Telecomm Policy Committee 1995/11/16 TELECOMMUNICATIONS POLICY ADVISORY COMMITTEE t Y ,,
MINUTES
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NOVEMBER 16. 1995 " °} I ii € ';
The agenda having been posted on Thursday, November 9, 1995, the regular `sch`eltg1ec,,l (feting of the
Telecommunications Policy Advisory Committee (Committee) was called to order by Chairperson Paul McMillan
at 4:15 p.m., on Thursday, November 16, 1995, in the Gordon Hoyt Conference Center, 201 S. Anaheim Blvd.,
Anaheim, California.
Committee Members Present: Chairperson P. McMillan, T. Daly, P. Boydstun, B. Whorton, J. Mayer,
W. Wiseman, D. Stanton.
Committee Member(s) Absent: F. Feldhaus
Staff Present: E. Aghjayan, M. Bell, L. Moses, V. Tiwari, T. Wood, K. Thalman,
W. Hoffman, G. Anghel, P. Grimes, S. Frazier, E. Goode, C. Alario,
P. Hayes, R. Howell.
Guests Present: Renney Senn, SpectraNet
Bob Randall, SpectraNet
Bob Cerasoli, SpectraNet
Tom Scott, Ferano & Kievet
1. PUBLIC COMMENTS
The Chairperson asked if there were any comments from the public. There being none, the Public
Comments portion of the meeting was closed.
2. APPROVAL OF MINUTES OF OCTOBER 4, 1995
The minutes of October 4, 1995, were approved 6-0. 2 ABSENT. (J. Mayer arrived after the approval
of the minutes).
3. RFP STATUS AND RECOMMENDATIONS
Staff Proposal: Staff updated the Committee on developments of the telecommunications request for
proposal (RFP). After the Committee and the City Council endorsed the concept of a Universal
Telecommunications System (UTS) public /private partnership and authorized staff to negotiate with ICS
and SpectraNet Incorporated (SNI) as finalists for the partnership, staff was directed to complete a financial
review of the two finalists, return a recommendation of one finalist to the Committee by November 16,
1995, and begin the process of retaining consultants to undertake the due diligence process. The final
review process included an independent financial review by O'Brien Partners, Inc. and six interview panels
(consisting of about 5 people each) that evaluated the two finalists in six critical areas:
1. Technical capability.
2. Strength of marketing/business development plan.
3. Adherence to Guiding Principles.
4. Overall strength of management team.
5. Financial benefits to the City.
6. Financial strength of team /plan.
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The panel consisted of staff from City Administration, Community Development, Finance, Fleet/Facility
Maintenance, Library, Planning, Police, and Public Utilities. Outside panel members included staff from
Bechtel Corporation, Burns & McDonnell, City of Burbank, Northern California Power Agency, O'Brien
Partners, Inc., and Prager, McCarthy & Sealy.
The panel used the following key to rate the proposals:
A Outstanding ability to carry out proposal; no apparent deficiencies.
B Strong capability to deliver; some weaknesses exist.
C Questionable ability to carry out proposal; numerous deficiencies exist.
D Poor prospect of delivering on proposal; glaring flaws evident.
The scores were based on the evaluation of ICS' and SNI's proposals as they applied to the City of
Anaheim's specific needs and were not intended to be used for any other purpose.
SCORING SNI ICS
Technical Capability B+ B-
- Strength of Marketing /Business Development Plan A C+
Adherence to Guiding Principles A B
Overall Strength of Management Team A B
- Financial Benefits to the City B C
- Financial Strength of Team/Plan B B-
The financial adviser (O'Brien Partners, Inc.) reviewed:
- Project Economics.
- Financial guarantees to mitigate risk during the construction phase and the operating phase.
- Operating and Construction Costs.
Proposed Financing Vehicle.
The financial adviser concluded that neither proposer has provided a financial guarantee which meets the
RFP requirement of financing the project without risk to the City's credit rating or reputation.
Staff asked for the Committee's approval of staffs recommendation to:
1. Delay the due diligence process with the two finalists for a UTS for a period not to exceed 60
days.
2. Report to the TPAC, within 60 days, staff's evaluation of the finalists' actions to cure financial
deficiencies in their respective proposals.
3. Begin negotiations with ICG Access Services, Inc. as an alternative to developing a UTS.
Both ICS and SNI have expressed their desire to remedy their deficiencies in their respective proposals.
ICG Access had originally submitted a proposal to lease fiber from the City and has substantially increased
the scope of its offer and is now interested in a sizable commitment. The City of San Antonio is currently
recommending ICG Access to its policy board in a similar proposal. ICG Access can be a back -up in the
event that ICS and SNI are unable to remedy the financial guarantees in their proposals.
Issues Addressed: The due diligence process is expected to take four to six months and staff recommends
up to two months to permit SNI and ICS to remedy the financial guarantees. There was a concern that a
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further delay might be unnecessary. Staff felt there was not enough justification to spend $200,000 to
$300,000 on the due diligence process if there is not a strong indication of the ability to provide the
requested financial guarantee. If ICS or SNI can remedy the financial guarantees sooner than 60 days, then
staff will bring the proposals back to the Committee for review sooner.
If ICS and SNI both came forward with essentially the same level of remedies to the financial guarantees,
then SNI would be recommended as the finalist because it was rated the highest in all other categories to
partner with the City of Anaheim. If SNI cannot deliver or its financial guarantee is not as strong as it
should be, and ICS proposes a much higher financial guarantee, then staff would recommend ICS. Also,
if a financial guarantee is amended, other aspects of the proposal may be adjusted. Staff would expect that
the other aspects of the proposals should remain essentially the same.
A concern was expressed that at the last meeting, the Committee passed a list of recommendations onto
City Council that directed staff to begin negotiations with the two finalists and return a recommendation
to the Committee for one finalist at the November 16, 1995, meeting. Addition of another finalist, ICG
Access, is a deviation from this recommendation to the City Council. Staff responded that they were
prepared to recommend SNI, but neither SNI or ICS currently provides the necessary financial guarantees
needed by the City in order to protect the City from financial risks. Given the lack of a guarantee, staff
felt it was appropriate to pursue a backup position by negotiating with ICG Access. All of the proposers
could be beneficial to the City, but the financial strength of the team will be the overriding consideration
in who is selected to pursue due diligence. If ICG Access is pursued as an alternative, the Committee will
be given the opportunity to review ICG's proposal and make a recommendation.
ICS and SNI were each given the opportunity to address the Committee, and ICS declined. Renney Senn
from SNI addressed the Committee and stated that SNI had been dealing with the City for the past two
years on a proposal and commends the Committee and staff for being steadfast, demanding, truthful, and
scrutinizing throughout the process. As of November 15, 1995, SNI presented to staff its proposed
solution to the financial guarantee and insulation from the City taking any risk associated with embarking
on a UTS private /public partnership. Cities nationwide are watching every step of this telecommunications
process with the City of Anaheim because it is the first of its kind and is being intensely scrutinized. SNI
would appreciate, to the extent the due diligence process can be accelerated, to move forward as quickly
as possible.
The Committee asked that some dates be considered to schedule the next Committee meeting. December
14 and 21 and January 4, 14 and 11 were considered. T. Daly will not be able to attend on December 14.
D. Stanton will not be available on December 21. Staff cannot confirm the next meeting date until they
and the financial adviser are able to examine the financial guarantee that SNI has submitted. A meeting
can be planned for sixty days from today's date, but if staff is able to come forward sooner with a
recommendation, then the Committee will be called to determine the best date to meet again.
A concern was expressed that with the number of companies laying fiber in the City and the City further
delaying its telecommunications project, Anaheim might miss the window of opportunity for the greatest
amount of profit. Staff stated that without the most economical and competitive package, then the project
would not be profitable for the City. A number of smaller projects by others will not compare with what
the City will be able to provide with the right package containing financial guarantees to the City. The
City has already completed its 50 mile fiber loop.
The Committee asked to evaluate the next steps in the process prior to staff taking any action on the
proposals.
A motion was made to approve the recommendations as stated in the Telecommunications Policy Advisory
Committee Staff Report dated November 16, 1995. MOTION CARRIED 7 -0. 1 ABSENT.
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4. OPEN OUESTIONS AND DISCUSSION
There was no further discussion.
5. AGENDA ITEMS FOR NEXT MEETING
Staff will bring the evaluation of SNI's financial guarantee revisions to the next meeting. If there are
further developments with ICS or ICG Access, they will also be brought to the next meeting.
6. ITEMS BY SECRETARY
None.
7. ITEMS BY COMMITTEE MEMBERS
None.
8. ADJOURNMENT
A motion to adjourn was made at 5:05 p.m. MOTION CARRIED 7 -0. 1 ABSENT.
Respectfully submitted,
Edward K. • • . yan
Secretary, T% . •mmunications Policy Advisory Committee
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Attachment A
CITY OF ANAHEIM - SPECTRANET
INTERNATIONAL BUSINESS UNDERSTANDING
CITY OF ANAHEIM - SPECTRANET INTERNATIONAL
BUSINESS UNDERSTANDING
The staff representatives (the "Representatives ") of
City of Anaheim ( "City") and SpectraNet International
( "SNI') have met on various occasions to discuss and resolve the
following described issues for a proposed business relationship
relating to the financing, construction, installation and
operation of a universal telecommunications system (HUTS ") in
the City of Anaheim by SNI's wholly owned subsidiary, SpectraNet
Anaheim ( "SNA ").
The City adopted the following principles to guide
w development and expansion of the UTS to maximize benefits and
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minimize undesirable consequences. The City seeks a
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telecommunications infrastructure that will:
wr
�� � _ Minimize disruption of public property and ensure
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§ efficient use of the City's streets;
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Ensure reliable telecommunications services at the
lowest cost to the City's residents and businesses;
Ensure universal access and interconnectivity;
Ensure maximum number and variety of
telecommunications services;
Enhance City's economic development programs; and
Receive fair compensation for the use of public
property and City participation.
The Representatives agree to incorporate the
.H resolution of all outstanding issues as provided herein in a
definitive agreement or agreements (the "Definitive
Agreements "), including without limitation the Lease and the
j
Franchise Agreement described below, to be negotiated setwee
City, and SNI and SNA pertaining the UTS. Unless otherw_se
agreed by the Parties, the time period to prepare the Defin___ e
Agreements shall be extended through January 15, 1997, although:
the Parties will endeavor to complete the Definitive Agreements
by October 1, 1996. The City agrees to negotiate with SNI and
SNA on an exclusive basis until January 15, 1997. The C�ty
Representatives will recommend (contingent upon terms agreed t..,
by the City Representatives) the approval of the Definitive
Agreements by the Telecommunications Policy Advisory Committee
( "TPAC ") and by the City Council.
W 1. The City has constructed a 96 strand fiber
X5 1
4i5e optic cable. The City will make available to SNA by lease,
1 6F4^ license or other acceptable means (the "Lease "), 60 unspliced
D �. strands of the fiber optic cable to SNA for construction of a
o
UTS. The City has reserved 36 strands of the fiber for
potential use by the City Public Utilities Department
(Utilities) and other City Departments. City is currently
investigating the number of strands which it will ultimately
retain for exclusive City uses. Any remaining strands will be
incorporated into the Lease for a consideration to be defined
pursuant to the Definitive Agreements.
The UTS will be a neutral, broadband, fully fiber
optic communications pathway which shall be available to all
competing telecommunications service providers and will be
interoperable with the incumbent local telephone carrier in the
City. The UTS will be constructed by SNA in two Phases. The
first Phase, which may be constructed in two segments
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(respectively, "Phase IA" and Phase I3 "), each of whit: ~. will
will have its own financing. Phase I will , crovide to
areas of commercial, industrial and governmental
users. phase IA will include service to up a maximum of 20
users, including the Anaheim City Hall, the Anaheim City Hall
West, the Anaheim Police Department Headquarters, the main
branch of the Anaheim Public Library, and the Anaheim Conventicn
Center. SNA will develop a UTS demonstration center and related
facilities in downtown Anaheim no later than October 1997.
Phase IB will provide service to all the remaining commercial
and industrial users within the identified service areas to be
w defined with precision in the Definitive Agreements. Government
users located throughout the City will also receive UTS service
_ or other service which meets individual user needs during Phase
� 11 1- 1 IB. All government uses will receive UTS service in Phase II.
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LL Definitive criteria defining conditions under which SNA will
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provide UTS user service will be included in the Definitive
Agreements. Phase II will provide service, including
residential service, to the remainder of all users in the City,
including all government users. The timing of construction of
the Phase IA, Phase IB and Phase II will be dealt with in the
Definitive Agreements, which will contain a detailed scope of
▪ the project's components and their development schedules.
Unless otherwise agreed by the City, SNI and SNA, Phase IB will
• be completed within 18 months following the closing of the Phase
IB financing, and Phase II would be completed no later than five
(5) years following the closing of the Phase IB financing. The
closing of the Phase IA financing will occur no later than
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