HomeMy WebLinkAbout2002-11-20 Utilities Advisory Commission Summary MinutesUAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 1 of 53
Utilities Advisory Commission
UAC Study Session on FTTH
November 20, 2002
Carlson: Our last two members just arrived. I’m going to call this study session to order. This
is a study session of the UAC, rather than a regular meeting -- which is something of a construct
of the Brown Act in that in the old days, we would probably sit around with the staff and throw
lots of questions at them -- and one of the Brown Act requirements is that we do that in public.
We’re just looking at the fiber to the home issue, the fiber business plan issue tonight. We’re
going to try to keep this to two hours, but we have some important staff here, so if we have to go
over, maybe we’ll have to go over. I know the staff has a presentation, but I wanted to at least
have a short discussion with the Commission to try to organize the discussion on what are the
major issues that we need to cover.
There are three in particular that are important to cover with the consultants here -- they’re not
necessarily the most important issues. One of those is the survey. The second issue is the
competitive factor -- what kind of competition is out there right now and what’s coming down the
pike in all three of the areas. What’s the experience in other cities -- we’d love to hear more on
that. There’s going to be a quick presentation on community benefits. There are quite a few
questions on financing mechanisms, which is farther down the road but is an important issue.
Ultimately we have to have some discussion on things like bonding capacity and how we’d fit
with the city. And finally, tonight we have to talk about next steps. We have something called a
business plan -- which means we need to discuss what we need out of that business plan.
Those are just categories for discussion. Have I missed anything important? Any trouble with a
rough order like that? What do you think I’m missing? Dexter?
Dawes: I certainly think we need to talk about polling and whether the polling that has been
done is …
Bechtel: That’s the survey. The first item.
Carlson: Okay, I know this task has got a presentation. Go ahead.
Ulrich: I’d like to say a couple of things. We’ll cover all those areas. But I would like to get a
discussion briefly of what the expectations are -- either at the beginning, or by the end of the
meeting -- what you’d like to have accomplished. I know you want a discussion, but we’d like to
be able to come to the next scheduled meeting which is in the first week of December, with
either a recommendation for continuation to do the business plan which is estimated to be
somewhere between $100-120 thousand dollars. And to focus on that so you get all the
questions answered, whether you believe it’s appropriate for us to go forward with that -- or with
some other conclusion. That way we can put it on the agenda for the next meeting, and either
discuss it further -- if that’s what you’d like -- or recommend a form of action to take place at that
meeting.
City of Palo Alto
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 2 of 53
Carlson: That’s what I meant to cover in the last issue, in what I called next steps. The focus of
that business planning effort we ______ we need significant and time effort to answer important
questions that are still unanswered. What does the content of that business plan have to be?
Ulrich: Sure. It’s important to know where we’re trying to get by the end of the evening, so we
make sure all those, whatever the questions are, and information you need to be able to reach
that decision at the end of the meeting will be appropriate. So we’re focused on that.
Carlson: I’ll try to keep things going so we end up there. George?
Bechtel: I was thinking this afternoon about what I would want out of this meeting. There is a
lot of information we’ve seen that’s questioned. But one of things that we’re going to have to do
at our next meeting, presumably, is make a decision on whether to commit to the business plan
and $100,000. Personally, I wanted to go back and I looked at page one of the Executive
Summary of the Final Report which is what’s going to be what the staff has proposed to be in
the current business plan. I would hope by tonight we could go through all of these things in
some fashion -- maybe orderly or chaotically, whatever process would work -- to make sure we
don’t get caught short at the next meeting about saying “Well I didn’t think that was going to be
in the business plan,” or “I thought we were going to have that in the business plan and it’s not
on this list here that we have.” Personally, I would like tonight to be able to go through all H,
possibly J, items, I can’t remember now how many there are …
Carlson: “I” items.
Bechtel: … and say, “those are going to be in the business plan and we agree next month that
we recommend next month to spend $100,000, and this is where we’re going to go.” And if
we’re not happy at the end of tonight with this list, then the staff has enough information to add
some items -- “J” through “Z” -- to the business plan until it comes back to us as a full list of
everything we’ve all agreed on and all want, and therefore is almost a slam dunk -- and we don’t
have another five hour discussion to recommend results. That’s what I’d like to see.
Carlson: Well, that’s the key. Now the “next-steps” issue -- what page are you on?
Bechtel: It’s the first tab, tab one called Executive Summary and it’s on the final report from
Uptown Services.
Ulrich: Mr. Chairman, may I make one other suggestion? Part of the agenda this evening is a
Call for Oral Communications on subjects other than what’s on the agenda. Since the agenda
item may go on for a long period of time, you may wish to ask that question now. If there is
somebody here who wants to address the Commission on any other issues, they may want to
do it now, rather than stay for the entire meeting.
Carlson: My understanding of the structure of the meeting that we directed last time was that
there would not be any standard public input.
Ulrich: I apologize. What I thought I said was “on subjects other than what is on the agenda.”
It’s obligatory that you ask for this, as the agenda calls out that members of the public are
invited to address the Commission on any subject not on the agenda.
Carlson: Okay.
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 3 of 53
Ulrich: I was just suggesting you do that now rather than wait till later.
Carlson: I didn’t know that. I thought it was a single-item agenda, and if there’s an agenda I
didn’t see it.
Anybody here for any thing other than fiber to the home? Nobody’s here. Fiber to Business is
definitely subsumed.
Let’s go ahead. Blake or John; who wants to be the one to lead off with the presentation?
Ulrich: Blake will go forward and introduce people and get us going.
Heitzman: I have passed out to the Commission a decision tree related to the Fiber to the
Home Project, as you see on the screen -- it’s up there. In an effort to orient us to where we are
in this process, some of us talked about what the next steps were, Commissioner Bechtel was
talking about next steps. This shows some of the next steps. Obviously, this is a rough
gradation. There are many in-between steps which aren’t listed here. What you see in green
are the things that have been completed. The yellow boxes are where we’re at now. The yellow
diamond is where we’re at -- we’re working on making a decision to move ahead with a
business plan. There’re issues of what will be contained in that, and/or whether we should even
move forward with it.
Dawes: If I could interject. “Business case approved” is the wrong moniker there. It’s
business-case decision to refine it with a full business plan. We’re not approving a business
case here.
Heitzman: Okay. In any case, a decision will be made whether to move forward. The
alternative is to just go down and decommission the project, and not move forward. That’s
where we’re at. As you look ahead you see other decision points. One of the things we are
trying to demonstrate here is that you have many opportunities to decide “this is not working,
let’s quit.” At each level, as you move forward, you are defining the risks better -- defining and
whittling away at the risks. I the business plan one of the items we want to cover is to establish
some partnering relationships. That should relieve some risks, if that happens. In any case,
we’ll be able to define risk better each time we move forward. Of course, there are increments
here -- some that are fairly expensive and some that are extremely expensive, when you get to
the total build-out. These are all the “off-ramps” (each one of these “Nos” that goes down).
There actually are off-ramps even after we bid the project. If the pricing is not what we
expected, that’s an off-ramp too. We’re at the start of a fairly long process with many
opportunities to get out of the project if we decide that’s what we want to do.
Tonight I assembled a group of people who’ve worked on the business case and some other
options of it over the last nine months -- and in other cases just the last month or so. I will
introduce the various people here to answer questions for the Commission, and their area of
expertise, so you will know who is best qualified to answer your question. To start with, we
have Steve Childs from DataCycles and his expertise is the survey process. He was the
designer of the survey and has a lot of expertise and experience in the business. He would be
the person who would answer the question that Commission Dawes came up with about the
survey -- ‘was it done properly.’ in Steve’s mind it was, and he will explain why he thinks so.
Another person involved in the survey process is Bernard Erlich who is a staff member and a
mathematician who one time taught math at the University of Brussels. He would answer the
question that has come up with Commissioner Rosenbaum about self-selection -- whether it’s
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 4 of 53
important and whether it exists. Neil Shaw, everyone knows, is here and his expertise is of
course, in the financial model knowledge of the industry and other cities and municipalities, what
they are doing as he knows through APPA and through his contacts there He would be
answering questions about the financial model itself -- on assumptions that were made, areas
where you may be interested in what type of funding is available for upgrades of equipment, and
so forth. Neil also will answer engineering and design questions, in lieu of Peregrine who is not
here tonight and possibly, Manuel Topete, the staff member who has experience with
equipment if you have any questions, although those are issues of the future probably.
Commissioner Bechtel had asked questions about community benefits and so we have Bob
Harrington and Mark Heyer here who have been exploring the issue of community benefits --
non-quantified, but trying to at least identify what they might be. They can tell you what they’ve
come up with in that regard. And, there were some questions from some of the Commissioners
-- Commissioner Rosenbaum, I believe -- about the conference in New Orleans. Manuel Topete
attended that and he can answer some questions about that. He can also answer some
questions about the trial if there is some concerns about what happened during the trial.
Manual has been responsible for the trial.
And then, two other issues. Commissioner Carlson mentioned the bonding issue and we have
a little bit of information from a meeting we held this week with Bond Counsel, some preliminary
information, just verbal, that we can talk about. It’s fairly preliminary but it’s fairly hopeful. Also,
Commissioner Ferguson had asked about the legal issues, and we do have a report which we’ll
probably deliver in December from the Attorney’s Office. I have the final draft but it’s not been
but signed so we can’t deliver it now. But we can at least talk about some of the overview
issues that have come out of that. That’s kind of the line-up we have tonight available for you.
One last thing, Neil’s here, and can talk about the business plan as we talk about what can be
added or subtracted from what we’ve already written. He would be able to discuss the issues
from what he thinks we need to address with you on that. With that, it’s up to the Commission --
I could ask Steve Childs to go ahead and give a real short overview before you start asking
questions. Or we could just move to questions, whichever way you want to do that.
Carlson: Why don’t we just have him give -- this is on the survey, right?
Heitzman: Yes.
Carlson: This is one of the first things. Let’s just go ahead and make a quick presentation on it.
You know some of the questions we’ve had.
Childs: I’ve organized these notes into four areas. One: about us briefly, who DataCycles is
and our methods. Then I’ll briefly get into the survey objectives for FTTH and the issue of, and
also the Alameda Study and how it relates to the FTTH survey. Then lastly I’ll briefly get into
the whole issue of self-selection and the statistical reliability of the data which Bernard is also
going to be addressing.
We are a web-based, on-line information service in that we specialize in on-line data collection
from both customers and employee populations. We have an expertise in constructing
information models and the wording of survey questions that are accepted by many large
technology companies and public sector entities. For example, KPMG Consulting hired us to
survey all the HR professionals throughout the UC University system, the City of San Jose used
us to measure satisfaction levels amongst commercial developers. We also do extensive work
for Cisco, Agilent, Brocade, Sutter Health, Novellus, Lam Research and a bunch of other firms.
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 5 of 53
We’ve been doing this for a few years in the Bay Area, and at least two of us are Palo Alto
residents.
Our methodology. The way we work with our clients is first we sit down and figure out exactly
what it is that the client wants to know. What are the survey objectives for the information. We
then develop an information model and a question set that addresses those objectives. I’m
going to get a bit into our methodology because the questions, comments have arisen about the
wording of some of the questions and whether or not it was biased. We try to make questions
as straightforward as possible, addressing one variable in each question so that there’s no
confusion. We then test our question set in an on-line preview session with various members
on the client side. In this case, we also previewed it with twelve community panel members that
were provided to us by the City. So the question set got a lot of vetting in the preview process,
to make sure that we had the appropriate wording and that the answer choices were
appropriate. On our questions, we typically use a combination of one-to-five rating -- Likert
Scale questions -- as well as Osgood semantic differential questions which were “highly
satisfied, highly dissatisfied, hot/cold.” It’s basically bipolar where you rate it one-to-five. Likert
and Osgood are both pioneers in modern research. These are widely accepted methods and
we happen to use them.
Now, there were comments about the questions themselves as to whether or not we were
biasing the respondent toward a favorable response. I’m not actually sure which questions
were being questioned in particular. However, I’m guessing it was the section on the positive
statements where people were asked to rank things such as “connecting residential fiber optic
services is a high priority, one-to-five, agree or disagree.” These are fairly standard questions
that are used in surveys as a clear, positive statement -- where you simply indicate your level of
agreement or disagreement and you have an equal opportunity to disagree as well as agree.
Positive statements are much easier for the respondent to understand than a negative
statement because if you disagree with a negative statement now you’re into double negatives.
Maybe that was the section. There was also another section where we talked about “which of
the following benefits would be most compelling when considering whether to switch to future
fiber optic services” and another one which said “other than price, likely reasons that you might
hesitate to subscribe.” Now these two questions were there specifically to address potential
marketing issues that the City might face in terms of trying to market the service and convince
people to subscribe by understanding (a) what their hesitations are so we could address the
marketing, and (b) what they also perceived the benefits to be which helps in marketing the
service. Does that answer the question of bias?
Bechtel: I’m not sure that I remember. The question that actually the answers were not taken
into account was the one “would you subscribe (something or other) if in fact it would benefit
the City finances” or something like that.
Dawes: The telephone one, to me, is the ….
Childs: The telephone one we specifically did because -- as you can see from the answers in
the two related questions -- of all these services, telephone -- we believe, or at least the
answers indicate -- is considered a commodity service. People take it for granted that the dial
tone is always going to be there, and there is no issue with that. With Internet, people know it
goes down. With cable TV. the picture sometimes is bad, sometimes there is not enough
channels. But with telephone, you expect the dial tone to always be there.
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Dawes: But the questions just don’t lead to an answer that is believable termed that way. First
of all, if you’d said “how satisfied are you with your local provider” it’s an absolute bell-shaped
curve with the middle being fairly satisfied. Then the next one said “would it be valuable to you
to have an alternate choice of your local telephone service provider?” Sure.
Childs: Most people, actually, a third didn’t say. “I’m not sure” or had no opinion.
Dawes: You asked 56 -- 27% - I’m not sure. And then the last one is …
Childs: No opinion.
Dawes: No opinion was 5. “If your local telephone service were offered through the City at the
same prices you currently pay would you be willing to switch so that Palo Alto would benefit
from the revenue?” 77 said “yes,” which is a no-brainer to me.
Childs: Well, it’s a straightforward question. It showed that 83% of current telephone user-
subscribers are happy with their service. At least satisfied: fairly satisfied to extremely satisfied.
This section of the survey we actually almost didn’t put in, because it wasn’t the primary
objective in measuring the services. We put it in strictly to ask the question, believing that the
dial tone issue is a commodity product, in the sense that -- it’s now a given, people expect that
service to be always on -- whether or not switching simply to benefit the City would matter to
these people. That was really the only issue we wanted to get at with the telephone service. As
the results show, people are very happy with the telephone service. People don’t need to
switch. So the issue was, would you switch -- if it benefited the City. That’s the only reason we
asked it.
Dawes: But didn’t the final result -- there was a major adjustment in this response in terms of
how many -- in the financial modeling, there is revenue coming in from the telephone service.
Initially the thought was “it’s like 80% -- which is much too great, can’t we just move that down to
some vastly lowered number” for what reason, other than it was just off the charts. But why it
was to some specific lower number, I don’t know. To me, it basically said the survey was
designed in such a way to give responses that just weren’t valid.
Childs: Well, the question says “at the prices you currently pay.” So it wasn’t just a question of
hey would you switch -- without a reference point.
Dawes: In our financial model we have a revenue stream which is based on no data, as far as
I’m concerned.
Shaw: That’s correct.
Dawes: Somebody cut back a very large number to a much lower number and says that’s what
we’re going to get them.
Shaw: It’s based on what you typically expect in the industry. So it’s not primary-research
based, like the other numbers are on the telephone.
Carlson: What you’re saying is that the actual experience is fairly limited on switch over in the
few actual examples we have of competitive local telephone services?
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 7 of 53
Shaw: Not with competitive local exchange carriers (CLECs). Given the opportunity -- there is
industry research that says that -- 30% of the market right off the top will switch at a 10%
reduction. It’s beyond that 30% that’s going to be difficult, because there’s a certain amount of
discontent; a certain number of switchers just in general in the market are going to move over.
Carlson: 30% of residential customers will switch?
Shaw: Uh-huh.
Carlson: Where has that happened?
Shaw: When I was at U.S. West we did research that said that. It scared us to death. I’m sure
PacBell has the same research. It’s just basically your general incumbent monopoly service.
When given a choice, 30% are going to leave, and that’s just….
Carlson: Has anybody gone out -- I know AT&T tried to sell local service here, in their cable
systems in a number of places. I didn’t think they got much in the way of switching. I’m asking,
has anybody actually gotten that level of switching?
Audience voice: Yes, Cox in San Diego.
Carlson: Is that correct? That’s interesting.
Dawes: Actually, a number of earnings reports of the Baby Bells in the last quarter or two have
emphasized the earnings hit they have taken due to switching of local services.
Carlson: So there is some actual…
Dawes: There are some actually happening.
Ferguson: Cox as a cable company is focusing on adding cable-modem and telephone
subscribers because that’s where they’re getting the fastest new revenue. So we’ve got another
cable company focused on the telephone business -- because you get a quick return on it.
Childs: From a survey standpoint, if the telephone issue needs further investigation and it turns
out to be a major issue in the plan, we’d be happy to go back and re-survey the 80% of people
who gave us their email addresses. We’ve already gone back to them once. We can go back
to them again and ask a lot of detail questions about phone.
Dawes: Unhappily, it sort of tainted the entire thing for me. You know, this is the way it’s been
handled for telephone -- I think I’ve made myself fairly clear here -- are the other business
propositions similarly flawed? I don’t have any opinion about that. I’m anxious to hear what
people say about that.
Childs: Well maybe if I go on, and also relate the Alameda Study and self-selection …
Dawes: Self-selection is very important to me. I don’t know a whole lot about sampling. But
certainly something in the back of my mind says you’ve gotta be random, you gotta hit the old
people who don’t know a damn thing about this -- they just throw it in the wastepaper basket,
they couldn’t care less and certainly wouldn’t be a respondent. And so forth.
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Bechtel: Before we go to Alameda, another answer that seems surprising and I think Dick
Rosenbaum pointed it out. It seems like the number of broadband subscribers, in this case let’s
just say DSL, seemed higher than I would expect for Palo Alto, or any city really.
Childs: It is -- and so is home ownership and so is certain zip code representation. There are
three or four benign biases in the data -- which Bernard will be able to speak to because he did
a statistical analysis within those segments to see where there were any meaningful variances.
But, a couple of these issues I might clarify before Alameda. First of all, what the objectives
were. We wanted to create a residential snapshot of residential opinion. A quick snapshot of
what people felt about their Internet and cable services. This was not a vote by the City to say
yes, I want fiber in the city or no, I don’t. It’s a complex issue, lots of different variables. A
major objective was to collect a lot of text comments from residents to really express in detail
what their concerns were, what they felt the benefits were. The survey generated over 85
pages of text which really gave a composite view. All the fears, concerns, and hopes and
dreams, desires of the city. Secondly, we wanted to measure about future FTTH services. And
third, we wanted to, well as I said, the qualitative issues surrounding the pros and cons.
The fact that the survey generated almost an equal number of text comments regarding benefits
versus concerns suggests that the people that did respond had an opinion -- and that they came
to the survey in equal measures of both positive and negative.
Quantitatively, obviously the data shows they favor FTTH in some respect. But the text
comments showed a very balanced view of people understanding that this is complex, it’s not a
simple yes or no. There’s a lot of issues yet to be explained to the City residents -- perhaps like
cost and how this works, and so forth. But just from the snapshot, it really did, I think, show
clearly what the City was thinking. Our method of choosing -- the way we did this was, because
the City statistics show that almost 90% of residents are connected to the Internet, we decided
that our on-line technology was as cost-efficient and reliable a method of reaching these people
as any other survey method was. Then the City performed a random, an nth selection of all the
5,000 utility customers out of its database, so that we had a good cross-section of utility
customers across the City.
Dawes: Was that random, or was there some…
Childs: I believe it was an nth selection. We did not do the selection, but I believe it was.
Heitzman: According to our person who pulled the data, it was random and actually even
proportional by zip code. He randomly selected from this zip code and randomly selected from
that zip code, so that they all at least had an equal opportunity for representation.
Childs: And of those that were mailed, there were no follow up mailings. It was a one-time
mailing and 1049 responses were received -- or 970 [on-line] responses were received, 70 were
paper surveys. People had a choice of either asking for a paper survey or going on line and
filling it out right then or giving us their email address and asking for it later. So they had three
different ways of responding.
Bechtel: Let me ask a question again. How were they first contacted? By email or by
postcard?
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 9 of 53
Childs: By postcard. We do a lot of work by contacting people via email but in this case, we
didn’t have the email addresses so this was the best way to reach them.
Dawes: This gave us A,B,C options.
Childs: Yes, you’re right. With this data, we then went to Alameda and surveyed all of their
Internet customers who had signed on to their service in the first six months of the service
offering. We did this to corroborate -- it’s part of the plan -- to corroborate this data and the
sentiment of what people felt were the benefits, what they felt their concerns were. To measure
the same issues in Alameda in the form of “to what degree were each of the following a factor in
your decision to switch to AT&T Services?” We also then asked people to rate service
attributes of their prior services and their current services. It turns out, Alameda customers
expressed many of the same concerns that Palo Alto has when we asked the question “what
hesitations did you have prior to switching, what were some of your concerns?” And quickly
here are some of them:
xI had concerns about the stability of a broadband network being run by a power
utility
xA step up in cost compared to my old dialup network.
xUnproven history, new to the market.
xDo not know who is managing the services. What is their background?
xHow does my subscription help Alameda?
xCan they provide robust secure services at a competitive price?
xThe commitment of the city to continue to invest in the service, that’s my major
concern.
xThe possibility that the city could later pull the plug on the service leaving me
stranded if it wasn’t making enough money.
xLack of technical expertise.
xIf I had a customer service issue, whether or not they would reply in a timely
fashion.
xThe ability for AT&T to handle the capacity issue.
xQuality of service, amount and duration of down time.
xThe cost may increase.
xWe are in one of the first areas to receive the service and friends took a wait and
see attitude.
xWhether Alameda is too small to manage the system.
xWhether the cable modem speed will degrade as more users get on the system.
(Keep in mind this is a HFC system not a pure fiber system)
xWhether the WorldCom implosion will effect Alameda’s telecom service.
These are representative comments of hesitations which turn out to mirror almost perfectly the
same concerns that Palo Alto residents are expressing. All of that boils down to numbers. This
is the way it came out:
xFor prior Internet service: 41% of these current subscribers said that the prior
service met or exceeded their expectations. 93% say that Alameda power and
telecom service meets or exceeds it’s expectations.
xOn cable, 62% said their prior AT&T cable service met or exceeded their
expectations. 92% said that Alameda’s service met or exceeded expectations.
xIn Palo Alto 67% of the respondents who are Internet subscribers say their
service meets or exceeds, so it’s higher than what Alameda says their
satisfaction was with prior, and cable is lower. 46% of Palo Alto residents believe
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 10 of 53
their cable service meets or exceeds expectations versus 62% of Alameda in
their prior service.
These numbers are beginning to look similar. The text that was expressed really starts shaping
up all of the same issues that Palo Alto has. And Alameda, I think, has proven that a city
municipality has been able to deliver a high quality service, high quality and high customer
service. Factors that are contributing to their satisfaction -- we asked them what stands out,
what’s the most positive impression you’re getting out of the service today:
xThe fact that it’s local and under local control.
xPricing is competitive.
xCustomer service is excellent.
Those are the major reasons why Alameda customers are happy. 47% of Alameda’s
customers came from dialup connections which was good news in the sense of conversions,
because they essentially stepped up from a $19.95 price point to a $40 price point. 40% of
Alameda’s Internet subscribers came from AT&T cable. They went from cable to cable. 10%
came from DSL and other, and 3% had no prior service.
Lastly, the issue of self-selection. All survey methods have a degree of self-selection to them.
Even random phone surveys have self-selection in that many people hang up. They don’t talk
to the interviewer. Secondly, in the case of a phone survey, generally you have to ask very
precise questions with rating-scale questions and yes-or-no answers. You cannot get the text,
contextual flavor we were also seeking in the Palo Alto survey, with lots and lots of comments
coming back. Any bias in the data collected in this whole issue of self-selection is addressed in
the statistical analysis that Bernard performed on the data, to look at variances within the
demographic segments. As I said earlier, we did have benign biases in terms of DSL is
probably slightly over-represented -- although we don’t really know because we don’t have an
accurate figure of what DSL in the City is. Age is slightly higher. The zip code representations
were not exactly the way the census data is, and so forth. But again, Bernard can address
them. Maybe we should do that now.
Heitzman: Can I ask one question before you do that? On the population demographics, of the
people who are 75-80 years old, do you remember how many responses we had, do you
remember that off the top of your head? Someone said that elderly people might just throw
away their survey.
Dawes: I said that, Blake.
Heitzman: The reason I’m asking this is because we went to the hand-transcribed survey where
we had people 80 – 84. A lot of those handwritten surveys, they would say ‘no opinion’ but they
still filled out this huge survey -- it was 170 questions. So I don’t feel like they were apt to toss
it, is what I’m trying to get at.
Dawes: Before we move to Bernard, I have a question about commercial and business polling,
querying. I understand this was residential only. I don’t even know what our policy or question
is about business and industrial customers -- other than we had our largest customer appear
and say, you know, we have to be very careful because if people don’t subscribe to this, we’re
going to be the ones to eat it on our utility bills. It seems to me that business -- and there’s
certainly a lot of small business around Palo Alto -- retail, I’m on the board of a retail company
and each one of our outlets, several hundred, has to have Internet connections for
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 11 of 53
communications and data transfer and so forth. This may be jumping ahead a little bit but I
certainly think in terms of the scope of work in the business plan that I for one would like to add
a large commercial and business segment to it. I don’t know why it was not done at the outset.
Heitzman: Dollars. We had to make a decision of what we could do with our budget. I made
the decision that the residential customers had to be there or we wouldn’t be able to offer it to
the business customers. But if we were able to get the residential customers then we probably
would be able to at least be able to pick up the small businesses peripheral to the residential
areas. Maybe at the next phase we could actually interview the smaller businesses.
Dawes: Do we know enough about the larger businesses? We will have a data transfer system
that is very robust. Some of them are customers who are on our backbone and so they feed
into us now. But with the kind of data rates we could get -- I would think that if we offered it for
$40 per month that Agilent would partake of that and drop these $1,000 T1 lines.
Heitzman: We’d have to determine what the business package is, for one thing. Then, of
course, surveying the larger businesses is a small amount compared to the small businesses.
There is maybe 1200 -- in that range -- small businesses. So you’re adding another 100-200 to
get the large businesses. It wouldn’t be difficult to survey them. But just from our dark fiber
experience, I would expect that their expectations and needs are divergent even from large
business to large business. Many have their own IT. They simply want to be connected to their
own facilities elsewhere and they want to manage the whole thing. At least that’s our
experience in dark fiber. They’re tending to want very specific, specialized things that would be
difficult for us to offer over this system. But if we get funding to move forward with the business
plan, I certainly would like to survey the business customers.
Rosenbaum: I wonder if we might not explore the DSL issue right now, since that’s the one that
certainly attracted my attention. There were roughly 900 respondents. There’s a table here if
you look on page 16 where the responses are listed as 1093 but that’s because some people,
as I understand it, indicated more than one type of Internet connection, so basically 900
respondents. 453 said they have DSL, 50%. You just mentioned that we don’t really know what
the situation is in Palo Alto. Perhaps we do know. There is a representative here from PacBell
who may possibly may be able to shed some light on what their penetration really is.
Childs: I think that’s a good question. I think Bernard’s statistical analysis will help explain that
particular issue as well as…
Rosenbaum: Well to put it in context for everyone, would it be helpful at this point to ask the
representative from PacBell what…
Carlson: If there’s a PacBell person here with a number, we could use a number.
Stacey Wagner, Director of External Affairs, SBC Pacific Bell: I have to be very clear when I
say the information I’m going to share is information I’m not supposed to be sharing. It is
against company policy. However I’ve been pushing, pushing, been on the phone, But
because I was not told by our legal department, because I could not reach someone from our
legal department, I will be sharing the number with you keeping in mind it is proprietary
information. The penetration rate that we have in Palo Alto is 27% which includes residential
and business customers.
Heitzman: Would I be allowed to ask Ms. Wagner some questions at this point?
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 12 of 53
Carlson: Yes, this is a very important issue, it is open season.
Heitzman: Is that strictly Palo Alto numbers, or is that an average of the Bay Area or California?
Wagner: No, Palo Alto numbers.
Heitzman: And when you say you have 27% in DSL, do you include your resellers who resell
DSL through your services?
Wagner: That was a number I was not able to get an answer to because this information I’m
sharing is not SBC Pacific Bell information, it’s ASI information. For those of you who don’t
know who ASI is, its Advanced Solutions Incorporation which is a company separate from
Pacific Bell, or I should say, SBC Pacific Bell. So I’m trying to get an answer to the question but
as of right now, I do not know.
Heitzman: Do you have an idea of what percentage of your DSL service is resold, set aside to
be resold through other services?
Wagner: I have no idea. I know that there are some CLECs who take advantage of the Uni-P
rates that are low and resell our DSL under their businesses. There are some competitors who
don’t access our infrastructure, just the local loop or last mile.
Heitzman: Do you, I sound like an attorney here!
Wagner: I don’t mind.
Dawes: Is the percentage by number of phone lines or is it by number of households or bills
sent out? What’s the denominator of this equation?
Wagner: I don’t have that data either.
Dawes: I have like four phone lines in my house, so if it’s on….
Wagner: I would think that it’s not on the number of phone lines.
Audience Voice: Connection. ASI counts connections. Not MAC addresses but end points
which is determination of the DSL line.
Dawes: The denominator is what I’m interested in.
Wagner: I think it’s the number, I mean, I don’t think it’s 27% of phone lines. As a logical
person, I would think it’s the number of customers we have is how the number is determined.
But…
Heitzman: I’m still not done. I’ve heard through our survey and also through various individuals
that PacBell has retracted their DSL service. Is this the peak penetration that you had or this
just the current penetration?
Wagner: The number I provided is the number I was given. We haven’t retracted DSL, there’s
plenty of room for folks to sign up for DSL…. It’s on the TV, in the paper, I mean…
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 13 of 53
Bechtel: I’d say if anything, PacBell is going ahead. They’ve just cut a deal with Yahoo and all
of us who have PacBell DSL accounts are being now asked to convert to Yahoo. People like
that idea, that notion and so I don’t they’re retracting. I’d also guess that number -- 50%
penetration in Palo Alto -- is easy because I think EarthLink, Covad, and all the others probably
could take up another 25% penetration in Palo Also.
____________: ASI is the retail play, right? And SBC sells underlying.
Wagner: I think it’s the opposite. SBC is the Telco, ASI is the data subsidiary company.
____________: Right, but they buy their access from the Telco, correct?
Wagner: Yes.
Heitzman: One last bit of information that I want to add because when we heard this 27%
number we did some research ourselves. This is a study out of Columbia University on Telcos.
It deals with PacBell as part of the survey. Basically it says here that speaking of PacBell “ …
last year Internet traffic accounted for 27% of all residential phone use in its territory” and this is
a little bit dated so it’s a couple of years old and “by 2001 it will represent nearly half of all
residential traffic.” The Columbia study of telecoms tends to be at odds with what you’ve told
us.
Carlson: There’s a very big difference between traffic and connection. Those are two very, very
different things.
Ferguson: Let me suggest another set of numbers from October 29th. Yankee Group in the
Wall Street Journal says “cable connections are expected to be 10.6 million subscribers while
DSL will have 5.1 million” and “the rate of increase of cable-modem subscribers is outpacing the
rate of increase for DSL subscribers” -- partly for cost and partly for technical difficulty reasons,
no matter what price you offer.
Wagner: I would probably add to that, it’s due to the way the Telcos are regulated and the way
the cable companies are not regulated. That’s a huge aspect there. It takes us longer and
costs us more to provide the service.
Ulrich: [To Stacey Wagner] Can I ask a question? Welcome to the public process. Thanks for
coming. I have a question, maybe it’s just a clarification because I’m not too smart on this.
When you talk about connections, are those for people who are able to get DSL or are they for
everybody who is a current PacBell customer within the geographic area? Because when I call
up for PacBell they immediately measure the distance between my house and the central
station and they either say “yes, you can have it” or “you can’t.” I assume EarthLink or whoever
is providing it would have the same situation. Could you clarify that?
Wagner: I can’t speak to how a competitor would resell our DSL service. But I can tell you that
if you’re an SBC Pacific Bell customer, you have to be within 16,000 -- kilo feet -- of the central
office with the equipment in order to get the service. I’m not the most technical person but I’ve
learned a lot. To get back to your more specific question, Mr. Ulrich, it doesn’t matter who has
phone service. Most people have SBC and, you see AT&T and WorldComs more in the local
markets as well. But, when we’re basing penetration rates, we’re talking about the actual
number of customers who have DSL Internet service through our company.
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 14 of 53
Ulrich: So I could assume that the 27% would be 27% of those people that if they called up
could get DSL service?
Wagner: No, it’s who has service with us today. DSL Internet service. Everything I’m talking
about is DSL, it’s not regular phone service.
Ulrich: I’m probably not doing too…
Carlson: What are you dividing that number by is the question. Although in this area, isn’t
nearly everybody DSL capable, like 80% percent?
Audience Voice: No, no.
Carlson: What’s the number, half the town?
Audience Voice: Half or around 60.
Wagner: I don’t know what the percentage of the coverage is. It depends on how close you live
to the central office.
Ulrich: I don’t want you to think that we expect you to know all this stuff.
Wagner: Right, and keeping in mind that a lot of the information is proprietary, that I ….
Ulrich: I’m only asking this because it’s an important issue for validity of the number. If it’s 27%
of the population of 10,000 customers that can get DSL if they want it, it’s a different answer
than if it would be if it’s the total population that currently have PacBell service in Palo Alto
which may be 20,000. Does that make sense?
Wagner: I understand what you’re saying. And if I could provide clarification I would do so.
When I got the questions from Manuel and I looked back through the survey, I noticed on the
dialup question they asked who your service provider was -- and you see the responses. And
when I look to the DSL question, I didn’t see who is your service provider. So what might be
helpful is to have an additional survey done and when you ask the question, follow up and ask
who is your service provider. That might be helpful in getting a better representation instead of
just seeing a 52% which seems to concern you.
Ulrich: Can you speak about if you’d like to participate in that survey with us?
Wagner: I can’t answer that question.
Ulrich: I’m just trying to cut a deal tonight. (laughter from the audience)
Wagner: Any other questions?
Carlson: Stacey, we really appreciate this data. It’s important data, I hope we can find a way of
cooperating some more in getting this data correct.
Wagner: Absolutely. Who should I hand this off to?
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 15 of 53
Ulrich: Thank you.
Carlson: I’ve got a question, before we get into this statistical issue. That is, survey research.
A great deal of it is done for political purposes. In my experience, there is a difference in
commercial research. If you ask somebody who you’re going to vote for, that’s kind of a
costless decision. It’s hard, but it’s usually fairly accurate, usually plus minus 5%. What is the
range on the commercial? In a commercial issue, very often there is a big difference between
“would you like to buy this” or if people actually buy it. There is a much bigger gap there, than in
the pure opinion kind of work “are you gonna vote for Joe or Mary?” Can you tell me what’s the
experience, how big is that gap, how variable, how uncertain it is -- which is the key question of
a lot of marketing research, because they still don’t know until they go out there.
Heitzman: Actually, Steve developed the data but Neil is the one who applied it to the model
and used techniques to decide based on typical industrial practices what the take rate would be.
Shaw: With the Likert Scale, you typically factor the responses appropriately. If someone says
absolutely I’m going to run out and buy it tomorrow, if ten people said that, you might factor that
by 60-70%.
Carlson: Okay, so there’s actually experience on how you scale it?
Shaw: Yes, and that’s based on my work with another market research company that’s done a
lot of historical work for incumbent local exchange carriers (ILECs) and public utilities. That is
something where you can be fairly aggressive and say, I’m going to factor the top response by
60% and the next response by 40% so all of your affirmative responses are factored by a
minimum of 60% and then just leave out the rest. Or you can start to factor the rest down below
that.
Carlson: So there is actual data and experience, that if we get this many ‘5’s we give 60% times
those and ‘4’s we give 40%. There is actual experience to base that factoring on? Which is
part of…
Dawes: I’d be interested to know what that experience is.
Rosenbaum: You’re putting words in his mouth.
Shaw: Yeah, you’re putting words in my mouth. These are practices that are best practices put
in place by market research firms that have done lots of consumer research, okay? If you’d like
to know the details of that I can get a white paper from these folks or have them come in and
discuss it with you but this is standard practice in terms of consumer research, top-two-choice
weighting factor.
Dawes: Is it peculiar to telecommunications or is this the same factors for cosmetics and …
Shaw: It’s intent-to-purchase as it relates to market research results. As it relates to a Likert
Scale.
Rosenbaum: To finish my point, if indeed the DSL penetration is considerably less than 50%,
and that’s a number that at least to some degree we can verify, that would suggest that the
survey is not really representative of a random sample. Or certainly it’s not representative of the
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 16 of 53
entire population of Palo Alto. Then I would think you would question the responses to the rest
of the questions.
Shaw: I think actually Bernard can address that specifically.
Erlich: Yes. Basically from a statistical standpoint, when we look at results from the survey,
we’re going to look at a segment of the population. For instance, the DSL subscribers. What
we’re going to look at within this sample is the variance within the responses, those that are
very much in favor of high-speed Internet and those that are not interested in buying the service.
The other factor that is important in calculating, estimating the penetration for a product is the
number of respondents within the segment.
Essentially it doesn’t really matter whether a segment of the population is over or under a
percentage. What matters from a statistical standpoint is whether or not within a segment you
have enough respondents to infer a response that is usable for a decision maker.
Let me give you an example to clarify this. Say you have a sample of 100 customers and 95%
of them respond ‘yes I will buy high speed Internet connection’ and 5% of them respond ‘I’m not
interested’. The variance is very small because you have 95% that are deciding for it and 5%
that are deciding against it. If this is the case then you do not need a very large sample to infer
what the total segment will do. However, if you have a sample of 100 and 50% are saying yes,
50% are saying no then the number of responses you need to infer something meaningful at the
level of population is bigger. In conclusion, if we look at the responses from those who are
currently subscribing to DSL, at a level of confidence of 95% we can say that the sample that
was surveyed enables us to conclude that between 80-86% of those that are currently
subscribing to DSL will actually buy high-speed Internet services.
Shaw: And compared to the dialup, you did an analysis between the different types of
connectivity.
Erlich: That’s correct. We looked at those who were currently subscribing to dialup services
and if my memory is correct, between 76 and 83% of those who are currently subscribing to
dialup will buy high speed Internet connection.
Shaw: And those were using an affirmative top-two boxes.
Erlich: That’s right.
Shaw: And then we factored that down to these levels.
Erlich: I think the question, Mr. Rosenbaum, that you were asking is does it matter from the
standpoint of the decision maker if it appears based on market data that the segment of DSL
subscribers is over-represented in the survey. Is that your concern?
Bechtel: That’s my concern.
Carlson: That’s my concern, too.
Erlich: If we want to infer something meaningful [about] those who are in fact connected using
DSL, the only thing we need to worry about from a statistical standpoint is: do we have enough
respondents given the variance within the responses we’ve obtained. The numbers I’m giving
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 17 of 53
you are at the level of confidence of 95% -- which means from a statistical standpoint, we can
take the bet, we are 95% certain: those who are subscribing to DSL, 80-86% of those are likely
to buy high-speed Internet connection.
Carlson: I think part of what matters substantively is that even if you make the adjustment, if we
turn out to have over-represented for DSL, if the DSL people aren’t all that different from the
dialups, in their desire, then it doesn’t make much difference. We can do the adjustment and it
will have no impact.
Shaw: That’s exactly right.
Erlich: We’ve tested whether or not there was a substantial difference between the responses
from the dialup people and the responses from the DSL people. Again, at the level of
confidence of 95% we found no significant difference. The way you do that basically, you have
a proportion of DSL subscribers who are very interested, there is a proportion of dialup
subscribers who are very interested and you test the hypothesis that the difference between the
two proportions is zero. And so you have a margin of error of 5%, when you’re 95% certain.
With that level of certainty we found no difference between the two populations.
Carlson: What you’re saying is, the only problem we could have is, if we’ve got a big enough
sample of those two groups, unless the sample is biased within those groups -- which would be
a strange result, but anything’s possible -- it doesn’t make much difference whether the DSL
people are 27% or 50%. What about the non-DSL, non-dialup, we must have had a…
Erlich: I haven’t researched those segments of the population.
Shaw: You’ve got about 8% cable modem, 1% satellite and about 5% no Internet.
Carlson: So 95% of the town has Internet?
Shaw: Yes. 90-95%.
Erlich: Mr. Chairman, we verified with City available research that actually 87% of the
population in Palo Alto has got some sort of Internet connection. Based on a survey that was
done 2 years ago.
Bechtel: That was an independent survey?
Carlson: That was a separate survey.
Erlich: Yes, it’s my understanding, yes. It’s not done by us.
Bechtel: That was 2 years ago which is a key issue. It could easily go from 87 to 90+ in the last
two years.
Dawes: Is there any statistical significance to the difference between the statistics that Rick
read about nationwide cable versus DSL broadband access, and our experience with, say, a
reflection of the Cable Co-op issues or …
Bob Moss in audience: Yes.
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Bechtel: I think that’s a no-brainer, Dick. I’ve basically had Cable Co-op, and I think they’re a
lot of people here. They basically stopped selling it some time ago.
Bob Moss in audience: Cable Co-op never quit. AT&T was fundamentally incompetent to run
the system and then they drove it down from 3100 people to 1000 in two years.
Carlson: But basically we are different from the nation on this cable area, and cable-modem
access.
Bechtel: I think that’s clear. That’s why perhaps you can believe a high DSL population. What
it says is the particular product and the circumstances are extremely critical. If we had three
competitors in this town for whatever it is, all of the numbers and all of our projections could go
right out the window, that’s what concerns me.
Carlson: But what it does mean is that your sample did hit the key number pretty close, an
independent survey said 87% a couple of years ago. You say 90. So on that independent
corroboration we hit pretty close. And the DSL, since the opinions of the DSL people are not all
that different from the dialup people, the DSL number doesn’t turn out to be that important, on at
least many of the key issues here.
Childs: By the way, one thing I didn’t mention that may have come out in previous meetings.
But in the Alameda work, this wasn’t part of our survey, they’re just discussions with the
marketing department. Their initial projections were 30% conversion just like this study. This
business case is showing and in their oldest nodes they have exceeded 40% conversion so
they’re above their projections in every node that is old enough to have a full penetration.
Bechtel: Excuse me, when you say conversion do you mean changing provider?
Childs: I believe that a very small percentage are actually new customers that had no prior
service of any kind. And 90% of their Internet customers also have cable but we used their
Internet as the base to survey.
Carlson: So you’re not measuring the Internet, you’re measuring Internet penetration not cable
penetration?
Childs: No. We didn’t measure this. This is just information that we gathered when we were
over there.
Carlson: Are you talking about 40% of the customers switched to them in the cable area or in
the Internet area?
Childs: Cable, Internet is a relatively new service for Alameda. The cable is 1½ - 2 years old.
Shaw: They turned up a node with 100 homes and they got 40 customers.
Topete: Their nodes are 500 homes.
Rosenbaum: My understanding is they’re not pure fiber optic, they’re hybrid fiber. And
secondly, they told me that they had to send around people door to door because the initial
market penetration was not good. But when they sent people door to door they reached those
substantial numbers. With very significant effort.
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Heitzman: In my talks with Bill Garvine, their manager, he decided that his marketing technique
would be to use local Boy Scouts, Kiwanis and so forth, community based people, to sell. I
don’t remember, Rick may remember, whether or not he originally started out with a commercial
marketing firm and switched to this. For whatever reason it has been successful. It was a
successful strategy.
Ferguson: Bill Garvine had a political life in Alameda. He’s been on the school board, knows all
the Moms. So he’s connected with them. He applied those smarts.
Carlson: Any more questions on these survey issues?
Bechtel: I have one more but it perhaps may be a little premature. I noticed in the business
plan there is a line item there about another survey. Is that only if necessary, what’s the thought
there?
Heitzman: My thoughts are that in the research, certainly there will be one more survey if not
more than that. But the idea of researching the product design -- there would have to be either
focus groups or survey work to start defining the products that meet the needs. So there
definitely has to be additional customer work all through the process, probably.
Bechtel: But it’s not likely to be along the lines of what this survey has covered already, is it?
Heitzman: No
Dawes: I would like to reiterate my objective of surveying business people as well as residents
as an added line item or added scope in the business-plan statement of work.
Heitzman: Probably the way I would prefer to do that would be to contract with a separate party
to do that, rather than as we had in the past. In other words, the survey work we’ve contracted
with Datacycles.
Dawes: I see this meeting as a means for the Commissioners to provide input to the statement
of work to the business plan. In other words, how do you expand upon this initial data set to
address concerns and collect additional data and flesh out the case. One of these in the survey
area, from my point of view, is surveying commercial and business people.
Heitzman: Okay.
Dawes: And I don’t know any of the preferences of the other Commissioners. I’d like to follow
up Dick’s point on this DSL thing. I think it’s critical and we evidently have the ability to mine the
41% and try to discern whether or not our number is at variance with the PacBell number and
other things. We should be able to do that if we, in fact, ask people who they subscribe with.
Ulrich: I only point out that if you’re going to continue to make comparisons with PacBell
number, it would be important that PacBell would be willing to share more of the additional
information about how that number was derived. So we’re not in a Catch-22, where we’re out
looking at stuff but don’t have the ability to get the other side of the equation.
Rosenbaum: May I make a suggestion which I think could be done very quickly? Is to look at
the email address of all the people that responded, that said they had DSL. And if you did that
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 20 of 53
by provider you could throw out a lot of people, because there are some small ones who
probably wouldn’t but…
Ulrich: Gentlemen, I just have to push back only in that everything cost money.
Ferguson: You’d have to examine all the routing in the email headers.
Ulrich: If you have questions about the validity of the survey, if you believe the data or the
methodology, try to give us as much comment or critical comments so that we can either feel
that the survey results you’re comfortable with or if you want additional information, that you
want us to go out and do that. If we could do that before we move on, it would be helpful.
Carlson: We may end up having to two-phase this. Saying that we have some really important
questions to be answered in the next phase. And then, which is part of what’s in your business
plan, we wait on the other pieces, the real final product design and so forth.
Rosenbaum: From my standpoint, some concluding questions. I’ve raised two concerns in the
questions I sent to the City. One was I questioned the wisdom of using the Internet to question
people about their Internet use. You folks use the Internet, and you ask all sorts of questions
and I don’t know that you’ve ever queried people about Internet use. The reason for this is that
you’re going to get a very large sample of people who are Internet savvy and perhaps fewer of
the others. And the other point, I’d appreciate it if you’d make a clear statement: you’re saying
that a self-selected group of 900 out of a starting random sample of 5,000 is not of concern to
you, because of your analysis of the response from the 900 people. Do you agree with that
statement?
Erlich: Yes, I do agree with that statement.
Rosenbaum: All right, my only suggestion is to staff. You have in the past talked to other
survey firms. I would think a query to another survey firm to confirm that they indeed would
view the situation in just this way might be helpful.
Heitzman: We can certainly do that, but just to whine: our information about other surveys is
that we got roughly a 20% response. That’s exceptional compared to what most people get.
So…
Ulrich: I think his question is towards validating the survey methodology that was used here.
Independent of the survey we have already done. Is that correct?
Rosenbaum: In history there have been some very poor predictions of political results in
elections. And the reason for this is they completely -- to the extent possible, a random survey
was not undertaken. And what you always worry about is that for one reason or another, people
on one side or another are going to be over-represented. Clearly here, you’ve got what would
appear on the surface to be an obvious case of that. You feel your analysis of the results that
you did get suggest that that is not an issue -- and that is what I’m interested in. When you
speak of 5% returns on surveys, these tend to be commercial surveys. If a political survey firm
goes out and they want to speak to 500 people they make damned sure they get as many of
those 500 to respond as possible. And that’s what I feel is lacking here.
Carlson: Let me point out how difficult this question really is. The question is not whether we
had too many DSL or not enough dialup, it’s whether within both those groups we just got
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 21 of 53
enthusiasts responding. We know that demographically they’re kind of similar to the
community, and they fit the 90%, But checking whether they are truly random or they’re
enthusiasts is a very difficult thing to do. Retrospectively there have been many times in this
kind of issue where the results really were not generalizable because you just got the people
who really loved responding -- and there is a difference. Now a classical way of doing that is re-
sampling for the non-respondents. Just go out and really push to get a random sample of 500
of them to see if they respond differently.
Heitzman: That’s possible. Let me go back to a couple of issues. We used the Internet in this
survey but remember a postcard went out with options. So it wasn’t that they were forced to
only go by the Internet.
Childs: It really wasn’t the Internet, it was the email.
Heitzman: Yes, actually email, a large portion of it. You could either respond by Internet, email,
or by asking for a written survey and receive that. We had 140 ask for a written survey. So, it
wasn’t that only enthusiasts were able to respond. The other issue is, you’re talking about only
enthusiasts responding; there is a breakdown here where we have the negative side being fairly
well represented both in the commentary and in some cases the bell shaped curve, which I
believe someone mentioned earlier. So, it isn’t just the strong for it, it’s also those who are
against it who responded.
Childs: Contextually, if the comments had appeared biased in one direction, where everybody
was saying, get to it, do the damn thing, then that would raise some eyebrows. But we really
did get a balanced view. As I said earlier, this is a complex issue for the citizens and they
expressed the complexity in their response.
Carlson: What I’m saying is that this is a very difficult issue on how you track down to make
sure you’ve got mostly a group that’s particularly interested -- because you’ll get a bell shaped
curve out of them too. I really think the staff needs to look at a way of corroborating that this
data ….
Ferguson: I’d like to echo Commissioner Rosenbaum’s suggestion, which is that we’ve really
had three, independent, statistically, mathematically smart people look at this already. But on
the narrow questions that have arisen here, let’s pay for a couple of hours of another
commercial research statistician and just confirm that this is a plausible method of inquiry, of
inferring from numbers that might contain some self-selection at the initial stage. That’s a
narrow question to ask. I know it costs additional dollars but I think it resolves a number of the
concerns that might appear.
There is another comment to this which is at a global level. I raise it now because the same
comment applies to a number of topics we’ll get to tonight. In each of these cases where we’re
getting very perceptive, critical questions from the Commissioners, an important point is: what’s
the penalty if we’re wrong? Yes, you’re right, there’s some selection bias -- but so what? How
big is that bias likely to be? What’s the resulting swing in the financial numbers? That answer
is going to vary depending on the subject. But we’re at a relatively early stage here. At some
stages there’s enormous value to the next component of information that we buy from a
consultant. There’s enormous value in the next 30 days that we spend on this, because we
miss the sweet-spot for doing this if the schedule slips too far into the future. For others, it’s just
not that critical. We really can wait till later in the project to narrow down that particular
question. And we’ll be far happier spending $100,000 on a very specialized survey six months
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 22 of 53
from now because we’ve answered the questions that were critical to us at the earliest stage.
First things first.
The generic comment is, help us understand which of these questions -- the questions are all
important, there’s a bunch of smart people here on the panel -- but which ones benefit most
from the investment in additional information today, which ones can be deferred, and which are
ones where there is just no cost-benefit to pursue it.
Carlson: Okay, are we done with the survey?
Bechtel: Let me come to the question, rephrased. Is your worst case scenario, truly a worst
case scenario?
Shaw: It’s worse than worst.
Bechtel: So what’s the penalty we pay if we’re being too optimistic on the interests in DSL being
translated to the Palo Alto system.
Shaw: Right. Given these concerns, I’ve already dropped the penetration levels by half and I’ll
be able to share those numbers with you tonight. This case still looks good. The thing we’re
struggling with or not, the thing people normally struggle with in this case is what defines
success at this stage, from a financial performance perspective, such that you can feel
comfortable moving forward. If in fact we change the penetration numbers to a much lower
percentage and the performance still meets that criteria, then let’s move forward. That’s my
two-bits on it.
Heitzman: Can I add something here? Neil used the survey for probably the best-case or the
nominal case. But he also used his knowledge of the industry -- like the practices in Alameda
and so forth and the success in Alameda and other cases. There are some cases that are
dependent on the survey work and some cases that are not dependent on the survey work.
There are still, I believe, some positive results even in the non-survey based studies.
Carlson: I want to move on to at least a couple more issues tonight. The next one on my list
were main questions on the issue of competition, including new technologies. I think everybody
asked about those. I’ve got a future son-in-law out organizing his condo so that they can all
have one or two high-speed access points and they can all share access, all fifty of them. That
technology is out there and it’s cheap, it’s real. There are things like that out there. What do we
know about the competition? How fast is it moving? How much could that change our
numbers?
Dawes: Particularly in the area of what I would call “sharing” signals.
Ferguson: What utilities call “theft of service”.
Shaw: Well, wireless certainly has it’s place. The model you’re talking about is a WiFi or a
802.11b scenario where you buy a little $60 card and probably a little antenna to use it. Having
deployed those networks myself, with my own money, I would not say that’s stiff competition. It
may be complementary, in the case where certainly the City could put up ‘hot spots’ if they
chose to as people get more and more savvy with this stuff and PDA’s and laptops are
equipped with “802.11” cards. That could be an advantage, such that you equip these hot spots
with a fiber connection. Or if a condo is going to go to a WiFi thing, you sell them a special
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 23 of 53
connection. Given the option of a 11 megabit “shared” system -- which is going to choke down
to 1.5 or less in peak times, when people use their microwaves and hairdryers go off and things
like that, or another signal comes in and interferes with it, then you don’t change your channel,
since there’re only three overlapping channels -- there are 20-megahertz channels in the 2.4
gigahertz range, there’s only three non-overlapping channels in the 11 channel band so it’s very
difficult to get a clear signal and get that full 11 megabits out of that 802.11b spectrum. You can
go up to 5.8 GHz or go 802.11a but you’re talking a lot more money, and there’s other issues
with that. So I’d say that you’re definitely going to get the hobbyist. They’re gonna try to do
neighborhood type things or they’re going to set up some web type, I know Nokia has these
access points that kind of web together. There’s actually some of that stuff going on here. The
reliability is spotty, and it’s not going to give you the all-in-one aspects that you can get with fiber
in terms of telephone, video and Internet.
Peter Allen in the audience: Survey the people who use it at the library, see if they’d like it at
their own home.
Shaw: And what’s the answer to that?
Peter Allen in the audience: I’m saying we should survey the people that use it at the library.
There’s a fiber access point at the library and two wireless points installed there. It’s
ubiquitously available at the library and people use it all the time.
Carlson: So the library’s got…
Peter Allen in the audience: Some of you may have even done it.
Carlson: They’ve got an 802.11b system?
Peter Allen in the audience: They’ve got two wireless access points at opposite ends
professionally mounted in the gallery there in the main library there. People come in all the time
and use it. Rosenbaum himself may have used it, I don’t know.
Shaw: So your point is that it is complementary or it is competitive?
Peter Allen in the audience: Complementary. Very complementary.
Dawes: That doesn’t address my issue of an organized sharing arrangement that hits the
revenue model. My only concern is the revenue model. How many of the people who said yes,
when their neighbor comes and says “I’ll buy it but hook up, feel free” -- that’s when I get
worried.
Heitzman: Can I give my point on that? This is one of the issues that has to be addressed in
the business plan. It has to be the competitive analysis of those strategies you use to deal with
that, and the examination of the risk involved. That is part of the study that has to be done. You
come up with whatever techniques you use to control it, if it’s a problem or possibly, if you don’t
feel like you can make a go of it. If this is going to eat your profit, you can’t make a go of it then
shut down to the system. But you have to go through the strategies of what are the issues, is it
wireless, there may be other competitors that come along, who are likely to come up, how do
you address your strategies, your marketing strategies and your control strategies to prevent in-
roads and loss of profitability of your system. I think that definitely has to be part of the plan and
I believe that’s one of the things Neil’s including in that plan.
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 24 of 53
Shaw: Yes, I mean there’s the competitive response and then there’s the product and service
policies. Certainly there’s a lot of field DSL service providers that restrict the number of
computers that can hang off any given connection and they can tell how many computers are on
the back of a connection and limit that. You could do that -- and that’s a very invasive type
approach -- or you can just request that people not broadcast their fiber connection to the
neighborhood, for security and economic reasons.
Dawes: The solution to this has to be a scope item in the business plan.
Shaw: And that is.
Audience voice: ________________________ that the distances covered by an 802.11 access
point, pay station which in best case is about 100 meters, best case. And that’s going to cover,
if I had one in my house that would cover my neighbor beside, my neighbor behind me and not
the house behind that, and I’m not sure the neighbor behind me.
Carlson: For something like multiple unit dwellings.
Audience voice: Multiple unit dwellings may be different.
Carlson: I think it has to be addressed in the business plan.
Audience voice: On the other hand, what you have is very significant absorption by flooring and
you get very _____________. Party line is not secure.
Carlson: Are there other competitive issues that we have questions about? That we want to be
sure to be addressed in this business plan in the Internet area? I want to cover Internet, cable,
and telephone.
Bechtel: There’s been some questions about, our good friend Jeff Hoel has been raising some
questions about one fiber – two fibers, many of those kinds of issues. Many of those kinds of
issues which are probably more may be deferred to later when we’re talking about real
hardware, But I’m hoping the business plan will at least outline how we would handle it in the
next step which is the design work. Step three in the decision tree.
//
Shaw: Yes. The additional engineering work which is in step two will address those types of
issues as they are prioritized. I will say though that the current plan, there would never be a
situation where only one fiber were deployed to each home. It just doesn’t make sense. There
would always be two fibers in the sheet at a minimum, people don’t make one fiber drop cable
and if they did, it wouldn’t make sense to buy it, you should buy an extra just to have a spare.
So I think it’s a moot issue but we can certainly look at it.
Heitzman: I think the construction, in the business planning phase, we have put some money in
for engineering but again it’s very preliminary studies as was done with the Wave-7 technology
that was used for this business case. There was some interest in the hybrid fiber coax, we
thought we could look at that. There’s also interest in point-to-point type technology, single fiber
and dual fiber. We’ve planned to do preliminary engineering studies on several different
models, but again these are still preliminary numbers.
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 25 of 53
Dawes: What would that yield? Ballpark figures for those systems is really all I’m interested in
at this point. Is it half or 80%?
Bechtel: In the business plan, I mean we’re talking the very next step.
Heitzman: Yeah, and then of course when you go to the full design it’s very expensive to hire an
engineering firm to do full design, and then you’ll find out exactly what it costs. But that’s down
the road. Those decisions about what kind of design you’ll use is probably down the road as
well. There’s probably going to be technology changes between now and when that time
comes.
Rosenbaum: Well, we have gotten on to that subject of different architectures. Then I guess
the question is just to amplify what I think you're saying that there are a number of different
approaches if you're going to do Fiber To The Homes, I gathered from the Internet. And it
seems to depend on whose equipment you use. So Jeff has been very high on Worldwide
Packets and they have a certain system and that it applies certain combinations of fiber and
equipment. They're very happy that they put out a white paper that badmouths the other
systems. And the other manufacturers are great defenders of their systems. And the three
major companies -- as far as I can tell it seemed to be doing something -- are all at the moment
in the second or third phase of their venture capital support. These are tiny companies that
were to except maybe for Alcatel. For all I know they're going to get out of the business the way
Marconi did. And then there's the simple HFC. So are you saying the business plan will
attempt on a rough basis to compare these strategies and come up with the costs and the
benefits and the advantages and disadvantages of _____. There really is a finite number of
architectures.
Heitzman: Yes, definitely. And there's a finite number that we can consider. We're looking at
two to three alternative architectures involved in the business plan on the same basis as we did
this architecture for the business case.
Shaw: Right. The common theme for the development of business plan is to have an effective
business plan. Unless we do a two phase approach, as Commissioner Carlson referred to, an
effective business plan can't be a series of what-ifs. It needs to be a detailed analysis and
development on a specific strategy, goals and objectives related to that strategy. To the extent
that architecture pros and cons need to be done, it needs to be done on the front end. The
simple question needs to be, is it pure fiber with its inherent bandwidth capabilities, whereas a
hybrid fiber coax has somewhere between 100 megabit, between 40 megabit and 1 gigabit to
the home. That's going to have a big impact on the products that are designed, competitive
positioning, the branding and the financials in the business plan. So all I ask as the person
developing the business plan, hopefully, is that we make a strategic decision, yes, HFC is the
way we want to go or yes, Fiber To The Home is the way we want to go leaning towards this
architecture.
Carlson: So you really need that level of decision before you design what you think of as a
business plan.
Shaw: You can't do a business plan without knowing whether it's HFC or Fiber To The Home.
Carlson: It's pretty sensible to me.
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 26 of 53
Shaw: But you don't need to know if it's going to be based upon Worldwide Packets, Wave 7,
Optical Solutions, ______ Systems.
Dawes: But my point on the ballpark issue was more of a go/no-go. Competitively, the HFC
system is where most people are at because it seems most capital efficient, as far as I can
understand in today's world. Maybe that's in the process of changing as this price is changing,
and so on. But I think to assess the competitive issues properly, I would really need to see what
the ballpark figures are. This is not to go into any great design details, but a realistic estimate of
what the capital cost of competitive systems will be.
Shaw: Yes. The answer is yes. We'll have a ballpark figure for deep fiber HFC and a ballpark
figure for two other Fiber To The Home alternatives beyond what are even done in this first step.
Carlson: But the concept has to be only one of those, a full business plan for only one of those
options.
Shaw: One business plan based on one architecture, either Fiber To The Home or HFC.
Carlson: Okay.
Heitzman: So the alternative Fiber To The Home structures won't matter. If we take Fiber To
The Home, any one of those might end up being the one. As long as he is able to deliver the
services over it, that's what he's trying to get at.
Carlson: On the competitive issue, we've thought a lot about the Internet, what about cable TV?
Because one of the things that's going on in the cable area is that, first of all, that's our single
biggest proposed revenue generator. Secondly, we've had a lousy, commercially-paralyzed
local competitor. They don't necessarily stay lousy and paralyzed forever.
Dawes: A deal closed yesterday.
Carlson: Yes, a very interesting deal closed yesterday. And satellite is certainly interesting and
certainly growing, so what about competitive problems ______. I mean the exciting stuff is
Internet but what about these cable TV problems?
Ferguson: Can I just reinforce the implications of the AT&T deal that closed yesterday? I’m
reading from Business Week a couple of days ago: “Brian Roberts [the Comcast heir apparent]
will have the clout to do what cable executives have wanted to do for years: Dictate what shows
will reach a mass audience and at what price.” He's got the clout to move in and do it because
there is no effective competitor for his business model. That's what we're up against.
Rosenbaum: You're referring to Comcast?
Ferguson: Yes, the AT&T Comcast takeover which was official a few days ago.
Rosenbaum: Dick's raising the point about the satellite which is, indeed, a very effective
competition.
Carlson: But the implication of what you're saying is that they're going to make money on the
traditional cable by squeezing everybody else -- implying that they're going to forget the high-
speed access on the phone.
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 27 of 53
Shaw: Well, actually they're counting on picking up the high-speed broadband access. This is
the cable story. More people are signing up for cable modems now than DSL because it's an
easier path.
Carlson: Okay, so they are finally going to be a more serious competitor?
Ferguson: They're probably going to be a more serious competitor even though their access to
capital is still pretty much at junk-bond rates right now.
Heitzman: To start to answer your question about that, we talked a while ago about strategies
for competitive technologies, we've talked about competition, we've talked about strategies for
pricing as well and packaging as well. We'd have to look at all these different configurations
and possibilities on how you would deal with each of those, not just a technology change or
difference. That would include looking at the pricing practices. What do you want to do to lower
the price? How does that affect your outcome? What are the changes in packaging? How
does that affect your outcome? All those issues would have to be explored.
Carlson But my concern is that the forecasts are based on a temporary circumstance of a
confused, broken, poorly managed competitor -- especially confused broken poorly managed
locally -- but it's a fairly universal characteristic. What happens three or four years from now
when they start really getting their act together?
Shaw: Well, I equate it to: as an employee as you're walking out the door, your boss offers you
a raise because someone else offered you a better deal. What are you going to do? Are you
going to go back to work for that previous boss and say, "Oh, now you appreciate me. You're
giving me $20,000 more a year. Where is my chair?" So the bad feelings don’t just evaporate.
People have memories and there tends to be -- the half-life of crappy customer experience is
fairly long, especially in a service business.
Speaker: What happens if a new boss comes in and says, "I offer you the $20,000 and the
chair package?" Because there's a new boss in town, you can carry that analogy further. Now
you have “Comcast” on the business brochure offering broadband.
Shaw: And assume that Comcast has a ______ better reputation than TCI or AT&T.
Speaker: Well, Comcast has the worst reputation on price increases.
Rosenbaum: But you can't always have the best price in town as we do with utilities. That's
one of the things we need to come to grips with. I'm sure all of us here, if you were to ask your
friends and talk to your friends about it, well, if it's cheaper, I'm really interested. I've heard this
a number of times when I raise the question of Fiber To The Home. One of the things I'd like to
come around to in the business plan are these scenarios. I raised that in my questions earlier.
We need to address really the pricing issue, as well as the capital cost and both of those as
being big cases. And to see what's the impact. You've done a good job already in getting us
pluses and minuses and that sort of thing. But I think it's going to come down to where we're
going to have to have a strategy or a philosophy for this service that will probably say, our rates
have to be better than the competition.
Shaw: Yes, a little bit. I will warn against starting a price war because that's something no one
could really win. If you start a price war, then it's a death spiral for the business. So we went off
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 28 of 53
the survey responses that said 'At' or 'Slight Less' and 'what you're currently paying' and that's
the responses we used. Some municipal utilities have chosen to go and steeply discount their
service pricing, and it's been a mistake.
Speaker: You're talking now a focus where you should be looking at his responsiveness to the
customer. Comcast’s business model, and this has been written up on a number of places, is
A) one size fits all; B) we're going to take away any options you people have to do anything you
do except get digital cable and then pay extra for every service; and C) if you don't like it, screw
you. The local approach is what do you folks want and how can we give it to you and make it
work best. If you do that, people in the City will pay more.
Ulrich: Mr. Chairman, as a suggestion. I think this is an important part. This business will not
be the same as our other utilities. We have a strategic plan that helps us focus on why we're
here and in other utilities. I would suggest that at a point reasonably soon, we look at what kind
of business model we expect and what kind of plan mission we expect to have in the cable
business. I would not want to get into a business where the only benefit we think we're going to
have is price and only price. This has to be a value proposition that's far greater than whether
it's the benefits of municipal ownership, whether it's the benefits of superior service, hometown-
local, whatever those things are, we can have a focus on that. I don't think you want to have a
business model that's only strictly driven by whether you can beat the price of the competitor.
Carlson: Is that the segue into the community benefits?
Ulrich: Yes, it is.
Carlson: Go ahead.
Rosenbaum: An important point has been raised and we ought to discuss how we're going to
resolve it. Neil has said, when you do a business plan and if you look at the outline of the
business, that's pretty technical stuff. He would like to do it for one system or another, hybrid
fiber or Fiber To The Home and it would be good if we made a decision on that before we start
off on this business plan. Is that correct?
Shaw: No, I haven't discussed the process yet. I'm just saying, before you dive in to actually
developing the detailed plan -- as part of this process of moving up to that plan, included in our
budget that's been allotted, we're going to first look at the architecture analysis and finalize the
architecture recommendation. And the other thing you need to do, is develop your partnering
recommendation and your business structure recommendation before you dive in and finalize
those two things. Those are all part of this process, and then you dive in and you develop a
business plan based on capabilities inherent in our architecture. There's a big difference
between fiber to home and HFC. A business plan based on a structure that clearly defines
whether you're a wholesale or retail provider on each service, because a totally wholesale
business structure is a very different business plan than a retail business structure. So those
are things that need to be hammered out that it's all part of this process. Those are really kind
of stragglers from the strategy piece.
Carlson: But they're very important.
Shaw: They're very important to nail down before, because if you develop a business plan that
has all these what-ifs and divergent decision points -- the decision points need to be in product
design, branding, positioning, competitive issues, things like that, not strategy issues.
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 29 of 53
Carlson: Well, I think part of what Dick's asking is a process question for the Commission. That
is, do we want to say we need this much more information before we review those big issues?
And then we say, okay, do a business plan on full scale Fiber To The Home, all retail or retail in
two sectors of it , or whatever, because that's a two-stage process here. Go ahead, Rick.
Ferguson: We actually had a conversation on this as the hour got late in August, before Neil
had to run. The business plan project which is going to cost $100K runs over a period of four
months, something like that. And the rough numbers -- estimating the cost of those competing
technologies and so on -- are numbers that you can work up early in that four-month process.
We would have an opportunity to weigh in on the choice of one of those, the one that survives
for the next three months of business plan development. That's my understanding of how the
process would play out.
Bechtel: That was not clear on the chart here.
Heitzman: Sorry, I told you the chart didn’t have all the detail. But that's the way the package is
set up. The engineering people would do the engineering analysis on the different techniques,
reduce on their partnering work and then we would launch into the business plan itself at that
point.
Dawes: There are two things I want to make clear. First, it's inconceivable that we'll do a
business plan for anything other than Fiber To The Home. It's just not worthwhile to consider an
HFC system, except I think it's valuable to get capital cost estimates to see what the probability
of a commercial provider coming in and attacking us vigorously -- be that Comcast because
they've got the plant, they've got a lot of the infrastructure, they're going to have to upgrade it
and so forth. But to me, this is a competitive issue. As far as what we're thinking about doing,
there's not going to be anything different. To go forward with an HFC system makes no sense
at all to me in today's world.
Now, the second area that I want to talk about -- and as an addition to the scope of work in the
business plan -- is the cost of pushing a lot of data out into the Internet and receiving a lot of
data from the Internet. Yes, we can talk about $40 bucks a month, fire hoses running around
Palo Alto and doing 10 channels of TV from my house to your house and so forth. But as soon
as you start talking about going through a gateway and onto the Internet with that kind of data
stream, you're talking major, major big bucks. I don't hear that has been a factor in any of our
thinking.
Shaw: Yes, it has.
Dawes: It has been a factor? Then I've forgotten what it is.
Shaw: In the model, that's $250 a megabit, as backbone interconnection cost.
Dawes: So there is an estimate of what these people that are going to be our customers are
going to want from their system. We're advertising a very high capacity of system. Now we
say, oh by the way, if you really want to do any high capacity stuff, it's going to cost you $1,000
bucks a month -- or something like that. I've never seen a question about it in here. I still don’t
know how it relates to our thinking at this point.
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 30 of 53
Shaw: The Internet access engineering is detailed in the business model in terms of average
bandwidth and the busy-period overbooking, how that translates to the busy-hour requirements
for backbone connection speeds. That's translated to 2 megabit, 10 megabit.
Dawes: If you say it's there, I'm happy. I guess it may reflect on the module that we will be
including for businesses in our thinking, because they will not be interested in fire hosing data
around Palo Alto. They want to deal with their plants in Timbuktu, and what-have-you.
Shaw: Yes.
Carlson: Dick Rosenbaum?
Rosenbaum: I don’t feel as strongly as Dexter that it's inconceivable that we would do a hybrid
fiber cable system here in Palo Alto. If the relative costs …
Dawes: I’d just say, we're out of here. I'd say we can't compete, because probably somebody
is going to come into that, and that's that. No, that goes down the red sink hole at the bottom of
the page.
Rosenbaum: Well, I'm not even sure I would agree with that. I think there's a lot of advantage
to offering a competitive service, both on the Internet and on cable. And the great majority of
the population would really like to get broadband for $30 bucks a month; their interest in ultra-
broadband is nonexistent. Really, there are people strongly represented in those who've been
working with the staff -- who have a big interest in ultra-broadband. I'd have to agree with them
sometime in the future, everyone will have it. But clearly in the immediate future, this whole
country is going to have broadband with bandwidth defined by DSL and cable modem. The
private sector is not going to do Fiber To The Home in the immediate future. For that reason,
applications that would interest the general public and which require ultra-broadband are not
going to be developed. So it's not clear to me that that's ______. But my point, I want to get
back to this point, Neil has suggested that really there's one business plan. But in the first part
of it, costs are going to be developed for HFC.
Shaw: And a small alternative Fiber To The Home. Yes, other architectures.
Rosenbaum: All right. And then you're going to come back to us before continuing with the rest
of the business plan?
Shaw: However you would prefer around that process.
Heitzman: My suggestion would be that we come back. There's also some strategies issues
that he wants to develop, too. All of those need to come back here before we move forward
because we have to have agreement that that’s where we want to go.
Bechtel: Those will come to us next month?
Heitzman: Not next month, because we haven't yet approved the business plan. He has to be
paid to do this stuff!
Carlson: For the month, we have to structure it, too.
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 31 of 53
Bechtel: We have to do a statement of work and the only one I'm going by again, I'll come back
to page one is the one that Neil put together, which has got [I items] on it. And so, that's what
I'm assuming is in there and none of that has been talked about is in this.
Heitzman: He has a more developed plan. So you mean bring the project proposal?
Ulrich: You're welcome -- part of this is -- to redefine what you want in the business in the
business plan. That would be factored into the proposal we get and we get a price and that
could be the form of the action that you take next month when we present the recommendation
to you.
Carlson: But John, this really is getting more and more like a two-stage process. An initial set
of work that defines the parameters, the retail versus wholesaling issue is important. We've
hardly mentioned that as very important.
Ulrich: Just to push back a little bit, you may not want that until the final proposal is put together
so you have alternatives to look at. If you look at a piece of it, you may not get enough to say
anything more than, “gee, it looks like HFC is going to cost less.” But at that point, you don't
know what the penetration is going to be, who's going to buy that, because the survey has
already been put together based on one set of circumstances.
Carlson: Well, I mean we're talking about some survey work, we're talking about these big
global decisions and then finally, once those decisions are made, the detailed plan.
Ulrich: Since we can do whatever you want, it's a matter of focus. I would suggest we get a
better clarity about what it is you're looking for -- as opposed to going out and doing a whole set
of scenarios, unless you need more information like suggested to come up with a very brief
summary of what some of these things would cost. Is that what you're looking at?
Carlson: Well, yes, I mean he's talking about some brief rough reviews to make sure about the
HFC versus Fiber To The Home issue and I keep bringing back retail versus wholesale, and
there's some other global strategic questions that we need some analysis for plus, or should we
be talking about more survey work. And then once those decisions are made, then there are
clear directions for the narrower business plan which is what was outlined in this document.
Heitzman: I misunderstood your question a while ago when I answered you. We could bring
back to the next meeting a proposal to deal with the issue in analysis, the strategic issues, the
wholesale/retail issue as a first phase of the business plan with certain price tag, and then if
that's all accepted, we could have a second phase at an additional price tag and do the rest of
it.
Carlson: Right. And I think as we're talking about to come to us with the data from that first
phase that said, yes, you're right, go ahead, do the business plan on this one. This is going to
be the best.
Ulrich: Let me give you a pragmatic issue and one of the reasons we're here and the reason it
has to go to the City Council is we only have authority to spend up to a certain amount of
money, $65,000 without approval from the City Council. Well, we've run out of money. Part of
this discussion is we want to go ahead with it, because we now want to go to the City Council
and lay out that the next step is going to be a hundred and X dollars -- so that it's clear, they
have the authority to either say yes or no to that and none of us here have that.
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 32 of 53
Carlson: I thought it was in the budget already, John.
Ulrich: It's not a budget issue. It is a contract issue. Thanks for asking that, because you're
right.
Dawes: To quote, the dollars were there, in the budget.
Ulrich: You're right. Because when we put together the first analysis, we showed that we were
going to spend so much money to get this far and do the construction for them. We set aside; I
think it was $400,000 for this phase of the analysis. So, we have that as approval from the
Council but what we don't have is: 1) authority to exceed that; and 2) the authority to enter into
a contract for something greater than $65,000. So this is a perfect time practically to convey
your opinion and Staff's opinion on whether to go forward to this and what would be in that
business plan so we can lay that out. That doesn't mean you can't do it in stages. But I would
recommend that we say that look, here looks like the scope of what it's going to take to do the
business plan, factoring in this new information and let's say it's $120,000. But we're going to
do this in phases. We're going to do X and we expect that's going to cost $25,000. Then we
either come back or we'll reevaluate it based on this planning model to go ahead with it. That
way you get approval from the City Council for the business plan that we're doing our business
planning so that we're not committing to spending all the money until we get stages of
information. Does that make sense?
Ferguson: Just like we did with Carollo Engineers on the water alternatives thing.
Ulrich: Right, correct. You don't want to go to the City Council to say I need $68,000 and then
you come back to them with a reality that we know that the business plan is going to cost
$120,000. It's better to lay it out, this is an estimate of what it's going to cost and say, we're
going to do it in phases.
Carlson: In terms of speed, I think we're talking about a pre-business plan study in the $25,000
to $30,000 and that you have $30,000, we can approve that, you could contract with that.
Ulrich: No, I'm saying is that's not what you should do because we know the business plan is
going to cost $120,000. So a component to that or a portion of that, say, $25,000 would be
spent for doing this additional amount of work.
Bechtel: It's really an interim study.
Ulrich: Well, it's the first $25,000 of the $120,000.
Ferguson: Correct, with the decision point.
Carlson: With the decision point, right.
Ulrich: This is high math here, so bear with me. What it is, is that you don't go and convey or
say, we don't need the City Council authority because I can spend $25,000. That doesn’t get it.
Carlson: Okay, fine.
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 33 of 53
Ulrich: But to answer the other part of your question, I don't think it would slow down the
process because we're going to have to go with the CMR, City Manager Report and Request for
this amount of money.
Carlson: So you want to do the whole package at once as far as the Council is concerned?
Ulrich: Yes, and then lay it out, we'll do it in steps.
Carlson: Okay. And the phases are something that will clearly be an important issue, which
fails.
Ulrich: I didn't mean to interrupt your questions but I just wanted to say the process for it.
Carlson: Okay. Let’s get back to some substitute issues. I'm kind of going over my list and
what's been covered and hasn't been covered, and the Community Benefits, we have some
people here. Let's hear them.
Bob Harrington: I'm Bob Harrington, and this is Mark Heyer.
Bechtel: Can we have a quick intro of what your relationship has been? We know but not
everybody knows.
Bob Harrington: I'm appointed to the Fiber To The Home Advisory Team because I'm a Fiber
To The Home subscriber. I'm one of the 70 houses that have the Fiber To The Home service.
So I've had the satisfactory experience that you've heard was provided over the last year.
Actually I've known Mark for a long time. Mark was obviously the support person for the Fiber
To The Home, so you got to know him well at the beginning. My service happened to go in
easily because I went in two weeks after everybody else has and so they hit all the learning
curve before they got to me. But Mark and I really developed a good friendship and worked on
a lot of this project. So when the idea of trying to define community benefits came along, Mark
asked if I would work on it and so I said, sure, but I'm not going to do this alone. Mark is a
logical guy because he's also the head of staff, a real kind of a part-time staff position with the
Utilities. So we’ve worked on this together and _____ about three weeks or so. And really, I
think in the interest of time, we could really just give you the headlines and Mark can do that
very well. Although I was asked to do it, the brains of the outfit is Mark. I have two or three little
value elements but beyond that, Mark's got a really good feel for it.
Carlson: Go ahead, Mark.
Mark Heyer: Well, thank you, Bob. Let me just preface this by saying that apart from doing the
support for the trial, I've got about 30 years of experience at the leading edge of technology
developing information technology for human beings through video disks, CD-ROMs, the whole
business. And I will acknowledge Dick's point about the length of time it takes to develop
applications for these kinds of systems. I'm really going to just skip through this. We have a 22-
page report which we'll e-mail to everybody tomorrow so you have the full benefit of this. What
we wanted to do was create a taxonomy of benefits and a structure so that we could discuss it
as an ongoing process going forward.
We discovered that there are actually three classes of benefits that we needed to talk about.
Class 1 was benefits as a result of municipal ownership. I'll get to that. Class 2 was FTTH
features that create the foundation for community benefits and it turns out that there are some
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 34 of 53
very specific things. And Class 3 is community applications of benefits of how does this thing
from the big scale apply to a community. The benefits from municipal ownership I think are
fairly well known to this group so I won't spend a lot of time on this. CPAU is clearly a trusted
and reliable provider, that was number 2 on the citizen's hit list of concerns about a Fiber To
The Home system. The other thing, keeping the dollar at home and so on are fairly obvious of
benefits. But these benefits stand alone from any specific architectural considerations of Fiber
To The Home. These are general benefits.
Bob Harrington: And I say, the last one is to raise the bar for competitors. This has been
mentioned a number of times in your meeting this evening. To the extent that the competitors’
responses include lower prices and/or improved services, Palo Altans will directly benefit as a
result whether or not they are subscribers to the Fiber To The Home service.
Mark Heyer: So if our service whatever it is, provides competition, _____ everybody benefits
whether they're a subscriber or not. Now, one of the things, when we look at the current
communication environment, we tend to look at it as these three entities [shows slide] and we
argue endlessly about these three entities. But in reality, when you look at where we're going
with all this and the way it's developing, there's actually a whole range of services that will be
utilized in this Fiber To The Home system. For example, IP Telephony is a little profit center
business all by itself. Now do you think that PacBell is going to sit still for an IP Telephony
service to use up the bandwidth and their DSL system? I don't think so. Same thing on the
other side. The download in video is something that if you read in the Mercury News last week,
is now commercially available first-run movies you can download them to your laptop and watch
them. The quality is terrible because their bandwidth is terrible. But this is the opening gun, just
like the first movies release for the VCR of what is going to be a wave of development. Also, in
the future, we're going to see a much bigger connection between the community information
system and the other institutions in the community.
Dawes: But coming back to my earlier point, I mean if you're downloading video, you're looking
at costs that are very substantial.
Mark Heyer: Well, hold on. Not necessarily -- because the source of that video maybe within
the system.
Shaw: The other issue is that two years ago, a megabit was a thousand dollars. It's down
$250. In two years, it will be around $100.
Carlson: I get it out of my DSL.
Mark Heyer: Two key qualities now of the FTTH system and architecture that we think are
essential to enable benefits: universal availability within Palo Alto (not universal service
mandated by law -- but universal availability. It needs to be available to everybody in town) and
unlimited bandwidth. Let me address these two very quickly. Equal availability, a service to all
citizens is very, very important. There are many things that we talk about in here that I'm not
going to talk about in relation to potential educational benefits that can come from school to
home communication being improved. You can't do that, as a matter of policy unless every
student has access to the system. And there's some interesting case studies and examples on
that. Also ubiquity provides critical mass for applications, the commercial providers need to
have a substantial base of customers and people only got a small penetration and it all goes
along.
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 35 of 53
If we look at bandwidth demand historically, we can see that plotted on a log scale, it's roughly a
straight line, as increased from 1980 and continues along the same line. We can see that.
That’s why, I believe and others believe that fiber is really the only thing that is going to
effectively address of what we want to do in the future. If we say there video, HDTV and video
downloading, a single video stream requires about 5 megabits, HDTV about 15 megabits. If
you're running HDTV through a fiber system, first of all, you're not going to run it all through a
DSL or a cable modem system. If you're running it through a fiber system, a hundred of those
people are using 1.5 gigabit. A hundred, so think about probably Palo Alto is how many
streams you might have running at one time. You're probably going to need a lot of bandwidth
especially in the backbone part. But you don't need more than 15 megabits in that model to the
house. On the other hand, if you're downloading that HDTV movie which we think is going to be
a big deal, you want that download to happen quickly. At DSL rates, it would take a half a day
to download an HDTV movie. At 1 gigabit, it would take 80 seconds. So from a commercial
point of view, how long will people wait around to get a movie and when they're paying $4 bucks
for it, probably 20 minutes is about the limit. So, I believe that's where we're going to see the
commercial pressure for high bandwidth.
You know, 5 years ago, nobody could imagine what we would do with a 1 gigabit hard drive. I
mean, I was one. I'll never have enough. Now you can't even buy anything less than a 20
gigabit hard drive and the 200 gigabit drives around the shelves. What's driving our storage
demand? Digital, video. Everybody's got their digital cameras, everybody is downloading
movies and sending them around and doing stuff. And I believe that video is going to be the big
driver for bandwidth demand going forward in this. It's not Web surfing and that kind of that
stuff.
Now we get to the actual community benefits and we found out that within that group, there are
3 classes. Their institutional benefits, these are to organization schools, governments,
businesses and so on. Social benefits of what benefits the community going around and then
advanced surface benefits which mainly be beneficial to one person. Downloading a movie
helps me, doesn't help the society. But it is an advanced service. Within the institutional
benefits then, educational benefits -- we deal with it as some length -- in here is very impressive.
But I want to just hit one: Telecommuting is one where you get a very dramatic example of how
there are secondary benefits that accrue from the availability of telecommuting. This is from an
HP report from their Web site this year. Telecommuting cuts any material used, they found per
its employees, it reduced driving impacts, it reduced demand for facilities, resources and putting
office space, etc., their workplace benefits including increased convenience and productivity,
reduced absenteeism and strengthened employee commitment. During 2001, HP's
telecommuting programs saved an estimated $1.3 million roundtrip commutes, equivalent to
35.8 million miles not driven and more than 16,800 tons of carbon monoxide not even entered
into the atmosphere. The program also saved HP employees approximately 1.1 million hours of
commuting time and $10.7 million in automotive costs.
Now, I would be proud if we had such a report from Palo Alto. But you can see that, and in Palo
Alto we know that there are a large number of people who are working from home already. So,
the synergy here between a community information system, the ability for people to
telecommute and actually one other example, I'll just throw in here because I think it's really
intelligent. Stanford University has about a thousand DSL connections that they get from
PacBell to run their VPNs to the campus. $180,000 a month, they pay for that. That's $180,000
a month they're paying to PacBell for 384 KDSL connections into Palo Alto. That is money that
could be ours, with all due respect and there are many corporations that are operating inside of
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 36 of 53
Palo Alto that would like to do this, too. Well, anyway, I'll just leave it at that. Social benefits,
interpersonal communication, communications. This is a very fuzzy area to define. Housing
values, it turns out that the real driver housing value in Palo Alto is schools. Schools to be the
biggest beneficiaries from a community information system. So indirectly, there's an indirect
benefit. You know, just having broadband in your house may or may not really influence the
prices. It's really all about schools is what we found out.
Bob Harrington: We’re going to see a big drop in state funding for the school, school support for
these kinds of services _____.
Audience voice: Broadband does increase _______.
Mark Heyer: Oh, no question about it.
Audience voice: It has been found ______.
Mark Heyer: Through the interpersonal communication. You know, 5 years ago or 7 years ago,
nobody had ever heard of Napster. And now, personal file sharing, peer-to-peer file sharing is
somewhere between 15% and 30% of all the Internet bandwidth on the University campuses
and we could look at the universities as good models for using the patterns for community
network. It's a really big thing. The point here is, we don't know what's next. We don't know
what the applications are that are going to develop with such a system. And finally, advanced
service benefits and many things have been suggested and many things will be tried and some
things will turn out to be beneficial and some things won't. Or we can say that there is a great
number of possibilities presented. The interesting thing is there is definitely a methodology for
evaluating whether or not a particular service once this is defined will be useful for people,
useful to human beings, useful and beneficial, even before the service is deployed. That's my
particular specialty. What you can't do is to model things that haven't been invented yet,
evaluate them -- and that's what we're looking forward to. So, we look forward to emailing you
the full study tomorrow. This is very much a work in progress. We have a Web site which we're
setting up now in a systematic way to collect the input on these different areas from the
community and that will be going live in a couple of weeks.
Bechtel: Thanks very much, Mark.
Mark Heyer: You're welcome.
Carlson: Do you have a URL yet, Mark? What's the URL for the site?
Mark Heyer: I'll send it out to you. It's on a non-public area right now. We're just setting it up.
Carlson: Okay. There's one other area that we haven't covered well but we've got a consultant
here that many of us have asked about and that is we're really interested in more information on
other communities. We've heard a bit about Alameda, we know what Alameda, a number of
communities have done this for economic developments or reasons, such as Tacoma. Has
anybody done Fiber To The Home on the kind of scale that we're talking about?
Shaw: There are two announced deployment decisions and several trial decisions that will be
ultimately deployments. The two major deployments are in Bristol, Virginia where they've been
fighting a fierce legal battle with the telephone company and the cable company. The cable
company just joined the fight this week. And then another announced deployment is in
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 37 of 53
Kutztown, Pennsylvania where they actually have it. They're a very small municipal utility.
They're only like 2,000 meters, so less than 10,000 people. But they've actually made the
decision to deploy, they've got services up and running, as does Bristol.
Carlson: But these are deployment decisions. Are they fully deployed yet?
Shaw: No, they've made commitments to the vendors and they've kind of made commitments
to build out their entire community. You've got Taunton, Massachusetts, they've made a
commitment to a 200-subscriber trial and that is a system about the size of about 37,000
meters. They were a client of ours. And then you've got Provo, Utah -- they are about 32,000
meters. They've made a commitment to trial around 200 users for Fiber To The Home. And
then there's Chaney and Chelem, they're both in Washington and I can't remember which one is
a county and which one is a city.
Ulrich: Ask Scott.
Bradshaw: Chelem is a county and Cheney (pronounced “Chee-nee”), Washington is the town.
Carlson: So they're doing trials?
Shaw: I believe they both decided to deploy.
Dawes: What about Grant County PUD?
Shaw: Grant County, they're the grandfather of this whole thing.
Speaker: I happen to know someone who has done extensive work in Japan on Fiber To The
Home and they have major deployments done in Japan. NTT has developed the whole of Tokyo
and that information is available to us.
Harrington: I had five representatives from Panasonic in my living room this afternoon and
they're not deploying but they’re back up and that the towns have given major support in
Japanese government and the reason for it is really quite obvious. They're looking for a way to
stimulate that economy.
Carlson: So instead of building highways and bridges to nowhere, they they're going to build
fiber optic to nowhere? It does sound much more cost effective _____
Harrington: ________situation because they have so many houses. They have very high
density. But Manuel can tell you he'd been in his office all year long as ______ as they’ve been
to my house.
Audience voice: On a vision base, let up in January, right? SBC is doing [vision] in May.
Orange County has already committed to their one round in Santa Ana and parts of the new
developments of greenfields. I have a greenfields as opposed to reconnects _____. They're a
lot of them.
Topete: Let me give you some examples. Bristol Virginia Utilities in Bristol,
Virginia Dalton Utilities in Dalton, Georgia, Scottsville, Alabama and Glasgow,
Kentucky have been first service providers to solve last mile problem. In addition,
there's a new development here in Phoenix that announced they were going to be
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 38 of 53
putting Fiber To The Home. The announcement increased the price of a home by
1% to 2%, before they even build anything.
Carlson: So Manuel, have you done a review of this?
Topete: Yes, I have.
Carlson: We’d love to hear the details.
Topete: I can give you a little bit of numbers. Japan is definitely the leading country in the Fiber
To The Home network. By July of 2002, they have 84,908 fiber to home subscribers. The
number is growing at a 19.2% a month, which projects them to an estimated 420,000 by March
2003. That is 5 months from now. They are at a half a million subscribers in Japan. Now, it's
interesting that Japanese regional electric power utilities are fostering the growth of Fiber To
The Home. And I have the sources if you want to visit the Web site.
Carlson: Is this government subsidized? Do you have any rate information on it?
Topete: I don't have the specifics on that. But I know that the government is promoting the
growth, although these are companies by itself, like NTT, like Mitsubishi, even IBM in Japan.
By the way, tomorrow I have an appointment with another Japanese delegation at 10:00 o'clock
in the morning.
Dawes: Who puts up, say, capital cost augmentation from the government or low cost financing
for the government, or if the monthly rates are subsidized, or how does that work? Because it's
very important. It's one thing to say it's going like wildfire in Japan, but we know, or we read
anyway, that the Japanese economics are twisted.
Carlson: But they've got 2% money to start with. Go ahead, Manuel, I'd love to hear some
more.
Topete: The first quarter of 2002, there were a total of 15,048 homes taken, or connected to
Fiber To The Home nationwide, with a total of 34,455 homes passed which is a take rate of
roughly 20%. Interestingly, municipalities are the ones who are growing fastest and more
aggressively. In the first quarter of 2002, there were 2,100 municipalities taken and passed
were 7,057. The total projections went up current, projects are completed encompass of 47,570
municipally connected homes to Fiber To The Home network.
Carlson: So the main growth is municipal and greenfield private-sector? That's the main thing
that's happening in this country?
Topete: That is correct. Nevertheless, there are significantly under-represented holders. For
instance, 11,898 with 25,998 homes passed, which is significantly larger in number.
Independents, 650 taken with 1,000 passed, that's a very small number but interesting also.
And ILECS, 400 versus 400, they only connects the ones that passed. Well, these are small
numbers because the real strong, significant figures come from CLECs and municipalities.
Carlson: Okay.
Rosenbaum: Are we going to pursue the question of the experience of other cities in some
systematic way? I mean, not us, but if staff or the consultant are going to do that, there really
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 39 of 53
aren't that many cities of any size that have done this. It would be interesting to see how their
penetration has worked out. But staff is going to do due-diligence now. John, you mentioned to
us that we were doing due-diligence. Is staff doing due-diligence? Does the staff in their mind
have a recommendation? Because I don't hear any skepticisms from you folks.
Ulrich: Well, I don't think you probably listened to our staff discussion maybe as much as you'd
like. When you move into the finance side of this, you're going to hear that this is not slam
dunk, by any means. The due-diligence part frankly and candidly is how far we've gone -- in
money spent and in trials and survey analysis -- doing a lot of due-diligence to gather data and
move down this road. This has not been an inexpensive process. That's what's necessary in
order to be able to determine for yourself and the community whether to go ahead with this.
Ultimately, the decision-makers are going to be the community in acceptance of this and
acceptance of the risk. The problem we've had so far is that, as Manuel points out, you can't
drive around the United States and find a whole lot of places that have done this, because it is
new technology. Prices of fiber have gone down enough and enough improvements where it's
becoming -- a willingness for economic risk on the part of the City to do it. Now, are we willing
to do that? That's the question. If we had a whole lot of places to go to and see a lot of things,
we'd be able to come back and do this. An area that you've got to be aware of and it shows the
risk side of this that we need to really consider is -- pick a number. If this is going to cost $50
million, you're going to have to be very confident that the business model is going to return the
kinds of revenue that would support the paying off the bonds, if that's the direction to go. If
you're going to issue bonds -- after listening to the bond folks, there is absolutely no free lunch.
You're not going to be able to sell bonds in the market to anybody unless you're willing to back
up those bonds in the form of certain revenues and that would be from your electric and your
gas and your other utilities. This business model and the reason why many businesses haven't
come rushing in here to do it yet, is that you can't pay it back in a very short period of time.
They're talking about being able to pay it back, pay off your loans and your investment in
somewhere between three and five years.
Rosenbaum: John, could I just comment on that? That's a little too facile an explanation as to
why the private sector is not involved. There are very few investments in any field, not just
telecommunications, where people expect to get their money back in three to five years. AT&T
is the best example on that. They spent $70 million for Cable Co-op, not because they thought
they were going to get their investment back in three to five years. Take commercial real estate,
developed homes.
Shaw: Mr. Commissioner, I have begged just to have that sort of the money from investors like
Norwest because they are a very large venture capital firm. And I started to, I was the City's
largest fiber leasing person for some time -- and you want it 3 to 5 year payback. I do.
Ulrich: I don’t want to be in an argument. What I'm trying to do is pair it with what I heard from
the bond counsel that came to visit us. And while I would probably agree with you the 3 to 5
years doesn’t sound like a very long time. That's one of the reasons why municipal bonds are
not being put out in the marketplace to put fiber systems in, because there is not willingness to
take a longer term risk. Again, for this model to work, that's why a municipality that feels like
they're going to be here a long time, I would be willing to go into it. It seems to be that's the
reason why so many municipalities are doing it -- that they're willing to take a much longer
period of time in order to pay it back.
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 40 of 53
Carlson: But what we'd really like, it sounds, isn’t there. I mean, a community that's actually
done this for a few years with Fiber To The Home where we can measure what it really cost, per
home passed, what was the penetration, what's the revenue. It's not out there.
Ulrich: Well, I think if Manuel finishes, you might tell from the last sentence on your report.
Carlson: Go ahead.
Topete: Yes, and it was pertinent to the conversation. In essence, what the projects are
headed to in this country is 47,826 CLECs or CLEC-taken subscribers, and 47,570 municipality-
taken subscribers. In other words, the municipalities are gaining terrain and reaching or it's
keeping up with the CLECs and passing the CLECs in the near future. Now, there are other
projections that are interesting.
Dawes: Are those DSL numbers or fiber numbers?
Topete: No, this is Fiber To The Home.
Dawes: So you say, CLECs are providing Fiber To The Home now?
Topete: Yes. As of the first quarter of 2002, there were 11,889 sites connected.
Shaw: It's probably the greenfield or multiple-dwelling units.
Ulrich: So there's a lot of good information here but there's one that gets me here is, it says, the
last sentence, "It is the consensus of entities related to the Fiber To The Home effort that City of
Palo Alto is two years ahead of the rest of the country."
Rosenbaum: There's a lot of anecdotal evidence. Neil gave a paper at the APPA
telecommunications conference on developing business plans, and he gave an example which
was the business plan he developed for Palo Alto. I'm sure most of the people at that
conference came away convinced that Palo Alto is going ahead with a Fiber To The Home
systems because it's easy to draw that conclusion from the presentation. There's a lot of this
stuff.
The reality is that there are no cities except for the ones that Neil mentioned that they're doing
Fiber To The Home is Bristol, which has 17,000 people and Kutztown which has 6,000 people.
And there is always Grant County and nobody understands the economics of Grant County. My
point about cities that have done this, there are a whole bunch of municipal utilities all with the
exception of Tacoma and Alameda, quite small who've done HFC systems. We can learn a lot
from their experience.
Now, there was a paper at the APPA conference. Staff was very good about providing me with
hard copies or giving me a passwords so I could look up on the Internet, all the papers that were
presented. Now, I want to _____ by the people from North Attleboro, Massachusetts. North
Attleboro, they had a vote on whether to go into municipal telecommunications and it was voted
down. It was I think 54 - 56. I suppose in the back of our mind, we might want to think about
before going out for a revenue bond, we might want to seek the advice of the public. But that
was a lot of opposition which was funded by the incumbent providers naturally. And in this
paper there are ads that were put in the newspaper by the incumbent.
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Then there was also a viewfoil that says, “other opposition: a report by Beacon Hill Institute cites
communities with disappointing CATV experience.” I have no idea who the Beacon Hill Institute
is but the cities they list are Tacoma, Washington; Paragoula, Arkansas; Ashland, Oregon;
Lebanon, Ohio; and Scottsborough, Alabama. So I would think that our Staff would want to
contact these people. Go visit them and find out why some institute thinks they're having
trouble -- and this is just HFC. This isn't even Fiber To The Home.
Carlson: If that's what's out there, let's learn something.
Rosenbaum: There's a lot that can be done. Number one, I don't see it being done, nor do I
detect any interest on the part of staff in doing this and that's why I'm asking my question about
due-diligence.
Marvin Lee in audience: Can I ask a question?
Carlson: Okay.
Marvin Lee in audience: We, in the community center neighborhood have been part of a trial for
a year. But why does that information not mean anything to you? I mean we have 70 homes
that you can talk to on an individual basis. Go ask them why they signed up, why they're all
willing to put up the money, why they're willing to pay now. And Dexter, if you want to check
businesses, all you have to do is walk through those 70 homes. I would venture that half of
them have businesses operating out of their homes and these were just arbitrarily a selected 70.
So the best experience you have to draw on is the trial that was done here. Why are you trying
to avoid that, Dick?
Rosenbaum: Oh, come on, Marvin. You know the answer to that. The City spent $10,000 a
household and it's collecting $85 a month. Now, I would love to have a deal like that. But
you're not going to do that Citywide and that's why we're exploring the economics, whether a
system of this sort will work. And you know the answer to that question.
Heitzman: Can I respond to your question?
Rosenbaum: Yes, go ahead.
Heitzman: First of all, it should be apparent that we put quite a bit of work, I would say our best
effort in doing some due-diligence right here at 340 pages of documents. On top of that, you've
heard from Manuel, he has gone to the conference in New Orleans, talked to the many people
there, received visitors, continuously talked to vendors. I have a small staff, we can't all be
doing it. And Manuel's purpose here has been to follow the technology, find out what's going
on, visit vendors, visit cities, talk to cities, he'll be going to Provo I think in a couple of weeks.
So he's been the research part of our staff that has pursued this. Certainly we haven't pursued
every opportunity in the stuff that Mr. Rosenbaum talked about. The cities there, we'd certainly
like to contact them and so on, but I feel somewhat offended that it would be implied that we
haven't done due-diligence. We have done a lot of work here.
Carlson: Go ahead, Dexter.
Dawes: I'd like to, as I have in the past, tonight make a specific request that there be a section
in the business plan that we are in all probability going to authorize at our December meeting to
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 42 of 53
summarize the issues that have been raised in the towns that have had difficulties with their
HFC installations.
Rosenbaum: I don't even know that they've really had difficulties. There's some group here that
claims they have.
Shaw: Yes, there's a document floating around that references the Beacon Hill report and that
references report is written by two professors at the Denver University which is home to the
Daniel School of Business which just happens to be named after Bill Daniels, one of the fathers
of cable television. That "Most municipal utilities, cable operations performed badly, performed
poorly." Okay. And this is in the words of an esteemed professor. So if I wrote a paper that
said, "Most performed poorly" and did not provide any backup or detailed information, I'd get an
F. And I’d give that report an F, because what it does is it does a very effective job of creating
fear, uncertainty and doubt (FUD) without any backup information whatsoever. It talks about
case studies where subsidies were provided, where it was a risky venture, we have first
amendment problems, we've got regulators competing with private enterprise, price cuts that put
the incumbents out of business, tax payer burden, all these things are just a bunch of FUD flying
around but there's nothing specific.
Carlson: We need the specifics. What we're all asking for are the specifics. I don't care where
it comes from but I'm asking the staff for the specific dollar experience and in terms of our local
experiment, in dollar terms, what have we learned, because we did spend a lot. Based on that,
what do you expand it to?
Ulrich: Are you interested in that before we move ahead with the business plan, or include that
as Mr. Dawes, I think pointed out.
Carlson: Well, that's what we're talking about, a two-phase business plan. There's really this
pre-, we have these major pre-business plan questions. The hard numbers, if we can find them.
I must admit, I'm sitting here feeling like the group of penguins sitting on the iceberg and looking
down and they don't know, if down there’s a leopard seal about to…, they're waiting for
somebody else to jump in. I would really like to find out if there are a couple of guys to jump in,
what happened to them.
Rosenbaum: Every business plan has a section called competition. This is competition. So,
this will be part of the competition section.
Carlson: That's a really important first phase that we need some numbers on.
Rosenbaum: I personally don't think this investigation of what other cities are doing has to
delay the rest of the business plan. I think this is information that we can get when we have the
business plan. Clearly, a decision as to what type of system has to precede the business plan.
But I know people are anxious to move ahead. And with respect to the report that the two
professors and the Beacon Hill Institute, whoever they are, it would not surprise me if there will
be some insistence on an advisory vote in this community before going out and selling $50
million worth of revenue bonds. If there is going to be a vote, the incumbent providers are going
to bring up all this stuff sure as hell, so if we can make a case, we'd be prepared to do so.
That's why I think at some point -- I don't think it has to precede the business plan.
Carlson: Go ahead, George.
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Bechtel: I want to try to close up the meeting here relatively soon by coming back to what John
said, and what's next month's meeting, since my mind is on that. I started off saying, I wanted a
table of contents basically for the business plan. I am assuming that it's this. It sounds like
tonight we've had at some things, maybe we've crispened it up and maybe that's what I would
like to see. We've had some additions from both Dick, Dexter on various things. We want to
have a multi-phase, let's say an interim report, maybe two interim reports and then a final report.
I'm assuming that that's what we would then recommend to the City Council something along
those lines. Is that basically what we're looking at for our next month's meeting?
Heitzman: I'm in agreement with what you said. Basically, take that line there, add to it the
issues that you brought up here. I believe we'd query you before the meeting to make sure
we've covered everything because we don’t want to come to the meeting with missing some of
the parts.
Ulrich: It seemed like I always come back to be the process guy here for a minute. But with the
timing between today and the next meeting which I think is on the 4th, two weeks, there isn't a
lot of time, particularly with Thanksgiving and all of that. I'm not sure we're going to be able to
finish up the pricing and all the other things, not by the meeting -- which is not the problem. It's
the issue of communication with the public and presentation of the material early enough so that
it gets on the Web and people will have a chance to see it. I don't think we can do all of that
and give notice to the public, it's insufficient time. You may want to either decide to move out
the UAC meeting a week or two, or maybe agree to do this one month later.
Rosenbaum: I would support moving it to the January meeting.
Carlson: Given the holiday problems, let's start, because I think what we've done is that we've
added a significant chunk of work in front of that outline.
Shaw: That's represented in this proposal which this is a detailed proposal of business plans
scope of work, which unfortunately we didn't cue up right. But normally, these types of
proposals aren't made for public review, so…
Bechtel: But the deliverable is, though. Correct?
Shaw: Correct.
Bechtel: You could make public the deliverable. Basically what we would look at is your
deliverable.
Shaw: Right.
Ferguson: Does that solve the problem? If we have a table of contents, does that meet the
December decision needs?
Bechtel: For me it does.
Carlson: I’d say a phased table of contents.
Bechtel: A table of contents for the final report. But then….
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Carlson: We're talking about basically coming back here. Doing some preliminary work, and
coming back and saying, yes, we now know enough to focus the design, and go ahead with the
business plan as outlined here.
Shaw: Once the contract is signed, it calls for two parallel paths. Get the engineering company
to start doing the alternative designs and release Uptown and Staff to start figuring out the final
partnering strategy and business structure recommendation. Those two should come together
in about three weeks' time. And the recommendation is probably brought the same meeting for
both things -- to say, do we have a blessing on these recommendations?
Carlson: But we've added some things, because you've got to go back for someone to survey, I
think. And we certainly want somewhere in here significantly more information on actual
numbers-based experience.
Shaw: With all due respect, the number-based experience is going to be on hybrid fiber coax
systems and completely separate geographic markets, very rural, some suburban. From an
applicability perspective, the research is going to get you much more, and then everything else
is going to be anecdotal. The primary market research is going to give you the information you
need to say, “am I going to be successful in Palo Alto?” Everything else is going to be
familiarity, commonality and anecdotal references from general managers, marketing people,
people in the field. There is a Fiber To The Home users group that I established at the APPA
where the membership is like 50 utilities are interested in Fiber To The Home. That is a great
sounding board for that type of thing. But that's an ongoing process, that's like an over and over
and over thing, a place to go and check your numbers, establish relationships. I don't really see
that as a specific task to say, do we go forward and start developing the business plan. That is
my opinion.
Ulrich: What we could do, part of it is, if you don't want to be too specific. Take the nuggets of
the expectations that you have, the additional survey material, the additional due-diligence and
other financial areas. We’ll put those in an outline of what would go in the business plan, get a
proposal, a bid from Uptown Connections, Neil, on what that would cost, bring that back to the
UAC for clarification, whatever and then put that in the form of a CMR to the City Council
without a huge amount of detail about all the steps. But it would have all the output or the
expectations that are in the business plan.
Carlson: Are you saying, that much you could produce for us to look at and decide on in
December or in January?
Ulrich: Well, it's the communication, the process is when we have to agree basically on what
the dollar amount would be, what's going to be in it. And then we have to develop the City
Manager’s Report. The City Manager’s Report has to be approved and it has to be done in a
timely way so that it can give enough public notice, one to meet the law and will also give
community time to review it.
Carlson: This sounds like that full document is a January document. Is there any pieces of this
that we can accomplish two weeks from this?
Ulrich: I don't think you can, not with the public notice requirement. And you want to do that
such where there's a feeling that this thing is, the community didn't have a chance to look at it.
Carlson: Okay, so the whole thing is basically it better be January. Go ahead, Dick.
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Rosenbaum: Neil has mentioned he's got some material there and he doesn't feel comfortable
making public.
Shaw: Well, I can't. It's the proposal that typically is proprietary between a client and a …
Rosenbaum: I'm thinking of the statement of work which exists here on page 1 of this executive
summary. All we're asking is that the statement of work be modified to take into account some
of the points that we've made, together with the statement that that work will be done first, and
that will be a report back to us for advice and a conclusion.
Shaw: Now we’re getting into the details of the contract. Since we wouldn't necessarily be the
prime for the market research because Blake has his preferences for market research firms, we
wouldn't include that in our scope specific for the contract. So that is by nature of separate
contract which will probably go to the Council separately, correct?
Heitzman: It probably wouldn't be sufficiently large to have to go to Council.
Shaw: Right.
Carlson: It depends on who's going to include the package is the concept.
Ulrich: Well, let's try it another way. Based on what you've heard tonight, we go and we
summarize what we've heard tonight. We need to ask you how much it's going to cost, time and
cost because that would have to be included as an estimate in the report to the Utilities Advisory
Commission when we publish it just a few days after. Pragmatically, there is nobody here to do
anything on Thanksgiving day and the day after Thanksgiving and you then have to call people
in on overtime and Saturday and Sunday -- because for this Wednesday meeting, you have to
have this in the hands at least 48 hours ahead of time. So the reality of it is this thing has got to
be handed to the library, it's got to be put in the newspaper and the budget and all that in the
UAC by the last day -- would be the day before Thanksgiving. So that is next Wednesday.
Shaw: My piece can be done tomorrow. I mean my piece can because the proposal is already
done and it's 95% of the way there.
Ulrich: Well, gentlemen, how much do you want in the document because you're going to ask
us questions.
Carlson: The table of contents.
Rosenbaum: Basically, the cost estimate and the table of contents. Exactly.
Ulrich: There'll be a chance for modifications to this which are things that's going to add
addition amount of survey work.
Dawes: John, with all due respect, it's really just an organizational issue. Most of the things
that we talked about and I talked about should be in the statement of work. It's a question of
what comes first and having a go/no-go or maybe even a change of direction. I will give Mr.
Rosenbaum full credit for saying maybe we should be looking at a hybrid system if the costs are
so compelling. That would be the first community input back into the study here, is cost. That’s
what people want.
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Ulrich: That's fine, but you've got to be comfortable with this because we go see UAC, you're
going to look at it on Wednesday, my expectation would be is you're ready to go with it. Either
that or we haven't done a good enough job of explaining it in the report. The very next step, if
you want to move this along is you have to go with us to the City Council to outline your
recommendations and why to go with it. You've done that before and you guys do that real well.
But you've got to have this comfort zone and say this is fine.
Carlson: If the table of contents is placed on where we discussed, where it should be and there
are a few competitive points and that were highlighted as being particularly of concern to
various people here, I see no problem in doing that.
Shaw: Relative to other municipalities or relative to what?
Rosenbaum: I'd say technology and the issues that other municipalities have faced which is
going to be a competitive _____. I mean, if they fail, they failed not because the citizens didn't
watch any television. They have competitive problems.
Bechtel: Coming right back to it, because the practical matter is, Neil and Blake, once that
business plan is published, and let's say we do as Dick recommends. What happens is that
there has to be some large public discussion, possibly in a vote, so we don't want to be
blindsided.
Shaw: I understand. That's part of your legal strategy in terms of how you address all the faults
and lies that are being put out there about other municipalities.
Dawes: It goes without saying we have to have that legal memorandum. No decision is going
to be made without the final word from the City Attorney.
Ulrich: The document that I mentioned that has been worked on for some time. It is in the
confidential form because of the nature of what's said in there has been re-written to remove the
confidential legal stuff, so it's in a form that we can share with you.
Dawes: Well, the point was, without that -- nothing happens.
Ulrich: That's fine, I've come a long way in this public process. I am just saying is that there is
time required to do this.
Carlson: So it's going to happen if the lawyers say we can do it.
Ulrich: It's a utility and all that is owned by the residents of Palo Alto and we're going to do the
due-diligence to let them know what's going on.
Carlson: I think we need the time on this one. Time up here, I'm going away for Thanksgiving.
Shaw: I have a couple more questions.
Carlson: Go ahead.
Shaw: Commissioner Dawes, you talked about the large-business piece.
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Dawes: Commercial and industrial.
Shaw: Well, when we get to the business plans, it's important to differentiate. When you deal
with a very small business, small office/home office market, they're a "faceless market." I mean
they call a call center, they don't expect their account person to call on them, they don't expect
special pricing and they won't try and rake you over the coals for volume discounts.
Carlson: They're probably like residential customers.
Shaw: See, that's my point.
Bechtel: So just treat them as 100 more residents.
Shaw: So the product plan can be tweaked somewhat, and the product and the marketing
piece is fairly similar. I'm not going to say they're not exactly like at all, the differentiators are
easy to identify. When you get into the medium size business and those are the people that
have an account manager that has maybe 50 or 100 of them and they require some specialized
tie-lines for their PBX or key systems, and when you get up to the very large businesses, they
require a dedicated account team, an account manager, a systems engineer and a CSR that
they can call anytime.
Heitzman: Well, we talked about this earlier. I don't know if Commissioner Dawes agrees with
what I said before, but it seems like there is a business market that this works with, but there are
larger businesses are also differentiated that is really not quite that compatible. I would assume
we would just address the small business.
Carlson: Why don't you just forget the big guys?
Dawes: If it's an important revenue stream, we should sample. If It’s not envisioned to be an
important revenue stream, we shouldn’t.
Shaw: It shouldn’t. It's important revenue stream but it fits more into expansion of the Dark
Ffiber business and integrated-services model. rather than a Fiber To The Home model. Hard
trying to fit to an H-P, so as long as the business plan is going to address the business market
that look like the mass market consumer.
Ulrich: Let's try to put some together in the next day or two. All I really want to do is look you
guys in the eye. You tell me that we're giving you what you want in this document. I don't want
to come back with a half-assed job and show it to you after it's been sent out in the public and
then we have the meeting, and then you say, well, we missed 5 things or whatever it is. So,
that's all I'm trying to push on.
Dawes: That's why we're focusing on what the statement of work is.
Ulrich: Well, you wanted the large businesses in it. Is that what you want?
Dawes: I said, commercial and industrial and we've had some clarifying statements about what
industrial means. The big companies are the players, certainly not at the outset. Then we won't
sample and we won't put them in as revenue stream. But if retail stores and others are a follow
user, I think they are, they should be included and sampled.
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Shaw: They're included in the business plan just based on some typical numbers they have not
been sampled.
Carlson: Are there process restrictions here? I mean I would love to look at a draft. Can we all
look at a draft and comment back to you? Or does that have to be done at the full scale
meeting?
Ferguson: Many times before, we have had finely-crafted CMRs come before us and we've
said something like “I move to recommend the staff proposal with the following three additions”
-- and somehow, it magically works.
Ulrich: You're free to do that, of course. It doesn’t mean when you get it, you can't change it.
Ferguson: I think what John is worried about is another two-and-a-half-hour discussion on three
points in the table of contents. If it's going to be that, we might as well go to January.
Rosenbaum: Is this table of contents the statement of work? Is it a list? Is that what we're
talking about?
Heitzman: What I understand is it's a outline of the scope of work. The actual scope of work
may have additional paragraphs and sentences under this table but what you'll see would be
the outline, covering all the topics that you want to cover.
Carlson: And the phasing of the decisions.
Heitzman: Correct.
Bechtel: I brought it up. I see the same list as you have here, well, more or less but I was
actually thinking of additionally a table of contents, maybe not with every paragraph but an
executive summary. That tells you a lot just looking at a pro forma table of contents.
Ulrich: If you're satisfied with that so you can see the key parts, then most of it is right here on
this page 1 of the executive summary. That's what you're referring to.
Carlson: We've added several additional items.
Dawes: And the phasing, I think is very important.
Shaw: But is the research prior to a go/no-go decision?
Rosenbaum: Which research are you referring to? The research I was interested in was
getting a fairly firm cost of an HFC system and being able to compare with the cost of the Fiber
To The Home.
Shaw: Okay, so that's part of the pre-business plan. And then we talked about including the
municipal learning and things like that as part of the business plan in a competitive basis.
Carlson: We don't care how many connections we have. We care how much it cost. We're
looking for salvageables.
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Ulrich: All right, how is this. We'll give you an estimate in the CMR of the total amount, and let's
just say it's $120,000 or $100,000, whatever that is. You can then tell us at the meeting that
you want to phase three things in the table of contents. You can take that along with our report
to the City Council saying, you've reviewed it, you guys approve it with these following changes
and that will then be our CMR that goes to the City Council.
Carlson: Okay, that's doable.
Dawes: Let's do that in two weeks.
Carlson: Well, the problem is you've got a week to do it, and if you can do it, go for it.
Shaw: It’s done.
Heitzman: He’s says it’s done, but I think it needs a little work.
Carlson: I think we really do need some additional survey work. I think in this case, it's a
classical sampling of non-respondents and see if they're consistent.
Ulrich: I’m belaboring this because this is not going to be a normal week. We send things to
the City Council every week; much of it is on the Consent Calendar. But you have to recognize
that there is, and you do, there's been tremendous amount of communication, letters written to
the City Council, in addition to yourself on all different points of view. There, I would suspect,
they're going to want clarification, get some clarity from all of you on what you're recommending
so that this is not something we expect them to just rubber stamp or just pass by without asking
some questions on them. And then the obligation there is after you've approved it, assuming
you do next Wednesday is that I have to have all of the verbatim minutes, that's two/three hours
worth of stuff, all has to be transcribed and has to be part of the CMR in addition to what was
said at the meeting.
Carlson: What City Council meeting would you be thinking of sending this to?
Ulrich: Well, after I have this all completed, two weeks, at least two weeks before the Council
meeting because it has to go out on the Web and has to be two weeks early.
Carlson: That sounds like Christmas time.
Ulrich: I was thinking about February. I'll give you all those dates when we meet but I just want
to lay all that out.
Carlson: Well, I'd rather be thorough.
Ulrich: I don't think there's an emphasis that this all be done by City Council in the next few
weeks.
Carlson: Anymore questions?
Rosenbaum: I did have a list of questions which I submitted to Staff a couple of weeks ago and
I got a response that eventually they’d answer me. I'm not in any great hurry but I just want
some assurance that I'm not going to be sloughed off.
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Heitzman: No, I will give you the same due-diligence that I gave Commissioner Bechtel and the
other people. We have responses from, I divvied it up between the parties who would be most
expert in the questions and I have most of that back so we can put that together. I should be
able to get that to you before your next meeting.
Dawes: Just one other thing. That will go to all of us?
Heitzman: Yes, the same as the other ones.
Dawes: Yes, please.
Rosenbaum: I'm dying of curiosity and the experts here about Provo, Utah. Two years ago,
you folks with Peregrine did a business plan for Provo to hook all of it on the Internet. Their
mayor sent out a very strong letter supporting going ahead with fiber everywhere and they
established a citizen's committee, and the citizen’s committee met and they said, this is all
wonderful. It's now two years later and they're a trial of 150 homes. I mean, are you familiar
with what they've been doing there?
Shaw: This is no secret. They're still my client. It's a 3-phase roll out. The first phase was to
put in a backbone system interconnect their sub-stations and actually activate that with Gigabit
Ethernet optics. And also to connect their municipal buildings and that was completed this last
Spring. The second phase was to do like a 300-home or 400-home build out, we're trying to
turn out between 150 to 200 subscribers on a Fiber To The Home system. That's been a
significant investment and that's been called phase 2. The phase 3 will be based on the results
of phase 2. Phase 3 will be a decision to roll out Fiber To The Home to the rest of the city which
is around 32,000 meters, about 29,000 households and that decision will be made very soon.
Rosenbaum: Does the City Council approve the whole thing?
Shaw: The City Council has approved through phase 2.
Rosenbaum: So they haven't approved really the roll out?
Shaw: They haven't been asked to approve that yet.
Rosenbaum: Okay, and then we'll have cost. I think Provo might be very similar to Palo Alto.
It's larger, they have 30,000 to 31,000 households. But I think it would be very significant if the
cost were such that they decided to go ahead. And what would be the cost and decided this
wasn’t going to work? We will have that information on a timely basis?
Shaw: If they allow me early, we're using the same model actually and I'm hosting a trip where
Manuel and Bob will probably be attending, to tour that system in three weeks, on the 9th. So
my goal is to very tightly integrate the people that are doing Fiber To The Home to see what
they've learned. Part of that is the economics.
Dawes: What is the timeline on the Provo City Council reviewing the proposal to go forward on
their system?
Shaw: I can't speak to that specifically. All I can say is that they are on a, I don't want to
comment with PacBell in the room. I'll speak to one of you or something like that but they're up
against problems related to legislature.
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Bechtel: Legislation?
Shaw: Yes.
Carlson: Well, it sounds like they are really in a similar situation. I mean we've already got a
dark fiber and we've got 100 experimental homes.
Ferguson: Not really. We have a different set of state laws that kick in.
Shaw: They are not allowed to provide retail services. They're only allowed to offer wholesale
access to their system and an open access model. And the monopolists are trying to, at the
state legislature, enact further restrictions that will restrict their ability to raise money through the
bonding process.
Ulrich: These are all good questions. What I'd like to make sure is you guys believe we're
doing the due-diligence that you want based on the amount of money available or any additional
money you want to spend.
Carlson: We had asked for some additional questions.
Ulrich: Because these are all good questions. It's a matter of: Do you want them answered
now, or through the business planning process?
Carlson: Well, for the first phase of the business planning process, we want a lot more detail on
the actual experience.
Ulrich: Because it's going to be reported, we want to be able to make the comparison and say,
Provo is different for all these reasons or similarities.
Dawes: Absolutely.
Shaw: It's a mini case study for each system.
Carlson: I mean there is a mush paper floating around, we're not interested in that. If there isn't
a good paper that’s been done, we're going to have to do it.
Ulrich: Right. Just remember that by pushing is not to be argumentative with you, as we try to
make sure and clearly understand what due-diligence you would like us to do. So that you're
comfortable and confident that the staff is giving you information that you want. Or we can
gather and bring it here, because this is going to be a big decision.
Carlson: That's why we're asking so many questions.
Ulrich: I just wanted to let you know that I know that.
Carlson: Stacey, you've got a question way in the back row there.
Stacey Wagner: Yes. When the UAC had scheduled a Study Session for the 20th of October, I
was told to submit questions in writing prior to that time which I've done, so I just wanted to get
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 52 of 53
confirmation as well as Commissioner Rosenbaum asked if our questions are going to be
answered as well.
Ferguson: Let me confirm that we all received copies of that as information received along the
way. You sent your e-mail I think to the UAC address.
Stacy: Correct.
Ferguson: And the Staff?
Stacy: And cc’d, right.
Ferguson: Staff just automatically just forwards that stuff to us?
Ulrich: Yes, we don’t do anything with it.
Stacy: Are those questions going to be addressed, is my question.
Carlson: Weren't there responses to the questions from PacBell?
Heitzman: Yes, there are responses.
Carlson: Didn't we get them?
Heitzman: Yes, you did get them.
Carlson: Did PacBell get them?
Heitzman: Okay, we’ll do that tomorrow morning.
Carlson: I think as this is an open process, copy everybody. And if you haven't gotten
responses, ask us.
Shaw: Especially on the DSL penetration.
Bechtel: Stacey needs a quid pro quo.
Herb Borock: The questions and the answers on the same Web site and ______ fiber so the
public can see it.
Ulrich: The process, everything that's addressed to the UAC, correspondence and answers go
to the City Clerk who then in turn pass them to the Council packet.
Carlson: The correspondence is on the Web site?
Ulrich: The UAC, everything that you guys get is public and we send it to the City Clerk who
puts it in the correspondence.
Carlson: Okay, it’s past 10. Manuel?
UAC Study Session on FTTH November 20, 2002 - Approved 1/15/03- Page 53 of 53
Topete: Just a last statement, I think it's important. It's regarding whether if I was a speaker or
whether if I remained as an attendee. I was actually trying not be identified, but because I know
so many people out of my research over the couple of past years that I couldn't help but to be
jumped on time. And actually, on what Mr. Ulrich stated, let me add to that. That the City of
Palo Alto has been looked upon as the leading entity in true research in this area, not as
someone who is moving ahead with a Fiber To The Home deployment, but rather someone with
a true research behind it. And the reason for that is because the City of Palo Alto has been
looked upon as the only entity that has completed a true Fiber To The Home trial, testing all
three services -- which is data, voice and video. It's the only entity that has studied all available
FTTH access technology and most manufacturers in the USA, and has embarked upon
developing a business case/model. And please note this also: objectively (I do not know what
they mean by that) and without a biased decision making process. This means: I don't have a
pet project, Mr. Heitzman does not have a pet project. We are researching, it out of
objectiveness, and trying to find what's best out there. And that's the concept that people
attending the Fiber To The Home conference have. Now, it's interesting also to note that there
are 72 members making up the Fiber To The Home Council, many of whom, of course, are
manufacturers and have their own agenda. But, there are many others who are prospective
deployers of Fiber To The Home systems. So that's my take of the Fiber To The Home.
Bechtel: Manuel, there was a report from a consultant there. Do you have a copy of that?
Topete: There were actually quite a few. But many of which I did not get access to because
there were three sections running concurrently at all times. So I could only go to one or the
other. In some instances, I ran from one to the other. But overall, I have the sources and the
links to get many of those studies that are posted in the Web site. I'll be more than happy to
forward them to you.
Bechtel: Please do so.
Topete: I'll certainly do that. And finally, yes, Fiber To The Home Council invited me to be a
member but I don't have the time. Sorry.
Dawes: I move for adjournment.
Rosenbaum: I second.
Carlson: All in favor?
All: Aye. [meeting adjourned]