Kincardine council gives initial approval to Bruce Telecom 2015 budget

Kincardine council has given initial approval to the 2015 budget for Bruce Telecom.
In committee-of-the-whole during the special council meeting last night (Feb. 2), Steve Soychak, chief financial officer of the telephone company, presented the budget and stressed that it represents the status quo for Bruce Telecom.

He said the budget reflects modest organic growth while minimizing erosion of existing revenues.
"In this budget, we are contributing to only the existing services," he said.

Soychak said the budget incorporates a decrease in local subscriber revenue; modest increases in other services such as TV, Internet and wireless; and the overall declining contribution margin experienced as costs climb and price competition increases.
He said the projection for 2015 is a six-per-cent loss in local subscriber revenue, while maintaining between two and 10 per cent growth in other services.
Soychak said operational expenditures are lower, but continue to increase as a percentage of revenue.

Under the statement of operations, Soychak said operating revenues total $17,913,736, while the cost of service and sales is $3,924,578, leaving an operating margin of almost $14-million. When you subtract operating expenses of $10,105,979, you're left with income before amortization of $3,883,179.
Amortization costs $3,098,370, leaving a surplus of $784,809.

On the capital side, Bruce Telecom has $3-million slated for: construction, $1.17-million; network, $1.395-million; and building, Information Technology (IT) and general, $435,000.

Councillor Randy Roppel asked what Bruce Telecom is going to do about the customer preference for cell phone service rather than land-line phones; and how is the company stemming the increase in operational expenditures as a percentage of revenue.
"Everything that is not directly related to the cost of services we're providing, is an operational expenditure," said Soychak, "such as building costs, salaries, insurance."
"There must be some way to address these," said Roppel.
"These costs are not something we can easily manage," said Soychak. "They are static - heating costs continue to rise. That's your costs. Unless you move out of that building, you're stuck with those costs."
"So, you need another source of revenue to off-set these costs?" asked Roppel.
"Or an opportunity to bolster our revenue base," said Soychak.

As for Roppel's question about addressing the trend to cell phones, Soychak said Bruce Telecom is doing whatever is within the company's means to do.
"This is an organically-based budget," he said. "There is nothing here for expansion or provision of different services - nothing to increase revenue. It's based on existing services."
"You can't do much unless we approve your budget?" said Roppel.
"That's an awkward question," said Soychak. "This is the 2015 budget, and we're already into 2015. Our board has already approved the budget and now we are making a submission to council."

Councillor Laura Haight asked if Bruce Telecom had any data about why land-lines were abandoned - were they in favour of cell phones or a competing company?
"We tried to do that," said Soychak, "but it's difficult connecting with our customers when they are leaving. We have made the effort to ask the customers why they are disconnecting their service, but they're not apt to discuss it with us. We're not sure if they are switching to cell phone service, going with another provider, or if they just don't need the service."
Haight asked what the impact has been over the past five years.
Soychak said there was no significant impact until the end of 2013 when competition opened up, and he admitted the competitors have not been that aggressive, to date.

The major challenges for Bruce Telecom, he said, are bandwidth (capacity) and speed of service. "It's difficult to provide services on the old lines, and fibreoptics are a costly endeavour."

"So, this is a status quo budget," said deputy mayor Jacqueline Faubert. "Is this the ideal budget given the context?"
"Yes, given the context and the changing environment," said Soychak, adding that the $600,000 dividend to the municipality does not show up on the budget. It will come from cash reserves, he said.

"You should keep the $600,000 and use it for yourselves," said councillor Gordon Campbell. "I support letting Bruce Telecom keep that money. Council put them in this position."
"That's unfair to say that council put Bruce Telecom in this position," said Haight. "It's a factor of de-regulation. You (Campbell) want a two-per-cent increase in the tax rate, but you want to defer that $600,000; so, you've already hiked the taxes by six per cent. Add that to the 8.7 per cent we had at the last budget meeting and you're over 14 per cent. That $600,000 is already included in the 8.7-per-cent tax hike."

Roppel asked if the dividends paid to the municipality over the years have caused any hardship or any undue pressure on Bruce Telecom.
Soychak said it does not affect the 2015 budget. "We don't know about 2016 or the year after. That's why we did just a one-year projection."

Bart Cameron, president and chief executive officer of Bruce Telecom, said that four years ago, the company did a $5.5-million upgrade to its system and funded it from cash flow which was a unique thing.
"The dividend paid to Kincardine is based on last year's net income," he said. "It's done through a formula and there is a provision for investment."

Soychak said the Bruce Telecom leadership team is asking council to approve the operation surplus and capital budget for 2015, so the company can do what it needs to do this year.
Committee-of-the-whole approved the budget, and it will go to council for final approval Wednesday night (Feb. 4).

Council then went into a closed session to discuss other matters pertaining to Bruce Telecom.