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HomeNewsArchivesAnalysis: Court Document Confirms Source Reporting on Vitelco Subsidies

Analysis: Court Document Confirms Source Reporting on Vitelco Subsidies

April 19, 2009 — Seven years ago the Source presented a comprehensive expose of what it regarded as suspiciously high subsidies that Vitelco, under Jeffrey Prosser's leadership, secured from an entity related to the Federal Communications Commission.
On Tuesday came confirmation: Lawyers for Stan Springel, the Chapter 11 trustee in the long-running bankruptcy trial of Prosser, former CEO and owner of Vitelco, revealed that under Prosser, Vitelco collected millions more in subsidies than allowable.
The subsidies came to Vitelco regularly, at a rate of $25 million a year. They came from an obscure federal program designed to provide affordable telephone service to the nation's rural and insular populations. Some level of subsidy to Vitelco is clearly appropriate, but as the lawyers pointed out, not as much as was given.
Back in 2002, the Source analyzed the hard-to-follow subsidy formula that is expressed in little-noted public data files. The analysis showed that Vitelco was getting much higher subsidies, per line, than comparable mainland phone companies. The only organization with comparable results was a tiny outfit providing phone service to scattered Eskimo communities in Alaska. (See "Phone Company Spends, Gets and Makes More." and "Despite High Subsidies, Phone Users Pay More," both from June 2002.)
The Source's reporting fell on deaf ears. Prosser was at the height of his political powers, and these two situations probably were related to each other.
The FCC's wholly owned non-profit entity, the Universal Service Administrative Company, the entity that doled out the funds, showed no interest in the Source's findings. Despite high-level contacts with the Federal Communications Commission, that agency did not lift a finger, and every year the V.I. Public Services Commission, the local regulator of Vitelco, routinely rubber-stamped Prosser's applications for these funds.
Similarly, the sitting governor, Charles W. Turnbull, and the territorial Senate, had nothing to say about the matter. Nor did the V.I. Daily News, then owned by Prosser.
The legal filings mentioned earlier relate to Prosser's efforts to fire the Chapter 11 trustee in the case, West Coast businessman Stan Springel. In the course of a long document defending Springel's handling of the case, it said:
"Under a government rebate plan, Vitelco receives rebates that serve to benefit rural telephone carriers. However, due to a significantly overstated [cost] estimates provided … by Prosser in the years leading up to Trustee Springel's appointment, it was discovered that Vitelco had been overpaid up to $15 million … which is subject to repayment."
The document went on to say that the overpayment is subject to ongoing negotiations and that "management believes the potential exposure to be at a manageable level."
In other words, telephone users in the Virgin Islands will be expected to pay, indirectly, some portion of the $15 million back to the FCC agency. Meanwhile, the FCC recently gave Vitelco a three-month grace period in that connection. (See "Brief: Washington Gives Vitelco Another Break.")
An old truism may be apt here: If someone gives you information that runs directly counter to his or her economic interests, it is probably correct. If, for example, if the dentist that would routinely do the work tells you that you do not need another filing, it is probably good advice.
The trustee (Springel) plays the role of the honorable dentist here. It is clearly to his interest, as trustee, to see lots of federal subsidies for Vitelco. Yet it was his own lawyers, James Lee and Daniel Stewart of the Houston firm Vinson & Elkins, who reported the Vitelco misuse of FCC money in the past.
In its 2002 reporting, the Source described the unusually high level of subsidies in this way:
"… Vitelco received subsidies totaling $31.20 per [telephone] line per month through the subsidy system.. … Through the same system, the local telephone service provider for American Samoa gets a subsidy of $4.01 per line per month and that of Guam gets $2.12 per line per month.
"Meanwhile, on the mainland, no other phone company with as many lines as Innovative — about 69,000 currently — gets anywhere near the Virgin Islands company's level of subsidiaries. Not even Glacier State Telephone Co., whose lines extend over huge distances in Alaska; it draws $24.13 per line."
The Source did find one tiny Alaskan phone company that had a higher rate of subsidies than Vitelco, but it numbered its customers in the hundreds. The Source made numerous other comparisons of the subsidies paid in the Virgin Islands and in other locations.
It also examined in detail the heavy depreciation costs reported by Vitelco and asked the FCC who decided on how fast a piece of equipment was depreciating, with a faster rate being much more attractive to the phone company in question than a slower rate.
In the case of the Virgin Islands, an FCC spokesman said the depreciation rates were set by the V.I. Public Services Commission.
Getting back to the present, Prosser's attempt to get Springel fired by the court is one of many continuing issues in this much-litigated bankruptcy case. The hearings are scheduled to resume Monday and Tuesday in Pittsburgh, home courtroom of U.S. Bankruptcy Judge Judith Fitzgerald.
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April 19, 2009 -- Seven years ago the Source presented a comprehensive expose of what it regarded as suspiciously high subsidies that Vitelco, under Jeffrey Prosser's leadership, secured from an entity related to the Federal Communications Commission.
On Tuesday came confirmation: Lawyers for Stan Springel, the Chapter 11 trustee in the long-running bankruptcy trial of Prosser, former CEO and owner of Vitelco, revealed that under Prosser, Vitelco collected millions more in subsidies than allowable.
The subsidies came to Vitelco regularly, at a rate of $25 million a year. They came from an obscure federal program designed to provide affordable telephone service to the nation's rural and insular populations. Some level of subsidy to Vitelco is clearly appropriate, but as the lawyers pointed out, not as much as was given.
Back in 2002, the Source analyzed the hard-to-follow subsidy formula that is expressed in little-noted public data files. The analysis showed that Vitelco was getting much higher subsidies, per line, than comparable mainland phone companies. The only organization with comparable results was a tiny outfit providing phone service to scattered Eskimo communities in Alaska. (See "Phone Company Spends, Gets and Makes More." and "Despite High Subsidies, Phone Users Pay More," both from June 2002.)
The Source's reporting fell on deaf ears. Prosser was at the height of his political powers, and these two situations probably were related to each other.
The FCC's wholly owned non-profit entity, the Universal Service Administrative Company, the entity that doled out the funds, showed no interest in the Source's findings. Despite high-level contacts with the Federal Communications Commission, that agency did not lift a finger, and every year the V.I. Public Services Commission, the local regulator of Vitelco, routinely rubber-stamped Prosser's applications for these funds.
Similarly, the sitting governor, Charles W. Turnbull, and the territorial Senate, had nothing to say about the matter. Nor did the V.I. Daily News, then owned by Prosser.
The legal filings mentioned earlier relate to Prosser's efforts to fire the Chapter 11 trustee in the case, West Coast businessman Stan Springel. In the course of a long document defending Springel's handling of the case, it said:
"Under a government rebate plan, Vitelco receives rebates that serve to benefit rural telephone carriers. However, due to a significantly overstated [cost] estimates provided ... by Prosser in the years leading up to Trustee Springel's appointment, it was discovered that Vitelco had been overpaid up to $15 million ... which is subject to repayment."
The document went on to say that the overpayment is subject to ongoing negotiations and that "management believes the potential exposure to be at a manageable level."
In other words, telephone users in the Virgin Islands will be expected to pay, indirectly, some portion of the $15 million back to the FCC agency. Meanwhile, the FCC recently gave Vitelco a three-month grace period in that connection. (See "Brief: Washington Gives Vitelco Another Break.")
An old truism may be apt here: If someone gives you information that runs directly counter to his or her economic interests, it is probably correct. If, for example, if the dentist that would routinely do the work tells you that you do not need another filing, it is probably good advice.
The trustee (Springel) plays the role of the honorable dentist here. It is clearly to his interest, as trustee, to see lots of federal subsidies for Vitelco. Yet it was his own lawyers, James Lee and Daniel Stewart of the Houston firm Vinson & Elkins, who reported the Vitelco misuse of FCC money in the past.
In its 2002 reporting, the Source described the unusually high level of subsidies in this way:
"... Vitelco received subsidies totaling $31.20 per [telephone] line per month through the subsidy system.. ... Through the same system, the local telephone service provider for American Samoa gets a subsidy of $4.01 per line per month and that of Guam gets $2.12 per line per month.
"Meanwhile, on the mainland, no other phone company with as many lines as Innovative -- about 69,000 currently -- gets anywhere near the Virgin Islands company's level of subsidiaries. Not even Glacier State Telephone Co., whose lines extend over huge distances in Alaska; it draws $24.13 per line."
The Source did find one tiny Alaskan phone company that had a higher rate of subsidies than Vitelco, but it numbered its customers in the hundreds. The Source made numerous other comparisons of the subsidies paid in the Virgin Islands and in other locations.
It also examined in detail the heavy depreciation costs reported by Vitelco and asked the FCC who decided on how fast a piece of equipment was depreciating, with a faster rate being much more attractive to the phone company in question than a slower rate.
In the case of the Virgin Islands, an FCC spokesman said the depreciation rates were set by the V.I. Public Services Commission.
Getting back to the present, Prosser's attempt to get Springel fired by the court is one of many continuing issues in this much-litigated bankruptcy case. The hearings are scheduled to resume Monday and Tuesday in Pittsburgh, home courtroom of U.S. Bankruptcy Judge Judith Fitzgerald.
Back Talk Share your reaction to this news with other Source readers. Please include headline, your name and city and state/country or island where you reside.