Branstad rejects bids to buy Iowa Communications Network

DES MOINES – Gov. Terry Branstad said Wednesday he is rejecting bids the state received from a private vendor seeking to purchase Iowa's statewide fiber-optics network.

Branstad followed a recommendation made in June by the Iowa Telecommunications and Technology Commission to turn down two bids made by Iowa Network Services, a West Des Moines telecommunications company that submitted the only two bids to buy the 25-year-old Iowa Communications Network (ICN).

“Though I appreciate the time and effort it took for Iowa Network Services to develop their bids, I believe the ICN is worth more to the state of Iowa than what the bidder was willing to pay,” Branstad said in a statement. “Not only were the bids significantly less than the amount the state has invested in the network over the years, the bids were less than the recent $25 million upgrade of the network.”

The company made one bid it valued at $57.4 million and another it valued at $44.5 million based on its evaluation of the network.

But state commissioners valued INS' bids much lower, at $12.7 million and $1, respectively. The differences were based primarily on how accounts determined annual losses and cash-flow for the network. Iowa Network Services estimated that the network loses $36.1 million a year, but state officials say the operation has no loses.

“It would be a disservice to the taxpayers of Iowa to sell this important asset for pennies on the dollar,” Branstad said.

“The ICN has been an important resource for Iowans over the past two decades, and we believe it can continue to provide an important service to those who depend on it,” the governor added.

Under Iowa law, the ICN cannot be sold without the prior authorization of the governor and a constitutional majority of both houses of the Legislature.

Lori Larsen, ICN communications director, said the network's staff and oversight commission have fulfilled the statutory responsibilities spelled out by the Legislature and governor. “If there would be any further action, it would be up to the Legislature and the governor's office.  ICN will continue to partner with the private sector to help serve Iowans,” Larsen said in a statement.

According to commission documents, INS' base offer was a total estimated bid value of $57.4 million that included $12.7 million cash paid and $3.4 million additional cash for waivers of right of way fees for five years.

The alternate offer laid out an estimated bid value of $44.5 million that included $1 cash paid and $3.4 million additional cash for waivers of right of way fees for five years. In addition, the alternate offer included a commitment for using $15.9 million for video network upgrades and Part III end-point fiber connections.

Both the base and alternative offers incorporated a value of $5.2 million and $5 million, respectively, for future five-year incremental payments made by INS to the state from property taxes and sales taxes, and both offers assumed the elimination of ICN losses -- identified by INS at $36.1 million for the previous five-year period -- as part of the value of the offer.

Branstad has indicated in the past that he believes the network -- which was built in the 1990s with federal money using public transportation right of way and is based in the Iowa National Guard's command center -- can be transferred into private hands under the right circumstances.

However, many communication vendors in Iowa have viewed the ICN as unfair government competition and intrusion into the private sector, and both industry and state officials acknowledge that any ICN sale or lease arrangement would be closely scrutinized to make certain it did not negatively impact existing businesses.

Lt. Gov. Kim Reynolds said many viewpoints and concerns were taken into account as administration officials weighed the ICN's future.

“Our office heard from a variety of stakeholders, including legislators, public safety leaders, health care providers, and members of the telecommunications industry,” Reynolds said. “In addition to valuable stakeholder input, this decision was also informed by a detailed review of the bid proposals, along with the unanimous recommendation of the Iowa Telecommunications and Technology Commission to reject the bids.”