Tag: NetWorkx

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Politics Politics Feature

The Loop

It’s difficult to tell who exactly emerged victorious from last week’s MLGW board meeting that finalized approval of the sale of its interest in Memphis Networx to Denver-based Communications Infrastructure Investments (CII). The big losers, however, were easier to spot: MLGW ratepayers, who saw the public utility’s $29 million investment in the city’s fiber-optic future go up in a cloud of virtual smoke.

MLGW ratepayers once owned 80 percent of Networx but watched that share slip below 50 percent in 2006, when private investors operating under the umbrella of Memphis Broadband, LLC guaranteed a $7 million loan to prop up the sagging business after the Memphis City Council refused to do so. Shortly thereafter, the new majority owners instructed Networx management to search for a buyer, a search that culminated last week with the approval of the sale to CII.

Given the disastrous course this public/private partnership has taken since Memphis Networx’ creation in 1999, the fact that a cloud of confusion and suspicion hangs over the final dissolution of that partnership should come as no surprise. Whether such suspicion is justified or not, it isn’t reassuring that representatives of Networx and MLGW have been less than forthcoming about how the final deal evolved and, further, have failed to voluntarily disclose several eyebrow-raising facts connected to the sale.

How close, for example, are the private investors and current and former officers of Memphis Networx to the presumed buyer? Close enough that buyer and seller share at least one mutual strand of DNA.

Robert Blow, a Virginia/Memphis-based telecommunications entrepreneur and one of the original investors in Memphis Broadband, was only 52 when he died of a heart attack in July 2002. Based on documents and comments from sources close to Networx, the Blow estate is still involved in Memphis Broadband, a group that includes local investors such as FedEx founder Fred Smith, Dunavant Enterprises, former NBC chief executive Thomas Garrott, and AutoZone founder Pitt Hyde, among others. Blow was also a founding partner of Columbia Capital Partners, one of the venture-capital firms backing CII, the Colorado-based holding company in the process of buying Networx.

Blow was, additionally, a founder of Paradigm Partners, a venture-capital firm that worked with Memphis Broadband to develop a $30 million institutional fund to help finance Memphis Networx. After the telecom crash of 2001, however, the funding environment for telecoms stagnated, and Paradigm bailed on the project shortly before Blow’s death.

Current Networx board member Andrew Seamons was also a partner in the Paradigm firm. When Paradigm disintegrated in 2002, he joined Pittco, an investment firm affiliated with retired AutoZone CEO Pitt Hyde. While there may be no direct financial links between Networx’ private investors and CII (like all new business environments, the wireless-infrastructure industry has quickly developed its own set of knowledgeable “insiders”), repeated claims by Networx representatives that CII just called out of the blue to see if the Memphis telecom was for sale seem implausible, given the relationship between the original Memphis Broadband group and Columbia Capital.

On July 5th, the day MLGW’s board voted to sell Networx to CII, Seamons made it clear that inquiries regarding the private investors’ holdings wouldn’t get very far. When asked whether any of the Memphis Broadband participants were invested in Level 3 Communications, the prominent infrastructure company that’s most likely set to acquire Memphis Networx once its financial situation is stabilized, Seamons explained that lots of people probably own a piece of Level 3, because “it’s a big company.”

Level 3 Communications isn’t directly connected to CII. But CII’s founder, Dan Caruso, was a founding executive of Level 3. Caruso was also the CEO of ICG Networks, which was owned by Columbia Capital and M/C Venture Partners and which was ultimately bought out by Level 3. When ICG was purchased from Level 3 by Columbia Capital and M/C Venture Partners, the Denver Rocky Mountain News reported that these two firms stood to “profit handsomely from the deal.”

Speaking on Seamons’ behalf, MLGW and Networx board member Nick Clark explained that, as an investor at Paradigm and Pittco, Seamons probably knew somebody employed by every group involved in the bidding process.

Possibly true. But what’s the real story? Is the telecom infrastructure business a tiny world where everybody’s in everybody else’s business? Or is it a big world where nobody knows much about anybody? Or is it, as Networx officials would have it, both?

It’s a Small World, After All

On the day the MLGW board voted to sell Networx, it was acknowledged that Networx CEO Dan Platko and Tom Swanson, the McLean Group consultant who was enlisted to aid in the sale of Networx, were anything but strangers. In 2000, the two telecom veterans were employed by Intira, a communications company founded in St. Louis by former Networx CEO Mark Ivie. Intira also employed former Networx controller Jeff Rice.

It was also noted that Platko signed a contract offering Swanson $2,000 a day to consult with Networx’ sales division through his personal firm, TJSwansonCo, almost two months before Networx approached the McLean Group to assist with the sale of the company.

According to Networx officials, the McLean Group was contacted in December 2006. Platko signed Swanson’s contract on October 5th. Previously, Swanson had only been identified in the record as a representative of the McLean Group. It’s unclear if Swanson consulted in both capacities simultaneously.

After MLGW’s vote to sell Networx, Swanson claimed that he and Platko hadn’t done business together since they worked for Intira. Several sources close to Networx, however, say Platko was trying — unsuccessfully — to bring Swanson in as a consultant before Platko was named CEO. Those sources have also told the Flyer that there was a falling out between Platko and his predecessor, Mark Ivie, just prior to Ivie’s departure in 2006. Platko and Ivie were friends from their Intira days, and Platko lived with Ivie after being recruited to Memphis. After Ivie’s departure in 2006, Networx elevated Platko to CEO.

So who is Dan Platko? Prior to being recruited by Ivie, Platko was employed by Infinium Labs, a video-gaming company out of Florida that became infamous in that industry for burning through tens of millions in investor capital without producing a product. Press releases dating from 2004 identify Platko as Infinium’s vice president of operations.

Infinium (later renamed Phantom Entertainment) was founded by Tim Roberts, who also co-founded Intira with Mark Ivie. Platko and former Networx controller Jeff Rice worked for both Intira and later Infinium.

Confused yet? It gets worse. Between his time at Intira and Infinium/Phantom, Platko was employed at a director level for Equant, a division of France Telecom. He worked at a similar level for Relera, a Denver-based managed-services company that launched in January 2000 and partnered with Level 3 Communications — the same company rumored to be Networx’ ultimate suitor — shortly thereafter. While there’s no evidence that Platko and CII founder and former Level 3 exec Dan Caruso ever met during this period, the incestuous nature of the high-speed infrastructure industry makes the absence of some contact seem unlikely.

What Does It All Mean?

The majority of CII’s $11.5 million bid for Memphis Networx goes toward the retirement of Networx’ $7 million debt, plus interest. The private investors involved in Memphis Broadband split the $2 million remaining (their original investment was $5.5 million), leaving only a modest $944,000 to be returned to MLGW coffers.

End of the story? Maybe not. Networx posted modest operating profits in 2005, and sources still inside Networx say the company has done better since. Those same sources suggest that the company’s outstanding debt — which will be eliminated once the CII deal goes through — is the only thing standing between Networx and sustained profitability. That makes Networx an excellent buy for a holding company like CII, whose plans for the future may well include minimizing overhead, maximizing revenue, and positioning the company for sale at a tidy profit.

Between debt retirement and significant reductions in Networx staff over the past year, it would appear that much of CII’s job has already been accomplished. Now money that might have been applied to debt can be used to infuse Networx with additional operating capital, so it can expand infrastructure, attract new customers, and, yes, make money.

Silence Is Golden

Somebody stands to make a lot of money as a consequence of MLGW’s $28 million loss. Maybe those people aren’t connected to Networx’ private investors, but clearly, the high-speed infrastructure business is an insiders’ game, and the evidence suggests that there are plenty of insiders on both sides of the Memphis Networx deal — a deal that was presented to MLGW and, more importantly, to the public as a “now or never” choice: Memphians were told that any delay in decision making could queer the deal and send Networx spiraling into insolvency.

Shortly after news regarding Networx’ sale was announced, Nick Clark admitted that he’d known the telecom was in trouble for at least two years but kept quiet for fear of scaring off customers. Former and current Networx employees have claimed that the board outlawed the practice of issuing press releases some time ago. No news, good or bad, came out of Networx from December 2005 until the sale was announced earlier this summer. Networx’ Web site, for example, hasn’t been updated since March 2005.

Intentionally or otherwise, Networx’ minority public owners and the city’s elected officials were actively shut out of the sale process. Apparently, no one in MLGW management or on the Memphis City Council (which in theory has financial-oversight responsibility for the utility) was aware that Networx was in such dire straits.

Why would the Networx board keep MLGW management and the Memphis City Council in the dark? Why wasn’t the council given at least an opportunity to protect the ratepayers’ interest in the company by reconsidering their earlier decision not to provide additional funding before being presented with a fait accompli this summer?

In the spring of 2005, at about the same time as Networx’ initial request for more money from MLGW, Doug Dawson, a consultant hired to determine a fair market value for Memphis Networx, cited high overhead, big commissions, and immediately vested retirement packages as contributing factors to the company’s anemic financial condition.

In reality, most of the concerns listed in Dawson’s report had begun changing as far back as 2000, when Mark Ivie replaced Networx founding CEO Ward Huddleston. But once the media started running with Dawson’s report, the damage apparently was done. Sources close to Networx say that the negative reports and political squabbling, along with the ripple effect of the 2001 telecom crash, scared off customers and investors alike.

By 2006, however, the telecom industry was in turnaround mode, and Memphis’ telecom had posted its first-ever operating profit. According to Networx insiders, debt was the only thing standing between the troubled company and substantial profits. Given an opportunity to explore their options, the City Council may have been more cooperative this time around than they were in 2005. Council members Carol Chumney, Barbara Swearengen Ware, and Henry Hooper have all said as much.

Where Are We Now?

When is a deal not a deal? When lawsuits get filed, of course. Immediately after the CII deal was approved last week, lawyers for New York-based American Fiber Systems filed a declaratory action lawsuit to determine who really presented Networx with the best bid. Ohio-based BTi Corporate, the other losing bidder, is also trying to keep its hat in the ring.

In an angry outburst at MLGW’s board meeting to approve the deal, BTi rep Dave McCabe called Networx’ bidding process a joke and claimed that the fix was in “from day one.”

But was it? Perhaps. Perhaps not. But at the very least, in a world as parochial and interconnected as this one seems to be, the line between insider and outsider trading seems little more than a hazy blur. Stay tuned.

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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.
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“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

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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.

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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.”

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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.