HomeMy WebLinkAbout1998-12-14 City Council (18)City of Palo Alto
City Manager’s Report
TO:
ATTENTION:
FROM:
HONORABLE CITY COUNCIL
POLICY & SERVICES COMMITTEE
UTILITIES ADVISORY COMMISSION
CITY MANAGER DEPARTMENT:UTILITIES
DATE:
SUBJECT:
DECEMBER 14, 1998
FIBER TO THE HOME TRIAL
CMR:424:98~_~
REPORT IN BRIEF
This report provides information to the Council on staff’s evaluation of a fiber to the home
(FTTH) trial concept and requests Council’s confirmation of staff’S recommendation to
discontinue pursuit of the FTTH trial. On July 13, 1998(CMtL256:98), staff informed
Council of the FTTH concept and said it would return to Council with a recommendation
which included cost estimates, time frame for recovery of costs, neighborhood interest, and
proposed schedule if the trial was to proceed. The purpose of the FTTH trial would be to
collect information which might be useful in evaluating responses tO the Universal
Telecommunications Service Request For Proposal (UTSRFP) authorized by Council on
February 4, 1998 (CMR:458:97).
The trial concept is a sound theoretical design that could potentially enable extremely high
speed telecommunication services to residential areas, but at this time it has never been
installed and operated in an outdoor residential environment. Staffhas completed its review
and, based on the estimated trial costs, extensive time to recover costs, financial risk to the
electric utility if these costs are not recovered, impact on staffto implement the trial, impact
on customers if the trial is unsuccessful or terminated, impact on staff if the trial is operated
and maintained for the time period necessary to recover costs (from 28 to over 100 years
depending on the size of the trial area) and benefits derived for a UTSRFP, staff can not
justify the FTTH trial. A pivotal question in proceeding with the trial is whether it is in the
best interest of the City to enter into the telecommunications business with a City-financed,
CMR:424:98 Page 1 of 12
City-constructed and City-operated FTTH network, given the Council’s prior policy
direction, when approving the dark fiber ring (backbone) project in August, 1996 that
although it desired to enhance telecommunications services, this objective should include
limited or no risk exposure to the City. Staff plans to continue with the UTSRFP without
delay.
The Draft UTSRFP is approximately 90 percent complete and staff plans to take the draft
RFP, as originally proposed, to the Telecommunications Advisory Panel (TAP), Utilities
Advisory Commission (UAC), and Finance and Policy and Services Committees in early
1999 for comments. Following Council approval of the RFP, staff will request proposals and
return to Council with a recommendation.
CMR:424:98 Page 2 of 12
RECOMMENDATION
This reportrequests that Council confirm staff’s recommendation to cancel the proposed
Fiber-To-The-Home (FTTH) trial and continue with the Universal Telecommunications
Service Request for Proposal (UTSRFP) originally outlined in the report to Council on
February 4, 1998 (CMR 458:97).
BACKGROUND
Two years ago, Council approved the construction of a $2 million dark fiber ring (backbone)
to accelerate the delivery of advanced telecommunications services to the community (CMR
361:96). This program was approved after a detailed multi-phase study was completed and
reviewed by the Telecommunications Advisory Panel (TAP), the Utilities Advisory
Commission (UAC) and Council. This study provided a number of options, from doing
nothing to the construction of a fiber optic telecommunications system that could provide a
full range of voice, video and data services to every customer in Palo Alto. At that time,
Council established guidelines for the City’s entry into this new field. These included:
accelerating the deployment of a broad range of advanced telecommunications to all citizens
and businesses in Palo Alto, enhancement of competition among telecommunication service
¯ providers, and limited or no financial risk exposure to the City. The fiber backbone met these
guidelines.
Staff completed construction of the backbone fiber system in FY1996-97 and has been
marketing it over the last 18 to 20 months. These marketing efforts have partially met the
initial goals of the project. The construction costs remained within budget and the backbone
continues to receive many favorable comments. However, the staffing required to cormect
customers and maintain the system was underestimated. Although staff has diligently
marketed the leasing of the backbone to service providers and continues to do so, results have
been less than anticipated. Construction of the dark fiber backbone has cost $1.9 million to-
date with a return of under $300,000 to date from license fees. The backbone has had
limited success in attracting service providers to the commercial areas of Palo Alto. There
has been little or no interest in service to the residential areas. Discussions are in progress
with additional service providers to utilize a few fibers on. a portion of the backbone. To
recover the capital costs in the three to five years originally planned, annual revenue must
continue to increase by approximately $300,000 per year. Operating and marketing costs are
ongoing. Even though the Utilities Department has not reached all of the program goals at
this time, staff continues to believe that the fiber backbone was a good. decision and that it
CMR:424:98 Page 3 of 12
will meet its financial goals as the telecommunication service needs in the commercial areas
of Palo Alto increase.
On February 4, 1998, the City Council authorized staff to solicit proposals from companies
interested in accelerating the provision of advanced telecommunications services to every
address in Palo Alto through the expanded use of the City’s existing assets, including the
fiber optic backbone (CMR 458:97). The purpose of the UTSRFP process was to solicit
proposals from companies interested in working with the City to expedite making affordable,
advanced telecommunications services available to every address in Palo Alto. The focus
was to be on high speed data transport and Internet access. The City would provide assets
including existing pole space, conduits and fibers from the backbone at a discount. These
would be offered to one or more entities that would agree to make such services available to
every address in Palo Alto within an acceptable time frame.
The nature and complexity of the subject required that staff design a process for identifying
and addressing questions, by involving the Telecommunications Advisory Panel (TAP), the
Utilities Advisory Commission (UAC), the Finance Committee and the Policy and Services
Committee.
Before beginning to prepare the UTSRFP, a potential design concept to enable extremely
high speed telecommunication services to residential areas emerged. This design could result
in a network that would be more advanced than any commercially deployed network
currently used in residential areas. A group of approximately 33 households in the
neighborhood near the Community Center supported this concept and expressed a desire to
participate. Discussions of this design between staff and a consultant resulted in a
suggestion that it might be beneficial to delay the UTSRFP and conduct a FTTH trial in a
residential area. The purpose of the FTTH trial would be to demonstrate and evaluate this
design concept, in order to gain experience with construction and operation of such a
network. Information gathered from the FTTH project would enhance the ability of the City
to make informed decisions regarding the deployment of a universal telecommunications
network. Staff discussed the concept with the TAP. TAP endorsed the concept in May, 1998,
and suggested a trial area of approximately one percent of Palo Alto homes (260 homes)
with one or two school sites. At that time, only preliminary cost estimates and time schedule
were known.
On July 13, 1998 (CMR 256:98) Council was informed that staff was contemplating this
concept and would return to Council with a recommendation after evaluating the feasibility,
cost, recovery of costs and neighborhood interests for the FTTH trial.
CMR:424:98 Page 4 of 12
DISCUSSION
Staff is not recommending continuing to pursue implementation of a FTTH trial, for the
following reasons: untried residential design, less than .required level of participation, staff
workload issues, and financial risk. It is important to emphasize that the only reason to do
a FTTH trial would be to gather information for scaling up the results to a City-wide
network. The financial risks, staffing impacts, and long term operating impacts of doing a
trial are so significant, it should only be considered as a prelude to building out a City-owned
telecommunications network. Each of these issues is discussed in more detail below.
Design
The proposed FTTH network design utilizes standard office-grade computer networking
equipment to enable the delivery of a high speed (10 megabit per second (Mbps) or 100
Mbps) data service. At 10 Mbps, even the slowest option would be dramatically faster than
all other options that are currently available, with speeds that are roughly 200 times faster
than standard modems and 7-100 times faster than the typical throughput of cable modems
(which utilize existing cable television infrastructure) or ADSL modems (which utilize
existing telephone infrastructure). The design involves technology currently used in a
campus/building environment where electronic switching equipment is located within a
building. The design limits the distance from the switching location to the customers to
eliminate the need for intermediate amplifiers and switching locations in cabinets and
pedestals in the public right of way, thus providing higher reliability and reduced signal
degradation. To the best of staff’s knowledge, the design has never been tested anywhere
in an outdoor, residential environment. The electronic equipment used in the proposed trial
network would require placement inside a large outdoor enclosure located near the center of
the neighborhood to be served. A suitable location, such as at a City. facility, would be
required to locate this equipment.
Participation Level
Staff identified residents interested in participating in the trial. To ensure fairness, staff
informed all Palo Alto residents of the potential opportunity to participate in a FTTH trial by
including a flier with utility bills (attached), placing an ad in the Palo Alto Weekly, posting
information on the City’s web, site and sending letters to neighborhood associations. Also a
small group of residents from some neighbor.hoods who have a high interest in participating
in the trial held several meetings and called on other neighbors to seek their interest to
participate.
To enable a quick implementation of the trial and to be cost-effective, staff established
CMR:424:98 Page 5 of 12
selection criteria for an area to qualify for a trial. These criteria were stated in the
information given to the public. Selection would be made on the basis of the number of
interested participants and the projected construction costs in each area. Based on
preliminary cost estimates, a minimum participation rate.of 30 percent of residents in a given
area would be required for an area tO be considered for the trial. In response to the staff’s
request for interested participants, approximately 900 residences (and small businesses)
throughout Palo Alto expressed interest in participating by the August 31, 1998 deadline.
Because the majority of these responses were scattered, only a fraction of these households
could be considered. To meet the 30 percent participation criteria, staff focused their
evaluation on three optional size areas having the highest level of responses. Participation
levels in all three areas fell well below the 30 percent criteria; ranging from 17.9 to 19.1
percent. Participation rate is critical to the issue of cost recovery, and is discussed further
below, in Financial Risk.
An additional concem related to participation relates to the fact that, if a trial is performed,
it would be limited in area (approximately 35 to 160 participants). After the trial, customers
in other neighborhoods will begin requesting a similar service. With limited response for
participation in the trial, service to other areas would not be cost effective. This would result
in dissatisfaction by many customers who would expect service to their area equivalent to
that in the trial area.
Staffing
One critical criteria that was established in the beginning of the evaluation to do the FTTH
trial was that it would not negatively impact the current heavy workload of Electric Utility
Engineering and Operations (E&O) staff. Even with the design and construction done by
consultants and contractors, E&O would be impacted over an extended period of time and
would require additional staff and possibly equipment. Staff in other Utility divisions and
City departments will also be impacted because of the need to develop and administer
customer agreements, billing and customer service. With the heavy workload of
infrastructure programs and the implementation of electric and gas deregulation, it is
unrealistic to expect staffto support the development and implementation of a FTTH trial;
especially since the risks and costs are so high compared to the benefits gained.
Financial Risk
Cost Recovery: Although funds for construction of the FTTH trial would come from the
Electric Utility reserves, full cost recovery in a reasonable amount of time was an important
evaluation criteria. Interested participants were provided the following cost estimates for the
trial:
CMR:424:98 Page 6 of 12
Estimated Installation Fee
Estimated Ongoing Fee
10 Mbps Service
$1,200
$10 - 35/month
100 Mbps Service
$2,400
$20 - 70/month
The above fees did not include charges for Internet access or other services that might be
provided over the network. Trial participants would be responsible for making their own
service provider arrangements and fee payments. Service provider fees would be between
$20 and $40 per month depending on services. Participants would also need to purchase and
install the necessary hardware in their computers:
E & O staffhave spent a considerable amount oftirne since the original cost estimates were
disseminated to the public refining the cost estimates. More accurate costs for the three
optional size areas having the. highest level of responses are shown below.
Homes Residents
in Responding
Trial
Area
200 37
386 69
836 160
Percent
Participating
18.5%
17.9%
19.1%
Cost Recovery Analysis
Trial Area
Total Cost
$271,500
$375,600
$842,800
Average Installation
Cost Per Income
Home
$7,338 $59,300
$5,444 $99,400
$5,268 $218,700
Remaining
Cost
$212,200
$276,200
$624,100
Annual
Net
Revenue
$9,594
$20,454
$41,405
Cost
Recovery
Period
(years)
100+
28
40
The Cost Recovery Analysis displays the cost of the trial area, installation income from the
participants, remaining cost to be financed by the monthly payments from the participants,
and the time period to recover the remaining installation costs. The key column to focus on
is the last: "Cost Recovery Period." This column indicates the time period to recover the
initial capital costs. Capital costs for the trial would be financed from the Electric Utility
reserves. The cost period was calculated assuming repayment to the reserves of the lost
interest on the monies advanced to fund the trial; the portfolio earnings rate of 6 percent was
utilized. Participation rates in the three areas having the highest response rates ranged from
17.9 to 19.1 percent. Assuming that the same number of participants would continue to take
service and pay the monthly fee for the entire period for cost recovery, at the stated
participation levels, cost recovery would take between 28 and 100 years at the proposed
initial cost and monthly rates. An initial connection fee of $1200 for the 10 Mbps would be
CMR:424:98 Page 7 of 12
less than twenty-five percent of the actual cost. Subscribers who signed up for the trial
would pay a monthly fee of $3 5 for the 10 Mbps with no obligation to pay for the entire cost
recovery period.
Continuation of Service to Trial Participants: This triai places varying degrees of financial
risk on the Electric Utility. If the service is discontinued by the City at the end of one year,
the financial loss for the mid size trial is $255,750. If the service continues, the loss depends
on the number of subscribers who continue taking service for the twenty eight year payback
period. The concept of the trial was to operate the system for a period of three to six months,
followed by staff analysis. However, participants would reasonably expect continued service
after the trial period ended. Therefore, although this concept has been characterized as a
trial, staff believes the City would be obligated to continue the operation of the prototype
FTTH network. The City could reserve the right to discontinue operation of the trial. In
fairness to the participants, one idea staff considered was a refund plan that could be
implemented if the City discontinued service in less that three years. The refund proposed
would range from a 60 percent installation fee refund to participants if service was
discontinued in less than one year to no refund after three years. Even with this refund plan,
there is financial risk to the participant, who could pay $900 for one year of service ($480
installation after refund plus $420 in monthly service fees) or $2460 for three years of service
($1200 installation with no refund plus $420 per year in service fees).
Legal and Regulatory. Issues
Federal regulations over telecommunications services and facilities is exercised by the
Federal Communications Commission (FCC) under the authority of Title II of the
Communications Act of 1934. It applies to entities that are interstate common carriers
engaged in the business of wires communications. The provision of data service to up to 160
trial participants would not likely render the City a common carrier due to the small number
of users that would be served. However, if the City were to proceed with an independently
operated telecommunications utility, the City would be regulated by the FCC as a provider
of common carrier wire communications, and all regulatory issues would need to be fully
explored.
Discussion with Participants
As the FTTH trial concept was being developed, numerous communications were shared
between staff and interested participants. Several residents interested in the trial visited with
their neighbors to encourage their participation. After completing their analysis of the FTTH
trial, staff met with representatives froma working committee of PA-FiberNet. Staff
CMR:424:98 Page 8 of 12
discussed the issues summarized in this report with this group. Staff agreed to the group’s
request that some of their members review staff’s estimates. This joint review resulted in
lowering the equipment costs and changing to a design using only a multimode fiber. This
resulted in staff’s overall estimate being reduced by 18 percent. Cost estimates in this CMR
reflect this reduction. One other suggestion by the PA-Fiber-Net group to reduce costs of the
FTTH trial was not incorporated in this CMR. This was to have the City select a single
Internet Service .Provider (ISP) to manage the network instead of the City managing the
network in order to support multi ISP’s. Although this suggestion may reduce the trial cost
approximately 5 to 12 percent depending on area, there would be significant policy issues
involved for the City, including non-competitiveness in a de-regulated industry. Staff does
not support this suggestion for a trial. The PA Fiber-Net representatives stated that they still
have a strong desire in having the City perform the trial.
ALTERNATIVES TO THE STAFF RECOMMENDATION
If Council directs that the FTTH trial be performed, the possible actions that could be taken
following the trial are: .
Staff could still reactivate the UTSRFP process, and incorporate the results of the
FTTH trial.
Reactivate the UTSRFP process by issuing an RFP to companies interested in
financing and constructing a FTrH network based on the trial design. This RFP
could result in a limited number of bidders. Other bidders will probably submit an
alternate proposal for their own design. To encourage more bidders, the RFP couldd
ask for a bid on the design being considered in the FTTH trial and an altemate. The
RFP could require that the bidder perform a limited trial before proceeding, and be
responsible for service to the customers. When the RFP draft is reviewed by the TAP
and UAC, these options may be considered.
Cancel the UTSRFP process, and pursue the development of a FTTH network to be
financed, constructed and operated by the City’s Electric Utility.
RESOURCE IMPACT
Staff Assessment
Overseeing a FTTH trial project will require a project manager to administer the contracts,
handle inquiries from both customers and ISP’s, coordinating installation with the customers
and the ISP’s along with support from Engineering and Operations for implementation and
continuing operating issues. Current staff do not have available time to devote to
CMR:424:98 Page 9 of 12
implementing and operating a FTTH trial, without seriously impacting their current work.
The Utilities Telecommunications Manager has been very busy with the dark fiber backbone
licensing, developing a draft of the UTSRFP and along with other staff, evaluating the
proposed FTTH designs, and has not been able to concentrate on marketing the dark fiber
ring. For a city wide build out, the impact would be even more dramatic. An entire new
Enterprise Fund would need to be established with accompanying staffing, such as
engineering, marketing, customer service, operations, and maintenance, appropriate facilities
procured, vehicles, office and field equipment, and storeroom material.
Financial Assessment
According to staff’s preliminary estimates, construction and implementation of a full City
telecommunications system would cost an estimated $28 million. Given the uncertainties and
increased competition of the deregulated environment in the electric industry, funding for this
program from the Electric Fund is not considered an acceptable decision. The Electric Fund
reserves are financially sound as a result of long term planning, cost reduction programs, and
sound business decisions.
One option would be the selling of Utility revenue bonds. When electric deregulation is fully
implemented in 2002, a $28 million bond debt for a FTTH system would have a major impact
on the ability of the Palo Alto Utilities to compete. It would be difficult to sell these bonds,
however, since this is a new utility with no proven financial track record. Security for these
bonds would probably need to come from the General Fund which is presently considering
major infrastructure financing issues
If the Electric Fund is not the proper funding source for a telecommunications system, the
only other City funding source would be the General Fund. However, using General Fund
resources does not seem prudent, because it would put at risk the City’s availability to fund
public safety, library, human service, public works, and other vital City services. Even more
significant, the Council has identified debt financing as a key part of the overall strategy to
address the General Fund infrastructure needs.
If the City were to sell $28 million in bonds to fund a telecommunications system, there
would be annual debt service payments that would have to be borne by subscribers. Those
annual debt service costs would range from $2.5 million annually (20 year bonds) to $3.8
million annually (10 year bonds). These costs exclude any ongoing system maintenance
costs, as well as monthly internet access charges.
For purposes of estimation, the bonds are assumed to have a 6 percent interest rate with
CMR:424:98 Page 10 of 12
$200,000 in issuance costs. The interest rate of 6 percent is conservative, but changing the
interest rate does not have a material impact on the rates that would have to be charged to
subscribers. The key variables are not the interest rate, but the payback period for the bonds
(how long they are carried). The longer the payback period, the lower the annual debt
service. The last point, however, is very problematic. It would be fiscally irresponsible to
sell bonds for a time period longer than the useful life of the asset being financed. (It would
also not be accepted by the bond markets). While fiber has a long physical useful life, the
real issue is the technological useful life. That is, the longer the technological useful life
assumed for a bond payback period, the more vulnerable the initial investment is not to be.
paid back; as users migrate away from this technology into some other technology. It is not
clear what that technological useful life period is, nor can that period be estimated with much
confidence. It would seem conservative to assume 10 years, and would probably not be
prudent to assume more than 15 years.
POLICY IMPLICATIONS
A significant policy issue is whether the City wants to enter into the telecommunications
business with a City-financed, constructed, and operated FTTH network. The only reason
to do a FTTH trial would be to gather information for scaling up the results to a city-wide
network. The financial risks, staffing impacts, and long term operating impacts of doing a
trial are so significant, it should only be considered as a prelude to building out a City
telecommunications system. When Council approved the dark fiber ring (backbone) project
in August, 1996 (CMR:361:96), it stated its desire to enhance telecommunications services
with limited or no risk exposure to the City. Council also stated that it did not desire to be
in the business of providing cable television, one potential use of the fiber. Staff analysis
shows there is a high financial risk to the Electric Utility and the City if this system is
constructed, due to uncertain market penetration and high cost of service.
TIMELINE
The draft UTSRFP will be completed by staff and submitted to the TAP and UAC
immediately following Council action on staff’s recommendation.
ENVIRONMENTAL REVIEW
This project has been determined to be categorically exempt in accordance with the
provisions of Class 5 of the California Envirolmaental Quality Act (SEQA) section 15.3016.
CMR:424:98 Page 11 of 12
ATTACHMENTS
Mercury News Article "In Driver’s Seat on Intemet Access"
Utility Statement Insert
Map of Responses
Letter to Participants
PREPARED BY:Van Hiernke, Telecommunications Manager
Larry Start; Assistant Director Engineering/Operations
Rosemary Ralston; Administrator
Edward J. Mrizek; Director of Utilities
DEPARTMENT HEAD:
-PROJECT COORDINATOR:
Director of Utilities
EMIL~HARRISON
Assistant City Manager
_ _J~ FLEMINGCity Manager
CMR:424:98 Page 12 of 12
A worker, le{t, at Samsung’s
manufacturing, complex
near. Tijuana inserts elec-
tronic components. At top,
---buses line up to take workJ
In driver’
seat on
Internet
ATTACH1VIENT"A
access
T Fyour local telephone monopoly
¯ | decided that it alone could be your
-~. Internet service provider when you
went online via your telephone wire,
you would be outraged. Yet that’s pre-
msely what your local cable-TV monop-
oly insists on when it provides Net ac-
ces&
This state of affairs hasn’t mattered
very much until recently. But as cable
companies wire more and more places
for high-speed, two-way Internet ac-
cess, the issue has moved onto a short
¯list of vital policy
questions.
It’s vital because
high-speed, or
broadband, access
to the Net is cer-
tain to become an
essential service in
coming years. To-
day, television is
the most promi-
nent window to
entertainment and
’~news. BroadbandHiflh-speed Internet access
will ultimately
access is combine some of
what TV offers
now with two-waycertain tninformation and
commerce.
became an Ifwe want to get
to theInteniet us-essential pipes, the cable -service in compa es _ ,
we’ll-have tense
coming years, theN captive ter-,net access portals
on the way If weforce them to open tlimr systems to
other Internet service providers C’~SPs),
they add, they’ll slow the~investments
in upgrading their systems-- and slow
that needed progress toward wider
broadband connections.
Let’s be cleaz: The came operators
aren’t doing anything illegal. Nor, at
least in theory, are they violating the
spLrit of what Congress intended in its
telecommunications deregulation ac-
tivities of recent years.
Let’s also be clear that the cable
companies may be the best near-term
hope for forcing the local phone mo-
nopolies to actually compete in offer-
Lag high-speed Intemet connections in-
See GILLMOR, Page 3E
jE MERCURY NEWS I Business I SUNDAY, NOVEMBER 29, 1998
Cable operator in driver’s seat
B GILLMOR
from Page 1E
to our homes. The cable companies may al-
so provide genuine competition in local
telephone service.
So when the cable companies insist on
the absolute right to be the sole primary In-
teract access provider on their systems,
and claim they’ll pull the plug on two-way
broadband investments, it’s worth asking
whether consumers would pay too high a
price for mandating fair behavior.
Maybe it’s not an either/or situation. May-
be there’s a way around the problem. But
the complexities are daunting.
TeleCommunications Inc. runs most ca-
ble systems in the Bay Area, and many
more around the nation. It holds a control°
ling share in @Home, a cable-based ISP,
with other cable and technology partners.
TCI customers in Fremont and several oth-
er Bay Area cities where TCI has upgraded
its system can get broadband Internet ac-
cess through @Home. Similarly, Time
Warner, another cable TV giant, owns an
ISP called Road Runner, also a joint ven-
ture with a cable company and other tech-
nology partners.
On all of these cable systems, customers
who want high-speed Internet access
through the cable data pipes can’t pick their
own ISP. Yet if they signed up for access via
their telephone wire, they could. -
TCI, Time Warner and the other cable op-
erators say they’ll be happy to let you hook
up to your favorite ISP-- as long as you’re
willing to pay extra on top of the full rate
for @Home or Rpad Runner. Thanks for
nothing.
The cable giants say the arrangement is
entirely fair. After all, they note, they’re in-
vesting in their systems, upgrading their
networks and other systems to handle fast,
two-way access. Force us to share the sys-
tem with people who aren’t helping pay for
it, they say, and we’ll have.no incentive to
The threats get even nastier from AT&T,
which is trying to buy TCI and has been
making noises about using TCrs systems to
compete for local telephone customers.
Any change in the @Home business model,
AT&T warns, and we may pull the plug on
the deal.
The cable barons’ argument has a funda-
mental flaw: The vast majority of cable sys-
tems have operated as monopolies, more
resembling public utilities than traditional
businesses in theory, if not in practice.
They built their systems around a series of
exclusive deals that shut out competition,
using public property along the way. Only
the advent of satellite services tempered
the cable companies’ infamously bad atti-
tude toward consumers. But today’s satel-
lite data speed is only fast in one direction
-- to your house --
ternet access the cable companies see a
new oppommity to put their hammerlock
back on consumers.
When Congress was contemplating tele-
communications deregulation, a top priori-
ty was enco~g competition in local
phone service. The lawmakers viewed the
cable companies as the most plausible
competitors.
So Congress specifically declined to put
the cable companies into the same "com-
mon carrier" category occupied by the
phone companies. A common carrier must
open the system to outsiders.
But Congress didn’t tell the phone com-
patties they could exclude competitors if
they upgraded their own systems to DSL, or
Digital Subscriber Lines, which are much
faster than today’s highest-speed modems
of the traditional kind.
DSL can work on much
of the current system
of copper wires but re-
quires upgrades else-
where in the phone
system. And because
the cable data pipe is
fatter than the phone
wires -- that is, it can
handle more of the
ones and zeroes that
constitute digital infor-
marion -- DSL may never be able to match
the highest speeds that the cable systems
can offer.
ISPs ranging from small providers to the
giant America Online argue that they
should be given the same access to the ca-
ble systems’ home connections as @Home
and Road Runner. They make a compelling
logical case.
The biggest question is whether the cable
giants are bluffing when they say they’d
curb their investment inbroadband access
if forced to offer their lines to outsiders,
such as AOL. Is it worth the risk that broad-
band connections to homes -- the bottle-
neck that is delaying the true advent of the
Information Age -- would be put on hold
indefinitely?.
This is a very close call, largely because
the solution requires some reg~tlation --
that is, some way to enforce open access.
The easiest path would be to do nothing,
and hope that competing technologies
would come along quickly enough to make
the problem moot.
But there’s an even greater risk. The ca-
ble companies ~ill surely do what has
come so naturally in the past: Use their
power to restrict viewers’ choices.
This isn’t idle speculation. @Home’s con-
tract with cable partners has a long list of
services it can’t offer consumers as an ISP
but which the cable companies can offer
themselves, according to federal securities
filings. The cable companies have the right
to block @Home material they don’t like, in-
cluding Internet video "streams" lasting
more than 10 minutes at a time -- a blatant
move to limit competition on their systen~s.
So we come back to the tricky part of
promoting broadband access, and maybe
even competition, in the near term. How do
we get the cable companies to grant more
open ISP access without wrecking their in-
centive to improve cable systems?
First, allow the cable companies to main-
tain the status quo in places where they al-
ready have competition. In situations
where a given household can get DSL ser-
vice from the local phone company ~ or, in
the future, fast connections from-a wireless
company ~ the cable company should not
be forced to unbundle its service. (Again, I
exclude today’s satellite services, which are
fast one way.)
Second, in places where no competition
exists, the services should be "unbundled"
~ separated from each other, at least on
the companies’ books. Let other ISPs pay
what @Home and Road Runner pay for
their access to the cable pipes. Congress
will have to establish an enforcement meth-
od that would financially penalize the cable
giants if they fudged their numbers to make
their connections uneconomic for anyone
but their captive ISPs.
All of this is much easier said than done,
of course. But in the name of fairness it’s
worth trying.
Over time, I have no doubt that competi-
tion will make the problem go away. But
anyone who has experienced high-speed
cable access to the Interact doesn’t want to
.go back. Until there’s genuine competition,
let’s give customers the choices they de-
serve.
Dan Gillmor’s column appears each Sun-
day, Tuesday and Friday. Visit Dan’s Web
page (www.mercttrycenter.condcolttm-
nists/gillmor). Or urrite him (and plea3e
include a da~ime phone number--far
verification, not publication) at the Mercu-
ry News, 750 Ridder Park Drive, San Jose,
Calif. 95190; e-mail: dgillmar~sjmercury-
.co’m; phone (~08) 920-5016;fax (408) 920-
5917. PGP fingerprint: FE68 46C9 80C9
BC6E 3DDO BE57AD491487 CEDC5C14.
Thousa nds Of
Homes
ATTACHMENT "B"
Wanted: Cyberspace Pioneers
With the dawn of the Information Age upon us, the City of Palo Alto Utilities invites you to become a
pioneer of the next generation of telecommunications via a direct fiber optic connection from the Palo
Alto Fiber Backbone to your home. We are contemplating a trial of a high speed residential fiber optic
network that could revolutionize the way Palo Altans access and share information. However, before
such a "fiber to the home" trial can be proposed to the City Council for approval, we must identify
Palo Alto residents who are interested in participating and sharing the cost of the trial.
Trial areas will be selected on the basis of the number of interested participants and the projected cost
of construction in each area. A minimum participation rate of 30% of residents in a given area will be
required for a neighborhood to be considered for the trial. So if you would like to participate,
encourage your neighbors and/or your local neighborhood association to express their interest as well.
As a part of the trial, we will identify service providers and content providers who are interested in
providing services over the network. We will strive to demonstrate applications such as high speed
Internet access, video on demaiad, telecommuting, video broadcasting (multicasting), and video
conferencing.
If you are selected to participate in the trial, you will have a choice of local access at a dedicated speed
of either l0 meggabits per second 0Vlbps) or 100 Mbps--that’s 200 to 2000 times as fast as a standard
modem and l0 to 100 times as fast as a cable modem or an ADSL modem! Participants will be
required to finance the cost of the connection through an initial payment, plus ongoing monthly
payments. An example of an estimated fee schedule for connection and monthly fees is shown below.
10 Mbps Service 100 Mbps Service
Initial Connection Fee $1,200 $2,400Monthly Fee $10-$35/month $20-70/month
Actual connection and monthly fees will depend upon the number of participants and actual costs
incurred by the City. The above fees do not include charges for Internet access or other services that
may be provided to you over the network. You will be responsible for these additional charges and
completing any desired in-home networking.
If you would like to participate in the trial, please fill out and retum the form below by August 31,
1998. For additional ’information, please visit our web site at http://www.cpau.com/fth or email your
questions to van_hiemke@city.palo-alto, ca.us.
....................................................... (clip here)~:~
Interest Form - Fiber to the Home Trial
Name
Utilities Account Number
Street Address
Nearest Cross Street
Telephone Number
Email Address
Return...wi.’th y_our U.tilities paymentor mail tfirectly byAugust31 to:
Fiber to the Home TrialCity of Palo Alto Utilities, 8th Floor
P.O. Box 10250
Palo Alto, CA 94303-0862
Type of Service:[-] 10 Mbps ~-I 100Mbps UTILITIES
zVote: If your neighborhood is selected as a trial area and the project is approved b); the City Council, you
will be required to sign an agreement ancl p~. the initial connection fee before receiving service.
In compliance with the Americans with Disabilities Act (ADA) of 1990, this document may be provided in other accessible ~formats. For information, contact Fred Herman, City of Palo Alto, 650-329-2496 (voice) or 650-328-1199 (TDD).t~rinted onre~3,c!ed paper
Fiber to the Home Trial Response Summary (1016198)
45
MunicipalService Center 32
Deferred until 1999
STANFORD
UNIVERS
\,\,
¯ Rd.
41
LEGEND
--- Underground Singlemode Fiber Cable
--- Aerial Singlemode Fiber Cable
(~) Fiber Backbone SplicePoint ("XY" = splice point name)
Scale:---I 8oo, I..-
Date: 10/6/98
Number of Respondants to Date
0 ~ 20-29 ~ 50-59
1-9 ~ 30-39 ~ 60-69
10-19 ~ 40-49 ~ 70-79 CITY OF PALO ALTO
UTILITIES
Fiber to the Home Trial Response Summary (10/6/98)
Map
Number
1
2
3
4
5
6
7
8
.9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
10
Number of
Mbps 100 Mbps
5 5
11 6
29 2
29 15
3 1
0 0
0 0
22 6
9 1
28 5
12 7
25 3
2 0
4 1
44 16
42 6
45 8
19 6
26 11
24 4
17 5
30 7
24 4
15 6
35 6
32 8
41 8
59 14
36 10
Responses
Total
10
17
31
44
4
0
0
28
10
33
19
28
2
5
60
48
53
25
37
28
22
37
28
21
41
40
49
73
46
Est. Install
Fee Value
$18,000
$27,600
$39,600
$70,800
$6,000
$
S
$40,800
$13,200
$45,600
$31,200
$37,200
$2,400
$7,200
$91,200
$ 64,800
$73,200
$37,200
$57,600
$38,400
$32,400
$52,800
$38,400
$32,400
$56,400
$57,600
$ 68,400
$ 104,400
$ 67,200
30
31
32
33
34
35
36
37
38
39
40
41
51
52
53
54
PA Hills
Total
% of Total
Total Gb!)s
4
1
1
0
0
0
5
71
15
26
6
2
0
0
0
5
5
-6
2
3
1
1
0
0
0
0
2
4 8
2 3
0 .1
0 0
0 0
0 0
3 8
77
17
29
7
3
0
0
0
5
7
14,400’
6,000
1,200
13,200
99,600
22,800
38,400
9,600
4,800
6,000
10,800
1,438,8008O9
81%
8.1
195
19%
19.5
.1004
100%
27.6
ATTACHMENT "D’
City of Palo Alto
Utilities Department
December 14, 1998
Administration
Director’s Office
415.329.2277
415.321.0651 Fax
Administrative Services
415.329.2148
415.321.0651 Fax
Customer Service Center
415.329.2161
415.321.0651 Fax
Credit and Collection
415.3292333
41R321.0651 Fax
Engineering
415.329.2204
41~329.2608 Fax
Electric
415.329.2386
415.329.2608 Fax
Water- Gas-Wastewater
415.329.2387
415.329.2608 Fax
Resource Management
Supply Resources
415.329.2689
415.326.1507 Fax
Utility Marketing Services
415.329.2241
415.617.3148 Fax
Competitive Assessment
415.329.2595
415.6123140 Fax
Operations
Electric
415.4%.6983
415.496.6959 Fax
Water- Gas -Wastewater
415.496.6989_
415.49~6924 Fax
Name
Address
Dear (NAME),
Thank you for responding to our proposed Fiber to the Home trial ~TII-I). Your
response was one of over 900 received expressing a desire to participate in the trial.
Although we received interest from other residents in your neighborhood, the total
number in all possible .test areas fell well below the 30% minimum criteria established
to consider proceeding with the trial. The trial as proposed would use existing design
techniques, materials, and equipment that could potentially enable high speed
telecommunication services to residential areas.
As you are aware, this is an ambitious undertaking, and as such, we have carefully
examined all the factors involved: the desired outcome, the number of participants, the
estimated construction costs, and the financial risk both to the City and residents who
would participate. Since the preliminary report, a thorough analysis of the proposed
course of action has been conducted. Based on this analysis, we recommended to
Council that a KITH trial not be conducted and that we continue with the Universal
Telecommunications Service Request for Proposal (UTS-RFP) as directed by Council.
This recommendation has been referred to the Utilities Advisory Commission (UAC) and
the Policy and Services Committee. The Council will review staffs recommendation early
in 1999 after receiving input from the UAC and the Policies and Services Committee.
Thank you again for your interest.
Sincerely,.
Edward J. Mrizek
Director of Utilities
EO. Box 109_50
Palo Alto, CA 94303