Groton - In the late 1990s, at a time when sluggish dial-up Internet access was still commonplace, the creation of a broadband network in the City of Groton was a cutting-edge idea.

Groton Utilities, municipally owned and successful, had already established itself in the electricity and water business. With the town's permission in 2001 and state approval in 2004, the utility jumped into the competitive business of providing cable and Internet access.

Now, after eight years as the state's only municipally owned cable, high-speed Internet and Internet phone provider, Thames Valley Communications is poised to be sold this month at a major financial loss to the city. The new owners have promised continued service and a renewed investment in technology.

Paul Duarte, a former deputy mayor and Town Council member who is now a member of the Utilities Commission, said the idea of providing cable evolved from discussion in the 1990s about starting a telephone service. That idea fell by the wayside under red tape and pressure from what was then Southern New England Telephone.

A cable television and broadband Internet network became a more palatable option, Duarte said, especially considering that Pfizer and Electric Boat, two of the area's largest employers, both were asking for something better than DSL, the fastest Internet access offered at the time.

"They came to us as a utility and asked if there was something we could do," Duarte said. "We looked at the whole deal and said, 'Let's give it a shot.' It wasn't just some wild thought. There was definitely a need, and we were asked to fill it because no one else was willing to. If I knew then ..."

Former City Mayor Dennis Popp said an overwhelming number of people in town favored the idea, as evidenced by the hundreds who turned out at a Freeman's meeting, a public meeting, in 2001 to approve borrowing $6.9 million as an initial investment.

"The whole idea was to offer an alternative," Popp said. "We were able to do it at relatively competitive costs. I think that Groton Utilities and the city have always provided good customer service. That's the one thing we had in our favor."

But over time, factors worked against the company, including a decline in the economy, advances in technology and fierce competition.

Now, the city is $27.5 million in debt as a result of borrowing $34.5 million for capital investment throughout the years. Thames Valley has lost an average of more than $2 million each year, and operating expenses continue to exceed revenues. The losses led to a downgrade in the city's bond rating earlier this year.

The debt will be paid through the Groton Utilities budget for the next 14 years, starting at $2.6 million annually and dropping by roughly $100,000 each year over the course of the 14 years, according to Finance Director Michael Hillsberg. Groton Utilities plans to refinance its debt at a savings that has yet to be determined. The city has paid back $6.8 million of the debt and has used $5.5 million of borrowed money in past years to subsidize operating expenses. Editor's note: This corrects the last sentence of this paragraph from an earlier version.

Fate of employees unknown

Townspeople, some of the same folks who approved three separate bonding requests, voiced their frustration at a recent public hearing, asking why the losses continued without some change and why no one seemed to know about them.

Paul Yatcko, GU's director of utilities, admits that without an investment to stay abreast of rapidly developing technology, the losses likely would continue. He said customers should not feel any impact, and no utility price hikes are planned to compensate for the losses.

Public records show that Groton Utilities took in $63 million in electricity revenue and nearly $10 million in water revenue last year. Yatcko declined to discuss Thames Valley Communication revenues.

The city plans to sell Thames Valley for $150,000 to CTP Investors LLC, a recently formed private investment management firm that has promised "big plans," starting with the transfer of ownership on Jan. 1. The fate of the 23 employees is unknown.

"We will certainly need the support of TVC's employees and the residents of the Groton communities in order to build TVC into an even more important, locally managed business in the region," CTP President Bill Pearson said in a statement.

According to the CTP website, Pearson has more than 30 years of experience in building telecommunications companies, including cable television, telephone and Internet.

Mayor Marian Galbraith said the $150,000 sale may be a bitter pill to swallow, but it was the best of several options that included liquidation, a partnership and a "do-nothing" approach. Galbraith said the town had one partnership offer, but that would have meant continued expenses with a loss of control.

Galbraith remains optimistic that new owners will continue to provide service and invest in the company's future. The town has offered TVC's space in the municipal building free of charge for the first year, reduced costs in the second year and a full $34,000-a-year rent starting in the third year.

Very competitive market

When it takes control of the company, CTP will be working with a network of hybrid fiber coaxial cable that was started at the City of Groton Municipal Building in 2004. As TVC gained customers, it expanded to a five-town area that includes Groton, Stonington, North Stonington, Ledyard and Voluntown. As it grew, the company purchased equipment such as power supplies, battery back-ups and large satellite dishes, and hired customer service representatives and field technicians.

The network was completed by 2008 when, Yatcko said, the effort went into expanding the customer base by 50 percent to 100 percent in an attempt to become profitable.

"Clearly, we expected to grow the business more quickly then we did," Yatcko said. "It's just a very tough, competitive market. I expect CTP to invest in TVC in ways we have been unable to."

He said the tough economy coupled with competition between Comcast and AT&T stymied growth efforts. There were also satellite cable providers vying for the same group of customers. Costs of programming also increased, and Thames Valley lacked the buying power of the larger providers.

By 2010, Yatcko said, it was time to evaluate the situation and, shortly thereafter, RBC Daniels was hired to help locate a buyer. That firm is expected to be paid $400,000 for its efforts.

"I think it was a good alternative, and I hope the new company continues to provide the service we have," Popp, the former mayor, said.

Galbraith said while there may be some belt-tightening in the next few years as the debt is paid down, ultimately, the sale will benefit the city and TVC customers.

g.smith@theday.com