Innovative CEO: Upgrade Not Just an Improvement, But System Replacement

By the end of the year, Innovative Communications will have completed its system upgrade in the U.S. Virgin Islands – not just improving its telephone, cable TV and Internet services but essentially building a new, modern system to replace its older one, and doing it in about half the time originally planned, according to Chief Executive Officer Seth Davis.

Innovative launched the upgrade shortly after the company was taken over in 2010 during a protracted bankruptcy proceeding, and the improvement project grew out of that action, Davis said Monday in a telephone interview.

The company had been owned by erstwhile, self-styled communications mogul Jeff Prosser, who has been the subject of personal and corporate bankruptcy proceedings. From 1987 to 2001 Innovative had borrowed more than half a billion dollars from the National Rural Utilities Cooperative Finance Corporation, a nonprofit bank that acts in effect as a credit union for small utilities, principally electrical utilities, holding a $20 billion portfolio of energy loans to utilities in small communities throughout the United States, Davis said.

When Innovative defaulted on more than $700,000 it owed the lender and went into bankruptcy, CFC submitted a "credit bid" as part of the bankruptcy proceedings, based on the money it was already owed, and took over the company in October 2010.

At that time, the company agreed to invest at least $75 million over a five-year horizon period to upgrade the system and work got under way almost immediately. But as the work progressed, Innovative compressed the project into a two- year timeline, Davis said, in part because the company was continuing to operate the old system even as it was replacing it, and that wasn’t cost-effective.

"We found operating two networks at the same time is much more expensive than it needs to be," he said. "We realized the sooner we get to a single network, the better it is for our operations and for our customers."

The decision came as the territory’s economy was reeling from the closure of the Hovensa refinery and that factored into the decision as well, Davis said. "We are spending that money in the territory in a time when the territory is hurting for investments. That’s a good thing; we are putting this money to work in the territory at a time it really needs it."

The upgrade involves replacing two sets of lines – copper telephone wires and coaxial cable for television and Internet services – with a single line of hybrid fiber coaxial cable, which will provide all voice, high-speed data and video products. The new cable will be able to carry far more bandwidth at higher speeds, significantly improving telecommunications, television and Internet service with greater reliability across the islands.

David said that will make available to customers not just better and more reliable service, but a whole range of options and services that have never been available in the islands. The company is touting the various services in a package called Evo, referring to the evolution of telecommunications, he said.

Evo will begin offering a range of new services and capabilities in 2014, according to the Innovative CEO.

Davis said all the contractors installing the HFC are registered U.S. Virgin Islands businesses, several of which have a long history working with Innovative.

Early in the process many of the workers were from off-island, he said, but as the work proceeded a higher percentage has been Virgin Islanders. Davis said the skills and experience for working with the HFC were not easy to find but, as work has continued, the imported workers have taught the process to locals who have taken on more of the load.

"Not a lot of people in the workforce were trained in these technologies," he said. "We spent a lot of time and resources training."

The work of installing the HFC should be complete by June. "And then we have to go through a conversion,” Davis said. Our customers have to migrate to the new system. We have to go out to every house in the territory and convert them."

That should be completed by the end of the calendar year, he said.

The advanced pace of the work has contributed to rumors in the community that Innovative’s corporate owners are negotiating to sell the system and want to have the upgrade complete.

During a recent press conference, representatives of the Virgin Islands Next Generation Network, a high-speed broadband project, were asked if they had heard about a specific telecom giant planning to buy the V.I. telephone/cable company. The viNGN officials, not being related to Innovative, declined to comment.

Innovative is not negotiating a sale, nor is it up for sale, Davis said. But that’s not necessarily something that will always stay the same, he said.

On the contrary, at some point in the future it is likely, Davis said, and that has never been a secret.

As part of the bankruptcy proceedings, CFC was awarded Innovative because of the huge debt it was owed.

Taking over the company was CFC’s best hope of protecting the money it had already lent to the company, Davis said.

"It’s a bank, holding it as a foreclosed asset."

The bank entered into the arrangement not because it was eager to own and operate a telephone/television utility, but in the hope that by rebuilding and rehabilitating the company it could eventually recover some of the money it has lent.

After the rehab project is completed and Evo has been launched, Davis said, the “bank can take a look at it then, look at the market and, sometime in 2014, entertain discussions with interested parties," Davis said.

"They’re not in this to run a telephone company. They’re trying to recover a debt," said Davis, who added the company is unlikely to receive a full recovery, but would undoubtedly get more than a few cents on the dollar they were likely to have received if they hadn’t made their move in the bankruptcy proceedings.

"They’ll get a higher recovery than if they just sold at rock bottom," Davis said.

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