Telecomm Policy Committee 1996/08/15 E.1E1VED
FEB 11 4 29 DI '91
TELECOMMUNICATIONS POLICY ADVISORY COM1 ELTER. C1T't CLERK
MINUTES CITY OF Alit;liE14
AUGUST 15. 1996
The agenda having been posted on Friday, August 9. 1996, the regularly scheduled meeting of the
Telecommunications Policy Advisory Committee (Committee) was called to order by Chairperson Paul
McMillan at 4:12 p.m., on Thursday, August 15, 1996 in the Gordon Hoyt Conference Center, 201 S.
Anaheim Blvd., Anaheim, California.
Committee Members Present: Chairperson P. McMillan, T. Daly, D. Stanton,
F. Feldhaus, J. Mayer, W. Wiseman.
Committee Member(s) Absent: P. Boydstun, B. Whorton.
Guests Present: John Walden, Director of Information Services -
Anaheim Union High School District
Renney Senn, Chief Executive Officer - SNI
Brad Saunders, Vice President - SNI
Joe Dale, President - Formula Consultants
1. PUBLIC COMMENTS
J. Walden, Director of Information Services for the Anaheim Union High School District, stated
that he had spoken with staff approximately 14 months ago regarding the plans for the UTS and
how it could benefit students in the Anaheim classrooms. The School District is still very much
interested in having the UTS constructed so that the classrooms will be able to utilize the
services available.
There being no further comments, the Public Comments Portion of the meeting was closed.
2. APPROVAL OF MINUTES OF MARCH 21. 1996
The minutes of March 21, 1996 were approved 6 -0. 2 absent.
3. CITY OF ANAHEIM/SPECTRANET INTERNATIONAL BUSINESS
UNDERSTANDING AND DEVELOPMENT FEE UNDERSTANDING
E. Aghjayan stated that he was pleased to announce that staff and SNI had reached an agreement
for a Business Understanding and a Development Fee Understanding for the building of a
Universal Telecommunications System (UTS) in Anaheim.
65
J. Spalding gave a presentation on the elements of the Business Understanding and the
Development Fee Understanding which are outlined in the attached "Summary of Business Deal
Points" Appendix. The Feasibility Study, which includes the detailed market survey /anal■sis,
system costing /scheduling, and operational costing is in progress and is estimated to be
completed by early September, 1996. The preparation of the Finance Package is also in
progress. The Certificate of Public Convenience and Necessity filing with the California Public
Utilities Commission has been filed by SNI and the CPCN approval is expected to occur by mid -
October, 1996.
SNI's filing at the Federal Communications Commission (FCC) will occur after completion of
the feasibility study an issuance of the CPCN. The California Environmental Quality Act
(CEQA) has a separate review required for subsequent action by the City Council on the
Definitive Agreements. The Proposed Mitigated Negative Declaration has been prepared. posted
and circulated for Public Comments and will accompany the Definitive Agreements when
transmitted to City Council for approvalat a later date.
The next steps to occur in the UTS process include:
• City Council action on the Business Understanding and Development Fee Understanding on
August 20, 1996.
• Completion of the Due Diligence Process by October, 1996.
• Development of the Final Definitive Agreements incorporating the Business Deal Points
from November, 1996 through January, 1997.
• TPAC and City Council Action on the Definitive Agreements by January, 1997.
• Construction of Phase IA ($10 million Demonstration Project) from January through March,
1997.
• Financing of Phase IB by April, 1997.
• Construction of Phase IB ($60 -100 Million) from April, 1997 through September, 1998.
COMMENTS
• R. Senn of SNI commented that SNI has been very pleased with the progress of the
negotiations with the City. SNI has been able to obtain cooperation from Nortel, a major
play er in this project, in assuming responsibility for testing and verifying, not only the
technical aspects of this project, but also the product and market viability so that it can reach
its financial objectives. InfoTech, an expert in the field of market studies and broadband
applications, is assisting Nortel and SNI in preparing the feasibility study that is anticipated
to confirm to J.P. Morgan that this project will work and will provide the income necessary
to pay for the project. R. Senn said that this endeavor is unique in that never before has a
company gone to a city and collaborated to raise money on the basis of the merits of a
project. The facts gathered so far in the feasibility study are surpassing the original
expectations in that the operations costs are about half of those for the existing phone service
provider, which should assure financing for the first phase of the UTS project and will
accrue benefits for every aspect of the project. Also, the expected revenues are turning out
to be exactly what is needed to sustain the financing of the project even if we only presumed
that telephony and conventional services were provided. All the additional planned services
should generate mountainous revenues that will dwarf the revenues that now constitute the
local exchange for telephony and basic cable television services.
66
• B. Saunders of SNI added that during the last year, a unique project finance methodology
was utilized, which means that the project security was the basis of the revenues associated
with it. There will be no risk to the City at all because J.P. Morgan is underwriting the
project with a targeted market of the business elements first. One of the key elements in
ensuring that the project revenue will be there is knowing that the system will be completed
w ithin budget and timeframe and with a functionality that will produce that revenue. Nortel
is giving an all inclusive completion guarantee of the entire system and is also providing a
debt shortfall guarantee.
4. OPEN QUESTIONS AND DISCUSSION
A question was asked about how a school might be connected to the UTS that borders the initial
Phase I area, but is not actually within the Phase I area shown on the map. Staff explained that.
although all government facilities were anticipated to be included in the initial phase, there will
be some areas that will not be connected until Phase II because of the tremendous cost associated
with the electronics in the Phase I project that would cause all the fiber to be dedicated to that
one location. As Phase II progresses, these locations will be able to be included in the UTS
project. There is a way to connect those locations during Phase I through the use of conventional
telephonic equipment, perhaps through Pac Bell, from an outlying facility into the fiber loop, but
that would be very expensive.
It is expected that as the UTS is completed, additional cities will be building fiber systems to
take advantage of this new technology and so this will assist in reducing the cost to Anaheim for
the cost of its system and will also share traffic. By expanding the fiber systems beyond
Anaheim, this adds much larger numbers of commercial and residential users and provides much
more utilization of the Anaheim UTS. It is anticipated that Anaheim will benefit as SNI goes
city to city in expanding the UTS because Anaheim will receive Development Fee payments
during the first five years of the UTS' operation from SNI for each city that is added to SNI's
UTS. Additionally, by adding other cities to the system, the operations costs for SNI will lessen,
increasing the amount of revenue to the City of Anaheim. SNI has already approved an MOU
with the City of Santa Ana for a UTS, so Anaheim will receive a $300,000 payment from SNI
for this added agency to SNI's system. Future annexations to the City of Anaheim would be
treated as part of the future expansion of the system by an amendment to the agreement. Any
spare fiber not used in the UTS Phase I may be used in some governmental buildings but
Anaheim does not currently plan to market the spare fiber to other entities.
Twenty-five percent of the revenues from the UTS will be put into a Telecommunications Fund.
Some of the funds will flow back into the Utilities Department for some of the costs incurred,
but the City Council will have the prerogative to direct where those funds will go; possibly to
assist in the costs of attaching residences to the UTS.
Governmental rates will be provided to public schools, not private because the CPUC would
require this as a tariff issue and would only apply to government owned facilities. The private
schools will still benefit from the use of the UTS because all communication costs will decrease
from what they are currently paying and because of the benefits from the new services provided
on the UTS. Only public hospitals will receive governmental rates.
67
A Management Committee will be developed after the Definitive Agreement is approved, and
will be comprised of representatives from SNI and non -paid City representatives. There will
probably be different sub - committees, such as Citizen Committees. developed to work on topics
such as the Telecommunications Fund use. All of the particulars concerning these committees
will be determined in the Definitive Agreements.
As part of the Business Deal Points, the City has the option to buy the system from SNI after 15
years, then at 30 years, and finally at 45 years and during those years the City will still receive
the five percent revenue from SNI if the City does not opt to purchase the system during those 45
years. This will be defined in the Definitive Agreement.
The Telecommunications Policy Advisory Committee's function will most likely be re- evaluated
by the City Council and the Management Committee and its various sub - committees will
probably begin with the finalization of the Definitive Agreement in November, 1996. There will
most likely not be an additional TPAC meeting until the Definitive Agreement is finalized and
the results of the Feasibility Study are concluded.
J. Dale, President of Formula Consultants, a software engineering firm in Anaheim, spoke from
the audience and commented that they would appreciate the opportunity to present their service
for data backup on the UTS. They are very pleased to have the tremendous bandwidth
capabilities available for their use, both as a provider and as a user, through the construction of
the UTS. Formula Consultants has been involved with the participants on the UTS project
development and feels that all the participants are to be highly commended for their work on the
project.
Staff recommended and the TPAC approved, with a vote of 6 -0, 2 absent, the recommendation
to City Council to:
(1) Find that the Business Understanding (Attachment A) and the Development Fee
Understanding (Attachment B) (collectively, the Agreements) among the City of
Anaheim and SpectraNet International (SNI) /SpectraNet Anaheim (SNA) are
statutorily exempt from the California Environmental Quality Act (CEQA),
pursuant to Section 15262 of the Code of California Regulations, and
(2) Approve the Agreements, and
(3) Authorize the Public Utilities General Manager, on behalf of the City, to execute the
Agreements and any related agreements.
Mayor Daly commended the City staff for their efforts in bringing the agreement between SNI
and the City to fruition and for the quality of information given to the Committee.
5. FI' l
The results of the Feasibility Study and the Definitive Agreement will be brought to TPAC for
approval.
6. ITEMS BY SECRETARY
None.
68
7. ITEMS BY COMMITTEE MEMBERS
None.
8. ADJOURNMENT
The TPAC voted 6 -0, 2 absent, to adjourn the meeting at 5:20 p.m.
Respectfully submitted
L Th i l-d d l tAg • an
Secretary, Tel c• munications Policy Advisory Committee
69
Appendix
Summary of Business Deal Points
The following list summarizes the business deal points contained in the attached Business
Understanding and the Development Fee Understanding agreements:
UTS SCOPE AND SCHEDULE
The UTS will be an all fiber optic system and constructed by SNA in two separately -
financed phases as follows:
— PHASE IA December, 1996 - March, 1997 *
Phase IA will service up to 20 users, including some City users. Estimated
Private Debt Placement: $10 million.
— PHASE IB March, 1997 - September, 1998 *
Phase IB will provide service to government, commercial and industrial users
within the concentrated commercial areas of the City. Estimated Private Debt
Placement: $60 -100 million.
— PHASE II September, 1998 - March, 2002 *
Phase II will provide service to the remainder of the City, including residential
users and all remaining government users. Estimated Private Debt Placement:
$200 -250 million.
TERM OF THE AGREEMENT(S)
• The term of the final UTS Agreement(s) (The "Definitive Agreements ") among the
City and SNUSNA will be 30 years. After 15 years, the parties may negotiate and
agree to an additional 15 years (to a total of 45 years), subject to City Council
approval. •
CITY RECEIVES
• SNA will pay $2 million, upon initial funding of Phase 1B, to the City Utilities electric
and water funds as prepaid compensation for use of the Utilities existing fiber optic
cable under a lease or license. The remaining balance of $4 million, plus interest,
would be payable in 36 months from the initial funding of Phase 18. If financing for
Phase II
occurs within the 36 month period after initial funding, the $4 million, plus interest
could be paid in four equal annual installments over a period of 48 additional months.
• SNA will pay the City five percent (5 %) of gross revenues for 24 months after initial
funding of Phase IA. Thereafter, SNA will pay the City five percent (5 %) of gross
revenues, or $1 million per year, whichever is greater.
• SNA will reimburse the City annually the costs incurred for up to four full -time City
staff. In addition, SNA will pay for an annual compliance audit to meet City
specifications.
• These dates are estimated and will be finalized in the Definitive Agreements.
• Commencing with the initial funding of Phase 113, the City and SNA shall split the net
revenues as follows:
— 15 % to a reserve account for debt service shortfalls and capital expenses
(funded to a maximum of S6 million unless the City and SNA agree upon a
change).
— 25% to the City's telecommunications fund
— 50% to SNI
— 5% to the City's telecommunications public access and utilization fund
— 5% to the City's telecommunications economic development fund
• Development Fee:
SNI will pay the City a development fee for each additional city or local agency that
SNI develops, owns and/or operates a broad -band telecommunications system project.
The development fee shall be in the following amounts:
— First Year - $300,000 per system developed.
— Second Year - $200,000 per system developed.
— Third Year through the Fifth Year - $100,000 per system developed.
— Thereafter, no development fee shall be paid.
• SNA shall reimburse the City for its costs incurred in connection with the evaluation
and negotiation process with SNI/SNA and the preparation of the necessary
documents for TPAC review and City Council approval.
SERVICES PROVIDED TO THE CITY
• Technological advances will be monitored and the necessary upgrades will be made
subject to Management Committee review and approval.
• SNA will provide fully configured point -to -point use of the UTS among all current
and future City facilities at no charge. For all other City uses and for the City's public
schools, SNA will provide a governmental rate. SNA will provide the City's Public
Utilities Department (Utilities) use of the UTS at no charge for Departmental
applications. SNA will provide the Utilities an Ethernet or equivalent connection in its
customer's premises equipment at no charge to the Utilities.
• SNA will provide the City at no charge a City presence on the Internet World Wide
Web. They will also provide at no charge an interactive community bulletin board and
six (6) community access stations.
• SNA will establish an office in downtown Anaheim by fall of 1997.
• SNI/SNA will participate in and commit the participation of its personnel, including
executive officers, to economic development activities of the City.
CITY PROVIDES
• The City will make available to SNA by lease or license 60 strands of its existing fiber
optic cable.
• The City will grant a franchise as necessary for SNA to privately finance, construct,
own and/or operate the UTS.
• The City will utilize the UTS for all of its telecommunications needs, except in such
cases where existing contracts or other circumstances make it impractical to do so.
GOVERNANCE
• The City and SNUSNA will create, in the Definitive Agreements, a management
committee composed of representatives of both the City and SNA, with other
appropriate support committees. The management committee's duties shall include
review and approval of budgets and approval of any major additions and/or revisions
to the UTS.
• The City shall have the right to purchase SNA's interest in the UTS at any time
following the fifteenth (15th) year.
•