Memorandum

City of Lawrence

City Manager’s Office

TO:	David L. Corliss, City Manager
FROM:	Diane Stoddard, Assistant City Manager
DATE	November 4, 2014
CC:	Casey Toomay, Assistant City Manager
RE:	Follow up from October 7, 2014 Discussion on Fiber Policy, Wicked Fiber request and RG Fiber request

Please place the following item on the November 11, 2014 City Commission meeting agenda:

Continued discussion on proposed fiber leasing policy, Wicked Fiber economic development request and RG Fiber request.  Take action, if appropriate.

Background/Discussion:

The City Commission discussed the proposed fiber policy, the Wicked Fiber economic development request and the RG Fiber request at its meeting on October 7, 2014.  The conversation focused on several key items about which the City Commission requested additional information.  Below is a listing of items for further discussion and possible direction/action.

1. Fiber Policy

The City Commission discussed the draft fiber policy prepared by staff.  This policy would establish the general goals and framework associated with leasing of the City’s excess fiber assets for the purpose of encouraging high speed broadband in Lawrence.  There appeared to be agreement that adoption of a fiber policy would be an important first step before considering any of the leasing requests. Several other items in the discussion list below could have an impact on the policy, depending upon City Commission direction. 

The policy would enable any company to approach the City about leasing dark fiber, on a first come, first served basis. The framework would make it relatively easy for approvals to be granted for companies wishing to lease dark fiber with the City.  The policy includes the ability of a company to receive reduced or waived fees from the market rate during the first five years of operation if they provide certain services desired by the city.  At the end of the five year period, the company would be subject to market rate leasing established by the policy.  The following is a general outline of the fiber leasing policy draft:

· Establishes a market rate of $250/year/fiber mile.

· Companies using City fiber must use the fiber to provide symmetrical high speed internet services of at least 100 megabits per second

· Standard lease term is 5 years with two renewable 5 year extensions

· Connections to the City’s fiber network can only be made at established vault locations

· Only the City or city-approved vendors can splice into the fiber

· Private companies are responsible for costs associated with connections to the City’s network and infrastructure

· Companies will be appropriately insured

· Companies must follow the City’s right of way regulations

· In order to spur high speed internet development in Lawrence, market rate lease fees may be waived for the first five years for companies meeting the following criteria:

o Provide service to at least 300 residential or business customers and achieve this service level within 24 months of signing the agreement with the City

o Provide free service to households with a net income at or below 100% of the net income eligible for food assistance as defined and published by the Kansas Department for Children and Families

o Provide free service to non-profit organizations and institutions within its service area

Possible Action:  Adopt Resolution No. 7097, establishing a fiber policy and fiber leasing framework for the city. Staff believes that this policy establishes a neutral framework for any provider to seek a lease with the city under equal terms.

2. Set aside for city fiber needs

The City Commission had several questions about the amount of unused fiber that the city may have available for leasing and there was a desire by the Commission to understand if this unused fiber took into account the city’s possible future fiber needs. The fiber that has been discussed as available for leasing does take into account the City’s future fiber needs.  The map included in the City’s Fiber RFI shows potential available fiber above the City’s current needs and existing CWC agreement. These numbers were calculated based upon the City’s current needs and a small amount for future growth.  The conduits on the map include either 288 or 144 strands of fiber each.  So the remaining fiber available for leasing is shown at 96 or 48 strands depending upon whether the conduit contains 288 or 144 strands of fiber. Therefore, leasing these remaining strands would not jeopardize the city’s need for fiber for its purposes in the future.  Also, the proposed term of the fiber leasing agreements would enable the city to recapture additional fiber for its use should that be identified as a need in the future.

3. Common Carriage/net neutrality/regulation of service and wholesale fees under common carriage

There has been a lot of discussion about the common carriage/net neutrality issue.  Common carriage refers to the provision of services by multiple carriers using the same infrastructure.  According to the FCC, the concept of net neutrality refers to open internet, that is having an internet that treats all traffic equally, using publicly-available and free standards. Open internet and common carriage is a current topic under ongoing discussion at the federal level by the FCC.  From a regulatory standpoint, these issues are probably best handled at the federal level to ensure that all carriers are under the same rules. This type of action occurred with the telephone industry, for example, to encourage competition a number of decades ago. 

Wicked Fiber has proposed establishing a common carriage network that would allow other providers, in addition to Wicked Fiber, to provide services to the customer.  During the October 7 meeting, Wicked Fiber clarified that it means to have the common carriage requirement apply only in situations where companies are seeking subsidized market rates.  The common carriage would be an additional requirement, on top of those in the draft policy, for companies seeking that initial subsidy. 

As the Commission is aware, RG Fiber has expressed concerns about the common carriage and wished to own its own infrastructure in order to control service quality and to differentiate itself in the market.  Also, RG Fiber has indicated that it would not plan to access the subsidy provisions of the draft fiber policy. 

Staff is concerned with making common carriage a requirement under city policy due to the potential regulatory issues it may create for the city (getting in the middle of service reliability issues and wholesale drop charges, for example) and whether common carriage would be an impediment to entry for another provider wishing to serve the residents and businesses of Lawrence.  Based upon the concerns about common carriage expressed by RG Fiber, at least one company would not utilize it to provide competitive services, which would be the desired public good by requiring it.  For these reasons, staff does not recommend including common carriage in the policy. 

4. Franchise Fees

There appears to be two issues related to franchise fees.  First, Wicked Fiber had requested waiver of a certain amount of annual franchise fee payments under current obligations from the 2012 agreement with the City.  Second, Wicked Fiber had suggested that it and other companies leasing city fiber be required to pay franchise fee payments to the City.   Later, it seemed that Wicked Fiber suggested that only those companies receiving subsidized lease rates be required to pay the franchise fees. 

Related to the first issue, the current CWC agreement with the City dating back to the beginning of 2012 requires CWC to pay the City 5% of gross revenue as compensation for utilizing the various traffic signals, water towers, and light poles owned by the City.  Other vendors utilizing the City’s water towers, for example, pay a market rate lease rate for such occupancy.  Again, if the City Commission wishes to waive the first $20,000 of these franchise annually, staff suggests that this be considered as economic development assistance. In the first two quarters of 2012, the City received approximately $7000 in franchise payments from CWC.  Staff would estimate annual payments at $14,000 based upon those payments.  

Regarding the second issue of companies receiving subsidized lease rates being required to pay the city franchise fees, staff does not recommend including this provision in the policy for the same reason that it does not recommend including common carriage in the fiber policy- there may be an unintended consequence of deterring companies who may wish to utilize the policy to provide broadband services to residents and businesses.  Currently, the law does not enable franchise fees to apply to internet services, unless it is voluntary or part of another agreement, as with the case of the 2012 CWC agreement with the City.  Staff believes that this may be an impediment to other providers who may wish to enter the competitive market utilizing the City’s policy and that the policy should provide a neutral framework.

Wicked Fiber Request: 

The City Commission should provide feedback and direction on the Wicked Fiber request. 

To recap, Wicked Fiber has made the following request to the City:

• A $1 million loan guarantee from the City for phase 1, the build-out of the network to two pilot neighborhoods in central and west Lawrence.  Update:  Staff has suggested that a smaller loan guarantee, along with a smaller initial pilot project may be more appropriate in order to demonstrate the project success and reduce the financial exposure for the City.  Wicked Fiber appears willing to consider a smaller amount, such as $300,000 for extension to 300 addresses. 
• Waiver of first $20,000 in franchise fees each year for the next 5 years retroactive to Q3 2012  Update:  See paragraph in this memo on franchise fees.  If this is regarding the current 2012 agreement, staff recommends that this be considered as an economic development grant tied to any provisions required for the loan guarantee.
• Permission to co-locate splice cases in City of Lawrence hand holes at locations where Wicked Broadband currently leases City of Lawrence fiber, or connects to existing City of Lawrence fiber.  Update:  City staff and Wicked Fiber have agreed to create a fiber vendor listing, but otherwise retain City control over fiber splicing and segregate Wicked Fiber into hand holes separate from the main City fiber.  This addresses security concerns previously raised by staff and is included in the draft fiber policy. 
• Permission to splice fiber leased from the City using in-house resources. As with the City’s current contractor, this activity would be done under the supervision of City of Lawrence staff.  Update:  See above.
• A 30 year lease of one buffer tube (12 count) of single mode fiber (SMF) in the fiber-optic cable connecting City Hall with the Law Enforcement Center at $10. Update:  Staff understands that Wicked Fiber is withdrawing this request based on information provided by staff relating to capacity and security concerns in this particular jointly owned fiber run.
• A 30 year lease of two buffer tubes (24 count) of SMF on each new fiber-optic cable installed by the City of Lawrence in the next 120 months at $10.  Update:  Staff recommends that future fiber runs fall within the new leasing framework and be considered upon request after the installation of the fiber. 

The establishment of the fiber policy outlined above would address Wicked Fiber’s request for leasing fiber and as new fiber is installed, Wicked could utilize the policy to establish additional fiber leases with the City.  The policy also addresses the co-location and fiber splicing issues, both of which City staff believes are important security issues.  The City would establish a list of approved vendors that companies leasing fiber could use to make connections to the City’s fiber. 

Possible Action:  Provide direction related to Wicked Fiber’s request for a loan guarantee and the franchise fee waiver as an economic development request.  Staff would work to finalize any of the necessary documents with Wicked Fiber in accordance with the City Commission’s direction.

RG Fiber Requests: 

The City Commission should provide direction related to the RG Fiber requests.  

To recap, RG Fiber is requesting:

1. Assignment Consent:  On accordance with Section 9(a) of the License Agreement, dated January 14, 2013, Dawn Fiber seeks the City's consent to assign by amendment said License Agreement to RG Fiber. According to Section 9(a) of the License Agreement, the City must consent to any such assignment.
2. Rights-of-Way Access:  RG Fiber requests that the City grant it access to all rights-of-way within the City in order to provide "faster, friendlier, and more reliable internet" services to the residents of Lawrence.
3. Fiber Lease:  RG Fiber seeks to lease from the City four (4) dark fibers "throughout the City's existing and future" fiber optic infrastructure, "as detailed on the RFI 1400 and at the same rate offered to other providers."

Possible Action:  Provide direction related to RG Fiber’s assignment request, and request for rights-of-way access and a fiber lease under the City’s new fiber leasing policy.  Staff would work to finalize any of the necessary documents with RG Fiber in accordance with the City Commission’s direction.

Links to Resources:

October 7, 2014 City Commission Agenda Materials:  Wicked Fiber discussion and RG Fiber discussion

September 9, 2014 City Commission Agenda Materials:  Wicked Fiber Request and PIRC recommendation – includes links to all Wicked Fiber requests, staff reports, etc.

May 21, 2014 PIRC Meeting:  Materials and Minutes

January 21, 2014 PIRC Meeting:  Materials and Minutes