with greater transparency and oversight. Based on the current deal, MLGW could have paid the private investors $2 million and become its sole owner. In debt, yes. In dire need of capital, yes. But also subject to the same open-financial-records policy as any other taxpayer-owned entity.

All that is history now. But it is imperative that Memphians — and their government representatives — understand that dumping Networx at a $29 million loss would be a big mistake. Two independent sources have confirmed that Memphis’ telecom property was a major factor in enticing ServiceMaster to relocate much of its operations here. Although that doesn’t show up on Networx’ ledger as a profit, it’s a significant return on the city’s investment, and there’s more where that came from. It’s also difficult to place a value on the streamlined linking of Memphis’ fire and police departments, and the benefits and savings that might be realized by using Networx’ data center to centralize more of the city’s sprawling IT network. Businesses are going to continue to require data security and storage. Across the country, broadband will expand, and in broadband-poor cities like Memphis, it will expand spectacularly.

There are many questions remaining to be answered concerning the Networx deal: Why did the company obliterate its sales staff? Who is COO Dan Platko, and why does he live in Atlanta (or Denver, depending on whom you ask or which online networking tools you trust). Why weren’t local investors given first dibs on the deal? But the biggest question is a simple “why.” After scraping its way to near sustainability and surviving to the point where broadband is a necessity and municipal wireless is catching on, why sell Networx now?

Categories
Editorial Opinion

Learning from Networx

So it didn’t work out after all. That’s the indisputable bottom-line fact about Networx, the much-ballyhooed MLGW-backed enterprise that got under way back in 1999, funded partly by some blue-chip local investors but mainly — to the tune of some $29 million — at taxpayer expense. Most of that money has now gone south, thanks largely to the dot-com boom petering out just as the millennium turned.

But there were also some doubts, even at the time, about the wisdom of the telecommunications venture from both financial and technological viewpoints. That such concerns were not heeded — or for the most part even heard — owed a great deal to an unprecedented P.R. push for the investment. World-class entrepreneurs like Fred Smith, Pitt Hyde, William B. Dunavant, and the late Willard Sparks were enlisted as Networx partners, and, by lending their names and reputations (rather more than their pocketbooks), they gilded a very problematic lily.

Meanwhile, the taxpayers, who footed the bill, were never adequately consulted or informed.

The fact remains that some of the rationale behind the project was probably on target. One of the topics mentioned at the well-attended Conference for Media Reform, which met here last January, was the need for universal access to broadband technology. Critics of Networx have made an issue of the fact that its books were not made accessible to the public. Though that objection related mainly to the way the venture was managed, we would carry the logic of it a step further:

Perhaps the chief flaw in both the conception and execution of Networx lies in the way it was structured. In our time, Internet technology is as much a part of the fabric of life as light, gas, and water. What Networx should have been all along, perhaps, was a public utility itself, and in the wake of its failure, as well as the well-founded concerns attending the Hoops-FedExForum-Grizzlies issue, maybe it’s time for a long, close look at the question of public ownership in general.

A Seat at the Table

One of the most frequent allegations we hear at local political forums is the lament that the county wheel tax, originally earmarked for education during the administration of former Shelby County mayor Bill Morris, has been used to fund a variety of other purposes over the years.

Certainly the proceeds of the wheel tax were redirected this year, as several representatives of the city and county school systems noted Monday during a meeting of the Shelby County Commission. What the commission did, faced with an unexpected surplus, was divert some $11 million of already committed school operating funds to a separate fund for future capital improvement programs.

As all parties eventually agreed, the school systems were not robbed (indeed, they ended up better financed than earlier foreseen), but there were problems, both in the ex-post-facto nature of the reallocation and the lack of prior input solicited from the educators themselves.

“Give us a seat at the table,” several of the school spokespersons asked. We agree.

Categories
Politics Politics Feature

Worx for Some, Not for Others

As the MLGW board ‘fessed up this week and announced the pending sale to a Colorado holding company of its Networx assets, at a financial loss to Memphis taxpayers, at least two leading mayoral candidates stood to suffer a potential political loss on top of that.

They were incumbent mayor Willie Herenton, by all accounts a prime mover in the board’s decision to invest $29 million in the broadband fiber-optics enterprise back in 1999, and Herman Morris, MGLW’s president at the time.

And talk about bad timing! Addressing a meeting of the conservative-oriented Dutch Treat Luncheon on March 10th, candidate Morris made a point of defending the venture, saying, “I believed and believe it to be a very good concept.”

The former utility head went on to contend that Networx was intended to give the city “a competitive posture to attract industry as a part of our infrastructure” and to encourage “growth in the high-tech sector.”

Predicted Morris: “I still believe it will pay dividends.”

Two other candidates came off somewhat better. Addressing the same Dutch Treat Luncheon group a month earlier, on February 10th, former county commissioner John Willingham listed Networx as one of the flops of the current administration and criticized it as relying on fiber optics “in the age of, what, wireless?”

And City Council member Carol Chumney, who said she attempted to downscale some add-on funding for Networx that the council briefly considered a year or two back and who criticized the venture at her campaign opening in February, announced that the council’s MLGW committee, which she heads, will hold a hearing on the Networx matter next Tuesday.

Mayoral candidate Chumney finally let the other shoe drop Tuesday when she filed her candidacy petition at the Election Commission.

Meanwhile, as if determined to prove that he has a common touch, Morris made the rounds last week — literally. One of his stops was at Thursday night’s weekly session of “Drinking Liberally” at Dish in Cooper-Young.

In that casual setting, Morris dispensed some of his usual platform planks on crime, economic development, and education but also addressed some more unusual queries. Someone, mindful of an imbroglio experienced by presidential hopeful Bill Richardson on Meet the Press, asked Morris if he was a Yankee or a Red Sox fan.

After thinking on it, Morris answered “Yankees” but then added, “I’m not really a baseball fan, though.” Why not? “Because of the 7th-inning stretch. That always wakes me up.”

On Saturday, Morris addressed a meeting of the Shelby County Democratic Women, where, among other things, he boasted Memphis’ “natural attributes” over those of Atlanta and criticized a law-enforcement strategy whereby “drive-by police are chasing drive-by criminals.”

• Confirming intentions that had been known for months, Pinnacle Airlines attorney Nikki Tinker, runner-up to U.S. representative Steve Cohen in last year’s 9th District Democratic primary, has filed federal papers to run against Cohen again next year. But both Tinker and Cohen could have company in the primary: Freshman state representative G.A. Hardaway is also said to be considering a race.

As for Tinker’s challenge — represented by The Hill, an insiders’ political newsletter in Washington, D.C., as having black vs. white connotations — Cohen had this to say to the paper: “I don’t see it as being close at all. … I’m afraid Ms. Tinker is not aware of how far we’ve come in race relations.”

Tinker, who made a late and well-funded challenge to Cohen in 2006, paid for largely by corporate donations and support from the Emily’s List PAC, filed Friday with the Federal Election Commission but reported no financial contributions for the first quarter of the current cycle.

Cohen won 31 percent of the 15-candidate primary vote in 2006 and won a majority of the district’s African-American vote in a three-way general election contest with independent Jake Ford (also rumored to be thinking about another run) and Republican Mark White.

In his term so far, Cohen has taken special pains with legislation on behalf of black voters, most recently sponsoring a House resolution putting the body on record as apologizing for slavery. Earlier this year, he held a joint town meeting in the district with the legendary African-American congressman from Detroit, John Conyers, Cohen’s chairman on the House Judiciary Committee.

Hardaway, whose candidacy would constitute another three-way race for Cohen, would neither confirm nor deny plans for a congressional run in 2008.

• Barack Obama, the Democratic senator from Illinois who wants to be president, came to Tennessee last week in pursuit of that aim.

After meeting in Nashville with Governor Phil Bredesen, state house speaker Jimmy Naifeh, and members of the legislative black caucus, and just before heading off to a couple of private fund-raisers elsewhere in the state’s capital city, Obama put it this way:

“I think Tennessee has smart Democrats who are able to fashion a kind of agenda that attracts independents and Republicans. So I want to get some good advice and maybe some good supporters while I’m here.”

Both Bredesen and Naifeh were complimentary about Obama but noncommittal on the issue of supporting him against other Democratic contenders.

• State Politics: The General Assembly finally got around to what looked like a climactic decision last week, in which state revenues, already in surplus, were to be newly fattened, thanks mainly to the 42-cent tobacco tax passed the week before in defiance of what had seemed to be adverse odds.

There was some interesting behind-the-scenes stuff going on.

The bill’s one-vote margin in the state Senate had been due to an unusual de facto collaboration between two state senators, Jim Kyle of Memphis and Rosalind Kurita of Clarksville, political arch-adversaries who both got what they wanted when push came to shove.

Kyle is the state Senate’s Democratic leader — still mortally offended by fellow Democrat Kurita’s pivotal vote in January to unseat venerable Senate speaker John Wilder and install the first Republican lieutenant governor in the state’s history, Ron Ramsey. He and Kurita do not speak, unless it is unavoidably in the line of duty.

Yet they collaborated in the passage of the tobacco tax, the pièce de résistance in Bredesen’s education package but with sums earmarked also for agricultural enhancement grants and state trauma centers. The vote was 17-16, a party-line affair in which former Republican, now independent, Micheal Williams of Maynardville voted as expected with the Democrats.

Most of the expected $230 million in annual revenues will finance Bredesen’s upgrade of the state’s Basic Education Plan. The trauma-center allocations will come from the two-cents’ worth (literally) that Kurita, a nurse by profession, insisted on tacking on as the price of her vote for a bill that was originally the rival to her own version of a tobacco tax, which would have mostly been devoted not to education but to health-care issues.

Holding the Line: Fearing sabotage in the Senate, where two Democrats were absent last week when the House got ready to vote, Democrats in that body heeded warnings from Speaker Jimmy Naifeh of Covington and majority leader Gary Odom of Nashville about accepting Republican amendments which would have sent it back to the other chamber for reconsiderations.

The GOP amendments contained some attractive embellishments to the bill — ranging from reallocations of state lottery funds to needy school districts to riders that would lower or temporarily eliminate the sales tax on groceries. One amendment would have added another penny’s worth of tax for Iraq war veterans. Another would have added money to counter sexual predators, but Democrats like Mike Turner of Nashville, who later called the Republican members “assholes,” held the line.

Ultimately, the un-amended tax prevailed with a majority of 59 or 60 votes of the 99-member House, depending on whether or not Republican Jim Coley of Bartlett, an educator, A) voted accidentally or on purpose against the bill; and B) was successful or unsuccessful in changing his “no” vote to “aye” immediately afterward.

Coley was insistent that he had pushed the wrong button and equally adamant that he had succeeded in having his vote reversed by the House clerk. Speaker Naifeh, clearly skeptical on the first count and seemingly determined, as he had promised earlier, to afford nay-saying Republicans no cover, was equally emphatic that the right vote total was 59, not 60, and that Coley’s no vote remained unchanged.

Coley got some backup from Representative Mike Kernell, one of two Shelby County Democrats (the other was Larry Turner) who voted against the tobacco-tax bill on grounds of its regressivity. Kernell said he would have voted for the tax had the proceeds been rerouted back to health care, where, he said, it would have been “tripled” by match-ups with federal grants.

“Coley had told me he was going to vote yes, and he mistook a ‘call-for-the-question’ vote for the vote on the bill itself,” Kernell said in defense of his colleague.

A Regressive Tax? Meanwhile, Kernell took time out afterward to make an extended defense of his own attitude (and, by implication, Turner’s, who called the tobacco tax “yet another regressive sales tax and one whose proceeds are non-renewable”).

“I wouldn’t have voted for the bill even if my vote had been the one necessary for its passage,” said Kernell, who seemed to be echoing Kurita’s concerns that health-care issues should take precedence over Bredesen’s plans for updating the state’s Basic Education Plan.

From that point of view, Kernell found much that was agreeable in a speech Monday night by Representative Beth Harwell, a Davidson County Republican, in favor of her amendment to use the tobacco-tax proceeds to reduce or eliminate the sales tax on groceries. “It was a great speech,” said Kernell, who acknowledged, however, that any amended bill returned to the Senate for action would probably have expired there.

• Even as state senator Kurita gets her sea legs under her, the man whom she, in effect, deposed, Senator Wilder of Somerville, seemed somewhat more out to sea than was his wont during his 36 years as lieutenant governor and Senate speaker.

Octogenarian Wilder seems physically recovered from the fall he took at his Fayette County home early in the session. And he makes a point of participating in discussions, both in committee and on the floor of the Senate itself.

But the longtime legislative lion just isn’t plugged in the way he once was. A demonstration of that occurred on Monday during a session of the Senate Finance Ways and Means Committee, one that was devoted to the question of how surplus state funds could be used to augment the state’s “rainy day” or reserve fund.

Much of that conversation was between committee chairman Randy McNally (R-Oak Ridge) and the two Senate party leaders who were intimately acquainted with the mechanics of the deal, Jim Kyle of Memphis and Republican Mark Norris of Collierville. During the back-and-forth, Wilder, seemingly taking in the fact and magnitude of the funds available this year, ventured to ask: “Do we need the tobacco tax?”

There was an awkward pause, after which the former speaker himself ventured, “I don’t really need to ask that?”

There may have been a rhetorical point to Wilder’s question — one that, for that matter, any number of lay citizens might find themselves wondering — but in the context of the committee’s end-of-session wrap-up, it came off as a bit less than plugged in.

A little later, after a series of further such basic inquiries, Wilder turned to Chairman McNally and said, “Do I need to stop asking questions?”

“No, sir” was the deferential response from McNally, who continued addressing Wilder by the ceremonial title of “governor.”

Wilder has indicated that he intends to run again for his state Senate seat in 2008 and would be favored to win if he did so. But the predominant sentiment of his colleagues is that he would be hard-pressed to get the Democratic caucus’ nomination for lieutenant governor, much less that of the Senate as a whole.

• Without much fanfare, Governor Bredesen last week signed into law the “Rosa Parks Act,” whose chief Senate sponsor was Kyle. The law, named in honor of the late heroine of the 1956 Montgomery bus boycott, allows civil rights activists to have criminal charges related to their activism expunged from their records.

“It’s important because it recognizes that people did risk incarceration for social change and that they ultimately prevailed,” Kyle said at the time he sponsored the bill. “They should not have the stigma of that incarceration or be put in the same class as other folks who simply just committed crimes.”

Categories
News The Fly-By

The Cheat Sheet

CREDIT: Greg Cravens

A man who has been in the United States for only two weeks spends half of it in jail because of a typo. Victor Estrada, who apparently has a history of mental problems, was arrested for vandalizing a pay phone. He was booked in the Shelby County Jail as “Victor Estrata,” and there he remained — lost in the system — while family members searched desperately for him. He was finally located when a picture was circulated to relatives. Welcome to America, Mr. Estrada.

Greg Cravens

In an attempt to thwart car break-ins at Shelby Farms, police set up a “bait” vehicle, leaving a purse in plain view on a seat. They don’t have to wait long. Thieves come along, break into the car with a screwdriver, and try to race away. When the police nab them, the cops find the thieves’ car stuffed with 11 bags of marijuana. We’ve heard the fishing is good at Shelby Farms, but we didn’t realize it was that good.

The Commercial Appeal, noting that outgoing city councilman Rickey Peete favors Janis Fullilove as his replacement, headlines the story, “Peete Likes Fullilove for His Seat.” Hmmmm.

Even though she admitted to killing her husband with a shotgun, an “apologetic” Mary Winkler receives a sentence of 67 days. Women rejoice at the verdict, men are appalled, and in the meantime, it looks like poor old Paris Hilton will spend more time in jail than a convicted murderer.

The good news just keeps a’comin‘ from MLGW. Your hometown utility now admits that spending $30 million to buy the Memphis Networx fiber-optic firm was a mistake and hopes to unload the company to another buyer. Maybe they can sell the buyer the Hernando DeSoto Bridge while they’re at it.

Categories
News The Fly-By

The Cheat Sheet

CREDIT: Greg Cravens

Organizers hold our city’s first “Zombie Walk” on Beale Street, with volunteers dressed up as the living dead. One of the participants hoped it would become an annual event and told reporters, “Memphis has never seen anything like this.” Actually, it looked pretty much like any Saturday night on Beale Street.

Greg Cravens

An ultrasound confirmed that the Zoo’s panda Ya Ya is indeed about to become a Ma Ma. Pandas rarely give birth in captivity, so if all goes well, the cub would be one of about a dozen pandas ever born in the United States. Meanwhile, the proud papa should be handing out cigars. What? Artificial insemination? Oh. Well, maybe whoever used the syringe — or however the heck they do it (we really don’t want to know) can do the honors.

Undercover police posing as truck drivers arrest 25 pimps and prostitutes at a truck stop on Lamar. “It’s Hard Out Here for a Pimp,” say Three 6 Mafia, and we learned it must be even harder for the women, since some of them wanted to charge the “truckers” only $20.

Ophelia Ford tells reporters she is not an alcoholic and then refuses to see her family when they drive to Nashville to help her out. Sigh. We’re pretty certain Ford will be in the news a lot in the next few months and not because of any work she does as a state senator.

More than a few MLGW employees have been making more than $100,000 a year with overtime pay — sometimes even doubling their already generous salaries. It’s just one thing after another at MLGW these days. Isn’t there another utility around here that we can use?