Tuesday, March 21, 2006

"Council to discuss new LUS fiber-optic plan"

Kevin Blanchard of the Advocate has a story in the this morning's paper previewing tonight's joint LPUA/council meeting on the fiber optic bond ordinance. The article exhibits his laudable ability to provide the reader with the background necessary to understand the story. It covers the history and legal technicalities that lead up to tonight's vote in a clear and concise manner. Take a look; it's worth the time spent.

He goes over the central issue of default particularly clearly; the appeals court had bought what are in my opinion some obscure arguments about the legal definition of a "pledge" that the trial court and most participants didn't seem to know existed. A pledge was said to require a default. From the Advocate:
The new ordinance provides for a default...

But the new ordinance folds in a new section that allows the communications system to “obtain loans from any source (including the city) for purposes of providing covered services and for any other purposes consistent with applicable law.”

Those loans could conceivably be used to make bond debt payments and therefore stave off default. The loans would have to be repaid at a market interest rate and be subject to audit, the ordinance says...

In its ruling, the 3rd Circuit affirmed the ability of LUS to loan itself money with market rate loans.

“We recognize that the city could loan the communications services funds derived from other sources so long as the loan is ‘at interest rates and on terms and conditions available to private enterprises in the open market,’ ” the court said in its ruling.
What's being said here is that it's pretty obvious that the city and LUS won't allow the telecom unit to go into default and that they are writing into the bond governance ordinance a device that clearly provides for preventing default.

So what's the big deal, you might ask? Why not just do it that way from the beginning? The big deal is that this is yet another clear attempt by BellSouth to raise the cost of doing business ONLY for LUS and hence for LUS' customers. As to why LUS didn't want to do that way from the, it is because LUS actually does have its rate payers best interests at heart. Doing it BellSouth's way will potentially jack up the price its customer/owners have to pay and LUS, naturally, doesn't want to go there unless forced.

BellSouth in Lafayette can take money from any division (cell, phone, cable, etc.) anywhere in its region (and soon ATT's!) and use it to subsidize its "competition" in Lafayette. Their gargantuan size makes it a trivial matter. If the LUS telecom division wants even the smallest semblance of the same flexibility it will have to pay a premium for it. The right hand will have to pay interest to the left hand. From the company's point of view it's just as silly as a family charging a spouse interest on the money "loaned" for lunch...in the end it all comes from the same pot.

Since it's legal, even under the appeals court ruling, to transfer monies by a loan the only question is whether LUS (the company) will have to charge to LUS (the telecom division) interest on loans. Now it will. That means LUS will have another expense it wouldn't otherwise have and that BellSouth will not have, driving LUS's price up and its margins down. Happy day for BellSouth, a sad day for competition and Lafayette citizens.

This is yet another reason to push hard for repeal in the Louisiana legislature. Of the three bills that seek to mitigate or repeal BellSouth's law the one which would amend the (un)Fair Competition Act to force government-subsidized companies like BellSouth to abide by the same rules the public utility does would be particularly satisfying to pass. If the "subsidization" clauses applied equally to both BellSouth and LUS you can rest assured that BellSouth's lobbyists would be buying lunches in every fine restaurant in Baton Rouge to secure the (really)Fair Competition Act's repeal.

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