HomeMy WebLinkAbout2003-07-09 Utilities Advisory Commission Summary MinutesAPPROVED UAC MINUTES 7/9/03 PAGE 1 OF 35
UTILITY ADVISORY COMMISSION
MINUTES
7/9/03
APPROVED
Role Call......................................................................... 1
Approval of the Minutes................................................. 1
Reports of Commissioners.............................................. 2
Utilities Director Report ................................................. 2
New Business.................................................................. 4
Fiber to the Home Phase 2 Interim Report................. 4
Santa Clara Valley Water District’s West Pipeline
Extension Conceptual Evaluation - Final Report...... 32
Adjournment................................................................. 35
Role Call
Carlson: We will call to order and let’s start with calling the role. Present: Ferguson,
Bechtel, Carlson, and Rosenbaum. Commissioner Dawes – on Conference. Absent:
Beecham.
Approval of the Minutes
We will go ahead. I don’t see any card or oral communications so we will go ahead with
that. Of course we have public input on the agenda item so we will hit that important
agenda. So the next item is the approval of minutes. Anything missing in the minutes?
APPROVED UAC MINUTES 7/9/03 PAGE 2 OF 35
____ I move the approval of the minutes of the meeting of June 4, 2003.
Carlson: Is there a second?
?: Second.
Carlson: Any discussions? All in favor - Unanimous
Carlson: So we approved the minutes. Any new items for the agenda? I do understand
that the Central Valley Project the item is not on the agenda. Everybody’s agenda was
sent out. In case you missed it we just have two information items. Is that right John?
Ulrich: That’s correct. The item related to Central Valley Project has been moved to the
next scheduled meeting for August the 6th and the agenda notes three items that we
currently have scheduled for the next meeting’s agenda.
Carlson: What is the Central Valley Project Corporation? I know what the Federal
Project is but what is the Corporation?
Ulrich: I would prefer that we wait until and surprise you at our next meeting. Basically
a financial arm to replace the advance billing process that we currently do for funding
Central Valley Projects, plus a number of other things.
Reports of Commissioners
Carlson: Okay. Reports from the Commissioners Meeting. Has anybody been to a
meeting? Summer time. I didn’t think so.
Utilities Director Report
Carlson: John, go ahead. Give us your overview of where we are.
Ulrich: My report is rather going to be brief this evening. I want to report that the City
Council approved the budget not only for the General Fund but also for our Enterprise
Fund with the exception of two CIP projects which they have asked us to go back and
look at those. Both are related to the emergency water plan for specific work and we are
going back and looking at the environmental impact report and several other items and
we will bring it back probably in the form of a budget amendment request later this
summer or earlier fall.
Carlson: Which projects are they?
Ulrich: Those are the Water Storage and El Camino Park and accounts related to them.
The second item is just to review what is being scheduled for upcoming Council
Meetings subject to change. Right now we have our LEAP Implementation Plan which
has been delayed from June 3rd which is passed to July 15th Finance Committee Meeting
APPROVED UAC MINUTES 7/9/03 PAGE 3 OF 35
and delayed from June 30th to the August 4th Council Meeting as an Action Item or as an
item for consent calendar. The goal for the gas plant is scheduled for the July 15th
Finance Committee and the August 4th Council Meeting. The Western O & M Contract
Amendment which I alluded you just a couple of minutes ago which is for funding has
been postponed to I think to August 4th Council Meeting and also the Western O & M
Contract FY 06 Funding that is scheduled for the date on here is not correct I think it is
July 28th Council Meeting. The BASCA Inauguration Meeting was held on 6/19. Bern
Beecham was elected as Vice-Chair. We have a plan or program for looking at ways to
bring in additional transmission facilities into the Bay Area looking at a joint venture
between Alameda, Palo Alto and Santa Clara Silicon Valley Power. As you know we are
looking very hard at the changes that the FERC will have and the California ISO which
can present us with higher cost for transmission into the Bay Area because of the
congestion and so we are looking at ways to have some improvement projects on
transmission network will allow us to reduce our cost for transmission by reduction of
congestion if we can. So we thought of bringing that group together and entering into a
contract with a consulting firm that specializes in this to make it alternative ways and
these costs can be shared by the three cities.
As you know, the Future Green Program was approved by the City Council, which
replaced the last Green Program and we are in the announcement and marketing phase to
notify the public so you may have probably seen some ads/communications in the
newspaper. We also won an award at the APPA Annual meeting for energy and
conservation programs. There are only one or two cities in the United Sates that is doing
that Public Power. So we had a so it is kind of potpourri of what is happening.
I think at our next meeting in August, with the election of a new Chair, we would like to
consider and have some discussion and communication who will replace Ferguson and
the duties of editing and reviewing of our draft minutes and other necessary activities.
You may want to consider that at our next meeting. Any questions? I conclude my
report.
Audience: One question John. It sounded as though you are going to City Council in
August for this O& M funding thing, which I guess is the Central Valley Project Corp. Is
this going to connect with the UAC or not?
Ulrich: They are only connected as the CVP Corp which replaced the O&M Funding –
future date so they are two separate CMRs that would___
Audience: They are not eminent then?
Ulrich: No. That is why we are having the review with UAC first before we go to the
Finance Committee.
Audience: Thank you.
APPROVED UAC MINUTES 7/9/03 PAGE 4 OF 35
Carlson: Any more questions? We do not have any unfinished business and therefore
lets move to New Business and we have partial interim report on the Fiber to the Home
Phase II.
New Business
Fiber to the Home Phase 2 Interim Report
Ulrich: This is our part of the plan as an interim report so that you have a good idea of
what is going to be in the final report in August. It is an opportunity to see what progress
has been made and it would be appropriate to fine tune or look at some other areas and
subsequently, as necessary to do. With this report, for Dexter’s sake, Blake Heitzman,
Manager of Telecommunication is sitting at the table looking at the microphone and right
now Dexter – Neil Shaw and Dave Stockton from Uptown Services are also here and are
also facing the microphone.
Heitzman: I guess I will lead off. Tonight we have interim report as noted Work in
Progress. Some of the sections particularly the Competitive Section are very thorough
and detailed and some of the marketing sections and rest of it is basically an outline form
and I would like to say that we have done a lot of research and essentially our charge
between now and the 25th of July is to finish the interim report and return it to the UAC in
final form. One of the things I am going to leave of with tonight is on the overhead when
Neil stands up and talks about that .The second one it talks about the agenda. The third
item is the guiding principles. One of the things that I really want to stress and
emphasize the final report are the principles and policies and so forth for operations. I
have given the UAC some ideas of what kind of policies they might want to recommend
that the business follow and also there would be a governance section which will describe
the types of reports that the governing board for this utility would receive on a regular
periodic basis, discussion of finance, customer satisfaction and various issues that would
allow the governing board to monitor the state of health of this business. So those are the
two important sections that are discussed somewhat in the current plan but I want to bring
them and emphasize them out in the final plan. So with that said I will let Neil start.
__________: One question before we move on. I have a question about governance
accept. I did not know how complete that the future section would be an attempt to report
descriptive what policies would be seen to the governance rule vs. what responsibilities
would continue to ask for the city council as a task. Those three pages notes.
Heitzman: I don’t think we can make a distinction between the city council and the
governing board or whatever that might be. Whether they are the same or different. But
certainly there would be a distinction between the governing boards, a council and staff
so that basically my thoughts are that there would be governing policies that the staff
would have to follow in the operation of the business and then they would report back
showing that they had followed and also the financial well being, and the customer
satisfaction measures of business.
APPROVED UAC MINUTES 7/9/03 PAGE 5 OF 35
Carlson: Okay.
Shaw: I am Neil Shaw and I am with the accounts services. Most probably you know
who I am by now. I will be doing the first and the last part of the presentation today,
tonight. And the first thing I go through is business plan outline, discuss the full context, -
information delivered so far in the business plan . Talk about the business plan in general,
in terms of updating where we are with the work we have been doing. As Blake was
talking about the guiding principles, which are foundation elements not principals, of a
consulting business, I am not sure how it got in there but the we also have the Fiber to the
Home process Map or the off ramp diagram which we introduced last year.
Ulrich: Were you able to follow this okay Dexter?
Dawes:Is this in the material that was written?
Ulrich: We will be able to translate from what he is describing to what you have in front
of you.
Dexter: The print was too small. The road map was fine.
Ulrich: Sorry if this is confusing. This is a special meeting on a different night and so we
are meeting here rather than in the council chambers and this is the Utilities Advisory
Committee Meeting here.
Ferguson: Would you say the slide # at the lower right hand corner.
Shaw: Slide 3 Work in Progress Summary with the plant component percent complete.
The marketing strategy is nearly complete. For the most part this information was
disseminated in text form last week on the Internet in paper form. We talked about the
business that we are going, that the UAC Fiber to the Home business should address,
services analysis looking at the competition in the service area and so on. The things that
are up are the marketing and sales plan, and the competitive response and the PR plan
and those are the things that Dave is currently working on. Legal regulatory, we will talk
about that in a little bit. It is 20% complete. The monthly operating budget is about half
done. Majority of that work is the challenge of putting together to maintain revenue
module that is completed. The rest of the piece parts are in a form that can be
aggregated, integrated and that has not been done yet.
Dawes: Regulatory issues that I have raised every time you have come to town. I have
been very anxious to get a reading from our Legal Department. I believe that we are
proceeding on the basis that nothing in the draft report or judgment from the legal
department would impeach on what is being proposed you could assure the UAC that
continues to be the case? Do we have plans that we can’t meet because of the legal
regulatory requirements?
APPROVED UAC MINUTES 7/9/03 PAGE 6 OF 35
Heitzman: We are working with the legal council. There are some issues that they feel
we need to discuss in the confidential nature because it could involve strategies and so
forth that need to be kept confidential. But we are working with them and there are also
some issues that are process orientated which we can come back. They are working with
them and we have not encountered anything that is a killer for this at this point.
Dawes: ________________________________ or for any fact that there are?
Heitzman: Yes. Thank you.
Shaw: Okay so now on slide 4 we are looking for new strategies. As Blake said we had a
lot of discussions with different players involved here and we will visibly tacking up all
these findings, a fairly lengthy report. But as far as partnering goes we will talk about
them each individually. We are about 80% finished and some of these have been updated
since we published this presentation last week. The service delivery processes are 75%
complete. In terms of identifying the key processes and identifying the alternative several
processes, the organizational processes is around 40% complete. Financing strategies is
about 60%. Okay I am now going to turn over to Dave. Dexter we are not going to have
these slides some of the folks are working of the UAC packets I am not going to have the
slides but Dave is going to go through the product vision and some of the other marketing
issues.
Stockton: So this is in slide 5 but it is a different slide (from what you were originally
issued).It is an inset in slide. This is about a product vision. I am going to talk about
products, pricing, the sales strategies, some of the more fundamental components of the
business plan, which got mostly completed at this point. We will share with you where
our current thinking is on that. In terms of the product vision, part of what we are trying
to do in terms of the strategy is to leverage the opportunity that we have with such a
strong network architecture. So starting with Internet what we want to do is to expand
data capacity, 2 service speeds for the citizens in small businesses in Palo Alto. We also
in dealing with that we want to use tiers. Now SBC is using tiers in the market and we
will show you that. Comcast is not but it is an opportunity to provide a range of services.
Our intent there is to meet the needs of the entire market so that we are reaching all the
different market segments and opening up the opportunity to provide services to as many
households as well as small businesses as possible. We will show you those in terms of
the current thinking. The thing that we are cautioning on is being careful not to get into
something where we price so low that we commoditize or we cannibalize the tiers. In
video our strategy there would be to and Comcast is doing some amount of this today is
to make sure that we are very much of a high tech in advance video service provider.
In terms of practical applications that would mean things like getting on demand high
definition TV as well as other services that are merging with the video arena. We would
want to source a strong channel line-up and we would want to be using some optional
digital tiers. Comcast is using one which is in the market today in fact where they charge
$5.00 extra to get some channels. So we also put the city in a position where it can
contain programming cost and make sure that the people are getting the programming
APPROVED UAC MINUTES 7/9/03 PAGE 7 OF 35
they want and that we are not spreading the cost over the entire city for those residents
that do not want such programming. Then we would deploy some extra packaging
structure. I will show you a general concept around that. The idea on putting on video is
to be able to offer something that is familiar to the residents of Palo Alto that may be
getting Comcast video services or perhaps the satellite video service. And then finally on
phone our vision there is much simpler as you know as part of Phase I we decided to take
a whole sale business module approach to phone so there it is. It is much less
sophisticated in terms of the marketing strategy. To recap of what we are trying or
needing to accomplish with each of these lines of businesses and I am on page 6 right
now.
Carlson: This is a different page 6.
Shaw: Yeah. I will read through in detail again. But in terms of looking at the revenue
task that needs to be delivered by each of these line of business, to meet the requirements
of the business plan just a recap of some of the additional details as we are now building
out as Neil mentioned the revenue portion of the module. Our focus is especially in the
first twenty-four months of the operation to have a month-by-month very detailed
understanding of revenues operating expenses capital requirements so that an integrated
statement of financials can be presented. In terms of Internet we are looking for year one
revenues of about $300,000 growing in year 2 to about $2 million. This represents a
majority of revenue of about 46% and an even higher burden in terms of cash flow. The
average revenue per user of 45 dollars in year 2. And then year 2 distrbursion in terms of
tiers I’ll show you. This is just a percentage of the subscribers and how they will be
placed amongst the tiers that we are expecting. The reason we mention this is it is
important in going back to that average revenue per user number of 45 dollars. As we
design the tiers and as we review them and give directions you will see that we are trying
to make sure that we hit that 45 dollar revenue because it is critical in paying of the bond.
In the video line of business year 1 revenue 250,000 yr 2 just under 2 million
representing about 40 percent of the revenue. Average revenue here is about 40 dollars.
That would be probably growing over time but we are assuming that in the yr 2 it is about
40 dollars. The phone is a smaller piece as you would expect in part due to the wholesale
strategy year one revenue is about 100,000.00 year two is about 600,000 13% of revenue.
Average revenue per user because of the wholesale rate and potentially some profit
sharing would probably be about 14 dollars okay.
Carlson: These are per month basis?
Shaw: Yes these are per month numbers for the revenues. I am now on the next slide. I
believe that this one is an insert as well.
Carlson: Still not being on capital?
Shaw: No. I will not speaking to capital. So we will have that as soon as we complete
the operating expense and the capital requirements for the first two years. That is in
progress.
APPROVED UAC MINUTES 7/9/03 PAGE 8 OF 35
Carlton?: And you will describe to us how you are addressing the technical issues that
has certainly been a good amount of email and comments from the technically oriented
folks of our town of which they are many and needless to say that there will probably be
some comments addressed, controversy about the approach taken. So I think it is very
important that you may clear how you are approaching customer issues.
Shaw: To that point we have a spirited and healthy discussion this morning. We are
going to continue to have meetings around input on with that constituent that has been
incorporated in our thinking. So I think we are trying to get on the same page in terms of
what is best for the community, what is best for this venture in terms of its financial
responsibility as well.
Dawes: Does that include whether or not we are going to go for Packet TV or
conventional type.
Stockton: We are addressing that in our business plan.
Dawes: Okay.
Shaw: Okay. The next slide is principles of competition. I wanted just like in terms of
describing the revenue task that’s ahead of these lines of businesses I wanted to in some
nature describe kind of our beliefs and tenants around how we believe Palo Alto should
go about in entering these lines of business. We have submitted in the draft as you will
notice I believe it is under the pricing section some recommended directives that we are
asking the council to consider for staff. And these can be summarized in the four that are
in there. And those are the staff should not use prices. The only differentiating factor for
services offered on the Fiber to the Home network is self evident that we want to be able
to avoid commodity pricing at a greater value than just price. Quality of service
performance products etc.
Second staff is to use ___________ in the market place I will provide a little further
detail in a few slides how we see that it is important to this initiative. Third is that staff
will exercise the advantage of Fiber to the Home to compete in the market place if we
make this kind of investment, we want to make sure that we are extracting full value for
the community and then fourth staff is to provide better or equal service, or equal price so
long as the capital and operational costs are met even to a point where transfers to the
general fund may be zero in some years. If we fold these together and represent it in
terms of the mission statement which would be the City of Palo Alto and therefore its
broad band business venture would provide an excellent value to its citizen owners and
would be the preferred broad band providers to an accommodation of excellent customer
services, fair pricing and enhance product performance all done in an environmentally
sustainable manner.
Carlson: Before you leave the telephone bullets. Is there a way that you can state the
first directive in the positive statement rather than say that staff should not use price.
APPROVED UAC MINUTES 7/9/03 PAGE 9 OF 35
What is another way to be stated? I have never been comfortable in negatives in these
cost effects. and in particular to come forward with a positive statement what we will do
as opposed to what we will not do.
Stockton: I think we can revise it. I think that the short immediate answer to that is
around the quality of service. It would be around the performance of the products that
there is more than just the price that we want to be able to use to bring value to the
citizens and small businesses.
Carlson: What comes to mind is my dealings with Comcast and you know Cable Coop,
AT&T before that and it is the time that you get on the phone and in 30 minutes you are
waiting for someone so there are a lot of things we can say that the city can differentiate
themselves and I believe that in terms of customer service, responsiveness all the things
that we have done in other utilities worked really hard on them for the last two years that
can make us real important to people.
Stockton: Okay.
Carlson: People, as you all know, have a terrible reputation in the industry for customer
service and the responsiveness and uninformed people were answering the phone and so
on and I think that the City can do a terrific job in that area. So I would rather pick along
those lines as opposed not to use price.
Stockton: Okay.
_______: Just a comment along those lines. I think what George says is fine but if this
issue is going to have to come to a vote from the public and if you are not able to tell the
public during this election that you will be able to charge less in the encumbrance I think
you are at a serious disadvantage.
Stockton: We will look at that. We are going to show you our current recommendation
in terms of some prices and things of that nature as well. So that being the back drop for
where we are coming from our thinking and strategy on how we believe if City should
approach this. Let’s talk about video first and then we talk about Internet. I am not going
to go into detail on phone because of the wholesale nature of it. I will then wrap up my
piece of this by talking a little about what we are doing on sales strategy. In terms of
video and to the point on price advantage. I think the group is very familiar with the
findings from the market research relative to the interest level in the community for these
services especially relative to what we measured as a 10 percent price advantage
compared to the encumbrance. So we saw a significant demand. We are carried that
theme into the general what we are placing forward is the pricing recommendation. The
level of detail we are getting into the business plan is to be strategic on how that is
implemented and the way we see that especially in video we do not see that as a tax cut
approach where as across the board. But where it is more important and it can be used to
best attract customers to the City project. This would be the major category of video
service where pricing is a major importance. Limited basic services expanded basic,
APPROVED UAC MINUTES 7/9/03 PAGE 10 OF 35
digital products, premium channels such as HBO, paper view and high definition and you
can see that most of the categories we are intending to offer a discount and you can see
the pricing that is recommended here but not necessarily in every single category.
Heitzman: It looks like Table 8 draft plan.
Stockton: That would be correct. It shows Comcast, CPAU and then whether or not there
is a discount for that particular service. Yes. That’s it. In terms of bringing this to live,
one of the things we did is we tried again getting back to the notion of customer value
and not just being about price is for video we plotted the number of channels against the
monthly price for these services and up here we are showing Comcast as the darker
circles, CPAU as the lighter. I mean just looking at some of these, the key here is the
increasing value is upward and the lower value is downward into the right. Our goal here
is you can see that we have labeled one of these as the Fighter brand. The concept there is
we want to offer a great deal of value, kind of in a sweet spot what we believe exists for
video services which is the 35-45 dollar price range. This would be for CPAU the entry
level digital product and offer a tremendous value not just in terms of price but also in
terms of channels as well. Obviously we cannot define the channels at this point of time.
We don’t know the specific channels we don’t the exact number that will be done
through the programming committee. But in terms of the general product strategy what
we are saying here is we want to be very competitive in the sweet spot range for the
services but offer good values.
_______? I could not figure out from those circles in that diagram how they
corresponded to what I am looking at Table A which is the previous slide __________.
Either that or your slide is in color. I cannot follow that as it is in black and white.
Stockton: Yeah. It is the same package. There is additional information on the previous
slide 8 or Table 8 around including installation.
__________: Is that the digital package that starts with 60 or 70 bucks it goes up versus
digital classics I guess is 61.20?
Stockton: What I would be referring to if you look at Table 8 you should be able to see a
basic at 45.95 that is what I am referring to.
Dawes: Very good. So I am in an obsolete Table because there is no such number on that
chart. CPAU is at 25.95, okay.
Stockton: That’s it you got it.
Dawes: Question on that chart. In the text you provided for us that CPAU is the dark
circle and Comcast is the right circle. Is this correct?
Stockton: Yes it is correct.
APPROVED UAC MINUTES 7/9/03 PAGE 11 OF 35
Stockton: The text has these reversed. This is correct in terms of what you see here.
Okay. Slide 19 is Internet and what we are showing here is the incumbent internet
offerings so the reason why I want to show is to ground everyone on what’s out there
today in terms of the internet product and the main providers in terms of broad band
arena of course being Comcast and SBC. Comcast is very straight forward. They have
essentially one product with one price of 42.95 and it is cable modem product unto 1.5
megabits downstream. Their definition describes as 256k of stream.
__________: I was going to say that Comcast charge you extra if you are not getting
other services from them.
Stockton: That is correct.
__________: Have you factored that into your consideration?
Stockton: We have not factored that as yet. You are absolutely right. They charge $15.00
more that becomes 57.95 if you don’t take their radio service. We have however not
factored it into setting strategy because 90 percent of the people that are in this product
are taking their video product. SBC ad you know is providing service with DSL. They
are tiring. They offer some broad hinges in terms of their tiers from what they call unto
364 starting at 39.95 and that is under promotion right now 10 dollars of most of these
are. Standard plus to 384 at 1.5 and what they call deluxe at 7.68 to 1.5 and an extra plus.
So this is the landscape of what’s out there right now. Very broad ranges in terms of
speeds.
Rosenbaum: Are you aware that SBC is currently offering if you take it on a one-year
term?
Stockton: 10 dollar plus.
Rosenbaum: No, the standard plus is available for 30 as opposed to 30. I do not know
that SBC is doing but both basic and standard plus are 30 dollars a month.
Stockton: It is aggressively being promoted right now. Both in terms of the contract as
well as promotional offers as well short term.
Rosenbaum: My impression is that this is likely to go on for quite a while. What I am
asking is, should you, in your charge be taking a possibility of a lower price for SBC into
account.
Shaw: Could I say something? I think if you look at the final print. The discounted price
does not last a year. It is only half a year or 4-6 months that the price lasts for what you
are committed and the rest of the price goes up I believe so.
Rosenbaum: That is not true. This is something that you should determine.
APPROVED UAC MINUTES 7/9/03 PAGE 12 OF 35
Shaw: I did see lower price here. I frankly had a little bit of skeptics around the accuracy
of that it makes some sense to match those price.
Stockton: The key thing in terms of your pointer question around what we zero in on in
terms of determining our strategy we would want to look up at wake up pricing. Wake
up pricing means what is our every day rate. We would be using promotional offers and
just go forward as these players are as well because for example Comcast is offering this
product at 29.95 for three months as well. So there would be promotional offers but what
we are trying to zero in right now is what we set as a everyday price. In the revenue
model what we are doing is we are assuming that certain portion of revenue if foregone
because of promotional discount and in the early years of the venture we are assuming
that to be 20-25 percent so fairly substantial. Okay Then again visual presentation of
customer value on Internet. Here it is a little bit different of an approach and it comes
from a product vision that we started with for the Internet. Here we want to fully utilize
the capacity that this network will have in terms of what we can do in offering down
especially down street through put. Of course here we are talking about serving the
residential market but also the small business market. We believe in the tiring that there
is some real opportunity for small business to provide symmetrical service but also the
upstream path is also very well burst in high capacity as well.
Dawes: Can I ask you a question about the schedule. Looking at the future. Should we
have revenue shortfall in this operation? The shortfall would essentially become
surcharge in the electrical rates. The electric rates will be boosted to make up shortfall
and the whole revenue cycle of a broadband operation. Since so much of our electric
power is taken up by big business it would seem to me that if we had a big business
offering that was extremely favorable to these people that it would tend to soften any
objection, which might come about entering into such a venture. Many months ago one
of our largest electric customer waved a red flag about going forward with this kind of a
thing. I am just not familiar what big business needs are but in the end I know that it pays
big bucks for broad band connections between their facilities and the outside world.
When you talk about extremely high up streams and down streams speed 250 bucks a
month is this something that would appeal to Hewlett Packard in Palo Alto or big
companies, or large users that they would sufficiently be entice by it. Would they use it?
Heitzman: I am trying to answer that a little bit Dexter. What we are seeing right now in
our dark fiber business is that the larger companies have their own networking so they are
more apt to use dark fiber and install their own networking equipment to manage that
network so the possibility would be to if dark fiber business rolls in to the fiber business
and maybe some advantage of to be priced for those businesses and the use of the dark
fiber.
Dawes: Okay. If we were to service other businesses……__________________.
Shaw: Extremely high service offering is still called a mass type offering.
APPROVED UAC MINUTES 7/9/03 PAGE 13 OF 35
Dawes: Inadequate in terms of large capacity for large companies.
Shaw: Yes.
Stockton: Especially in terms of associated service and support behind it.
_______: One thing that might be of interest is to mark it locate within the City of Palo
Alto is if we had some sort of offering that allowed for the employees who are located in
the City of Palo Alto to have some directive to add service to their employer located
within the City of Palo Alto that would be certainly of interest to a number of companies
such as HP.
Shaw: And those could be some of the network that could be established on top of the
regular fiber to the home connection.
Dawes: Is that something that is difficult or expensive under their current configuration.
Shaw: Currently they will have to use SBC or DSL and is currently expensive to do that.
Dawes: And the broad band would not support it very well with DSL.
Stockton: No
Dawes: Has there been any exploratory discussions with such customers about interest in
that regard.
Stockton: Those types of things are very individual case basis types plans. They would
be hard to project. Once the businesses are in running there is something that could
generate lots of extra revenues depending on.
Audience: ____________________. Blake had made a statement that fiber to the home
survey was going on. That certain neighborhoods in Palo Alto were hooked up. They had
managers living there and they would pay the total costs. So we are talking about paying
thousands of dollars. HP would pay to hook up the fee for an employee and pay their
monthly rates. The answer to the question is YES. Companies were interested in doing
this.
Stockton: I am still on what slide 11, which is the value analysis for Internet. Before we
leave this is what I want to talk about is the three segments of the market that we are
looking at and how we approach it. When you start at the top above what is in the market
today with respect to DSL and Cable modems looking at 2 megawatts and up what we
want to do is compete with the 3 put and capability of the network. So it is very straight
forward. We want to offer about three tiers in that range and we got some thinking on
that speaks to the high end residential market as well as to the small business market. In
the middle today we have a kind of a middle DSL product or a cable modem market in
the 40-50 dollar price range. Our thinking varies we want to offer a better through put
APPROVED UAC MINUTES 7/9/03 PAGE 14 OF 35
add a 10% discount roughly. So you can see in terms of how we visually compare
offering greater downstream through put. Our current number on that is 2 megawatts
downstream for just under 40 dollars.
Dawes: Plus you have a better reliability and that is important. _______________ cable
modems.
Stockton: Yeah. The third moving down still would be getting into what is below the
broadband definition today maybe a little below DSL but considering the dial of the
market etc. we want to place a product into the market there to be attracted to dial up
customers that may not be ready for whatever reasons to go to be broadband as it is
defined today. So we are thinking of a middle range product not priced as low as dial up
partly because it would offer better through put but also keep in mind it would take away
the need for a second phone line as well as provide all these kinds of activity. So trying to
protect that bottom price point, protect the average revenue per user we need from this
line of business and make sure that we are staying away from commoditizing it that’s
way our representatives are thinking around us.
_________: What is the thinking between using upgrade a symmetrical service as
opposed to symmetrical services? As a differentiator why aren’t we looking at that?
Stockton: We are looking at both. I think the main market need is going to be
symmetrical is going to exist for small business just in terms of how they move data
around etc. In terms of how residential users typically use the service, there just isn’t that
need. We might want to consider on this hiring product maybe pulling this number of but
I think symmetrically really resonates with the small businesses market versus small
consumer markets.
_________: Is there any capital advantage that is lower system costs build out costs and
so on, gateways and so on if we offer a symmetrical service to the residents.
Stockton: Yes. There are two levels of this. It is one thing discussed in our meeting with
citizens__________ this morning. What we are looking at here is Internet traffic. So this
is the traffic that is going out in the backbone, traveling across the internet. The venture
would have to pay for that kind of activity and how much travel is going on to that. The
size of the pipe is a variable cost that needs to be accounted for in a business plan and
cost structure. The other piece of that of course is on network traffic or Intranet traffic
that is the different story. But in terms of the volume of traffic here what you are looking
at is placing it around the Intranet.
Audience: So when you browse there is a natural between 3-4 to 1 ratio data coming
down to coming up and that is just a well known for that number. So holding in that ratio
will __________ Intranet is obviously a different picture. The other thing is when you
are sending the service out as an internet as a internet service provider it costs me more to
do residential service than business who pays what in which direction. So from your
APPROVED UAC MINUTES 7/9/03 PAGE 15 OF 35
point of view it costs more to charge a residential user in a broadband than it does a
business user.
______: How much revenue would you receive____________ if you just priced the
high end at the residential high. You just said that there are only three services. High is
everywhere. Would it be 20% of the revenue? 80%?
Stockton: I would have to run a number. It depends on a distribution. I do not have the
number on the top of my head. I showed you the distribution on the earlier slide in terms
of what we think. At the outset we think that two thirds of the market will be here in
terms the subscriber pays for the venture and the balance here. That however is not the
only issue. The other issue is ____________________ .
Stockton: The other thing is we think that the application will drive more capacity down
the road as well.
Audience: I think that there is a natural thing to consider in terms of differential because
of the residential part of ___________ small business part and that is overselling and the
issue is that if you are having 4 megabits downstream range for example and you have
only a 100 customers you are not going to provide to provide 400megabits worth of
downstream range because you are all not going to be using it at the same time. The
degree of overselling is typically reduced for small business to operate and the extent you
can segregate your traffic with the network and provide a better quality of service for the
small business traffic that would also help to justify people claiming additional funds
from revenue because their traffic has priority over the network sent out over the general.
______________________
Stockton: As the city considers and issues are pieced to vendors to look at the right
selection that quality service capability is important. Because that is definitely there.
Audience:I read about Korea. Their upstream usage is greater than their downstream.
__________________ what is your comment?
Stockton: I can’t speak. I have no knowledge of that.
Audience: ____________smaller industrial plants…it creates a kind of dark side.
Audience: Well, small business locator is a relatively natural increment over the
residential high. __________________ high band pay for it.
Carlson: Could we limit the questions here? This is going to be an endless discussion we
don’t want to be here until midnight because we are going to do this all over again in a
month so could we just go through the presentation.
Stockton: Absolutely. John has asked me to describe small business in terms of what we
are looking at there. Just not Moms and Pops. We are thinking of up to usually 10
APPROVED UAC MINUTES 7/9/03 PAGE 16 OF 35
employees. I t will be kind of a classic definition and telecommunications industry of
about 10 employees for small businesses. The final thing I am proud of before moving
into salesmanship and wrapping up this section is around bundling some strategic
considerations and I am on slide 13 which is the impact of bundling and what we have
here is just in terms of I am going to show you a bundling design but a couple key
financial matrix around of why bundling and this is some data that we have some uptown
analysis we have done within the cable industry and it is just showing that our subscribers
who have just analog video at the bottom working on up to digital two products and also
all three products what happens to average revenue per month which is obviously
intuitive but also more important what happens to ______________ which is not quite
intuitive in terms of the dramatic impact to ______________ in reducing it when
subscribers are in a bundle and getting multiple services. So in terms of why we want to
look at bundling this is the reason.
The current design we are thinking of and I am on slide 14, which shows how we bundle
this. This is in a draft so we pulled it out right there. Is that we are looking at two three
product bundles and two product bundles the difference between them is the high end in
each band would have two premiums within the video product and lower one would not
have any premiums and it would essentially be a digital basic kind of product. We have
the competitive equivalent showing up here as a combination of both Comcast as well as
SBC in terms of what the market value is of these products today. There is actually very
little bundling going on. SBC claims their bundling. It is pretty smoking mirrors and
pretty confusing around what is there. In terms of Comcast that point was made earlier
so we are just using the 42.95 price which is their bundle price.
Shaw: Our intent here would be to offer these discounts above and beyond the rate card
pricing that we are talking about for the CPAU services. So it is not a discount of these
prices but it will be a discount of CPAU prices. As an example we will be looking at the
three product at the top which is digital basic the medium internet define product and
local phone probably looking at somewhere around 99.00 price point for that product as
an example. So these will be the bundles.
______: We got a good comment from someone and recently in the last few days an
email about the council virus staff setting pricing and it comes up to an interesting point.
It is that I think the question would be a general question that we can probably it would
have to come out sometime in our process how the prices are actually set. Staff makes a
recommendation, goes to the UAC Council approves that’s our current utility rates. Our
discount schedule also. All the rate cards are reproved. In the dynamic market I could see
pricing having come to this process quarterly is it going to be that bad?
Stockton: I think that is why you are raising the point why we are putting forward these
guidelines around how we govern and respond quickly in the market. That is we are
looking for an approval and ability to deliver on the business plan but make operational
decisions like appraising nature within staff. That is the reason why. It is a very dynamic
and very competitive market. If you look both at the video and of course the internet side
right now, price changes to promotional offers move very quickly. We are asking for, as
APPROVED UAC MINUTES 7/9/03 PAGE 17 OF 35
opposed to rate card approval and submittal of specific pricing, we are asking for and
consulting and advising on, is that instead the model somehow be adjusted for this
broadband adventure to be more around strategic guidance framework as opposed to
specific price point approval.
Rosenbaum: So that means we expect to see your business plan this month.
Stockton: Yeah we will finish this outline and we feel that it is important to share of
thinking around us so that you can get a business plan level of understanding especially
for the first twenty four months on what is actually required from operational budget to
make this happen. That has to include pricing because it characterizes the revenue
stream.
Heitzman: At one point I don’t know if it is still one of our rates schedule there was a
variable energy rate that was approved by council she had a range I think maybe that is
the way it has to be done. Just put a range and that range we could operate in until we
need to change the range.
Carlson: Are we taking questions?
Audience: I am wondering if the range you are expecting people to take one phone line as
opposed to multiple phone lines. How do you plan to handle that?
Stockton: Yeah. We have this specific question. Because even if the wholesale pricing
the number of lines does not impact the revenue for the city. We have data from
broadband phone providers like cable companies. We have assumed 1.4 lines per
subscriber and that is the matrix that we have seen in cable companies who have offered
phones like coax and AT&T broadband. I will wrap up my piece with sales channels to
my slides. So this is the slide 15 which summaries the sales channels and I believe this
one is new as well but again I will speak to itself. I apologize for that. There are five
sales channels that we are looking at. Our goal is to take advantage of what is in place
today. First and foremost being that the inbound call center people that are staffed by the
city utility. What we envision here is that at least at the outset that calls could be
transferred to a small team of perhaps four people that would sell and take orders for
broadband services and would be specifically trained on those services and on the billing
system that is used to take these orders. This a proven concept and is worthwhile in
terms of being able to maximize sales volume and coming in from both utility side as
well as interest in broadband. Of course there is a payment center as well. We would be
wanting to be able to sell broadband services there. The direct sales and outbound
telemarketing I will summarize in a minute. You will see why. These are strategic in
nature especially at the outset of the construction program because both of them can be
targeted to where the building has just taken place. So as the network is upgraded we
want to be able to reach residents in those areas with both direct sales as well as outbound
telemarketing. Finally, we would want to have to some degree online capability at a
minimum it would certainly be a very strong advertising message but it could also be an
APPROVED UAC MINUTES 7/9/03 PAGE 18 OF 35
order taking environment where either by manual work in the background or by fully
automated system. Citizens and small business could order services directly on line.
Then in terms of how we see that playing out just to kind of summarize in terms of the
volume that we see and give you some comfort in terms of hitting the sales numbers we
of course would see the bulk of activities coming from inbound and the two sales
channels that are sort of following the network construction and on the payment center
and online we would expect to grow over time but that would be beyond year or two
when this is getting more matured.
Audience: You mentioned that the ratio of having escalation fee. I am wondering if you
considering when you first move in into a new neighborhood of having a fixed period of
time where if you sign up for one or more some bundles of services that escalation fee
might be waved and not be justifiable by the idea that we will having people trading
option…
Stockton: I agree. I think that is being done and is a practice within the industry that
would fall under that bucket of promotional discount that we are creating as a revenue
that there is a lot of very good sales idea, marketing ideas, promotional offers that really
don’t get to find by the business plan but will be used by the management team as this
goes forward and we just have to make sure that we capture that in terms of the discount.
______: Wrapping up the marketing component here. This is a snapshot of the marketing
position for 2003. If in our wildest dreams there was a council vote and vote of the city in
March this is just for talking purposes what is the date that we would be actually voting
out in marketing plan based on this. How much time elapses? Two years?
Stockton: I don’t think it is two years. I think you are right in that. It is much shorter
period of time and so there would be by the team that is launching the venture there
would be a revisiting of this strategic and probably going on between now and then to
relocate the pricing of the marketing program etc. Our main concern here from the
business plan stand point is to make sure that we define at the operating budget. Such
that whatever market conditions are merging in the period of time between now and
actual lounge that there is an ability to work within that budget, deliver the revenues, stay
within the operating expense budget etc. so that venture gets of the ground according to
the plan. There is no question that tactics would change. Probably 90 days. In terms of
the marketing world you cannot launch sales challenge. Some you can. Not all of these
you can. But in terms of lot of marketing tactics it is a very short window.
______: I think it would be good if trade marketing and the other topics as well in the
final business plan to make a point of the flexibility of the plan. It got to be a key feature
because from the time our council decides to put it up for vote and the time that
_____________ number of things could be change and so the plan would look better by
specifying the kinds of things you can do to remain nimble and adaptable.
Stockton: Good.
APPROVED UAC MINUTES 7/9/03 PAGE 19 OF 35
Rosenbaum: Before you go, in the text you mentioned that the dish people have about
15% ahead of the market and they do charge less. Would you explain why you did not
want to do the pricing comparison.
Stockton: Yeah, what we are doing there and we have considered them, but we did not
do the full blown analysis the way we did against Comcast. We really want to have one
bench marker milestone to look at and clearly from the market share standpoint that is
Comcast. But having said that what we are incorporating into the thinking in video
especially with that fighter brand concept that we showed you earlier is a reflection of
what DBS does which is fight very aggressively and that sweet spot that I mentioned
between 35-45 dollars and the way they do that is by competing both by price and
channels. Knowing that this is how they gained market share. We are putting that in as
something we can be competitive with Comcast as well as them. The other thing that is
not explicitly stated here but we think we are bringing an understanding to how this plan
is developed that in terms of competing with the DBS the answer would be bundling and
that is part of although we are not seeing it right up front. In addition to those financial
matrix that I showed you is that it is part of why we want from marketing strategy
standpoint to position bundling standpoint as a key tactic. One of the behind scenes
drivers between that reduced turn is that you don’t have people taking cable going to dish
when they are in a bundle product like with Internet for example. So especially given the
role to sparity in getting a DBS kind of Internet Service. So I believe it is in there even
though we have not explicitly presented a full blown analysis.
Rosenbaum: How long has it been in that because I believe it is a very important issue. I
have been on satellite. I have been there for five years with a lot of worry behind it. We
could only get to 15% and the speed that you could get to your projected market share
was very important part of the financing issue and you are basically saying that you are
assuming I hear that we can somehow magically get to a much higher market share much
quicker than they did and _____________ why could they go for something much better
than that.
Stockton: I think it is a very good point. I think there are two reasons in terms of why
we have confidence around that. First is that in terms of the earlier work we did in Phase
I where we looked at other municipalities that are doing this we have seen like a good
fast acquisition of market share in the video space Alameda is a good example. They are
a good solid 25% penetration after two years. So that is one dynamic that we see giving
us confidence of what is being done in the market. I think the second thing is and this is
where you go above and beyond in Alameda even because that’s an HFC network as
opposed to the Fiber to the Home is that by _______________ by combining it with an
Internet product that is fantastic as it is what we think we can realize here is that there is
going to be some market power there to be able to go there and achieve a faster diffusion
that DBS.
Rosenbaum: Commissioner Carlson made a comment. He mentioned earlier not
successful as you can see for other providers in this area and I would be inclined to be
APPROVED UAC MINUTES 7/9/03 PAGE 20 OF 35
skeptical on a strategy that would really turn on the success ____________ strategy
which in face of competitive offerings for some reasons to be successful.
Stockton: I don’t think we are dealing anything that from a expectation or penetration of
a market share where baking and bundling so to speak in terms of the plan. The reason I
say that.
Rosenbaum: Do you think that there would be any more successful and what is
happening in the market place?
Stockton: What we are saying is the right tactic. But we are not saying is that we have
baited upon it. We got the numbers we got through some very careful market research.
We looked at each kind of business and it corresponds to the discounting that we were
doing here. We did not take bundling to market research. The other thing is the date that
we have seen in actual experience. I think the comment that I made earlier about SBC,
Comcast is not being fully leveraged as yet. I would add another example here but it is
not in this market. It is Cox Communication. They are being recognized for their
success because they are offering all three products, but they are doing it in a very
straight forward and playing bundling design and is receiving analyst attention and is
noted as being successful. I believe in it and I think that there is data around it. I think in
Palo Alto right now but it is just not been fully taken advantage of it by encumbrance.
Rosenbaum: Thank you.
Carlson: Okay go ahead.
Shaw: I am just going to go through and finish of the rest of the section and give you a
preview of what you will be seeing in the final report. As we expressed several times that
is is final detailed operating budget 24 individual arms, preamble summaries following
that. Detailed revenue sections, detailed expense capitals, overhead calculations. Key
thing here would be file did not get loss but line business, service and distribution
channel.
Carlson: Capital Issue. One more time, are you very confident that this will be non
controversial when it comes for the UAC in terms of system design? You are confident
that you can get the distillation of ideas from the community.
Stockton: I think that’s going to have to take an RFP process to really zero in on what
kind of a system you want to do here.
Heitzman: I think the tact that we are taking is that as far as system, architecture,
hardware is not something that we want to specify. We want to specify the function that
is provided by the system and then let the various manufacturers compete on that.
_____: Capital plan assumes make some big assumptions along those lines.
APPROVED UAC MINUTES 7/9/03 PAGE 21 OF 35
Stockton: Capital plan right now is based on a detailed design that were done based on
the ways seven architecture and it has to be assumed that the capital that anyone who
can approve on that plan without some material advantage in another way is going to be
to a disadvantage. That sets the bar I guess.
______: There is a lot of work done to coordinate input so that it does not get to be a
signal for us.
Stockton: I think Manuel and I have talked about the gallery input from the public on the
technology issues. I think that is something that will be done later this summer or in the
fall. But it is not necessary that it will be a part of the business plan.
______: Let me make sue about this. We are talking about specific technology that we
have priced out in detail; there might be something better out there.
Stockton: Yes there have to be something currently out.
______: But there is likely something out that can be priced out.
Stockton: We have been able to price out. Today’s price design and the strategy system
has been based on Fiber to the Home system that can deliver 180bit intranet and you
know, high speed internet access, all 860 MHZ of video band with two phone lines per
home. Virtually all the internet systems out _________________
Carlson: I have another question on this. Getting into the financing side. I don’t say you
can possibly project that we would be breaking even before towards the end. Basically
you are giving details in five years. But we are just starting to break even somewhere
there in the grid. We need a lot more than five years.
Stockton: Okay. _____________
______: We have to find out if this thing pays for itself. I am looking at the budget.
Page 17
Stockton: This is just a budget. We still have the FSN module. This is just a macro that
could be used.
Carlson: So this is going to fit within a 20 year. So we are going to have tremendous
details for 24 months, less detail for three years and a summary for another 15 years to
make sure that it pays for itself.
Stockton: Right now let’s throw another module. The module that we have been
demonstrating the past year is not designed to operate business plan. It is designed to be
strategic planning and break even analysis. The operating budget is designed to help
managers and have all the puts and takes of if they hire someone in April vs. March how
does that impact their budget. That is not something that is meaningful for 20 year period.
APPROVED UAC MINUTES 7/9/03 PAGE 22 OF 35
Heitzman: We will have our own spreadsheet 20 year forecast methodology.
Carlson: I don’t care about that Blake. I am concerned about the basic strategic question.
I am looking at this as the first five years, what you priced at is the most difficult time
period.
______: Lots bounces back and forth between these two modules. I hope that it will
work for you. Right now to stretch the operating budget out to 20 years it wouldn’t really
be manageable.
Carlson: It is because you are too scared to ____________. Couple of things I want to
make sure that they are in here. I was looking at my bill, the franchise fee. Will there be
any franchise fee?
Stockton: Just like Comcast does. It is a tax on top and the tax gets passed on.
Carlson: And then we have all of the other charges for other utilities pay.
Stockton: Those all will be passed on as well. I don’t know of any net. So we have a
little discussion to carry on. What about the other Utility taxes?
Ulrich: I think we need to clarify the word ‘franchise’ in your discussion. If you are
looking at the cable company this business here pays the fee for the right to do business.
Carlson: General fund transfers. There are other things that our municipal utilities pay
for use of facilities and community capital.
Ulrich: I think you have to assume for this business that you are going to be treated just
like Comcast or anybody else coming to do business here.
Carlson: That’s a pretty important issue.
______: I think the point Dick is making is that the Utilities and the Gas and the Water
all are allocated charges, the attorney fees. Are those allocated charges.
Ulrich: I am sorry. When I heard the word ‘franchise’ I have been defining that as what
you read in the newspaper all the time, Cable Coop, Comcast is negotiating an agreement
with City of Palo Alto they pay a franchise fee to the City and we would not be able to
definite ourselves and not pay that.
Carlson: I was trying to ask about both need to be covered in this plan because the
franchise fees are passed thorough that is easy that pops up in the bills for everybody.
Ulrich: Absolutely. You cannot assume that it is not there. You got to be realistic and
assume what those costs are.
APPROVED UAC MINUTES 7/9/03 PAGE 23 OF 35
Carlson: Dick mentioned these other charges that you as a gas utility, electric utility pay
on a formulae bases to the City and I would think that this other venture would have to do
the same thing.
Stockton: Right now our overhead loading is at 60% salaries and that is presumed to
cover floor space, legal, accounting.
Ulrich: I think you have a point that we need to go back and look at it the allocated cost
and the overhead costs that’s described in the business plan adequate to ____________.
______: Let me add one more point on that topic. We have fear certainly a doubt but let
me throw it in here. There is an ordinary legal expense and in-house council to look at
contracts and so forth. But there is going to be extraordinary legal expense in the early
years here. One of the dimensions of competition for the encumbrance is the legislature,
maybe public courts, maybe public affairs that will try to kill the baby in its early years
and I just want to be sure that there is allocating and operating budget to fight that kind of
government affairs, public affairs battle in the early years. I don’t want to break it out as
specific items throw it in the overhead one but it is a serious item. I would anticipate that
better the job we do and bring this to the council, take it out of the council, take it to the
public, the bigger the red the circle is the target is in Palo Alto and we are going to invite
that kind of battle so lets be sure that we roll it into the operating budget.
Stockton: Okay.
Rosenbaum: One other point here. We do charge a utility users tax in the electric, water,
gas system and we also impose it on telephone but it does not apply to Comcast. Has any
thought be given to whether or not we would attempt to charge our utility users tax?
______: This is a municipal utility. We can do what we I can guess.
Audience: No you can’t. You cannot control it. Federal court says you cannot do it.
Ulrich: We follow whatever is appropriate. I think the point is Neal is trying to say that
certain things would be a pass through and if this business charges the utility users tax
and if that is appropriate then it would be the same kind of pass through we would have.
On the other hand if it wasn’t collected why would we want to have that to our business
model?
Rosenbaum: I think the difference John is that it would put us in a competitive
disadvantage. Comcast pays no utility users tax. If we as a utility decide to pay it should
be paid.
Ulrich: I think I understand that I would suspect that the City Council could approve or
put a tax or put an additional charge if they chose to do so. It is just about anything they
wanted in Palo Alto related to utility. I would suspect though that in our recommendation
APPROVED UAC MINUTES 7/9/03 PAGE 24 OF 35
it would be an opportunity to a disadvantage without trying to take away the authority
from the City Council make that decision.
Carlson: I would think that the budget would have to be General Fund Neutral which
would mean that if an existing utility area like the telephone, I believe that pays 10% tax
isn’t it?
Rosenbaum: It is only 5% tax. The telephone companies do remit the utility users tax.
Carlson: Comcast is not and DSL yes? I am not sure.
Ulrich: I have got to go back and you will accept a general statement that we have not
purposely thrown ourselves in a disadvantage by paying a tax different from somebody
else. Recommendation from the council would be good enough to do that. But
pragmatically I don’t think we should be in a situation where business model does not
assume a rate of return profit transfer what you call to the General Fund as owners of this
business. This is what we do in electric, gas and water. Now what that amount is and
when that was started would be a scenario that would have to be determined.
Stockton: Probably not within the first five years because there is already a loan from the
reserves. One of the principles that we need to establish.
Carlson: We really have a tight schedule here.
Shaw: The net revenue sections have been completed. The sections under development
everything rolls up into details. Integrated Financial Statements those are down, roll up of
financial details need to be made public because of competitive reasons. As far as
partnering strategies going very well. There is a telephone company and the party
_____________ has a partnership in place with another municipality utility and I am
working on several others. They shared contracts with us and it was very favorable and
the revenues were actually higher than anticipated in the early business planning efforts.
Voice over internet protocols. Those possibilities also exist because it is not clear whether
RFP is an opportunity or threat to the Fiber Optic System. Wholesale strategies are not
developing. At least major players can seem to get their attention. Other clients
communities …lower than as we thought. We continue to look at the wholesale strategy
It doesn’t seem like this thing is going to flower the intent is still .connected to the system
This is the issue of possibly… At this stage late in the game…we are currently
evaluating the CPAU …call centers…obviously required to support Fiber to the Home
like to support a group separate from these issues. ….monthly or non monthly, not
capable of doing complicated review or transactional distances in other calling plans.
As far as other business plans …is going to be addressed we will address the major
themes …from Palo Alto’s way it goes forward but each of those has the effect, we will
address technology risk ….run it by ..operating loses business plan in preview of .
Taking back to principles ..these policies in business schools current method procedures
and protocols there are certain things that need to be looked into this because to adjust the
market conditions technology issues, make decisions , financial losses in businesses. So
APPROVED UAC MINUTES 7/9/03 PAGE 25 OF 35
the UAC in operating business some of these categories in this section relates to pricing,
public ranking views, sub brands, umbrella brands, service area policies within and
without safe harbor policy, wholesalers using the same network conditions. We need to
make sure buying wholesale services are comfortable and have the same kind of behavior
as the managers managing their retail products. So that is what is refers to. Obviously,
contracting policy in terms of other contracts, suppliers, categories of policies need to be
developed
Bechtel: Neal, maybe there is another policy you mentioned earlier being…it is
important to us.
Shaw: Decency policy or whatever standard policy. It is the principles that is going to
help the operating so what governs this regular meetings before. My feedback, impact
into …keeps the business. Key Operating Measures Budget 50% annually Certain
financial conditions might trigger, financial performances presented quarterly, statistics
approval for any significant business strategies. Now this is the framework of how this
broadband business is going forward. And last but not the least the diagram, basically
business plan is approved, recommendation based efforts, business plan is approved. If
business plan is not approved then we pack up and we get to go home. That’s all I have
right now.
Carlson: I think we should start by covering issues. You mentioned couple of those.
Bechtel: I think Blake mentioned that people in the audience and others – the technical
issues earlier and so on as I understand it we are not probably, the architecture in this
business plan are in the RFP process is going to be some months away. Is that true?
Heitzman:: The way I..products we have to deliver …design ..money making products is
not listed as yet in this point of time, ..costs, whole bunch of factors . Basically a function
of what use to happen as per engineering allow various vendors to bid that is our process
and it will take time to identify what system to deliver and then see what they can come
up with the delivery . I hope this answers your questions.
Bechtel: It does. Yeah, it does.
Ferguson: Horse racing going out right now. We have to really get a saddle. One
process comment. What product are you about to deliver to the UAC? Then we have to
pass it on to the Council. Done properly. Will the eliminator ..Technology horserace,
uncertainty balance those are all extremely important. So I know there is a lot of pressure
to get .I think it is one of the best products techno economic shaped up nicely, a good
technology discussion helps us to survive a political debate later. Not only is your
product you are selling to UAC and conserve as a necessary target later.
Shaw: Thank you very much.
APPROVED UAC MINUTES 7/9/03 PAGE 26 OF 35
Rosenbaum: You mentioned about horses the financial soundness of these companies;
these companies are still getting various barriers. Is this something that you should write
about?
Shaw: I think that is an issue that it to be thought about.
Ferguson: Contracts. These things can be changed right there.
Shaw: They will be changed dramatically by then. It should be done by the Utilities
effort.
Heitzman: (not clear what he responds)
Shaw: Another thing Mr. Rosenbaum is that not the specifics writing solutions but their
editors – you might have one provider that provides one system and another provider that
provides another system three or four folks behind them...there are lots of issues that have
to be looked at we have to play in the selection process.
Rosenbaum: I think that is the best we can do. I am always curious about
…..Considering Fiber to the Home. Are they going to go forward.
Shaw: Yes. …..Council last week, 30-36 million bond …
Carlson: Okay I want to make sure that the analysis is there because this is a big deal I
think the scare lies in the participation, can be described and analyzed, miss expected
market penetration 10% what happens if we are not able to reach market penetration
How close a call is this and I know you love this but we need that Okay.
Shaw: Is the business case the last piece…?
Carlson: I just want it to be revisited with details like how many markets do we need?
How much of a negative cash flow? Much more realistic numbers at this point. Okay .It
has not been covered but I do want to cover the issue of the discount. How much of a
discount you have to do? How often? How much people will have to pay? We already
talked about taxes. Anything else? Okay we have two more questions from the audience
over here.
Audience: Mr. Bechtel. A couple of questions of what you said earlier. How can we
differentiate from.. You do it by offering better service, doing things that respond to our
community. They are not going to be doing what they suggested over here like Comcast.
For God sake as a way of doing things DBS transmission in Missouri was about 3% than
Comcast and they operate so many people. You do not want your tears to wake up. One
of the suggestion was based .. Comcast ..40 channels. I can get you all …..got to be at
least 25 channels. You have to allow people to get analog, premium services like HBO.
Further you have to allow to get cable options so that people who do not have television
sets …box which costs Comcast 2-300 dollars a month. In your costing comparisons you
APPROVED UAC MINUTES 7/9/03 PAGE 27 OF 35
didn’t even talk about. You can save customers a lot of money instead of gauging you
didn’t talk about things like Tivio and TBR along with their service. That is what is
going to get a lot of people Video land has been the coming and probably the last ten
years. There is no profit being made in Video Demand.
Concerns – Finally what you want to talk about Customer Service…located here in Palo
Alto you got a human being calling up within 30 seconds who knows where Palo Alto is
and even where California is and talks to you and the cable system ..you have a customer
service at the spot fixing it …like Comcast does. That is how you have to have the
service.You are not selling them cost. You are selling them Performance and Service
emphasizing you pay your utility bill, That is bundling. You remember ..You have to
give the people what they want locally …That is where Comcast gets their money and in
terms of being ..when new programs are offered when you want to add another channel
Cable Coop is one day. When we went and asked people we previewed programs. It took
us about a month or two.Preview programming asks them what they want and give it to
them. Let me tell you a true story. ….Wyoming and he wanted that people to feel that
they were part of ..this when they had only 5 or 6 channels. He gave them what she
wanted. He gave wrestling and sport that is not we do. Cable coop tells the public in the
paper. One last questions and that goes on the internet access. Offer people the highest
possible speed that you can give at a reasonable price. People will pay more if they get
what they want and the other important factor is the consistency. In the last few days it
ranged from …If you do that your penetration rate will be within 42-60%
Audience: A couple of comments. First of all I would like to thank the commission for
working on this. I am looking forward to having this service and replacing the …City of
Palo Alto Utilities. It might be worthwhile considering is assests being imposed on
various sources on services. In particular there is an affordability charge. My
understanding is that the affordability charge goes to the telephone provider. My
understanding is that the FCC charges goes...and I am wondering to the extent of those
part of the revenue module ….so I think that is worthwhile 5 bucks for monthly phone
call. I think that it is also worthwhile if technology I think one of the reservation is that
evaluating what exists in the alternative market today. Or you can say what kind of
alternatives are there? What combination is very likely to happen in the near future?
What are the other things that have not been tried elsewhere? Or what technology is
there that has been tested on a large scale in other environments? Equipments as well.
For example if you consider there are various articles that exists in the research literature,
the conflicts that occur in the local area networks Local area network is not widely
understood. Competitions from Technologies are coming down the pipe. You also
recognize the fact that those technologies that they may not work. There are also lots of
things that have still not taken place. I am looking forward to this. Thank you.
Audience: I want to say something about what you said Richard earlier. I think it is very
important, I am interested very much in broadband coming into this community as soon
as possible. I would advice again on the business plan, reinforcing business plan worse
case scenario if presented I have read through 100-115 business plans and every time
you do a business plan you face a risk. This being a municipal project..this is not to
APPROVED UAC MINUTES 7/9/03 PAGE 28 OF 35
discourage bring Fiber to the Home project some of my fellow citizens think against the
idea of Fiber to the Home. I think Fiber to the Home is a wonderful idea but my objection
is that at this time it is too premature around this network and spending the money where
as it could be spent in better ways here in the city. The other thing I want to say and this
is the last thing is about I said this before. This technology is moving roughly about a
speed of 1.7 times of Morris Law. Four years ago wild fire wasn’t a factor, two years ago
wild fire was hardly a factor. There is no doubt that delivering the Video over wireless
network is not going to happen anytime soon. Maybe never. The think we have to pay
attention, how people organize aggregated network., What kind of behavior emerges out
of those network? But we are looking as how people use data, how people used the
aggregated network, what kind of behavior emerges in those network? once people had
easy access to data takes place. We are looking towards migrating much more mobile.
…it is the kind of behavior changes that migrate into much more mobile, a person who is
able to use technology .will be deployed. There is a dish, radio network a lot of things
are going to happen Consumer behavior is places where ...people are not going to be
necessarily sitting in their living room or putting their TV in place sending their data
back. What I am saying is looking forward. This is a real risk. Five years down the line,
ten years down the line PAUC is looking for a play out, a business plan What are the
real risk here for ..projecting, will be there down the road. I think it will be a honor to see
that honesty in the plan. If it isn’t it will brought out otherwise.
Rosenbaum: Don’t go away. You are our expert on lifeline. There was an article in the
magazine Fortune recently. City of Portland is going city wide…
Audience: I do not know a whole lot about Perth …You all know makes some good
points. Fiber is a phenomenal. We wish we had this right now run through the municipal
network When we look at it speed is not what it is all about. It is value, we can turn the
word value around How does a person value his or her time relative to the information
she needs to sent or get to a network. So what I am trying to say here is that there are
technologies even though they are not fully developed If we talk about technology, the
speed where are we going to be in five years or six years or seven years. This is a real
concern of mine is as a citizen in Palo Alto …We take a look at the FTTH, a serious
technology, that should be deployed in Palo Alto Fiber to the Home in very home
eventually but if should scale it in a little bit slower and set to a system that is
dynamically adaptable. Adaption is intelligent, biosystem, then once you got the Fiber
that we need then somehow you got help that the people need home the people got help
maybe , various scenarios, wireless scenarios less dependent maybe, it will enable people
to communicate. That’s where I am coming from. It just needs people …Next 25 years
we are going to see more technology, make them less dependent based on the
assumptions of ……Thank You.
Ferguson: My comment why 2003 , 2005 …
Audience: I agree with you. Fiber carried with you lots of videos I want to be wrong
about this.
APPROVED UAC MINUTES 7/9/03 PAGE 29 OF 35
Carlson: We have one more i.e Jerry Sharp:
Sharp: My crystal ball is not very good. My first confession is that in 1977 what’s this
Mmoss Cmoss stuff is? So I don’t think that 5, 7, 10 years of us have really a solid
handle. There is a solid infrastructure that provides opportunities No one here is writing a
business plan based on kilowatts, the value of community having a infrastructure is a
factor that is above dollars and cents and how fast my internet connection is and at that
level I think fiber to the fiber is a unique opportunity to bring the community together.
….will we loose some customers? Possibly Yes I do believe that there are marketing
things that might allow us to do that. I am not going to say what is going to happen. I am
going to say we have an opportunity a real golden opportunity to make a difference in
this community and the products and services sounds reasonable to me. I am a business
guy. I wish there a lot about business and business offerings in this business plan. If this
is solid enough to go and persuade people to take the risk and vote I can live with all that.
It is the opportunity we see that I want to keep out there as well as the dollars and cents
and the technology to hold all that part and so I know we are in a risk I am a believer in
risk and the City needs to risk it. It has to be well thought out. I agree with that.
Carlson: Okay. Thank you. We are finally done with this issue.
Rosenbaum: I thought we were going to have a complete draft report in July and we
going to have a big meeting in August. Now I believe it is end of July. Here is another
point. We never had a staff recommendation and I assume that the staff is going to look
at the final report of the consultant, do some diligent work, prepare recommendations.
Blake are you going to do that for the August meeting?
Ulrich: We are moving analysis, as time as move on, it is obvious from the questions,
feedback from the community, I think that is why it is taking longer to pull together it
would be ideal to do the final report with the recommendations. …I think we need to look
at the risk side of this, recognize this is a business of any kind we have done before, every
obligation from the resident, …
Rosenbaum: We have to have staff recommendation. That is how it always works.
Ulrich: I think staff would like to make a recommendation. I do not have an expectation
that it must go that way. I think there is an argument for the staff to bring this whole idea
put together work on it. All that needs to get done. I don’t think it is imperative to do that
before you make a decision.
Ferguson: That’s the normal way we operate.
Bechtel: I am sympathetic to Dick. My suggestion is ….and we recommend to the
Council to approve the design phase because that is the only I was looking at the road
map we have. It seems to me that the steps after that (1) we go ahead and (2) we do not
go ahead. It seems to me that what is going to come out of any …that we go to the
APPROVED UAC MINUTES 7/9/03 PAGE 30 OF 35
council to approve and recommend to the council that we proceed…Dick were you
expecting this.?
Rosenbaum: No. Whether it the staff recommends or UAC recommends there is enough
Public interest in this. This issue is going to the Council. It is not going to stop because
tof the UAC. Last year the Attorney said that the staff works for the City Manager, and I
think you guys have to make your recommendations of a business plan to the Council and
approves that we go forward with the plan.
Dawes: I will make another suggestion on the same line We are very close hand and
glove in this enterprise I recommend that this goes forward and the staff …..
Shaw: This is Neal. …
Dawes: (Not clear at all)
Ulrich: It is our obligation to review and make a recommendation what to do next and
we will do that.
Dawes: This is joint staff/Uptown recommendation
Carlson: It is a huge decision and it gives the staff very little time
Rosenbaum: I think you guys have to make your recommendations. Do you say we
should go forward with this?
Dawes: (Not clear)
Ulrich: We have to see the final business plan
Carlson: It is a huge decision that gives staff a very little time.
Heitzman: (Not clear)
Ulrich: Let me finish this part up. When it is time to present the report to you or the
council, we put in the report. We always do that. It is possible that our recommendations
may not have all the conclusions in it. We may recommend to go ahead with it or we may
recommend not to go ahead with it. You need to understand how to get the money it and
the payback.
Carlson: How does this project fit within the other demands, on your borrowing
potential, water, gas, electric? It is a higher level of issues. If something goes wrong and
you won’t be able to go forward with this project? Storm drain, water. Etc. It is the
higher issue. The staff has to think about before they think of taking something big like
APPROVED UAC MINUTES 7/9/03 PAGE 31 OF 35
this. And before it goes to the council I want to make sure that I bought in on this. This
is about 4 or 5 days job.
Heitzman: Apparently ASD …
Bechtel: There may be another intermediate step. The next step after the road map is the
design. What we should do next month, work on the questions, CIP. It seems to me that
we would be meeting in September. We should a month or so or two months to report.
And that way we don’t have to work on questions like this, signing, so on. Is that
appropriate?
Ulrich: As Blake pointed out … It is probably better …but I don’t want to slow down
getting the business plan.
Carlson: Basically what you want actually from us. We want the business plan
completed. Broader issues to look into it.
Ulrich: I have to say that that what we are doing is get the analysis done and once it is
completed
Carlson: We will wait for your directions on the agenda next month. I would like to
spend a few minutes on water.
APPROVED UAC MINUTES 7/9/03 PAGE 32 OF 35
Santa Clara Valley Water District’s West Pipeline Extension Conceptual
Evaluation - Final Report
Carlson: Jane I want you to tell us about the Water District Pipeline.
Ratchye: Well this report it helped us to characterize but as you can see that the work has
to be done. It helped us…but as you can see work is still to be done. The district is not
going to have a...because the district is conducting a study this was a high-level
consumption study that we did they looked at only one. The thing is Palo Alto the size of
the thing they came up with they asked to provide to them so Stanford...those giant books
which required parallel getting the pipe where it currently ends back and then the entities
costs would be bigger…study shows. I don’t know if you were shocked as I was, the
extension is 30-31 million in Palo Alto. Ouch.
Ulrich: 50 million dollars.
Ratchye: That is a lot. I would still use the 15 million dollars but basically we are not
getting any better information here. That entities, I don’t know if it evaluates. I am not
sure Operation managers ….district…
Dawes: Does not have any money in…
Ratchye: No
Dawes: Emergency facilities?
Ratchye: If you look at their three million dollars every cost is identified. They do not
have so to say general projected figures.
Ferguson: In your report it says the kind of water supply in a dry area. We will be always
suffering basically there is no pay of over there so basically no pay of to us. The usual
micro-geographic they have water and San Francisco does probably that costs is ……
Ferguson: What struck me in the report is that the water supply we might be able to tap
during the dry year we are always suffering from the same drought. The only pay off to
us is the very unusual ..
Dawes: Back of facilities?
Ratchye: No
APPROVED UAC MINUTES 7/9/03 PAGE 33 OF 35
Carlson: It sounds that you are really dealing with something that in emergency situation
or drop situation it does not give you extra. Only independent sources which are
reservoirs somewhat in the wells cost about the same why do both?
Bechtel: There was one point they talked about right after report is an alternative water
supply that we could tap in a dry year. There is no payoff to us There was one point that
they talked right after page 6 the institutional policy where is the wheeling BASCA
however you pronounce this where do come up with independent sources which is the
SFPUC - Table they talk about wheeling the water through their system and we would
need it innertie if they were wheeling the water through Palo Alto.
Ratchye: BASCA would be able to potentially wheel the water through the San
Francisco Water System. …..we are getting to the end of a … we are looking at
transport. What mechanism ..the first critical aspect is looking at bringing in some sort of
new water system what impact it will have? Is it possible …to the benefit of BASCA
agencies. The PUC system …
Bechtel: We still don’t have the redundancy . We would be better of if we had two
parallel resources.
Ratchye: (not clear)
Carlson: Most of their supplies form the same. Pipeline go across the same form which
is PUC.
Ratchye: (not clear)
Carlson: Majority of water supply doesn’t it come from Central Valley?
Ratchye: (not clear)
Carlson: It does not look like a high priority when it has ---15million in capital.
Ratchye: No.
Ulrich: Make sure we have all this in perspective. Keep in mind Palo Alto is getting all
the water from … Increase our rates and continue getting high quality of water. The
contract is over 2009. We will stay consistent. That is a good thing but the 15 + dollar
emergency plan ….It is going to take over several wells and is going to provide
emergency water for. Short period of time. It is not designed to provide hot water...
Ratchye: I think we always wanted to keep looking at it again and is always available to
us as an option. You know it is possible. You can think of a scenario rates may go higher
than what we think it may go…..scenarios where this could look like. There are too
many scenarios what it would look like but we are not there as yet now.
APPROVED UAC MINUTES 7/9/03 PAGE 34 OF 35
Bechtel: I have one more question. There is a statement here under section 6.3 basically
it sounds like a threat. If you need to get your own water for back up, the district needs to
exercise its existing authority and you explain what that really means.
Ratchye: It sounds like a threat. They do have the ability I have to back up a little bit to
do this. They right now charge everyone the same and that is because they have one big
zone, they cold divide up zones that are essentially divided up by specified zones by
different agencies and charge by different amounts. How they come up with divided by
the cost but during the last drought tbey had the ability to charge a fixed rate like San
Francisco.did. San Francisco said here is your allocation for every retailer and you go
beyond then it is twice as expensive penality rate. The district said they did not have the
ability to have separate district zones. It was like please all pull together and it became
worse more than 25% cutback. I think they did this like that to get the zones and so they
made a kind of a path for what they needed to do there for different reasons. They really
can’t control us as having really groundwater pumped. They regulate how
you…according to certain specifications. They cannot stop you. They just established
groundwater.
Carlson: So they charge for groundwater?
Ratchye: No. The only authority they have is how they regulate. Like according to their
specifications, sanitations etc. They can’t stop you from….They establish groundwater
scratching fee .
Bechtel: The pump tax is that arbitrary? Is it adjustable?
Ratchye: Well, they get it primarily from two sources groundwater sales and tree water
sales.
Dawes: Income tax really attracts the SFPUC
Ratchye: I don’t think it is based on how much their infracture groundwater..although
they certainly do …I know they manipulate those rates. You can say in someway their
Distribution System is groundwater. They do this to manage their groundwater. This is
one of their responsibilities. During the drought they don’t want people to…it was
actually good for people to take their tree water instead of their groundwater. At one time
they tried to explain tome that the groundwater has equal costs. Maybe their groundwater
one price and their tree water another price. Most people who buy tree water have
contractors. But during the drought people are encouraged to use groundwater and it
worked. So they do manage it that way. I am not sure if they saw the groundwater
getting to a dangerous point in the short term. I think in the long term it has to. Like as
you say..
Bechtel: I am looking at their next steps. I don’t think anything has been specifically
mentioned… they crossed that out. Do you know why?
APPROVED UAC MINUTES 7/9/03 PAGE 35 OF 35
Ratchye: They love to buy some of our supplies.
Dawes:
Bechtel: One last question. Perhaps in the packet it has this info. Looking at the next
step I don’t see anything specifically mentioned.
Ratchye: So they have this issue of what they can and can’t
Carlson: Do you have anything more to say Ratchye?
Ratchye: No I am Done.
Ulrich: Well done Jane.
Carlson: Thank you Jane.
Adjournment
Meeting adjourned? All in favor.