Minet seeks to expand to survive



MONMOUTH/INDEPENDENCE — The Monmouth-Independence Network is looking to expand its service area more than a decade after it was established in an attempt to bring the company out of the red.

“We have to do something new to make enough money to cover everything,” said Monmouth City Manager Scott McClure.

He said details of the expansion would be available in about a month.

Minet was formed as an ORS 190 corporation in 2002 to provide high-speed internet access, cable and phone services originally to its namesake cities, with the intention of expansion but has yet to do so.

The city of Jefferson had approached Minet to set up a system for them, McClure said.

“It was almost ready to go and then they had a bunch of really bad political problems,” McClure said. “They fired people, they recalled city councilors.”

Independence City Manager David Clyne first dealt with Minet when he was the city manager of Junction City.

“It got left in the conceptual stage,” Clyne said. “It was a good effort.”

“(The ORS 190) is basically an intergovernmental agreement to create a separate entity,” said McClure.

Since Minet was created, Monmouth and Independence have taken out about $27 million in loans on behalf of Minet, with the expectation that Minet would generate enough money to cover costs, including the loan payments, McClure said.

“It hasn’t been doing that of recent,” McClure said. “So then people go, ‘Hey hold it, why are they not making enough money? Why are the cities subsidizing it?’”

He said people don’t understand that Monmouth and Independence, to a degree, own Minet, because they formed it.

Both McClure Clyne see expanding Minet’s services to other areas as a way keep the business afloat and hopefully start paying back some of that debt.

McClure started as Monmouth city manager in January of 2007, shortly after Minet started selling services.

“It took off like wildfire,” McClure said. “When it first started out, the demand for better internet was there. They knew that we were here and we couldn’t keep up. We had a two-, three-week backlog on responding to customers.”

“When it first started out, the demand for better internet was there.

Scott McClure

Minet did not charge any set up or start up fees, he said.

“The consequence of that was, obviously it didn’t generate a whole lot of cash,” McClure said.

The cost of a typical installation was about $2,500 per house, he said.

“What happened was, we couldn’t keep up with customers so we took out a second loan from the state, otherwise we were going to stop connecting customers,” McClure said.

Initially Monmouth managed everything, McClure said.

“We used a fair amount of money from Monmouth Power & Light, our electric utility,” McClure said. “Originally they were the project manager and we were using funds out of that program.”

That money was budgeted, he said, but “it dropped their reserves down pretty severely.”

When Minet is short of funds, Monmouth lends it money out of its Power & Light utility. Independence lends it money out of its water fund.

McClure said power rates have not gone up as a result of the Minet loans.

Clyne said the loan payment is included in the water rate structure but it is only a small percentage of the total operating costs.

“The initial idea was that all that stuff was going to calibrate,” McClure said. “All the financial models that we had run — cost, business plans, they all cash-flowed. Everything was covered.”

According to their plan, Minet would have paid for itself within a couple of years, he said.

“It didn’t quite work,” McClure said. “We got going and then we took on debt a couple of other times.”

Fast-moving technology was partly to blame, he said.

Minet is currently upgrading core technology at an estimated cost of $1.75 million - $2 million, McClure said. A loan is not needed for the project; they are “using cash on hand,” he said.

One of the first issues the company faced was that customers were migrating away from landlines and toward cellphones as their primary telephone, he said.

“So right out of the gate, we barely opened the doors and one of the areas that we were going to make money on was making a lot less than we thought,” McClure said.

The next snag the company hit was the 2008 recession.

Customers cut back on the services they ordered.

In 2009, the company was not able to make its payments, McClure said.

“We refinanced the original debt, which was a good thing; we got it down to a lower interest rate,” McClure said. “The second side though, we actually at that point ran out of capital for hooking up customers so we took on more debt at that point.”

They refinanced $17 million and took out an extra $10 million.

CCG Consulting “ran models,” for Minet, McClure said.

“They’re very reputable,” he said. “They work with smaller providers all over the country.”

If they had not taken out another loan in 2010, they would not have been able to take on any new customers, McClure said.

“At that point we were still trying to build the system and we didn’t want to be looked on as unreliable,” McClure said. “So we looked at (the report from CCG). Everything was just going to level up and be perfect.”

Things seemed to be going well, McClure said, until 2012 when Minet’s then-manager Phil Garrett said they were not going to be able to make the debt payment, McClure said.

The Minet board was misled by Garrett about what the 2010 CCG report contained, McClure said.

McClure said instead of it being a detailed report about the Monmouth, Independence market, “the analysis was more a ‘systems-of-your-size’ should be able to generate x-revenue” analysis.

Garrett was placed on leave in March of 2012 during an operational review. He left Minet in May of 2012.

Clyne, who was board president at the time, said Minet and Garrett had reached a confidential separation agreement.

Clyne started as Independence city manager in 2010.

Before Minet hired current Minet manager Don Patton, they hired CCG again to do an operational review.

That review would be the road map Patton would use going forward, McClure said.

“(CCG is) still respected,” McClure said. “They know what they’re doing. The owner is a guy named Doug Dawson and he himself owns 50 companies.”

Patton was hired in 2014.

“Don has gone top to bottom on everything,” McClure said. “He has tightened up staff. He’s improved the quality of the staff, how they perform. He’s changed out pretty much every procedure in the operation, billing operations, documenting systems, better marketing.”

In terms of past Minet operations, Clyne said he has “been a bit of a critic, but it is much better now.”

“I’m still not 100 percent on board that we’re doing all we can do,” Clyne said, but he thinks Minet has a bright future.

“What we created is meeting a need for high-speed (access) when nobody else was doing it,” Clyne said.

The technology allowed for economic development by offering services to “highly data-dependent” business, Clyne said, citing the FCR call center as an example.

Rep. Paul Evans, D-Monmouth, was mayor of Monmouth when Minet was formed.

Evans said in the 1990s, he and Independence Mayor John McArdle were told by some “well-positioned legislators” that smaller towns would have to wait a long time for the private sector to show interest in bringing high-speed internet access to them.

He said he and McArdle thought faster speeds would make the towns more appealing to small businesses and entrepreneurs.

McClure said that Minet is a “highly profitable business really doing a good job.”

“What we did is we overburdened the debt so it’s the debt that actually causes the problem,” McClure said. “In this case, they can’t generate enough cash to cover operating expenses, capital and all the debt. And the debt is actually owned by the two cities.”

Minet recently lost about $15,000 a month it was getting as part of a contract to provide cable to students at Western Oregon University. Minet’s cost for cable rose, so consequently the customer’s cost for cable went up and the students decide they did not want to pay the higher price, McClure said.



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