ANOTHER HANGUP AT DIA
Denver businessman Herman Malone seemed to score a coup sixteen months ago when he won a huge chunk of the pay-phone contract at Denver International Airport. As a subcontractor on the deal to long-distance carrier MCI, Malone's RMES Communications would install more than 300 phones at DIA and share in phone revenues expected to reach $16 million over five years. RMES had an inside track on the contract because it was a black-owned firm--even though, according to industry sources, it had virtually no experience in the pay-phone business.
Now, however, Malone may be ruing the day he got involved with DIA.
With the airport's opening more than a year late, Malone's phones have sat idle for months, generating no income for RMES. The company's cash flow has dropped precipitously, according to city records, and it recently requested--and won--a six-month moratorium on payments it owes on a $191,000 low-interest loan from the Mayor's Office of Economic Development (MOED).
Whether there is a direct connection between the airport's delay and RMES's financial problems isn't clear. Malone, one of Denver's most prominent and politically connected mi-nority contractors, refuses to discuss the matter. "I don't talk to you about my business affairs," he says.
Neither do city officials. Citing the confidentiality of the company's books, MOED's Bill Lysaught says he can't disclose whether RMES's taxpayer-backed loan is at risk of default, nor can he discuss the reasons behind the recent moratorium on loan payments. "I can't comment on the status of the loan," Lysaught says.
But insiders say the postponement of DIA's opening almost surely has proved a hardship for RMES, as it has for concessionaires at the airport who borrowed to set up businesses and have had to struggle for long months without any money coming in. The airport pay-phone business can be highly lucrative, sources say, but it requires a steady, heavy stream of callers to finance huge up-front costs.
"RMES is left with this tremendous capital expenditure and no income," says Stan Cameron, president of A-Tel, a pay-phone vending company in Colorado Springs that considered bidding on the DIA job. "If we had been awarded that contract, we would be out of business because of the delay."
Initially scheduled to open in October 1993, DIA is now tentatively set to open at the end of February. RMES, which is supposed to make $1,500-a-month payments on its MOED loan, got the city to defer all its debt service between September and February and won't have to pay another installment until March 1. A MOED memo justifying the deferment says RMES's cash flow "has drastically declined in the last nine months."
Malone, however, has been able to scrounge together enough money to continue making political contributions to Mayor Wellington Webb. RMES gave Webb's re-election fund $250 in June, records show. That followed contributions totaling $1,000 in 1993 and $2,500 in 1991.
Ironically, RMES got in on the airport job even though prime contractor MCI didn't submit the best bid for the work. A proposal by long-distance carrier AT&T would have guaranteed the City of Denver $6.1 million in commissions over a five-year term. MCI guaranteed only $3.9 million in revenue to the city.
But Webb recommended MCI get the contract because such a large percentage of the work under its proposal would go to a minority-owned business. Malone, MCI said, would install and service a full 40 percent of the 775 phones at the airport. (Denver-based US West would handle the other 60 percent.) In contrast, minority-owned Kellee Communications of Washington, D.C., would have performed less than 6 percent of the DIA job under the proposal submitted by AT&T.
The 310 RMES phones, which are computerized and cost about $1,000 apiece, are manufactured by Florida-based Elcotel Inc. But RMES bought the phones through A-Tel in Colorado Springs, an Elcotel distributor, because RMES had no experience in the pay-phone industry, according to A-Tel's Cameron.
"They'd never hung a pay phone--ever," Cameron says. "The only reason they bought from us was they needed us to hang the phones" at the airport. (A-Tel installed the phones under contract with RMES, says Cameron, and the company already has been paid. RMES will service the phones now that they are in place, says Les Kumagai of MCI.)
Cameron says he considered putting together a bid for the DIA job but dropped the idea after reviewing the city's contract requirements. Airport pay phones can be money machines, Cameron says, but the high commissions Denver was seeking made the DIA deal a "losing proposition." Cameron says he has "serious doubts" whether RMES can make a profit at the new airport.
Malone, former president of the Colorado Black Chamber of Commerce, founded RMES in his basement in 1976. Initially, the company served as an electrical supplier in the construction industry, but it has since branched into computers, software and telecommunications equipment. It now operates out of a large facility on Ironton Street in Montbello. US West is the firm's biggest customer, according to published reports. In 1991 RMES was a finalist for the Denver Post Minority Business of the Year award.
But Malone hasn't escaped controversy. Four years ago Asphalt Paving Co. of Golden sued RMES, claiming Malone had conspired to defraud APC out of $94,000 on a parking-lot paving job at the Denver Coliseum.
The parties settled out of court on the eve of trial. RMES denied wrongdoing but agreed to pay Asphalt Paving $20,000, records show.
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