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HomeMy WebLinkAbout1996-02-26 City CouncilCity Manager’s City of Palo Alto Summary Report TO:HONORABLE CITY COUNCIL FROM: AGENDA DATE: SI~JECT: CITY MANAGER DEPARTMENT: City Manager February 26, 1996 CMR:150:96 Telecommunications Strategy Study -- Interim Report and Continuation Request REQUEST This report requests that Council approve the Utilities Advisory Commission (UAC) recommendation that staff proceed with Phase 4 of the five-phase Telecommunications Strategy Study and perform a detailed evaluation of two potential telecommunications strategies. RECOMMENDATIONS Staff recommends that Council approve staff proceeding with a detailed evaluation of two potential telecommunications strategies: 1 .) Develop a telecommunications network and lease network access; and 2.) Lease existing infrastructure. The UAC reviewed the Interim Report and endorsed staff’s recommendations. POLICY IMPLICATIONS There are no direct policy implications associated with completing Phase 4 of the Telecommunications Strategy Study. However, the implementation of an approved telecommunications strategy will have significant policy implications. To ensure that the strategy recommended at the completion of this study will lead to suitable policy implications, it is important to utilize an appropriate basis for evaluating telecommunications strategies. Strategies will be evaluated based upon the extent to which they achieve the City’s primary objectives in entering the telecommunications business, which are assumed to be as follows: ¯Accelerated deployment of a broad range of advanced broadband telecommunications services to all of the citizens and businesses in Palo Alto. ¯Decreased costs for both conventional and advanced telecommunications services (as compared to the costs for similar services if provided without City involvement). CNHt:150:96 Page 1 of 4 ¯High quality for both conventional and advanced telecommunications services. Enhanced competition among telecommunications service providers and increased. telecommunications choices for consumers (who are currently limited to monopoly service providers for telephone and cable television service). ¯Limited or no financial risk exposure to the City. Overall, if the City achieves these telecommunications objectives, the quality of life in Palo Alto will be improved and Palo Alto’s businesses, schools, hospitals and other institutions will be able to perform more effectively. EXECUTIVE SUMMARY On May 8, 1995, the City Council authorized The ICT Group to begin work on a five-phase study to identify the City telecommunications strategy that will best serve the citizens and businesses of Palo Alto and develop a practical plan for implementing it (CMR:240:95). The five phases of the study are: Phase Phase Phase Phase Phase 1 - Situation Analysis 2 - Market Analysis 3 - Preliminary Alternatives Assessment 4 - Comparative Analysis of Alternatives 5 - Business Plan Development The first 3 phases have been completed. The Telecommunications Advisory Panel (TAP), which was formed tO assist staff in evaluating the consultant study, reviewed ICT’s reports for Phases 1-3 and provided feedback to staff. (A list of the TAP members is included as Attachment 5.) The TAP requested that staff prepare a supplemental report to expand on one of the strategies introduced in ICT’s Phase 3 report. Following TAP’s review of the Phase 3 supplemental report, all reports were reviewed by the UAC on January 10, 1996. The UAC endorsed staff’s recommendations for terminating the contract with ICT and having staff assume direct responsibility for completing Phase 4 of the study, with limited consultant assistance provided on an as-needed basis. ICT’s report covering Phases 1 and 2, which were performed in parallel, is included as Attachment 2. ICT’s Phase 3 report is included as Attachment 3. The Phase 3 supplemental report prepared by staff is included as Attachment 4. Staff gained important insights from these reports. Since these reports were prei~ared, other cities have moved forward with activities directed toward providing or facilitating the provision of telecommunications services to citizens and CMR: 150:96 Page 2 of 4 businesses within their communities. Two examples of California cities recently taking significant strides forward are Anaheim and Santa Clara. On January 9, 1996, Anaheim’s City Council authorized staff to enter negotiations with a parmer for the development of a public- private universal telecommunications system. On January 18, 1996, Santa Clara’s City Council approved an a~eement for the design of a fiber optic utility backbone network that would serve their electric utility and municipal government needs while reserving significant capacity for future municipal enterprise activities serving businesses and/or residents. In the City’s study, a number of potential City telecommunications s~rategies were subjected to a preliminary evaluation in order to determine their economic viability and to screen the range of possible strategies down to a manageable number. On the basis of this screening analysis, the following two types of strategies emerged as the most attractive for Palo Alto: Develop Network and Lease Access - The City develops a new telecommunications network and leases access on a non-discriminatory basis to all interested service providers. Under such an approach, the City limits its role to providing the links between customers and service providers. This could be pursued independently or with one or more partners. Lease Existing Infrastructure - The City actively leases spare duct and pole space to private telecommunications network developers and/or companies in Palo Alto interested in establishing point-to-point communication links. For Phase 4 of the study, staff recommends analyzing the decision between these two strategies in an effort led by staff. This will require a three month effort by one Electric Utility staff member, supplemented by a limited amount of consultant assistance provided on an as-needed basis for technical support. The choice of one or more consultants will be made after staff has conducted an informal competitive selection process. Upon completion of Phase 4, staff will return to the UAC and Council with: 1 .) a recommendation for the best City telecommunications strategy, 2.) a recommendation for how to proceed with Phase 5, and 3.) a recommendation for a telecommunications policy that will provide guidelines for managing telecommunications development in public rights-of-way. FISCAL IMPACT Of the $135,100 budgeted for this study, $91,000 was spent on Phases 1-3. Given the recommended modifications to the approach for the remainder of the study, it is anticipated that the cost of consultant assistance will be significantly less than the $44,100 originally budgeted for the remaining work. ENVIRONMENTAL ASSESSMENT This study is not a project for purposes of the California Environmental Quality Act; therefore,. no environmental assessment is required. CMR:150:96 Page 3 of 4 ATTACHMENTS 1. January 10, 1996 Memorandum to the Utilities Advisory Commission 2. The ICT Group. Development of a Telecommunications Strategy for the City of Palo Alto: Phase 1 - Situation Analysis and Phase 2 - Market Analysis. August 10, 1995. 3. The ICT Group. Development of a Telecommunications Strategy for the City of Palo Alto: Phase 3 - Assessment of Alternative Approaches. October 10, 1995. 4. City Staff. Development of a Telecommunications Strategy for the City of Palo Alto: Phase 3 Supplemental Report. November 16, 1995. 5. List of Telecommunications Advisory Panel members. (Due to the high cost of reproducing Attachments 1-4, their distribution has been limited. Copies are available for review in the City Clerk’s office and in each of the City’s five libraries.) PREPARED BY:Van Hiemke, Resource Planner, Utilities Department Tom Habashi, Assistant Director, Utilities Department DEPARTMENT HEAD APPROVAL: CITY MANAGER APPROVAL: Utilities CMR:150:96 Page 4 of 4 City of Palo Alto City Manager’s Report SI~JECT:Telecommunications Strategy Study -- Interim Report and Continuation Request RECOMMENDATIONS Staff recommends that Council approve staff proceeding with a detailed evaluation of two potential telecommunications strategies: 1.) Develop a telecommunications network and lease network access; and 2.) Lease existing infrastructure. The Utilities Advisory Commission (UAC) reviewed the Interim Report and endorsed staff’s recommendations. BACKGROUND On May 8, 1995, Council approved an appropriation from the Electric Rate Stabilization Reserve in the amount of $135,100 to fund The ICT Group ~CT) to conduct a five-phase study to identify the City telecommunications strategy that will best serve the citizens and businesses of Palo Alto and develop a practical plan for implementing it (CMR:240:95). The scope of work called for staff to obtain approval from the UAC and City Council before work under Phase 4 of the study can proceed. Phases 1-3 of the study were completed by ICT at a total cost of $91,000, leaving $44,100 in the budget for the remainder of the study. The Telecommunications Advisory Panel (TAP) reviewed the Phase 1-3 reports and provided feedback to staff. The TAP recommended that staff prepare a supplemental report as an addendum to ICT’s Phase 3 report. The TAP then reviewed staff’s Phase 3 supplemental report. All reports covering Phases 1-3 were reviewed by the UAC on January 10, 1996. The UAC endorsed staff’s recommendations for terminating the contract with ICT and having staff assume direct responsibility for completing Phase 4 of the study, with limited consultant assistance provided on an as-needed basis. POLICY IMPLICATIONS There are no direct policy implications associated with completing Phase 4 of the Telecommunications Strategy Study. However, the implementation of an approved telecommunications strategy will have significant policy implications. To ensure that the strategy recommended at the completion of this study will lead to suitable policy implications, it is important to utilize an appropriate basis for evaluating telecommunications strategies. CMR:150:96 Page 1 of 13 Strategies will be evaluated based upon the extent to which they achieve the City’s primary objectives in entering the telecommunications business, which are assumed to be as follows: ¯Accelerated deployment of a broad range of advanced broadband telecommunications services to all of the citizens and businesses in Palo Alto. ¯Decreased costs for both conventional and advanced telecommunications services (as compared to the costs for similar services if provided without City involvement). ¯High quality for both conventional and advanced telecommunications services. Enhanced competition among telecommunications service providers and increased telecommunications choices for consumers (who are currently limited to monopoly service providers for telephone and cable television service). ¯Limited or no financial risk exposure to the City. Overall, if the City achieves these telecommunications objectives, the quality of life in Palo Alto will be improved and Palo Alto’s businesses, schools, hospitals and other institutions will be able to perform more effectively. DISCUSSION Since this study was initiated, staff has developed a variety of key insights that will help determine the appropriate role for the City in telecommunications. The results of Phases 1-3 are generally promising and have enabled staff to narrow the field of potential City telecommunications strategies to two types of strategies that would be evaluated in more detail in Phase 4. Although the results of Phase 1-3 are promising, they also revealed that there is a significant amount of uncertainty associated with involvement in telecommunications. While some cities are moving more rapidly toward the development of telecommunications networks, staff recommends further study to reduce uncertainty and ensure that the City is not exposed to an undue amount of risk. Findings from Phase 1 - Situation Analysis The City has some key assets that could facilitate its entry into the telecommunications business. The City’s rights-of-way and the Electric Utility’s ducts and poles are valuable assets that could be utilized whether the City develops new telecommunications infrastructure or not. The City also has a coaxial cable infrastructure used for utilities, traffic control, and interfacility telephone applications. This system has some surplus capacity, but only enough to meet telecommunications needs for a small number of businesses. The Utilities Department’s billing system presents an unparalleled oppommity for customer bill consolidation, while the Utilities Department’s frequent customer contact could serve as an excellent marketing vehicle. CMR:150:96 Page 2 of 13 At both the state and federal levels, changes are being made to telecommunications regulations that will promote competition between companies that have not traditionally been competitors (i.e., cable television, local telephone, and long distance telephone companies). On February 8, 1996, the Telecommunications Act of 1996 was signed b~ President Clinton, thereby establishing the foundation upon which this competition will develop. However, it is not yet clear when or to what extent such competition will materialize among telecommunications providers in Palo Alto. California’s cities face different regulations than California’s private telecommunications providers, much like municipal electric utilities operate under different regulations than private, investor-owned electric utilities. California’s cities are not known to be legally prohibited from getting involved in any of these telecommunications markets as long as they stay within their city’s boundaries. Many cities are examining what their telecommunications strategies should be and a range of activities being pursued. Some cities are moving forward aggressively while others are being more cautious. An update of activities in selected cities across the nation is provided in a separate section below. Similar to what is occurring across the nation, Palo Alto’s telecommunications providers are preparing for telecommunications deregulation with planned systems enhancements that will enable them to provide services they have historically been prohibited from providing. The companies with the most significant telecommunications infrastructure throughout Palo Ako are Pacific Bell, Cable Co-op, and Metropolitan Fiber Systems (MFS). AT&T, MCI, Sprint, TCI, and Metricom (a wireless data service company) also have limited infrastructure in Palo Alto. It is expected that significant upgrades will be made to Pacific Bell’s and Cable Co-op’s infrastructure at some point in the future. The extent and timing of these upgrades, however, is largely unknown at this time. Pacific Bell has substantially scaled back its original upgrade plans. Cable Co-op’s current debt situation has rendered it unable to upgrade its system on its own. Cable Co-op will be forced to develop a strategic partnership to gain the necessary financing or sell the system. Although MFS has filed for the right to provide local telephone service, it is not known if they will choose to do so and expand beyond their traditional competitive access provider services for large businesses. Findings from Phase 2 - Preliminary Market Analysis The overall market for telecommunications gervices in Palo Alto is currently estimated to be $60 million per year (nearly the size of the market served by the Electric Utility). By 2002, this market is projected to grow to $85 million per year (about the size of the markets served by both the Electric and Gas Utilities combined). Telephone services represent the largest share of Palo Alto’s overall tel’ecommunications market. The local and long distance telephone service shares of the Palo Alto CMR:150:96 Page 3 of 13 telecommunications market are currently 30% and 40%, respectively. Both services are projected to grow slightly, but their combined share of the telecommunications market will drop to 50% as advanced digital telecommunications services emerge in the future. Internet access currently represents 10% of the telecommunications market and is projected to double in size, accounting for over 15% of the market by 2002. High speed, common carrier, switched connections to the Internet and other digital networks, although virtually non-existent today, are expected to grow rapidly to form a market nearly as large as the Internet access market by 2002. The cable television (andrelated entertainment services) share ofPalo Alto’s telecommunications market is projected to hold steady at nearly 10%. The remainder of the market is split between the overlapping markets for leased duct and pole space, leased dark fiber and cable facilities, and leased bandwidth on a backbone network. On a market segment basis, the residential market constitutes roughly one-third of the market with the remainder being split evenly between large businesses (>100 employees) and small businesses (<100 employees). While there is an opportunity for telecommunications investments to produce cost reductions at City facilities, the potential is far outweighed by the cost of the investments being considered. Cost reductions for City services represent a side benefit of a telecommunications venture that is too small to influence the City’s telecommunications strategy decision. Findings from Phase 3 - Alternatives Characterization The range of strategies that the City could implement to achieve its objectives (as described above under Policy Implications) can be placed in the following four major categories, each of which achieves the City’s objectives to a different degree: Lease Existing Infrastructure - With a minima! amount of effort, the City could actively lease spare duct and pole space to private telecommunications network developers and/or companies in Palo Alto interested in establishing point-to-point communication links. This presents the oppommity to generate revenues from existing assets with little to no financial risk. With additional effort, surplus bandwidth on the City’s existing coaxial cable system could also be leased to a limited number of businesses; however, according to staff’s analysis, the value that would be provided does not appear high enough to justify the effort. o Develop Network and Lease Access (Leased Access) - The City could develop a new telecommunications network and lease access on a non-discriminatory basis to all interested service providers. Under such an approach, the City would limit its role to providing the links between customers and service providers. This could be pursued indep~endently or with one or more partners by enhancing existing infrastructure or CMR:150:96 Page 4 of 13 building new infrastructure. Such a strategy could be implemented in a number of ways. Regardless of how it is implemented, this would provide the benefit of fostering competition among experienced service providers who otherwise may be discouraged from entering the market due to the high cost of developing new infrastructure. Under such a strategy, one or more services could also be provided directly by the City. Develop Network and Compete Directly (Direct Competition) - At the highest level of involvement, the City could build a broadband network and provide services to end users directly without allowing other service providers to compete over the City’s infrastructure. This approach could be pursued independently or in conjunction with one or more partners by enhancing existing infrastructure or building new infrastructure. Such an approach presents an opportunity for the highest earnings, but requires a great deal of expertise in operating and marketing services of the telecommunications network. While this approach adds one more competitor to the market, it does not produce the same level of competition among service providers as the Develop Network and Lease Access approach. Do Nothing - The City could implement a "hands-off" telecommunications strategy and rely completely upon the free market to provide telecommunications infrastructure and services. This approach would not fully utilize existing City assets that could be quite valuable; it also leaves the City in a completely reactive mode. Conclusions Reached during Phases 1-3 Based upon the work completed to date, staff believes that the Do Nothing and the Direct Competition strategies should be excluded from further consideration in Phase 4 ..... If the City were to elect to Do Nothing, this strategy would underutilize and undervalue its existing assets: ducts, poles, and rights-of-way. At a minimum, the City should actively attempt to lease these existing assets and ensure that the public rights-of-way are properly managed so that they provide the maximum benefit to the community. Pursuing a Direct Competition strategy would require a great deal of expertise that the City does not currently have, far more expertise than is needed to implement a Leased Access strategy. More capital is placed at risk under this strategy than under a Leased Access strategy because the City would need to invest in the equipment and personnel required to provide services. The Direct Compeition strategy does offer the potential for higher revenues than a Leased Access strategy; however, this is not a sufficient justification for the City to prefer a Direct Competition strategy over a Leased Access strategy. Furthermore, the Leased Access strategy offers a significant benefit that the Direct Competition strategy does not offer -- namely, enhanced competition among service providers. As such, staff recommends withdrawing the Do Nothing and Direct Competition strategies CMR:150:96 Page 5 of 13 from further consideration. This results in the "Lease Existing Infrastructure" and the "Develop Network and Lease Access" strategies being the two strategies that will be examined further in Phase 4. Either of these strategies could be implemented in a variety of ways and do not imply that the City should exclude the possibility of providing any services directly. If there is apractical reason for the City to provide a service, it i~ should still be a valid consideration. Update on Other Cities Activities Other cities in California and across the nation are recognizing the strategic role they can play in ensuring that low cost, high quality telecommunications services are provided in their communities. A variety of actions are being pursued. Some cities, particularly those with municipal electric utilities, are identifying competitive advantages and moving forward with activities directed toward providing or facilitating the provision of telecommunications services to citizens and businesses within their communities. Others are resolved to promoting telecommunications development by the private sector. One thing that is consistent in all cities, however, is a recognition of the importance of telecommunications to their future. Table 1 provides a snapshot of activities in other cities. More detailed descriptions of these cities’ activities are also provided below. California Cities Anaheim, CA X X X X X X X Burbank, CA X X X X Los Angeles, CA X ?X X X X ? San Bruno, CA X X X X X X San Diego, CA ??X X ?? San Jose, CA X X X X X Santa Clara, CA ???X X ?? Sunnyvale, CA ?X ~Milpitas, CA ??X ? Other Cities Lakeland, FL ???X X ? Cedar Falls, lA ?X ?X X X Glasgow, KY -X X X X Springfield, MO ???X X ? Austin, TX X ?X X X X San Antonio, TX X X X X X IBlacksburg, VA :-, -, - Seattle, WA ?????? Tacoma, WA ???X X ? Note: X = Yes, - = No, ? = Unknown at this point. Table Negotiating for devolopment of a universal telecom system. Installing fiber optic utility backbone network. Expanding utility fiber backbone. RFP for joint venture planned. Evaluating upgrade options for their municipal cable TV system. Evaluating proposals for expanding the City’s telecom networks. Evaluating responses to RFP for telecom conduit projects. Designing a fiber optic utility backbone network. Telecom Plan calls for promoting private telecom development. Telecom Master Plan cal~s for building a City-owned fiber rfng. ?Evaluating business and residential uses of fiber optic network. X Providing telecom services on a new hybrid fiber-coax network. X Providing services over the utility’s coaxial cable system. ?Waiting for telecom legislation to consider uses of fiber network. X Evaluating strategic telecommunication partnership proposals. Preparing to lease dark fiber on utility backbone network. Encouraged phone co. & university to create "electronic village". ?Cancelled RFP process. Will reassess situation in the future. ?Exploring options for expanding internal fiber optic network. 1 - Snapshot of Other Cities’ Activities CMR:150:96 Page 6 of 13- Anaheim, CA Anaheim (population 282,000) has installed a 50-mile fiber optic backbone network to support the needs of their municipal electric utility and other City functions. In April 1995, Anaheim issued a Request for Proposals (RFP) for potential partnerships to utilize this network to provide telecommunications services to residents and businesses of Anaheim. On January 9, 1996, following staff review of 18 responses to the RFP, Anaheim’s City Council authorized staff to enter negotiations with SpectraNet International for the development of a public-private universal telecommunications system. Burbank, CA Burbank (pop. 100,000) is installing a 20-mile fiber optic backbone network to support the needs of their municipal electric utility and other City functions. In response to significant interest from Burbank’s entertainment industry customers, Burbank plans to lease bandwidth on this network. Burbank’s electric utility has submitted a proposal to provide a fully functioning interc0nnection by May 1, 1996 between two buildings for a major studio that is expanding to an additional location. Los Angeles, CA The Los Angeles Department of Water and Power (LADWP) has installed over 160 miles of fiber optic cable throughout its service territory. In response to City Council motions, the City of Los Angeles (pop. 3,449,000) is preparing to issue an RFP calling for potential partners that could help the City expand upon LADWP’s existing fiber optic system to provide telecommunications services to businesses and residents of Los Angeles. Milpitas, CA In November 1995, the City Council of Milpitas (pop. 56,000) approved a Master Telecommunications Plan. The Plan calls for the phased construction of a series of fiber rings, spanning about 10 miles, for the purpose of interconnecting all major City facilities. The construction will take advantage of trenching already planned for a water reclamation project. The City may consider leasing access on the fiber optic network to interested businesses. The Plan also recommends guidelines for use of the public rights-of-way for telecommunications development. San Bruno, CA The City of San Bruno (pop. 41,000) has successfully operated a municipal cable television system since 1970. San Bruno’s most recent major system upgrade was in 1985. Following a recent study performed by SRI International, San Bruno is planning to upgrade their system by adding fiber optic cabling and new coaxial cabling by 1997. San Bruno is exploring potential partnerships that would enable them to introduce new services such as Internet access and telephone service. CMR:150:96 Page 7 of 13 San Diego, CA The City of San Diego (pop. 1,152,000) has its data processing and telecommunications services provided by the San Diego Data Processing Corporation (SDDPC), a nonprofit public benefit corporation formed by the City in 1979. The SDDPC, on behalf of the City, recently issued an RFP seeking a sixategic partnership for the design, construction, implementation, and operation of an advanced telecommunications network. Two types of proposals were sought: 1.) Proposals to inte~ate and expand upan existing City networks to create a "Private Virtual Network" capable of meeting increasing City government telecommunications demands, and 2.) Proposals to develop a "Regional Telecommunications Network" that would replace existing networks operated by SDDPC and provide the ability to deliver voice, data, cable, and videoconferencing services at a reasonable cost to every home, business, school, and public office in the San Diego/Baja region. SDDPC is currently reviewing the eight proposals it received on January 18, 1996 and anticipates selecting a winning proposal in mid-1996. San Jose, CA San Jose (pop. 817,000) has been one of the most active cities in the nation in dealing with telecommunications policy issues. A major reason for this is Pacific Bell’s broadband telecommunications network concept proposed for deployment in San Jose this year. Pacific Bell originally planned on reaching 200,000 South Bay homes in the first half of 1996 with cable television via a "hybrid fiber-coax" network. However, as of January 1996, Pacific Bell only had about 250 test customers. San Jose is in the process of developing new ordinances to deal with deployment of telecommunications infrastructure on public and private property such as Pacific Bell’s project. The City is also reviewing responses to their September 1995 RFP for the development of a fiber optics conduit system along the 60 miles of transmission and distribution lines of a water reclamation project being developed in San Jose. The City envisions placing empty conduits in the project trenches and partnering with one or companies to construct a telecommunications network that would provide two-way voice, data, video, and multimedia communication capabilities to residents, businesses, and institutions within portions of San Jose. In addition to these infrastructure-related activities, San Jose is also examining amendments to their utility users tax ordinance that would consistently and fairly apply the tax to users of all telecommunications services. Santa Clara, CA In their 1994/1995 Capital Improvement Budget, the City Council of Santa Clara (pop. 95,000) approved appropriations for three phases of broadband telecommunications system development. Phase 1 is a $3 million project that will expand 6 miles of existing fiber optic cable to a 30-mile fiber optic backbone that will support the needs of their municipal electric utility. Phase 2 has $600,000 budgeted for demonstrating general government utilization of the network. Phase 3 has $1.4 million allocated to investigate the deployment of an enterprise network, utilizing surplus capacity on the utility backbone network, that would CMR:150:96 Page 8 of 13 serve residents and businesses of Santa Clara. On January 18, 1996, Santa Clara’s City Council approved an agreement with SpectraNet International for the design of the utility backbone network. Sunnyvale, CA Sunnyvale (pop. 120,000) has developed a Telecommunications Plan that calls for promoting private telecommunications development while protecting public rights-of-way. In early 1996, Sunnyvale will become the first commercial testbed for high speed Internet access over a cable television system utilizing cable modems and a network concept developed by @Home, a subsidiary of TCI, Sunnyvale’s cable television provider. Lakeland, FL Lakeland (pop. 71,000) has installed a 120-mile fiber optic backbone network to support the needs of their municipal electric and water utilities and other City functions. Some schools are connected to the network and a plan is in place to connect the rest. Lakeland is currently examining expansion into the business and residential markets. A primary goal for Lakeland is promoting competition in all areas of telecommunications whether the City becomes a competitor or not. Cedar Falls, IA In an October 1994 referendum, the citizens of Cedar Falls (pop. 34,000) voted in favor of forming a municipal telecommunications utility in addition to its existing municipal electric, gas, and water utilities. The City has since built a "hybrid fiber-coax" system that will enable it to provide video, voice, and data services to every resident and business in Cedar Falls. The system extends fiber optic cable from a centrally-located "headend" office to neighborhood nodes, from which coaxial cable is extended to 500-800 homes per node. For large customers, the City has started providing links between remote facilities enabling them to interconnect their computer and phone networks. The City will introduce cable television service at the end of February 1996 and will develop both a residential, Ethemet-based computer network and a commercial, fiber optic-based computer network, both of which will provide the ability to access the Internet. Eventually, theCity plans to either provide telephone service directly or lease capacity to one or more telephone service providers. Glasgow, KY Glasgow (pop..13,000) has operated its own coaxial cable telecommunications system for about six years and plans to upgrade it with fiber optic "super-trunks" in the near furore. The system meets the telecommunications needs of the municipal electric utility and the municipal government. The system is also used to provide cable television service in competition with the local cable television provider as well as to interconnect Glasgow’s schools on a local area network (LAN) capable of transporting video for distance-learning applications. Glasgow has experimented with providing telephone service on the network, but is currently more interested in expanded LAN services and Internet access due to some unresolved technical problems discovered during the telephony experiment. CMR:150:96 Page 9 of 13 Springlqeld, MO The municipal electric utility of Springfield (pop. 150,000) has developed an extensive fiber optic network that, as of October 1, 1995, is now used to meet all of the City’s telecommunications needs. Springfield considered providing telecommunications services to local businesses, but met substantial resistance from their local telephone company, Southwestern Bell. Springfield will reconsider utilizing their network to provide services to businesses and residents after state and federal telecommunications legislation issues are resolved. Austin, TX. Austin (pop. 514,000) is in the final stages of reviewing responses to a Request for Strategic Partners (RFSP) that would build, operate, and market a public broadband network featuring high bandwidth connectivity on a point-to-point network.. Austi~ has narrowed the origina! field of twelve respondents to a field of four finalists. Austin staff anticipate selecting a winner to recommend to their City Council by the end of February, Before developing a network, however, Austin will have to either challenge a state law enacted this year prohibiting Texas cities from providing telecommunications services or wait for the pending federal legislation to outlaw such state prohibitions. San Antonio, TX City Public Service (CPS), a municipal electric and gas utility serving San Antonio (pop. 999,000) along with 23 other cities, has completed the construction of 60 miles of a 306 mile fiber optic utility backbone network. CPS plans to lease dark fiber to IntelCom Group (ICG), a competitive access provider. CPS and ICG must first face a legal battIe with the local telephone company, Southwestern Bell, who claims that this project violates a state law enacted in 1995 that prevents Texas cities from providing telecommunications services. Blacksburg, VA The Town of Blacksburg (pop. 35,000) has encouraged the local telephone company, Bell Atlantic, and the local university, Virginia Tech, to create the Blacksburg Electronic Village (BEV). BEV is a non-profit organization that developed and currently administers a computer network over Bell .Atlantic infrastructure linking businesses and residents to the Internet. Startup costs were essentially donated by Bell Atlantic and Virginia Tech. Seattle, WA In August 1994, Seattle (pop. 521,000) issued a RFP seeking investors and/or developers to build and operate a broadband telecommunications network that would provide access to two-way voice, video, and data services to all of the residents and businesses of Seattle. Seattle received 17 responses in October 1994. The City had significant concerns about all of the responses received. The City was concerned that proposals were based upon technology that was projected to be available in the near future, but had not yet been successfully " demonstrated. The City was also concerned with the high market penetrations needed for economic viability. Furthermore, several key companies declined to submit proposals CMR:150:96 Page 10 of 13 because they were not yet ready to make commitments. As a result of these factors, Seattle decided to reject all of the proposals and cancel their RFP process. They have since renegotiated cable franchises with TCI and Viacom (who is being bought by TCI) and have garnered.commitments for pilot high speed Internet access projects in 1996. Once the federal telecommunications legislation has been passed, Seattle will reassess its situation with respect to the goals stated in its 1994 RFP. Tacoma, WA Following a competitive RFP process, Tacoma (pop. 183,000) selected SKI International to complete a three phase study evaluating what telecommunications strategy they should pursue. At a minimum, Tacoma must add some level oftelecommunlciations services for their municipal electric utility. Tacoma currently has a 15 mile fiber optic ring used to interconnect City facilities. They are considering development of an additional fiber optic network that could be used to meet electric utility needs as well as deliver telecommunications services to residents and businesses. They are exploring full and partial system ownership, varying b{tildout scenarios, and service provision by themselves or others. Recommendation for Phase 4 Staff recommends that Phase 4 involve the refinement and analysis of the most attractive strategies developed in Phase 3 for the purpose of identifying the telecommunications strategy that will best serve the citizens and businesses of Palo Alto. The.key decision to be analyzed in this phase will be a choice between the following two strategies, unless other strategies are identified by Council: Develop Network and Lease Access -Build a new telecommunications network and lease access to all interested service providers. Lease Existing Infrastructure -Actively lease existing ducts and poles to interested telecommunications infrastructure developers. As a part of this analysis, staff will investigate a number of variations on the type of leased access network developed under the first strategy. Variations on the network architecture will be explored to determine the impacts on costs and service capabilities. Tradeoffs will be investigated for providing shared bandwidth on a switched network versus providing dedicated bandwidth to service providers who operate their own switching equipment. (Switching is required to ensure that information is routed to the appropriate termination point(s) on the network.) Implications of different partnering and financing arrangements will also be further explored. This analysis of network variations for the Develop Network and Lease Access strategy wil! help staff focus on those that are the most attractive. It is not intended to rule out potential variations, however. If the City Council ultimately chooses the Develop Network and Lease CMR:150:96 Page 11 of 13 Access strategy, it is envisioned that staff would solicit a range 0f proposals from potential parmers and/or turnkey project developers through a competitive selection process. The deliverable for Phase 4 will be a report that includes: A comparative evaluation that quantifies the costs and benefits of each strategy, with consideration of the impact of key uncertainties. A comparative evaluation that considers qualitative factors such as organizational requirements, ease of implementation, and other intangibles. o A recommendation for the City telecommunications strategy that will best serve the citizens and businesses of Palo. Alto. °A recommendation for a telecommunications policy that will provide guidelines for managing telecommunications development in the public rights-of-way. The completion of Phase 4 will require a three month effort by one Electric Utility staff, supplemented by a limited amount of consultant assistance provided on an as-needed basis for technical support. The.choice of one or more consultants will be made after staff has conducted an informal competitive selection process. The Electric Utility has been involved in this project, from both funding and staffing perspectives, due to the potential for this project to lead to enhanced utility services and utility cost savings. Although potential utility telecommunications cost savings are small relative to the cost of developing a telecommunications network, they are nevertheless significant. It is thus still appropriate, for the Electric Utility to play a significant role in this s .mdy; however, the impact of this project on Electric Utility staffing levels can not continue without additional support for the Electric Utility beyond Phase 4. If a continued effort is required, a plan will be prepared to ensure that the Electric Utility does not suffer as a result of staffing the telecommunications project. Upon completion of Phase 4, this plan will be presented along with the findings and recommendations of Phase 4, to the UAC and City Council. ALTERNATIVES The City may choose to discontinue the study or to pursue Phase 4 as it was originally designed in the contract with The ICT Group. Staff recommends against discontinuing the study because the results from the first three phases do not yet provide a suitable basis for selecting a telecommunications strategy. On the basis of what was learned in Phases 1-3, staff recommends against continuing the study as originally planned. More direct staff involvement in Phase 4 will better position staff to prepare the Council to select and implement the best telecommunications strategy for the citizens and businesses of Palo Alto. CMR:150:96 Page 12 of 13 FISCAL IMPACT Of the $135,100 budgeted for this study, $91,000 was spent on Phases 1-3. Given the recommended modifications to Phases 4 and 5, it is anticipated that the cost of additional consultant assistance will be significantly less than the $44,100 originally budgeted for the remaining work. ENVIRONMENTAL ASSESSMENT This study is not a project for purposes of the California Environmental Quality Act; therefore, no environmental assessment is required. STEPS FOLLOWING APPROVAL Staff will implement the recommended approach for Phase 4 as described above. As a part of this three month effort, one or more consultants will be retained to assist staff with technical matters on a time and materials basis. Upon completion of Phase 4, staff will return to the Utilities Advisory Commission and the City Council for approval of a recommended telecommunications strategy. CMR:150:96 Page 13 of 13 ATTACH~IENT I MEMORANDUM TO: FROM: AGENDA DATE: SUBJECT: Utilities Advisory Commission Bernard M. Strojny Assistant City Manager January 10, 1996 Telecommunication Strategy Study -- Interim Report and Continuation Request REQUEST This memorandum is being presented to the Utilities Advisory Commission (UAC) to inform the UAC of the progress of the City’s Telecommunication Strategy Study and to seek UAC endorsement of staff recommendations for continuing the study. ’ RECOMMENDATIONS: This report recommends: 1 .) Modifying the original approach for Phases 4 and 5 of the Telecommunication Strategy Study, 2.) Terminating Contract #C5077724 with The ICT Group, and 3.) Shifting the responsibility of completing Phases 4 and 5 of this five-phase study to staff, with limited technical assistance provided by one or more consultants. BACKGROUND: At the March 1, 1995 UAC meeting, staff presented an agreement between the City of Palo Alto and The ICT Group (ICT) for telecommunication consulting services. On May 8, 1995, the City Council approved a Budget Amendment Ordinance in the amount of $135,100 from the Electric Rate Stabilization Reserve to fund the five-phase study to be completed under this agreement. The agreement required staff to seek approval from the UAC and City Council prior to authorizing ICT to proceed with Phase 4 of the study. Phases 1-3 of the study were Completed by ICT at a total cost of $91,000, leaving $44,100 in the budget for the remainder of the study. The Telecommunication Advisory Panel (TAP), formed at the start of the project, reviewed the Phase 1-3 reports and provided feedback to staff. Following their review, the TAP recommended that staff prepare a supplemental report as an addendum to ICT’s Phase 3 report. This memorandum summarizes the reports prepared both by ICT and staff. POLICY IMPLICATIONS: There are no direct policy implications associated with developing a telecommunication strategy as recommended above. However, the ultimate implementation of a telecommunication strategy will have significant policy implications. To ensure that the strategy recommended at the completion of this study will lead to favorable policy implications, it is important to utilize an appropriate basis for evaluating telecommunication strategies. Strategies will be evaluated based upon the extent to which they achieve the City’s primary objectives in entering the telecommunication business, which are as follows: ¯Accelerated deployment of a broad range of advanced broadband telecommunication services to all of the citizens and businesses in Palo Alto. Decreased costs for both conventional and advanced telecommunication services (as compared to the costs for similar services if provided without City involvement). High quality for both conventional and advanced telecommunication services. Enhanced competition among telecommunication service providers and increased telecommunication choices for consumers (who are currently limited to monopoly service providers for telephone and cable television service). Overall, if the City achieves these telecommunication objectives, the quality of life in Palo Alto will be improved and Palo Alto’s businesses, schools, hospitals and other institutions will be able to perform more effectively. DISCUSSION: The goal of the five-phase study is to identify the City telecommunication strategy that will best serve the citizens and businesses of Palo Alto and develop a practical plan for implementing it. The strategy, ultimately pursued by the City will have significant implications for Palo Ako as a whole. ICT’s report covering Phases 1 and 2, which were performed in parallel, is included as Attachment 1. ICT’s Phase 3 report is included as Attachment 2. The Phase 3 supplemental report prepared by staff is included as Attachment 3. Staff gained important insights from these reports. The major findings are summarized below. Phase 1 - Situation Analysis The City has some key assets that could facilitate ifs entry into the telecommunication business. The City’s rights-of-way and the Electric Utility’s ducts and poles are valuable assets that could be utilized whether the City develops new telecommunications infrastructure or not. The City also has a coaxial cable infrastructure used for Utilities, traffic control, and interfacility telephone 2 applications. This system has some surplus capacity, but only enough to meet telecommunication needs for a small number of businesses. The billing system operated by the Utilities Department could also be a valuable asset. At both the state and federal levels, changes in telecommunication regulations are being debated that would promote competition between companies that have not traditionally been competitors (i.e., cable television, local telephone, and long distance telephone companies). However, it is not clear when or to what extent this competition will materialize. Unlike private telecommunication providers, cities are not legally prohibited from getting involved in any of these telecommunications markets. Many cities are examining what their telecommunication strategies should be. There isa range of activities being pursued. Some cities are moving forward aggressively while others are being more cautious. Phase 2 - Preliminary Market Analysis The overall market for telecommunications services in Palo Alto is currently estimated to be $60 million per year (nearly the size of the market served by the Electric Utility). By 2002, this market is projected to grow to $85 million per year (about the size of the markets served by both the Electric and Gas Utilities combined). Telephone services represent the largest share of Palo Alto’s overall telecommunications market. The local and long distance telephone service shares of the Palo Alto telecommunication market are currently 30% and 40%, respectively. Both services are projected to grow slightly, but their combined share of the telecommunications market will drop to 50% as advanced digital telecommunications services emerge in the future. Internet access currently represents 10% of the telecommunications market but is projected to double in size, accounting for over 15% of the market by 2002. High speed, common carrier, switched connections to the internet and other digital networks, although virtually non-existent today, are expected to grow rapidly to form a market nearly as large as the internet access market by 2002. The cable television (and related entertainment services) share ofPalo Alto’s telecommunication market is projected to hold steady at nearly 10%. The remainder of the market is split between the overlapping markets for leased duct and pole space, leased dark fiber and cable facilities, and leased bandwidth on a backbone network. On a market segment basis, the residential market constitutes roughly one-third of the market with the remainder being split evenly between large businesses (> 100 employees) and small businesses (<100 employees). While there is an opportunity for telecommunication investments to produce cost reductions at City facilities, the potential is far outweighed by the cost of the investments being considered. Cost reductions for City services represent a side benefit of a telecommunication venture that is too small to influence the City’s telecommunication strategy decision. Phase 3 - Alternatives Characterization The range of strategies that the City could implement to achieve its objectives (as described above under Policy Implications) can be placed in the following four major categor.ies, each of which achieves the City’s objectives to a different degree: Leasing Existing Infrastructure - With a minimal amount of effort, the City could actively lease spare duct and pole space to private telecommunication network developers and/or companies in Palo Alto interested in establishing point-to-point communication links. This presents the oppommity to generate revenues from existing assets with little to no financial risk. With additional effort, surplus bandwidth on the City’s existing coaxial cable system could also be leased to a limited number of businesses; however, the value that would be provided does not appear high enough to justify the effort. Leased Access - The City could build a new telecommunications network and lease access on a non-discriminatory basis to all interested service providers. Under such an approach, the City would limit its role to providing the links between customers and service providers. This could be pursued independently or with one or more partners. This provides the benefit of fostering competition among experienced service providers who otherwise would be discouraged from entering the market due to the high cost of developing new infrastructure. Under such a strategy, one or more services could also be provided directly by the City. Direct Competition - At the highest level of involvement, the City could build a broadband network and provide services to end users directly without allowing other service providers to compete over the City’s infrastructure. This approach could be pursued independently or in conjunction with one or more partners. Such an approach presents an opportunity for the highest earnings, but requires a great deal of expertise in operating and marketing services of the telecommunications network. While this approach adds one more competitor to the market, it does not produce the same level of competition amongst service providers as the Leased Access approach. Do Nothing - The City could implement a "hands-o~’ telecommunications strategy and rely completely upon the free market to provide telecommunications infrastructure and services. This approach is not advised, however, because it does not utilize existing City assets that could be quite valuable and it leaves the City in a completely reactiye mode. Conclusions Based upon the work completed to date, staff believes that the Do Nothing and the Direct Competition strategies should be excluded from further consideration in Phase 4. If the City were to Do Nothing, it would underutilize and undervalue its existing assets: ducts, poles, and rights-of-way. At a minimum, the City should actively attempt to lease these existing assets and ensure that the public rights-of-way are properly managed. 4 Pursuing a Direct Competition strategy would require a great deal of expertise that the City does not currently have, far more expertise than needed to implement a Leased Access strategy. It also places more capital at risk than a Leased Access strategy due to the fact that the City would need to invest in the equipment and personnel required to provide services. The only benefit that a Direct Competition strategy would offer in addition to those offered by a Leased Access strategy is the potential for higher revenues. Staff does not believe this is a suf~cient justification for the City to prefer a Direct Competition strategy over a Leased Access.strategy. Furthermore, the Leased Access strategy offers a significant benefit that the Direct Competition strategy does not offer -- namely, enhanced competition amongst service providers. As such, staff recommends withdrawing the Do Nothing and Direct Competition strategies from further consideration. This does not imply that the City should exclude the possibility of providing any services directly. If there is a practical reason for the City to provide a service, it is should still be a valid consideration. While working with The ICT Group on the first three phases of this study, staff gained considerable insights related to the development of the City’s telecommunication strategy. On the basis of these insights, staff recommends a modified approach for completing Phase 4 and 5, as shown in Attachment 4. (The original scope of work for Phases 4 and 5 is shown in Attachment 5.) Furthermore, staff is now comfortable assuming a geater role in completing the study and relying on only a limited amount of consulting assistance for technical matters. ALTERNATIVES: The City may choose to discontinue the study or to pursue Phase 4 as it was originally designed in the contract with The ICT Group. Staff recommends against discontinuing the study because the results from the first three phases do not yet provide a suitable basis for selecting a telecommunication strategy. On the basis of what was learned in Phases 1-3, staff recommends against continuing the study with the original scope of work. Staff believes that the recommended enhancements to Phases 4 and 5 will better prepare the Council to select and implement the best telecommunication strategy for the citizens and businesses of Palo Alto. FISCAL IMPACT: Of the $135,100 budgeted for this study, $91,000 was spent on Phases 1-3. Given the recommended modifications to Phases 4 and 5, it is anticipated that the cost of consultant assistance will be significantly less than the $44,100 originally budgeted for the remaining work. ENVIRONMENTAL ASSESSMENT: This study is not a project for purposes of the California Environmental Quality Act; therefore, no environmental assessment is required. Staffwill implement the approach described for Phase 4 in Artachme45~. As a part of this effort, one or more consultants will be retained to assist staffwith technical m’-~tters on a time and materials basis. Upon completion of Phase 4, staff x~411 return to the Utilities Advisory Commission and the City Council for approval of a recommended telecorranunication strategy. ATTACHMENTS/EXHIBITS: 1. The ICT Group. Development of a Telecommunication Strategy for the City of Palo Alto." Phase 1 - Situation Analysis and Phase 2 - Market Analysis. August 10, 1995. 2. The ICT Group. Development of a Telecommunication Strategy for the City of Palo Alto: Phase 3 - Assessment of Alternative Approaches. October 10, 1995. 3.City Staff. Development of a Telecommunication Strategy for the Cir.’ of Palo Alto." Phase 3 Supplemental ~Report. November 16, 1995. 4.Modified Approach for Phases 4 and 5. 5.Excerpts from the Agreement Between the Cig’ of Palo Alto and The ICT Group for Telecommunication Consulting Sera,ices (Contract #C5077724). Prepared by: Reviewed by: Approved by: Van Hiernke / Tom H~bashi ~’dwardj. Mriz~" Director of Utilities s Assistant Cilb~ Manager .6 ATTACHMENT 2 DEVELOPMENT OF A TELECOMMUNICATIONS STRATEGY FOR THE CITY OF PALO ALTO Contract No. C5077724 Phase 1 Situation Analysis Phase 2 Market Analysis PAUL L. BRANDON MYRON B. GLASER LLOYD I. KRAUSE DIETER LOHR Prepared for:. Ci~ of Palo Alto Attention: Mr. Van Hiemke Project Coordinator July 31, 1995 (Revision received by City on August i0, 1995) The ICT Group Information and Communications Technologies Planning ¯ Strategies ¯ Design ¯ Techno-EconomicAnalysis 1909 Milano Way Mountain View, CA 94040 CONTENTS 1.1 1.2 2. 2.1 2.2 3. 3.1. 3.1.1. 3.1.1.1 3.1.1.2 3.1.2. 3.1.2.1 3.1.2.2 3.1.2.3 3.1.2.4 3.1.3. ¯ 3.1.4. 3.1.4.1 3.1.4.2 3.1.4.3 3.1.4.4 3.1.5. INTRODUCTION .........................................................................................1 Purpose of Study ..................................................................................1 Future Study Work ....................¯ .........................................................2 EXECUTIVE SUMMARY ............................................................................2 General Findings ..................................................................................2 Summaries of Individual Study Areas ...........................................4 PHASE 1 SITUATION ANALYSIS ...........................................................8 Existing Telecommunications Infrastructure ................................8 City,. and Utilities Organization .........................................................8 -Citv Government .................................................................................8 Utilities Department ...........................................................................10 Ci~~ Telecommunications Systems ...........~ ......................................12 Administrative Telecommunications System ..............................12 Internet Connection ............................................................................12 Libraries ..................................................................................................13 Palo ,Alto Unified School District .....................................................14 Enhanced Utilities Services ...............................................................14 Existing Telecommunications Infrastructure ................................16 Cib,: Communications Circuits .........................................................16 CPA Utilities Coaxial Cable Svstem .................................................16 Existing CPA-owned Fiber Links ......................................................!7 Electric Distribution System .......................~ ......................................17 Palo Alto Cable Co-op CATV System ..............................................18 The ICT Group i 3.1.5.1 3.1.5.2 3.1.5.3 3.1.6. 3.2. 3.2.1. 3.2.2. 3.2.3. 3.2.3.1 3.2.3.2 3.2.3.3 3.2.3.4 3.2.4 3.3. 3.3.1 3.3.2 3.4. 3.4.1 3.4.1.1 3.4.1.2 3.4.1.3 3.4.1.4 3.4.1.5 3.4.1.6 Debt and Ownership Implications ...................................................19 Review of Franchise Agreement ......................................................20 Technical Considerations for Two-Way Service ..........................21 Privately Owned Fiber Systems ........................................................~ Experiences of Other Municipalities and Investor-owned Utilities ...................................................................................................24 General Trends ..................................~ ..................................................24 Utility Telecommunications Council Fiber Optics Survey .......26 Municipalities .......................................................................................27 Bay Area Municipalities .....................................................................27 Other California Municipalities .......................................................31 Other Municipalities Nationwide ....................................................35 Development of Telecommunications in Singapore ..................40 Investor-Owned Utilities ...................................................................41 Legal and Regulatory Review ..........., ...............................................44 California Public Utilities Commission ..........................................44 Federal Legislation ............~ ..................................................................45 Assessment of Applicable Technologies and Trends ......: ...........47 Transmission Media ..............: ...........................................................:48 Telephone Cable ...................................................................................48 Co-axial Cables ......................................................................................49 Fiber Optics ............................................................................................52 Hybrid Fiber-Coax Systems ................................................................52 Wireless Transmission .......................................................................53 Direct Broadcast Satellite (DBS) Service ..........................................54 The ICT Group ii 3.4.2. 3.4.3. 4. 4.1. 4.2. 4.2.1. 4.2.2. 4.2.3. 4.2.4. 4.2.5. 4.3. 4.3.1. 4.3.1.1 4.3.1.2 4.3.1.3 4.3.1.4 4.3.2. 4.3.2.1 4.3.2.2 4.3.2.3 4.3.2.4 4.3.3. 4.3.3.1 4.3.3.2 4.3.3.3 Digital Service Hierarchies ..............................................................56 Asynchronous Transfer Mode ..........................................................57 MARKET ANALYSIS ......................................i ...........................................59 Overview and Summary .....................~ .............................................59 Market Segmentation .........................................................................64 City of Palo Alto Employers Breakdown ........................................64 Employers ........................................;.. ...................................................64 Employment .................................. .......................................................65 Medical/Dental .....................................................................................65 Residential .............................................................................................65 Market Estimates for Candidate Service Offerings .......................65 Leasing of Duct Space or Pole Capacity ............................................66 Service Description ....................................~ ..................... ............... .....66 Market Analysis ....................................................................................67 Market Size Estimate ............................................................................67 Competitor Assessment .....................................................................67 Leasing Fiber or Metallic Cable Facilities ........................................68 Service Description .............................................................................~68 Market Analysis ............~ .......’ ............: ..................................................68 Market Size Estimate ...........................................................................68 Competitor Assessment .....................................................................69 Leasing Point-to-Point Bandwidth or Bit-rate ~ervices ...............69 Service Description .............................................., ...............................69 Market Analysis ...................................................................................69 Market Size Estimate ...........................................................................69 The ICE Group iii 4.3.3.4 4.3.4. 4.3.4.1 4.3.4.2 4.3.4.3 4.3.4.4 4.3.5. 4.3.5.1 4.3.5.2 4.3.5.3 4.3;5.4 4.3.6. 4.3.6.1 4.3.6.2 4.3.6.3 4.3.6.4 4.3.7. 4.3.7.1 4.3.7.2 4.3,7.3 4.3.7.4 4.3.8. 4.3.8.1 4.3.8.2 4.3.8.3 Competitor Assessment .....................................................................70 Entertainment Television Services .................................................70 Service Description ..............................................................................70 Market Analysis ...................................................................................71 Market Size Estimate ......................................................... ..................71 Competitor Analysis ...........................................................................71 Internet Access Service ...............~ .................................................~ .....71 Service Description .............................~ ................................................71 Market Analysis ...................................................................................73 Market Size Estimate ...........................................................................73 Competitor Analysis ...........................................................................74 Long Distance Voice Grade Service Aggregator ..........................:.74 Service Description .................................... ...........................................74 Market Analysis .........................~ .........................................................75 Market Size Estimate ...........................................................................75 Competitor Analysis ...........................................................................75 Common-Carrier Switched, High Speed Digital Services ..........76 Service Description. .............................................................................76 Market Analysis ...................................................................................78 Market Size Estimate ...........................................................................79 Competitor Assessment .....................................................................79 Common-Carrier Switched Voice Grade Services .......................79 Service Description ..............................................................................79 Market Analysis ................................................... .....................~ ...........81 Market Size Estimate ...........................................................................81 The ICT Group iv LIST OF FIGURES 1.City of Palo Alto Administrative Structure .................................9 Telecommunications Infrastructure Map .....(provided as separate enclosure) 3.Palo Alto Telecommunications Market Projections (1995-2002) ......63 The ICT Group vi 1.INTRODUCTION This report has been prepared by The ICT Group to present the results of Phases 1 and 2 of Contract C5077724, Development of Telecommunications Strategy for the City of Palo Alto. Work on this contract began on May 22, 1995. The work conducted during this stage of the project included: Evaluation of the capability of existing systems owned and operated by the City or operated in conjunction with the City to accommodate the installation of a new communications system. Assessment of the de~ee to which existing systems and capabilities can be integrated into a future system that wifl support the City’s communications goals. Investigation of the activities of other cities, municipal utilities, and investor-owned utilities in the area of telecommunications. Review of the reg-ulatory and legal considerations pertaining to the provision of telecommunications services by the City. Review of the state-of-the-art and emer~ng trends in communications technolo~es that may be appropriate for Palo Alto. Preliminary analysis of the potential markets for the various types of services that the City could provide. Identification of market segments and estimates of the size of each of the segments. Investigation of the competitive environment for each of the potential markets. The scope of Phases 1 and 2 of the study was limited to a general and brief review of the current and evolving situation with regard to existing City and Utilities Department telecommunications infrastructure, perceived requirements, and applicable technolo~es. The market analysis was directed at defining the current and projected market size representing the total possible available market for various alternative telecommunications service offerings. 1.1 Purpose of Study The purpose of the study is to help the City of Palo Alto to develop a sound, rational policy- on its participation in the evolving telecommunications and information services market. Specific goals of the study are to identify potential opportunities for City to provide telecommunications services in a competitive marketplace and to identify the appropriate level of City involvement in this market, considering costs, benefits, risks, and constraints The ICT Group 1 applicable to various alternatives. The ultimate goal of the project is to recommend the most suitable course of action to the City and to develop a business plan that defines the steps the City must take to implement the recommended alternative. 1.2 Future Study Work Phases 3 and 4 of the study will develop and analyze various alternative approaches that may be taken by the City in participating in the telecommunications and information market in Palo Alto. This work will determine achievable market in light of the expected competition and organizational needs and develop a detailed model of costs, revenue and payback. Frequent interaction with the City will be included during the progress of this work to incorporate feedback and input from the City on the direction of the work. The output of this work will include recommendation of the best alternative. Phase 5 of the study will develop a general plan of actions and resources required of the City to pursue the selected alternative. This plan will include consideration of the steps necessary for the City to carry out its selected role in the provision of telecommunications and information services. 2.EXECUTIVE SUMMARY 2.1 General Findings Both State and Federal legislation and regulations are moving firmly toward open competition. Contention exists between the Bell operating companies and the long distance and cable television providers asto the timing and degree to which the Bell operating companies will be allowed to compete. Generally, the pending le~slation and reg-ulations will allow the City to enter into telecommunications and information markets with no limitations. Some limitations may be imposed upon the control that the City is allowed through franchise agreements. The telecommunications market within the City of Palo Alto is estimated at over $60 million in 1995 and is projected to be almost $90 million by the year 2002. (See illustration on following page.) The largest market segments are in Long Distance and Common Carrier Switched Voice services with markets, of approximately $22 million and $16 million respectively for 1995 through the year 2002. These markets have strong competition from Pacific Bell in Switched Voice services and from major carriers such as AT&T, MCI, and Sprint for Long Distance. The markets with the highest growth are Data Switching and Internet Access Providers. These markets are small now, but are projected to ~ow to $15 million and $13 million respectively in 2002. Many small to large competitors exist in providing Internet Access and more The ICT Group 2 Palo Alto Telecommunications Market Projections (1995-2002) $90,000,000 $80,000,000 $70,000,000 $60,000,000 $50,000,000 $40,0O0,O00 $30,000,000 $20,000,000 $10,000,000 $0 1995 1998 2002 []Long distance voice service aggregator []Switched voice []Internet access provider []Switched data and digital video [] Entertainment (CATV) [] Leasing of dark fiber or cable facilities []Leasing of duct space or pole capacity []Leasing of bandwidth on backbone network Source: ICT Group Estimates are expected; however, the dramatic growth projected implies that a new entrant into the market will have an opportunity to secure market share. Current data switching competition is generally limited to Pacific Bell with increasing competition from MFS for larger businesses. The Pacific Bell offerings for end users and small business are currently limited and with the growth expected, a new entrant into the market will have an opportunity to secure market share. Cable Co-op anticipates growth into the Internet Access and Data Switching markets. The market estimates will approximately double if the service area considered includes the present service area of Cable Co-op, which extends to some adjacent reg-ions outside Palo Alto. The current City telecommunications infrastructure, including the Utilities communications co-ax system, does not present a substantial basis from which new telecommunications and information service offerings may be developed. Significant new infrastructure needs to be developed or acquired (possibly through partnering) to address future telecommunications and information markets. The City administrative telecommunications and potential Utilities program needs, not met through the current Utilities co-ax The ICT Group 3 system, present some opportunities for cost savings or cost off-sets. These City use savings and off-sets can contribute only a small amount toward justifying the costs of developing a new City telecommunications infrastructure. Preliminary estimates for some feasible full-service alternatives, including the costs for developing a new infrastructure, are very encouraging for payback in a few years even with a Small market share and other conservative estimates. 2.2 Summaries of Individual Study Areas Existing Internal Communications Systems-- The existing administrative communications systems operated by the City are a cost effective means of meeting the City’s current and planned needs. The City’s internal project plans to enhance data communicatiorus, through expanded use of the City’s coaxial cable system appear to be technically sound and appropriate. There is no driving requirement for new infrastructure to support those plans. The large number of off-premises extension lines currently in use represent a potential opportunity for cost savings through the availability of future enhanced communications systems. Existing City Coaxial Cable System-- While the City coaxial cable system has potential additional capacity, its limited geographical extent and older technology limit its viability to support expanded services beyond City" administrative functions. It would be possible to upgrade the existing system so that it could form the core of an expanded and enhanced system. This approach has limitations but will be evaluated further during the Alternatives phase of the study. Existing Communications Circuits-- The copper wire communications circuits that support City" functions (alarms, .telemetry, and utilities) are limited in capacity and desig~ned to serve specific points. They cannot play a role in future expansion of the City-’s-telecommunications facilities. Cable Co-op System-- The unused 13 cable of the Cable Co-op system represents a potential asset that could .be used for additional services, provided the City could come to a suitable ag-reement with Cable Co-op. Activation of the B cable is dependent upon demonstrated economic viability of a proposed plan. Trials and offerings of enhanced services are specifically encouraged in the Cable Co-op franchise agreement. The offering of any new services and/or the reduction of current services requires the approval of the City Council. Generally, the City has rights and control that assure its ability to influence and likely obtain continuing workable arrangements that are consistent with The ICT Group 4 more general City goals for enhanced information and communications services within Palo Alto. The obvious realities of economic viability for new services on the Cable Co-Op system and a large debt structure for Cable Co-Op will dearly influence future plans. Electric Distribution System-- Spare capacity in the City’s electric distribution system might permit the physical installation of fiber optics circuits. However, it was not possible to determine the locations or extent of all of the existing ducts because documentation is inadequate. Existing Utilities Organization-- The existing systems, services and functions of the Utilities Department organization could form the basis for dewloping a partnering relationship with a communications and information systems organization(s). This could also form the basis for developing the additional functions and services necessary for an information and communications capability. Other functions and different staffing classifications must be added to perform additional functions that are required, but the current operations may provide a basis from which to build or add. Specific details of organizational requirements cannot be developed until, more has been determined and defined relating to viable alternative approaches and services that may be offered in the Palo Alto market. Experiences in Other Cities and Utilities -- Cities and municipal utilities are putting emphasis on public-private partnerships in the development of advanced telecommunications capabilities. Many cities are taking the position that there should be minimal or no city financial investment/risk in the development of infrastructure. Virtually all the cities studied stated that principal goals were: (i) to foster competition in telecommunications services; and (2) provide access to advanced voice, data, video, multimedia services at competitive rates to all residences and businesses in the community’. The development of infrastructure for municipal utilities focuses on internal communication needs for Supervisory Control and Data Acquisition (SCADA), protective relaying, substation control, ~government administration needs, and delivery of governmental services or information to the public. Demand side management, distribution automation, customer-controlled load management functions, real-time energy purchases, and remote meter reading are spurring requirements for advanced communications services. Cities and municipal utilities are cautious in attempting direct competition with local exchange carriers or competitive access providers. They are sensitive to the political and financial clout of local exchange carriers and other potential competitors. There is more emphasis on fostering effective competition for community benefit, while retaining city prerogatives regarding protection of the infrastructure, regulating conditions for The ICT Group installation, obtaining access to services or capadty, negotiating fees for provision of certain municipal services (dark fiber, bandwidth, etc.), and establishing franchise fees for certain services. Many cities leasing right-of-way, duct space, or pole attachments. Some are leasing dark fiber to selected customers for point-to point applications. These arrangements are subject to legal .restrictions on charging for right-of-way and also to le~slated or reg-ulatory limitations on the fair-market value of such services. They are also subject to constrains from joint pole agreements with other owners, prindpally local telephone companies. Investor-owned utilities have been somewhat more aggressive than municipal utilities in offering ¢ommerdal telecommunications services, despite the Constraints imposed by the Public Utilities Holding Company Act and by state reb~ulators. Although some very succes~l ¢ommerdal entries were identified, the diversification efforts of most utilities have not been financially profitable. Technology Review - The technolo~¢al review" focused on developments in transmission media for advanced communications systems. The results indicated that significant pro~ess has been made in en.hancing the capabilities of twisted-pair copper wiring, coaxial cable, and fiber optics to deliver broadband communications services. Most U.S. telephone companies are planning on the development of hybrid fiber-coaxial network systems as the means for delivering advanced se’.wices. Some U_S. telephone companies are planning to use special si~nal processing techniqu~ to offer video dialtone over standard telephone lines as an inte~nkn step before fiber optics deployment becomes widespread. Legal and Regulatory Review- State and Federal reo~ulatory bodies are moving firmly toward open competition in telecommunications. The California PuBlic Utilities Commission (CPUC) issued a report in November 1993 entitled "Enhancing California’s Compe~five Strength, a Strate~" For Telecommunications Infrastructure (Lnfrastructu_re Report)," in which they stated their intent to open all telecommunications markets to competition by January 1, 1997. Interim rules for this have been issued and other phases .are in process. In June 1995 the US Senate passed the ’q’ele¢ommunications Competition and Dereg’ulation Act of 1995". The House version of a similar bill is up for a vote in Auoo-ust 1995 and passage is expected~ This le~slation provides for local competition in all areas of telecommunications. The Senate bill explidtly provides for the entry of Utility companies into the provision of services for telecommunications, information or related services. Generally, there is little doubt that open competition is coming soon. -The specifics of the final regulatory situation will not be firm until the compromise version of the Federal legislation is enacted and the final rules for competition from the CPUC are issued. The ICE Group 6 Preliminary Market Analysis -- A preliminary analysis of the Palo Alto markets for information and telecommunications services has been performed and several market segments and services have been identified that present significant opportunities for competitive entry into the market with both conventional and enhances services. The largest growth markets are in higher speed switched dig-ital data service and in Internet access service. The largest markets (~oss revenue) are in long distance (reseller through major network bulk wholesale access) and local exchange cartier service for conventional switched voice services. Other sig-nificant opportunities exist in leasing duct or pole space, cable or fiber and transmission capacity on a backbone network. All of these areas present realistic opportunities for a new venture entry into the market even in light of the expected competition. Potential Involvement of the City -- Direct involvement by the City" of Palo Alto or support of the City" with a partnering organization has some realistic and reasonable potential. The City’s experience, especially the existing billing administration and processing capabilities, and existing distribution infrastructure (poles and underground ducts) are distinct .advantages for entry into this market. From a community value perspective, there is some opportunity for City involvement in information and communications systems to provide enhanced capabilities for City administrative, library and school needs. There is, however, some possibility" that under the pending competitive rules environment that overt enhancement for these groups may represent an unacceptable rate payer subsidy if not handled properly. Probably the most notable opportunity for community" enhancement comes from higher speed switched data service. The value to both residents and businesses in having reasonably priced high speed information access is increasing in importance. The sudden and dramatic ~owth in market demand has caught the service providers off guard. There appears to be a real wfindow of opportunity that existing service providers ~,fill be hard pressed to meet for at least a £ew years. The ICT Group 7 3,PHASE 1 SITUATION ANALYSIS This section reviews the existing City of Palo Alto administrative structure and communications capabilities and facilities, including internal communications systems and supporting organizations in the City and the Municipal Utilities. Cable Co-op’s technical facilities were reviewed, along with the franchise agreement with the City. The experiences of other cities and municipal utilities in the area of providing telecommunications services were explored. This section also reports on the results of a review of changes in the legal and regulatory environment, and trends in emer~ng technologies. 3.1. Existing Telecommunications Infrastructure 3.1.1.City and Utilities Organization This section provides an overview of the organization of City Government and the Palo Alto Utilities Department. It identifies administrative and operational resources that could support the operation o.f a telecommunications utility and the delivery of telecommunications services. 3.1.1.1 City Government Tl~e administrative structure of the City government is illustrated in Figure 1. It is anticipated that primary" operations and management responsibility- for telecommunications services would most likely reside in the Utilities Department, which currently administers the City’s electric, gas, water, and wastewater utili~" operations. Several other City departments currently have administrative oversight for certain telecommunications-related activities or provide support for certain utility-operations. Operation of the City’s Internet node is under the cognizance of the Assistant City Manager in the Ci~ Manager’s Office. The City Clerk’s Office maintains operational liaison and administrative cog~ance over the operations of the Palo Alto Cable Co-op. The Utility Bill Processing Center operates under the supervision of the Finance Department. The next section reviews the organization and functions of the Utilities Department and provides some preliminary" comments on the extent to which the existing organization can support the operations of a telecommunications utility. The ICT Group .8 CITY ATTORNEY Palo Alto Voters CITY MANAGER AUDITOR I CITY CLERK Community Services Department Fire Department Planning & Community Environment Department Public Works Department Finance Department Human Resources Department I Police Department " Utilities Department Figure 1 CITY OF PALO ALTO ADMINISTRATIVE STRUCTURE The ICT Group 9 3.1.1.2 Utilities Department The.Palo Alto City Utilities Department is made up of five divisions including Administrative Services, Eng-ineering, Electric Operations, Water- Gas-Wastewater Operations and Resource Management. The Engineering, Electric Operations and Water-Gas-Wastewater Operations divisions together handle all outside distribution systems and equipment for all resources (electric, gas, water and wastewater). The Resource Management division is concerned with supply of resources in and out of the distribution systems. Administrative Services-- The Administrative Services division is concerned with rates, meter reading, customer service, field service and billing. The billing system itself is administered by the Utility Bill Processing Center in the Finance Department as a part of their data processing support function. Engineering/Operations-- Eng-ineering / Operations provides engineering support for substations, distribution (electric, gas, water and wastewater) and inspection (water, gas, wastewater). Engineering classifications in support of this work include power engineers and civil eng’ineers. Electric Operations- Electric Operations includes support for overhead, underg-round, substations, traffic sig-nals (including operations of the City co- ax system), customer service and inspection (underg-round). Resource Management- Resource Management includes functions for planning, forecasting, contracting and acquisition, competitive assessment, and demand side management. Areas of work or functions that may relate to an in.formation/ communications operation include: Outside plant eng’ineefing‘ operatio.ns and records (poles and underground facilities) Water systems eng-ineering and records (possible use of abandoned pipes for cabling) City co-ax system administration Billing administration (Administrative services) Billing processing The ICT Group 1 0 These existing systems, services and functions could form the basis for developing a partnering relationship with a communications and information systems organization(s). This could also form the basis for developing the additional functions and services necessary for an autonomous information and communications capability within the City. Some of the more general added requirements necessary (depending upon the alternative approach and services provided) for the City to become an information and communications service provider .include: staffing and functions for communications distribution engineering (under~ound and overhead) ¯analog communications systems engineering computer pro~amming computer communications engineering computer systems engineering technical support personnel (on-line and telephone) marketing (several functions) o sales and promotion o communications and information systems planning ¯forecasting and competitive analysis public relations ¯program evaluation ¯technology and systems evaluation, etc. Specific details of organizational requirements cannot be developed until more has been determined and defined relating to viable alternative approaches and services that may be offered in the Palo Alto market. This information will not be available until the completion of Phase 4 of this study. It may be said, however, that the existing Utilities Department and the Utility Bill Processing Center Currently provide a combination of functions that are necessary for the operation of an information and communications The ICT Oroup 1 1 service. Other functions and different staffing classifications must be added to perform the different and other functions that are required, but the current operations may provide a basis from which to build or add. 3.1.2.City Telecommunications Systems The foilowing includes a discussion of.pertinent communications services and needs currently provided for the City Administrative offices as well as the allied agencies of Libraries and Schools. 3.1.2.1 Administrative Telecommunications System The City of Palo Alto’s administrative telecommunications system uses an NEAX 2400 MMG Private Branch Exchange (PBX) system by NEC in the Civic Center and an NEAX 2400 SIM remote switching module at the Municipal Services Center (MSC). These two systems are linked by a high speed digital link (a T1 service) at 1.544 Mbps over the City owned Utilities co-axial cable system (see Section 3.1.1.3). Other City offices are linked to the PBX system by Pacific Bell off premises extension (OPX) lines that are connected to key systems or individual telephones. Table A-1 (in Appendix A) lists the City locations servedby OPX lines and the number of lines currently used. In addition, leased data lines connect the Main Library to the five other branches. Table C-14 (Page C-18 in Appendix C) summarizes the cu_rrent services and costs of lines that support administrative telecommunications. The administrative telecommunications system uses various services (such as external lines, trunks and !ong distance) that have been identified as candidates for City-provided telecommunications services, with potential cost savings. The City data networks consist of several Local Area Networks (LAN) within the Civic Center and at the MSC. The Civic Center networks allow for inter- network access through routers on an ethernet backbone. A Wide Area Network (WAN) capability provides for a bridge extension of the Civic Center ethernet backbone through the City owned co-ax system to connecting points including the MSC, Main Library, Lucie Stern Campus, Mitchell Park Campus and the Water Quality Plant. The locations of these facilities and the interconnecting cable facilities are shown on the system map, Figure 2. (Because of its size, this map is provided as a separate enclosure with this report.) 3.1.2.2 Internet Connection The City Internet service is supported by five interconnected City-owned computers in the Civic Center that were provided by Digital Equipment Corporation (DEC). These computers provide file server support on separate systems for various types of information (including electronic mail and The ICT Group i 2 interconnection to the City’s Hewlett-Packard computer system). The computers at City Hall are linked to the DEC Internet network node at 250 University Avenue through an Ethernet link that runs over a DEC-owned fiber optic cable. One of the Civic Center computers serves as a "firewall" to provide isolation between the City’s information systems and the DEC facilities for security purposes. DEC provides the Internet access capability. Both the Ethernet connection over DEC fiber and the Internet access sen4ce through the DEC access link are part of an agreement between the City and DEC and do not represent opportunities for displaced costs on a possible new City provided City-wide network. 3.1.2.3 Libraries The Palo Alto City Library system includes six library locations: ¯Main Library,, 1213 Newell Road o Children’s Library, t276 Harriet Street ¯College Terrace Library,, 2300 Wellesley Street Downtown Library, 270 Forest Avenue Mitchell Park Library, 3700 Middlefield Road o Terman Park Library, 661 Arastadero Road A J1 library, locations are connected with data lines to the on-line library catalog system so that patrons may access this system for reference from any library. Additionally, this system may be accessed by dial-up modem from patrons’ office or home locations. The dial-up capability is limited to three simultaneous connections at one time. An evolving plan will provide for connections of all branch library personal computers to the Main Library computer at higher data speeds over the City owned co-ax system..am additional plan is to provide Internet access so that library patrons may access the Internet and its resources from personal computers or terminals in any Palo Alto library. Furthermore, it is planned to provide access to the Palo Alto library computer and catalog system from the Internet. Library officials desire to coordinate more closely with the Palo Alto School District to allow more direct and higher speed access from school computers The ICT Group 13 to the City library catalog system and other future library computer based resources. 3.1.2.4 Palo Alto Unified School District The Palo Alto Unified School District (PAUSD) is a State-funded agency that is administratively separate from the City. The District serves a geographical area consisting of all of Palo Alto, Stanford and Los Altos Hills; and a portion of Los Altos. There are 14 elementary schools (K through fifth grade), two middle schools (sixth to eighth grades), and two high schools in the District. The total school enrollment as of 6 June 1995 was 8,459 students (4,123 in elementary school, 1,938 in middle school, and 2,398 in high school). Table E- l (Appendix E) lists all schools and shows their current enrollment. The school district ut~es Apple computers exclusively for both faculty and student use. There are approximately 200 computers for use by faculty and 400 computers for Student use. These computers are distributed roughly evenly across schools. No networking is currently provided. It is anticipated that on-site and inter-site networking of all computers .will be provided in the near future. Data networking discussions have been taking place with the City of Palo Alto, Palo Alto Cable Co-op and DEC. The school district expects that one of these groups will make data transport and possible networking capabilities (equipment) available to them in the near future. Beyond the desire to implement networking on-site at each school and between schools, the near-term future desires include outside connections for access to other systems and networks and electronic mail between students, faculty and parents. Longer term future desires include the use of more graphics, acquisition of Compact Disk-Read Only Memory (CD-ROM) servers and video capabilities. Video is seen as important for applications such as distance learning. Video conferencing is also seen as important in the future. 3.1.3.Enhanced Utilities Services Telecommunications related services that are of interest to any utility include such capabilities as meter reading, demand-side management, real-time pricing, load research, power outage reporting,, and power quality monitoring. Meter reading has the obvious advantage of the cost savings of reduced staff needs. It requires the application of electronic equipment at the meter and telecommunications. Implementation costs for the .equipment and installation labor are high enough that the payback period is long even without the cost of the communications capability. Meter reading has been reviewed and evaluated with many clever technology approaches The ICT Group 1 4 (communications on power wires, radio drive-by transponders) with mip.imum success. The costs versus savings are a problem. Enhanced communications services at customer locations would improve the telecommunications part of the equation, but some industry studies indicate that it will still be a problem to justify the implementation of stand-alone meter reading on labor savings. Demand side management and real-time pricing are approaches designed to moderate the demand load during peak periods to reduce the need for expensive electricity supplies needed only during peak load periods. These approaches rely upon communications between the utility and the customer. The customer is notified when there are peak periods and the customer makes the decision about reducing load during these times to gain special cost savings. This may be done by control from the utility or, more probably, by real-time decisions by the customer. Customer decisions may be manual or automated, based upon customer programmed control considering need versus current costs. These capabilities depend upon the communication of information in a timely manner to the customer. This can be accomplished through dial-up or dedicated communications. Dial-up communications can be accomplished by dialing out to key customer data equipment during peak periods when pre-set threshold levels have been exceeded or new pricing levels are in effect. A problem with dial-up communications is the need to have many lines available to accommodate the communications load during peak power load times. Power system monitoring and control capabilities such as load research, power outage reporting, and power quality monitoring all require communication between key grid points and the utility central control. These communication needs may be accomplished through dial-up systems by polling or exception reporting. Polling involves the central equipment to dial up the grid points periodically to provide for status information from the network or provide control commands to the network equipment. Exception reporting involves the network equipment initiating a communications call to the central control equipment when there is some status change to report or for the central equipment to call the network equipment when there is a change desired at the remote equipment. Clearly, this can also be accomplished with a dedicated communications system such that the remote and central equipment are always connected. The dedicated communications system will still operate on a shared time basis but may be more instantaneous than the dial-up approach. Generally, the costs for commurrications equipment and usage in the dial-up approach will be less than that of the dedicated system, while the costs of electronics and control equipment for the two approaches are comparable. The ICT Group 1 5 These enhanced utility services and control capabilities could be served through a single dedicated network with some reduced costs from shared communications. This would be possible if a City-wide network was available. The added cost for high speed network interface equipment over that of dial-up equipment must be considered in evaluating the communications aspects of these capabilities. The potential benefits of enhanced utility services supported by a City-wide network merit further consideration. 3.1.4.Existing Telecommunications Infrastructure 3.1.4.1 City Communications Circuits City facilities are interconnected through three systems of City communications circuits:~ System 100-- This system is dedicated to general communications. It is based on a 19-gauge paired copper cable systems with 86 active circuits. The circuits are predominantly used for intrusion alarms on city property. System 200- This system is dedicated to telemetering on city gas, water and sewage facility. It is based on a 19-gauge copper cable accommodating 25 telemetry channels. System 300-- This system is dedicated to the city’s electric utility.. It is based on a 19-gauge copper cable with 34 active circuits. The circuits are used to mor,.itor critical points of the electric distribution system and for pilot-wire protective relaying. The copper cable-based circuits identified above have limited spare capacity and were designed to serve very specific points in the city. Therefore they can not play a major role in future expansions of the city’s telecom facilities." 3.1.4.2 CPA Utilities Coaxial Cable System The City Utilities Department installed a broadband co-axial cable system approximately ten years ago, primarily to support various utilities functions. The broadband system was designed for a capacity of 300 MHz and is equipped for a mid-band split at 150 MHz. This approach enables the system to provide full duplex (two-way) operation~ The subdivision of the broadband adheres to established cable TV (CATV) practices by making channel assignments in 6 MHz steps. In mid-band, three slots (18 MHz) are set aside for the crossover filters. Also following CATV practices, there are two channels that deviate from the standard 6 MHz bandwidth. (47.75 to 50.00 MHz and 72.00 to 76.00 The I CT Group 1 6 MHz). Table A-2 in Appendix A lists the frequency assignments currently used on the City coaxial cable system. The routing of the City broadband coaxial cable system is illustrated in Figure 2. This map also shows the locations of other significant communications facilities in the city and will be referenced again in later sections. The map also shows the locations of Palo Alto employment zones as defined by the Planning Department. The coaxial cable system provides telephone and data interconnections between, all major City facilities. As a major function, the system provides data channels for the electric utilities Supervisory Control and Data Acquisition (SCADA) system. In addition, the system provides WAN services for the city, telephone circuits, circuits for traffic signal control and two video channels. Approximately 50% of the system is used. Hence, there is ample spare capacity for future growth of services. However since the distribution coverage of the system is limited, the potential of leasing capacity to users outside City facilities is limited. In addition to the existing spare capacity of approximately 150 MHz, 200 to 250 MHz of additional capacity could be added to the system by adding and upgrading repeaters. 3.1.4.3 Existing CPA-owned Fiber Links Currently the city has only two short spur links which served as an extension of the broadband system for special events. (The locations of these links is indicated in Figure 2.) ICI’ was informed that these links are currently not in use. It is understood that the addition of more short fiber links is contemplated. 3.1.4.4 Electric Distribution System The electrical, telephone and CATV distribution facilities predominantly reside on aerial overhead facilities. Underground facilities are mostly found in the industrial and newer residential developments. However, the city has completed undergrounding in the downtown area and has a five-year plan to modernize the distribution system in more sections of the city. The aerial distribution system uses utility poles jointly owned by the City and Pacific Bell. Besides power and telephone lines, the poles accommodate the city’s 19-gauge telemetry and supervisory cables, the city’s coaxial cable and Cable Co-op’s CATV trunk and distribution cables. When an area is converted from overhead to underground, common trenching is used in which the high voltage (15KV) conduits form the The ICT Group 1 7 primary layer with 5" or 6" conduits four to five feet below the surface. Above the primary layer, the secondary layer c6nsists of two 4" conduits for 600 volt cables. On top of the two lower layers, there are two 4" conduits for Pacific Bell and two 4" conduits for CATV and city use. The connections to the homes are made via two 2" conduits, one for electricity, and one for communications. ICT was unable to identify and determine the locations of spare conduits, because of inadequacies in the mapping and documentation of existing infrastructure. Documentation of conduits is poorly maintained; what information exists is recorded on conventional drawings, which makes it difficult to locate spare conduits without extensive investigation. Current plans call for converting all records for the underground facilities into computer files. This documentation effort must be undertaken before detailed plans can be made concerning use of the underground ducts for telecommunications purposes. Potential spare conduit capacity- In the newly installed underground facilities, there is usually enough space to accommodate a one inch innerduct which is adequate for fiber optics installations. Fiber optics could also be installed in the 600 volt conduits. Other potential spare conduit capacity can also be found in abandoned gas and water lines. The city has an ongoing five-year p!an of replacing approximately 20,000’ of water pipes and 16,000’ of gas pipes per year. However, before the abandoned pipes can be used, the valves in the pipelines have to be dug up and removed. In addition, cast iron pipes may have substantial ~st deposits that may make it difficult to pull ".m an innerduct without damaging it. 3.1.5.Paio Alto Cable Co-op CATV System Entertainment television is provided by cable in Palo Alto by Cable Co-op, a locally controlled .public entity which began service in 1988. It holds a monopoly position as the sole provider of cable television in its service area, and operates under a Joint Powers Agreement administered by the City of Palo Alto. The cable system provides television program distribution services from its headend facility in Palo Alto to. subscribers in its service area. Besides Palo Alto, Cable Co-op’s service area includes East Palo Alto, Menlo Park, Atherton, and portions of southern San Mateo County. Cable Co-op also serves Stanford, but on a non-exclusive basis. The 530 route-mile system passes 56,405 addresses and has 24,248 subscribers or about 45% penetration. Subscriber growth rate was 9% in 1994 and is projected by Cable Co-op to be 9.6% in 1995. Palo Alto subscribers at April 1, 1995 were 12,091 or about 50% of the system total, and the system route-miles in Palo Alto are estimated to be about 40-50% of the total, or about 240 miles. Current subscribers are nearly The ICT Group 1 8 all residential, but the cable system passes not only residences but all major business areas in Palo Alto. The-Cable Co-op system was built with 2 separate cables (the A and B cables) and only the A cable is currently in use at nearly full capacity. The A cable is used primarily for distributing television programs from the Palo Alto headend to subscribers. Both cables pass over 99% of all residences and businesses in Palo Alto. The B cable is unused and is not equipped with the electronic devices needed to render it functional. 3.1.5.1 ,Debt and Ownership Implications Cable Co-op faces heavy near-term debt obligations, totaling about $38 million, arising from its ori~nal construction and subsequent operations. Pacific Bell, which built the cable system, is guarantor of the $21 million bank loan for its construction. Bell operating companies, including Pacific Bell, have long sought and continue to seek statutory authority to provide cable television services. Cable Co-op is an attractive target for corporate acquisition for its entertainment television subscriber base, monopoly position, and installed cable plant, which form the potential for augmentation to provide other enhanced services to residences and businesses, including dire’ct connection and switched telecommunication services. Corporate acquisition of Cable Co-op would end local control, while retention of local control requires refinancing. Cable Co2op has a business relationship with Tele-Communications, Inc. (TCI), a corporate entity that operates cable television systems in many US cities. TCI is one of the largest cable television operators in the country, with about 25% of the total number of cable subscribers. TCI has been consolidating its ownership of other cable television systems on the Peninsula. As part of its fiber ring around the Bay Area, TCI owns a large capacity multistrand inter-city fiber facility that passes through Palo Alto. This fiber facility was constructed by TCI at no cost to Cable Co-op under a" 1994 agreement between TCI and Cable Co-op, with City consent. Cable Co-op owns 48 of the 96 strands that pass through Palo Alto and leases these to TCI. Cable Co-op also owns and has exclusive use fights to a separate empty duct along the same route. TCI owns the other 48 strands and leases these to its affiliate Teleport Communications Group (TCG). TCG is affiliated with TCI through ownership stakes and specific business relationships (see Section 4.5.1.2). TCG was sold to TCI and Cox Cable in 1992, and Continental Cablevision and Comcast each took a 20% stake a year later. TCG provides direct-connection links in US cities, including those nearby, competing with MFS, Pacific Bell, and others, but it does not provide such links in Palo Alto where it has no intracity facilities. TCG also provides local The ICT Group 1 9 exchange services in a number of US cities. Sprint has a long distance service POP (point of presence) in Palo Alto, but TCG connects Palo Alto customers to Sprint’s POP in San Jose, via TCG’s intercity facilities. Sprint is owned by United Telecom, which also owns non-Bell local exchange telephone operations in throughout the US. 3.1.5.2 Review of Franchise Agreement Palo Alto acts on behalf of the other members of the Joint Powers Authority in administering the franchise agreement with Cable Co-op. The franchise agreement between Cable Co-op and the City provides for the City to oversee the services and performance of Cable Co-op to assure that they are in accordance with the specific service and performance details specified in the agreement. The agreement calls for very specific services to be offered, specifies pricing, and details support performance objectives that the operations are to meet. Some operational latitude is granted to Cable Co-op; however, significant changes in the services or performance requirements of the system must be approved by the City Council. Specific channel requirements of the agreement provide that two active channels (three total) be made available for City use and that three channels be provided for public access o Trials and offerings of enhanced services are specifically encouraged in the agreement. For basic cable, the offering of any new services and/or the reduction of current services requires the approval of the City Council. Activation of the B cable by Cable Co-op is required to be dependent upon demonstrated economic viability of a proposed plan to be approved by the City Council before implementation. A specific requirement of the agreement, however, is that 10 miles of the B cable were to have been activated by December 1991. This activation has not been implemented as is currently under discussion between the City and Cable Co-op. The City Council has the authority to approve or reject the assignment or other transfer of control or ownership of the system. This includes the option of acquisition by the City under the same terms (right of first refusal) as the proposed transfer if the City elects to do so. Furthermore, the City Council has the right to accept or reject any foreclosure and may exercise the option to acquire the system on the same terms as the default proposal with a similar right of first refusal. The City also has rights of access to Cable Co-op’s fiber strands and duct, "at any .time in the future at no charge, a nominal charge, or a most-favored- customer charge..." (PA058-- CMR:133:95, page 2, item 4). The ICT Group 20 3.1.5.3 Technical Considerations for Two-Way Service Under FCC rules, all systems must be capable of implementing two-way transmission. The Cable Co-op has this capability but is limited in capacity and currently only the trunk lines and some selected distribution lines are equipped to handle any upstream video. The upstream capacity is currently only used to pick up broadcast from local events, such as City council meetings. A basic limitation in two-way capability is inherent in conventional cable system designs.~ The systems are implemented in an inverted tree configuration with the headend as the base of the trunk and all subscribers as the leaves.of the tree. Broadcast transmissions originate at the headend and the same signals are sent from the headend to all subscribers (downstream on the inverted tree). The upstream capability of the Cable Co-op system is limited by the available bandwidth designed to carry upstream traffic. The frequency assig-nment of the system is 54 ~ to 562 MHz for the video downstream distribution from the headend to the subscribers and 7 to 29.5 MHz for possible upstream services. This allows 508 MHz toward subscribers and only 22.5 MHz toward the headend. Conventional cable television s-ystems designs do not generally allow the systems to carry separate information from or between multiple users. Moreover, they do not include.switching facilities that enable telephone or data users to connect with each other, locally or worldwide. Current cable systems are broadcast systems by desig-n and generally only connect users to the headend to receive programs from it. There are methods, however, that do allow for some two-way data capabilities on conventional cable television systems. The approach employs data networking methods that utilize time sharing of the same bandwidth or frequency that is "going by" all the users on the network. This is limited to some extent by the available bandwidth in the upstream direction. Additionally, the inherent broadcast nature of the tree architecture also limits capacity considerations for such services. Cable Co-op is currently experimenting with data communications On their main trunk line utilizing this time sharing approach. Current cable systems users cannot receive signals from any other source or from each other and cannot send any sig-nals. To provide these types of services, the cable systems must be rebuilt with new distribution and electronic systems. The [CT Group 2 1 Since the second, or B cable, has not been used, this represents a potential asset that could be used for other services, subject to suitable agreements with Cable Co-op.. The advantage of this cable is that it passes all dwellings in Palo Alto and the activation and upgrading of this cable system should be feasible at an estimated cost of $ 300 per dwelling. These costs would include replacing major trunk lines with fiber optics and using a mid-band split frequency assignment. The mid-band split assignment would allow for more two-way traffic to be supported and the fiber optic trunk lines would allow for much higher capacity that the current co-ax cable system.. This approach would provide the capability to operate the system in a high capacity full- duplex mode allowing for voice, data, and video services to all be offered effectively. 3.1.6.Privately Owned Fiber Systems Metropolitan Fiber Systems- The largest installation of fiber optics on city streets is owned by Metropolitan Fiber Systems (MFS). MFS covers all commercial and industrial areas of the city. (Figure 2 shows the MFS fiber routes through the City, along with those of other major fiber operators. Note the relation of MFS’ fiber optics coverage to the locations of key. employment sectors.) The major service provided by MFS is to lease high speed digital transmission circuits connecting multiple facilities of a corporation. Another service is to provide direct connections to the long distance carriers. TCI- TCI has installed a Bay Area-wide fiber optics system that passes through Palo ~to. The system is used to connect all major CATV headends in the Bay Area. Cable Co-op is also a participant in this hookup.. Major Long Distance Carriers- The three major long distance carriers (AT&T, MCI and Sprint) use the right of way of the former Southern Padfic, now Caltrain, railroad tracks passing through Palo Alto, All three also have points of presence (POP) in the city. These POPs are located dose to the tracks. All of them are served via fiber optics cables buried on city streets. Pacific Bell and Bay Area Gigabit Network (BAGNet)- Tb.is information was obtained from the BAGNet Home Page on the World Wide Web: "Fourteen organizations within the Bay Area are working with the Pacific Bell Broadband Strategy and Product Development Group to develop and deploy a large scale, metropolitan ATM network. This network will investigate the computer multimedia network infrastructure needed to support a diverse set of distributed applications in a large scale, metropolitan ATM network environment. The featured application for.the ATM network is a generalized teleseminar capability. This network and its applications will create an information highway within the Bay Area that will serve as a model for the The ICT Group 2 2 national ’information superhighway’ envisioned by President Clinton and Vice President Gore." Testbed participants in Palo Alto and environs include: Hewlett Packard Research Laboratories, Digital Equipment Corporation Pal0 Alto Research Center, Stanford University, Xerox Palo Alto Research Center, SRI International, Sun Microsystems, and Silicon Graphics. The initial connections are via Synchronous Optical Network (SONET) OC-3c (155 Mbps) links. Some of the participants anticipate up~ading to OC-12c (622 Mbps) as soon as possible, in order to support scientific applications requiring higher bandwidth. ICT did not determine the routing of any of the links through Palo Alto. Sprint Test Track-- Another high-speed Metropolitan Area Network initiative is the Test Track Project being conducted by Sprint. The network consists of an OC-48 fiber optics backbone originating at the Sprint headquarters in Burlingame and running through Palo Alto to San Jose. An OC-12 link branches off from the backbone and interconnects major university and industrial facilities in the Palo Alto area, including Stanford, Digital Equipment Corporation, Hewlett Packard, and Xerox. ICT could not determine the specific routing of this network through Palo Alto. Digital Equipment Corporation- DEC has offices and lab facihties in four buildings located in downtown Palo Alto. The facilities are linked with fiber optics. The fiber optics were installed in underg-round conduits supplied by the city. Hewlett-Packard- HP has installed cables interconnecting all their buildings located west of E1 Camino Real. Most of the connections use coaxial cable, but there is a fiber optics link that connects facilities located on Deer Creek Road to facilities located near the railroad tracks. It is understood that this fiber runs along Page Mill Rd. Metricom- In addition to the fiber optics systems identified above, Metricom is installing a radio system for data transmission in many cities including Palo Alto. The system is called Ricochet and is based on micro transceivers mounted on utility poles. Each transceiver covers a circle with one mile radius. The equipment operates in the 900 MHz band which does not require an FCC license. The system operates at 77 kbps in a 160 kHz channel. The available spectrum is divided in 162 channels. Locations of the transceivers and the coverage of the system in Palo Alto were not determined in this study. The Metricom Ricochet network can be used for point to point communications or for interconnection to the public network. The ICT Group 2 3 PG&E- Pacific Gas and Electric Company (PG&E) has an extensive internal communications network to support company operations throughout the northern part of California. ICT was unable to investigate the specific routing of the PG&E network in the Palo Alto area, but it is assumed that there must be cable runs through Palo Alto to interconnect key PG&E facilities throughout the Peninsula. 3.2. Experiences of Other Municipalities and investor-owned Utilities ~. The ICT Group reviewed the experiences and plans of other dries, municipal utilities, and investor-owned utilities in the development of telecommunications capabilities and provision of services to third-party customers. Consideration was given to developments in the Bay Area, elsewhere in California, and in other locations across the nation. This information was gathered by direct contact with individuals in various cities and other organizations, from articles in the public press, trade magazines, and on-line services, and from a review of tecknical papers and other technical documentation. 3.2.1.General Trends Cities and municipal utilities are putting emphasis on public-private partnerships in the development of advanced telecommunications capabilities. Many cities are taking the position that there should be minimal or no dty financial investment/risk in the development of infrastructure. Virtually all the cities studied stated that principal goals were: (1) to foster competition in telecommunications services; and (2) provide. access to advanced voice, data, video, multimedia services at competitive rates to all residences and businesses in the community. Cities with municipal utilities are focusing first on the development of telecommunications infrastructure to support internal utility functions and then on advanced capabilities for improving the delivery of governmental services or information to the public. Cities that have opted to install fiber optics systems to support their utility operations generally have relied on expensive leased circuits from the telephone company previously, or had outdated municipal systems. Some cities without municipal utilities are exploring the development of advanced broadband telecommunications systems, citing support of improved governmental services and potential Ttie ICT Group 2 4 economic and social benefits to the community as rationales for the project. , Internal utility communication needs, such as SCADA, protective relaying, and substation control, are driving the development of telecommunications infrastructure for municipal utilities. Demand side management, distribution automation, customer-controlled load . management functions, real-time energ-y purchases, and remote meter reading are spurring requirements for advanced communications services. Cities and munidpal utilities are cautious in attempting direct competition wdth local exchange carriers or competitive access providers. They are sensitive to the political and financial clout of local exchange carriers and other potential competitors. There is more emphasis on fostering effective competition for community benefit, while retaining city prerogatives regarding protection of the infrastructure, reg~.tlating conditions for installation, obtaining access to services or capacity, negotiating fees for provision of certain municipal services (dark fiber, bandwidth, etc.), and establishing franchise fees for certain services. Many cities are leasing right-of-way, duct space, or pole attachments. Some are leasing dark fiber to selected customers for point-to point applications. These arrangements are subject to legal restrictions on charging for right-of-way and also to Ie~slated or regulatory limitations on the fair-market value of such services. They are also subject to constraints from joint pole ao~reements with other owners, principally local telephone companies. A survey of municipal utilities with some degree of fiber optics in their network revealed: All the utilities regarded internal communications as important or very important. Most of the utilities were either neutral or unenthused about the importance of leasing reserve telecommunications capacity or dark fiber. Only a small minority of the utilities surveyed said they plan to market whole fiber, transmission bandwidth, or switched telephone services in the future. The ICT Group 25 Investor-owned utilities were somewhat more .aggressive than municipal utilities in offering commercial telecommunications services, despite the constraints imposed by the Public Utilities Holding Company Act and by state regulators. The following sections describe experiences of selected municipal utilities, other cities, and investor-owned utility companies in the ownership and operation of telecommunication systems. This information was gathered by direct contact with individuals in various cities, and other organizations, from articles in the public press, trade magazines, and on-line services, and from a review of technical papers and other technical documentatior~ 3.2.2.Utility Telecommunications Council Fiber Optics Survey ¯Approximately 50 municipal utilities with some degree of fiber in their networks responded to the Utility Telecommunications Council (UTC) 1994 Fiber Optics survey (PA030- Utility Fiber Optics Survey). (See Table A-3 for selected results of this survey.) All the municipal utilities with fiber regarded internal communications as. important or very important. 60 to 70% of the responding utilities were either neutral about leasing reserve capacity or dark fiber or regard it as very unimportant. About 27% of municipal uffiities said they plan to market whole fiber in the future; about 10 to 15% plan to market bandwidth; while about 7.8% said they plan to offer switched telephone services. Investor-owned utilities have been somewhat more aggressive than municipal utilities in offering commercial telecommunications services, despite the constraints imposed by the Public Utilities Holding Company ACt and by state regulators. More than half the utilities surveyed used their fiber optics capability to support data applications, about one-quarter to support voice communications, about 11% to support protective relay capability, and only about 3% to provide video capabilities. In the future, the video applications are expected to rise to about 10% of the total, while the other applications remain about the same. All of the unties with fiber capabilities regarded internal communications requirements as important or very important. Only about 3% of these respondents regarded leasing reserve capacity for profit or leasing dark fiber as very important, while about 30 to 40% regarded these activities as important. 60 to 70% of the respondents were either neutral about leasing services or capabilities or regarded it as very unimportant. Less than 10% of the municipal utilities surveyed currently market whole fibers. About 27% plan to market whole fiber in the future, while about 70% do not market fiber and do not plan to market fiber. Less than 4% of the The ICT Group 2 6 survey respondents currently market telecommunications transport services, such as DS3, DSl,fractional T1, or individual voice/data channels. The number of utilities that plan to market such services in the future was about 10 to 15% of the respondents. None of the utilities surveyed currently offer switched services, but about 7.8% plan to offer such services in the future. Investor-owned utilities were somewhat more aggressive than municipal utilities or city-governments about providing telecommunications services to external customers. Their networks typically have more fiber capacity and operate at higher bandwidths than the municipal systems, and use more SONET communications capability. The investor-owned systems have typically been in operation longer than the municipal counterparts.. Investor- owned systems carry more internal company voice traffic than the municipal systems. 3.2.3.Municipalities 3.2.3.1 Bay Area Municipalities Santa Clara - Santa Clara is a charter city with its own municipal utilities. The city is engaged in three-phase process for upgrading and expanding its telecom capabilities: Phase 1- Development of an Electrical Department network Phase 2- Development .of a Government network Phase 3- Development of an integrated broadband enterprise network Phase I -- Phase 1 (Electrical Department network) is funded. This phase will expand 6 miles of existing fiber to a 30 mi system and will interconnect all substations, co-generation facilities, and peaking turbines. By direction of the City Council, the backbone network will be built with additional capacity for "other endeavors", not presently identified. The network will provide primary protection of electrical circuits, will add voice communications to replace existing leased lines, and will support SCADA, bulk power revenue meters, and PG&E bulk wholesale transaction points. $3 million has been allocated for the project. The fiber costs were estimated to be about $0.035 per fiber-ft, based on information obtained from trade literature. It is anticipated that the additional capacity not used for electrical department purposes can be leased to external users. The anticipated capital cost recovery period is 20 years. Phase 2 - This phase involves implementation of a general City government network that will interconnect major government sites: City Hall (including Electrical Department facilities), the Emergency The ICT Group 27 Operations Center (EOC)/Corporation Yard (which includes Control Center, Fire Training, Fire Station 2), the Convention Center, Central Library, and Fire Administration and Fire Station 1. The Convention Center will require a high-bandwidth Internet connection. Specific bandwidth requirements were not identified. Sites are currently connected via co-axial cable, twisted pair, and/or leased lines. The City telephone system uses Pacific Bell Centrex service and leased AT&T Merlin Customer Premises Equipment (CPE). It is envisioned that the network will provide service drops at the building entrances, and that the cost for electronics for terminating the circuits and distributing within facilities will be borne by the user organizations. Discussions have been started with potential system users. $600,000 has been budgeted for demonstrations. Current effort is focused on identifying action items for the demonstration projects. Phase 3-- This phase is not currently planned for implementation. $1.4M has been allocated to investigate the deployment of an enterprise project, a broadband "information utility" that could serve the needs of the larger Santa Clara community. This system might be operated as a City utility or a public-private partnership. Santa Clara is looking carefully at developments in other cities, and will be evaluating business cases to justify such a system, and demonstration of applicable technologies. Santa Clara is also exploring legal considerations pertaining-to the development of telecom facilities. They are participating in the Santa Clara County telecom Users’ Group, (see next paragraph) which is drafting a model ordinance governing terms and conditions for regulating proposed Pacific Bell fiber optics installations. The City has also drafted a standard agreement with Competitive Access Providers (CAPs) specifying terms for fiber installations, including approval of construction arrangements, limitations on the scope of services to be conducted, provisions for notices of proposed changes in service, and abandonment or transfer provisions. Santa Clara County Telecom Users’ Group - A group of Santa Clara County cities" have formed the Santa Clara County Telecom Users’ Group (als0 known as the Joint Telecommunications Group) to draft a master agreement with Pacific Bell governing terms and conditions for instal~g Pacific Bell’s * The cities in the Telecom User’s Group are Campbell, Cupertino, Los Altos, Los Altos Hills, Milpitas, Mountain View, SanJose, Santa Clara, Saratoga, and unincorporated areas of Santa Clara County. Mr. Don Brown, City Manager of Cupertino, is chairing the group. As of this writing, it was not clear whether Milpitas will remain as part of the group or will undertake an independent position. The ICT Group 2 8 hybrid fiber-coax facilities within city limits. The master agreement will cover such items as the term, compensation to the city, portions of the facilities to be dedicated to the city, system access, maintenance of facilities, and the scope and use of the public right-of-way and the facilities. As of the time this report was prepared, the draft was still under review by representatives from the participating cities. It is understood that the draft agreement will be structured in two tiers: a top-level policy framework that should be applicable to each of the cities, and a detailed appendix that deals with unique city requirements on a case-by-case basis. It is anticipated that the draft document will be finalized in time to present to the Councils in each of the cities sometime in September. San Jose - San Jose had proposed to issue a competitive RFP soliciting development of a master planned regional fiber optics network in the Golden Triangle region along the pipeline alignments of the South Bay Water Recycling Project. It was expected that the project would be structured to provide unit-based "usage fees" or "right-of-way licenses" for network installations. The primary licensee was expected to act as a system integrator, providing access to the network through non-exclusive participation on a fee basis to secondary licensees and private-users. The RFP was to establish minimum standards for a state-of-the-art Asynchronous Transfer Mode (ATM)/SONET based broadband network that would interconnect a variety of government facilities, such as government agencies, schools, universities, and hospitals. The RFP was never issued in that form and the concept has been scaled back considerably. A draft memo has been prepared outlining recommendations for further action. It is understood that San Jose is now looking for a relationship with some organization that will propose appropriate use of capital improvements, such as placement of ducts in open trenching. Suitable plans could then be incorporated into the construction contract for the project. Milpitas - Milpitas is working with the community to develop local priorities. A survey form has been sent to selected local businesses to determine their use, needs, and preferences for communications with local government. A similar survey of citizen preferences and perceptions is also being conducted. As of this writing, the results of these surveys are not known. Milpitas is also researching existing facilities located in public right- of-way, easements, and other City-owned property. This information will be used as the basis for development of policy on the use of remaining space and the delivery of services by telecommunications providers. Their focus is on encouraging competition among providers while protecting the public right- of-way, managing available sub-surface space for utility lines, and protecting the City’s abilities to repair and replace its own facilities. Unused or The ICT Group 2 9 abandoned conduit may be a resource that can be leveraged to the City’s benefit. Sunnyvale -- Sunnyvale is conducting a telecommunications policy study under a legislative mandate from the City Council. The objective of the study is to examine high-level policy issues regarding Sunnyvale’s usage of information technology. They are not concerned with the development of infrastructure; they assume that the basic infrastructure will be in place. Their focus is on the use and control of the public .right-of-way and are not concerned with selling City services. A draft report is to be presented to the City Council in September. A 100-Mbps local area network using Fiber Distributed Data Interface (FDDI) technology is currently in place and serves City offices in the main Civic Center Complex: the City Hall, Public Safety, and Library. A consultant has been retained to develop technology for ext.ensiqn to remote sites, including Parks, Senior Center, and the Water Quality Control Plant. San Mateo County Cities - Officials from a group of San Mateo County cities" are discussing the possibility of coordinated action with regard to fiber optics installation for cable television transmission and for cable franchise management. Negotiations are anticipated with TCI for rental of fiber on their system for city schools and other Governmental functions, such as County Office of Education and fire districts. It is anticipated that the agreements will provide for extra strands of fiber above and beyond immediate requirements. Drafts of tentative agreements are being prepared with preliminary approval from Councils and other relevant agencies anticipated within the next few months. The overall goal is to foster widespread competition in the local telecommunications market and similar agreements are anticipated with other providers, such as MFS, TCG, and possibly Brooks Fiber Systems. Alameda and Contra Costa Counties - Alameda and Contra Costa Counties issued a Request for Proposal on July 20, 1994 for an opportunity to negotiate license(s) for construction of telecommunications systems on the counties’ specified rights-of-way. A memorandum of understanding signed in January 1994 provides for a joint offering of respective rights-of-way to the telecommunications industry~ Fifty miles of continuous rights-of-way would provide access/interconnect opportunities to major East Bay cities, such as Concord, Livermore, San Ramon, Walnut Creek, Pleasanton, and .Dublin. The right-of-way was purchased from the Southern Pacific Railroad over the The cities are Belmont, Brisbane, Daly City, Millbrae, San CarlOs, Redwood City, and San Mateo, as well as the unincorporated areas of Broadmoor and North Fair Oaks. The ICT Group 3 0 period from 1970 through 1991. It was anticipated that the licenses would be non-exclusive, fixed-term renewable agreements covering the occupancy of any portion of the right-of-way with a fiber optic cable system. The Counties have no intention of entering into the telecommunications business and would not entertain proposals for joint ventures or business relationships that place them in such a position. However, it was anticipated that the Counties would acquire capacity on the fiber optics system for current and future tenants and technologies (such as digital cellular-or, wireless). The construction requirements specified a minimum of 48 strands of fiber for dedicated County use. As of this writing, ICT has not been successful in contacting the cognizant Project Monitor for Contra Costa County. 3.2.3.2 Other California Municipalities Anaheim - Anaheim owns and operates its own electric utilities. They also own and operate their own internal City telephone system are in the process of installing a 50-mi fiber optics loop (with appropriate electronics) to support utility functions. In April 1995, the City issued a Request for Proposal (RFP) soliciting potential partnerships to accomplish City telecommunications goals. The scope of the partnerships could range from infrastructure leasing or cost-sharing agreements, provision of low-cost telecommunications services to the City, to construction, management, and operation of a complete state-of-the art network to provide services to the City and the community at lowest possible costs. The RFP asked the proposers to submit corporate qualifications, financial projections, marketing projections and plan, to identify the scope of services to be provided to the City, and to describe the technical approach and system concept. Proposals were received on June 5. The initial evaluations have now been completed, and three of the proposals have been selected for further detailed evaluation. It is anticipated that discussions with these vendors will take place over the next month or two. The City expects that the telecommunications system will support utility functions, such as remote meter reading, account turn-on/turn-off, bill paying, customer energy management, telemetry, and protective relay. Potential residential applications include telephony dial tone, video and home entertainment delivery, home monitoring and security, access to information services (including Internet), multimedia services, personal video conferencing, telecommuting support, citizen-to-citizen data communications, virtual library, and links to wireless services. Potential business, government, and institutional services include: direct access to long-distance providers (by-pass), gateways to private business networks, gateway to library information, transactions (banking, reservations, bill- paying, etc.), computer-sharing and enterprise networks, remote imaging (e.g., The ICT Group 3 1 telemedicine), public access to government services and information, and traffic management /traffic information. Burbank - Burbank owns and operates their own municipal electric utilities. They are in the process of implementing a fiber optics backbone network that is primarily intended to control municipal electric utility communications functions, including the SCADA system, upgraded substations, and generation facilities. Excess fiber and electronics capacity will be made available for other City functions, schools, and local business. It is expected that the network will provide bandwidth to Burbank’s entertainment industry-related customers, such as Disney, Time-Warner, and NBC. These users have extensive real-time, high-bandwidth data communications requirements to support such applications as animation, post-production processing, and some pre-production processing. The network will also be available to other telecommunications providers to foster competition. In addition to bandwidth, potential services also include leasing of dark fiber and leasing of poles and conduit. However, no fee schedule has been established yet. Ten miles of fiber will be installed in existing conduit. Cables with 96-strand and 114-strand fiber were received in late June and installation will begin shortly. The installation may take up to six months to complete. The initial installation will be equipped with SONET electronics. Later, the network may be equipped with ATM switching capability, but no definitive plans for this expansion have yet been made. San Diego - San Diego issued a Request for Information. (RH) in May 1994 to explore opportunities for a public-private partnership to develop a telecommunications infrastructure and applications for the San Diego region. San Diego’s intent was to determine the feasibility of creating a broadband telecommunications grid that would link all the city’s major institutions, facilities, and businesses. It was envisioned that the system would accommodate businesses, health care facilities, educational institutions, the military, the arts, the tourist industry, the local electric and gas utility, and local government. (San Diego does not own a municipal electric and gas utility; service is provided by the privately owned San Diego Gas and Electric Co.) To eruhance the delivery of public services, San Diego also envisioned the need to establish broadband links with residential neighborhoods. The vision expressed in the RFI was developed by the Mayor’s Advisory Committee on the City of the Future and was documented in its report to the Mayor in March of 1994. This committee, formed in April of 1993, was supported by influential and prominent people from a broad cross-section of San Diego’s business, education, professional, health services and The ICT Oroup 3 2 telecommunications communities, as well as representatives from the City of San Diego. The Committee’s recommendations included: ¯Establishment of a private/public partnership. Development of a Telecommunications Policy Office with dual reporting lines to the City Council and the Mayor and to the City Manager. Acceleration in government use of telecommunications. ¯Identification and reward of private initiatives, such as: "Life-Site Schools for integ-rated delivery of health care,- government and library services to link parents and their children to schools in the community; Promoting development of a Health Care .Utility for linking hospitals, clinics, physicians, laboratories, and imaging centers for transfer of patient information and laboratory data; and Launching "Info San Diego", a kiosk-based information service to serve the broad needs of the citizens of San Diego. Recog’nizing that the development of community-wide systems transcends the political boundaries of any one city, and reaching out to the larger San Diego community to develop a telecommunications infrastructure that would serve the needs of the entire region. The Committee recommended the establishment of a Federal/State funding task force. It is reported that the innovative approach suggested by the report resulted in funding from the California Public Utilities Commission and the federal government. The RFI responses were due in August of 1994~. They reflected a broad spectrum of views on the appropriate role the City should play in the development of telecommunications infrastructure. At one extreme, the view was expressed that the City should not be involved and should depend on private industry to take the initiative. At the other extreme, it was recommended that the City get thoroughly involved and build a fiber-based universal utility. In the middle, it was suggested that the. City provide last- resort [e.g., life-line] services, the City should facilitate telecommunications infrastructure development by supporting appropriate legislation, and that the City consider being the anchor tenant of a new system. The ICT Group 3 3 The RFI responses have been under review by City staff since late in 1994. A City Manager’s report on the system concept and RFP process was presented to the City Council on July 17. The Council approved the concept, in principle, but wanted more details on the evaluation framework. It is expected now that the RFP will be released some time in August. Los Angeles - The Los Angeles Department of Water and Power (LADWP) has installed 115 miles of 96-strand fiber optics cable have been installed, primarily to support utility business needs. (The system will incorporate 140 mi of fiber by the end of the year,) Two dark fiber leases (one for about 75 mi, the other for about 115 mi) have been signed for capacity the department expects to need in the future but doesn’t use now. Specific terms of the leases are being treated as confidential at the request of the lessee, but it is understood that lease costs range from $75 to $115 per fiber-cable mile per month. Longer leases generally cost less. LADWP is also looking at telecommunications assets as another potential source of revenue. They recommend moving lease rates for pole attachments, conduit, and other assets from the existing bargain rates to value pricing that reflects true capital worth more accurately. These recommendations may require negotiations to release the utility from existing Joint Pole Agreements with the telephone company and other users. Mountain House - The City of Mountain House is a planned development of a new city to be located north of Tracy in San Joaquin County. The plans are for a self-contained community with 45,000 inhabitants. The city will consist of low, medium and high density housing areas and general office and light industrial commercial buildings. The basic plans include the design of a basic telecommunication transport system to accommodate all forms of telecommunications which might be needed to serve all business and residenti~ users for 30 years. In addition, the system must be capable of providing all forms of voice, data, and video telecommunications a modern city might need. Besides the residential and business requirements, the systems must meet city requirements for public safety, security, general administration, traffic control, telemetering, video and data transmission for libraries and schools. Current plans are to put. all conduits in common trenching and install dark fibers on the main routes connecting major subdivisions. Each subdivision will have a distribution center and small distribution boxes terminating the fiber optics at the curb. Each distribution point would serve up to 32 dwelling units via a short-run coaxial cable and four twisted wire pairs. For commercial buildings, the design specifies that fiber optics be brought directly into the building complexes. The ICT Group 34 The routing of the major trunklines provide .dual homing to all distribution centers in the subdivision. 300 pair telephone cables were also included on the main runs to provide supervisory control and telemetry services. The estimated cost for the conduits, the cables and wiring to the dwelling units, including labor, came to $ 983.00 per dwelling unit. These costs do not include the proportional costs for trenching and filling, nor the costs of any electronics needed to activate the system. The developer plans to install the wiring facilities, keep title to them, and then lease the facilities to the operators of the telephone system and the CATV system. Whether this can be accomplished remains to be determined. Yolo County -- Yolo County installed a County telephone network about ten years ago that incorporated fiber optics links that were significantly in excess of the then-current system transmission requirements. Investigation has disclosed that the City of Davis and a few minor governmental affiliates are now partidpants on the network, in addition to County agencies. The County has not offered to sell services or lease capacity on the network infrastructure to non-governmental users. It is estimated that about a quarter of the fiber capacity is actually used for network operation. The spare capacity has proved to be useful asa back-up when failures have occurred on active fibers. 3.2.3.3 Other Municipalities Nationwide The following sections summarize the experience of selected cities across the nation that are believed to be most relevant to the situation in Palo Alto. Springfield, MO - Springfield has installed an extensive fiber optics system to support the needs of the municipal electric utility, city government, and selected county and state functions. The system supports electric, gas, and water utility SCADA functions, meter reading, distribution automation, and demand side management. The system also supports computerized traffic control, video traffic surveillance, and enhanced 9-1-1 services. At the moment, Springfield is not taking an active position with regard to exploiting its communications assets or services commercially. They are waiting to see the final direction of federal legislation; they are also sensitive to the politi~ power of the incumbent local exchange ca~er. Austin, TX - The City of Austinis currently evaluating proposals for strategic partners to build, operate, and market an advanced information network The network will serve Austin’s Electric Utility Department and will link its 298,000 customers. Staff expects to make recommendations to the City Council by the end of August. The ICT Group 3 5 The City’s goal is to develop a digital broadband communications network built on open system principles that would ensure technical compatibility and interoperability with other networks. The system should have excess bandwidth over current demands so that access would not be constrained by capacity limitations. Universal access was specified, as was minimal environmental impact. The City .intends the network to stimulate competition among service and information providers, promote economic development, optimize the use of municipal assets, and support advanced communications (voice, data, video, and multimedia). The City prefers to form a strategic partnership with private enterprises, with a greater degree of proprietorship than the traditional franchise arrangement. However, the City wishes to limit additional public debt or risks to the taxpayers. The proposed network will be in addition to the Greater Austin Area Telecommunications Network (GAATN), a fiber optic network being built by the City, Travis County, the Austin Independent School District, the University of Texas, Austin Community College, and the Lower Colorado River Authority for non-commercial use. The functions of the GAATN are primarily intra-agency and intra-governmental. The GAATN will not offer services to commercial or residential customers; it is planned that the proposed network will interconnect with GAATN to offer governmental information and services to the residents and businesses of Greater Austin. The network is intended to provide service to all residences and businesses within the Austin city limits and within the municipal Electric Utility Department service area (which extends to portions of two adjacent counties). The Electric Utility Department proposes to use the network for utility applications, in particular custome-r;controlled load management (CCLM). Having an initial residential application was identified as a distinct advantage and economic factor that could contribute to the likelihood of success of the project. CCLM contributes to demand side management but allows electric customers to exercise choice in their consumption of electricity, tailored to their own patterns of cost, comfort, and societal concern. The utility proposes to install specialized equipment in participating customers’ homes that receive pricing signals and adjust consumption based on pre-programmed choices selected by the occupant. The goal of the system is to help reduce costs to the customer. With this system, the utility would receive immediate ve~cation of the customer response. - Other utility applications that can be supported include: Automated meter reading The ICT Group 36 ¯Remote connect/disconnect Distribution automation (to support fault isolation, substation data retrieva!) ¯Detection of unmetered current/theft of service More sensitive outage detection to support quick service restoration Interactive, selective, customized marketing of utility services and products ¯Collection of utility data for planning and research. Seattle, WA -- The City of Seattle issued an RFP in approximately August of 1994 seeking investors/developers to build and operate a broadband telecommunications network in the city. The City envisioned that the network would provide two-way voice, data, video, and multi-media communications capabilities to all residents, businesses, and institutions within the City of Seattle. The City received 17 proposals in October 1994. Three of these proposals are still being considered. Each of the surviving proposals has been deemed to have some technical and financial shortcomings, and requests for clarification have been sent to the bidders. Some of the areas of concern are: changes in the regulatory environment since the ori~nal proposal release, market uncertainties, inadequate treatment of Internet access in each of the proposals, and certain unidentified reservations about ATM switching technology. As of the time this report was prepared, City staff had met with two of the vendors, and were about to meet with the third. It is anticipated that recommendations will be submitted to the Mayor’s Office in late August. The City’s telecommunications goals, as expressed in the Aug-ust 1994 RFP, included: universal access; early deployment of advanced telecommunications services; effective competition; support of government information and service delivery needs; enhancement of Seattle’s physical environment; minimum financial and technical risks; and potential for City cost savings. The City’s vision for the information network included the following potential residential applications: cable TV and other home entertainment services, home monitoring and security, information services, computer/multi-media applications, telecommuting, citizen-to-citizen data/voice communications, energy management, and remote utility meter reading and bill paying. Potential business/government/institutional applications included: transactional services (banking, purchasing, The ICT Group 37 reservations; bill .paying); "virtual office", support for "enterprise" networks; virtual private networks; video conferencing; supercomputer sharing; telemedicine; public access to government services and information; and gateways to other business, institutional, and private networks Seattle operates a municipal utility, Seattle City Light, whose service .area extends beyond city limits. Aside from meter reading and bill-paying, it was not clear how the proposed network was to interface with utility operations. It is understood that the utility has an existing SCADA system for monitoring and control of utility functions. Details on the existing infrastructure were not available at the time this report was prepared. The City owns utility poles in the extended area, but does not control right-of- way beyond City limits. The City is interested in the potential for the telecommunications network to be extended beyond city limits. Seattle also adopted an ordinance in April 1993 that established a comprehensive policy for attachments to utility poles. Under this ordinance, the City reserved for its own use one communications space on poles that are owned in whole or in part by the City. The ordinance requires that installers sell some capacity to City government for non-profit use. Lakeland, FL - Lakeland is a city with about 70,000 population situated midway between Tampa Bay and Orlando. In March 1995, the city announced plans to complete a fiber optic broadband network to connect city offices, public schools, other government facilities, and control systems for the City- owned electric and water utility. The project will occur in three stages: (1) provide communications for the electric and water control systems; (2) provide communications for all city administrative offices, libraries, safety offices, police and fire department locations, and other governmental service locations; and (3) complete connections of all the city,s public schools tO the network. The new communications system will be integrated with more than 70 miles of fiber optics that the city has already installed. SpectraNet International of San Diego was selected to manage the design, construction, and equipment installation of the network after an open bidding process. Glasgow, KY - Glasgow is a city with about 13,000 population, located in a mountainous region about 80 miles south of Louisville. Glasgow operates its own electric utility and has been operating its own broadband telecommunications system over co-axial cable for about six years. The system supports SCADA functions for the utility operation, some utility distribution automation, a limited amount of remote meter reading, and traffic signal synchronization. Service to the public consists primarily of cable TV, but telephony and local area network services are also offered. The I CT Oroup 3 8 Glasgow’s cable TV operation has been success~l in capturing S7% of the available market from the other local cable provider, Scripps-Howard. (Because Glasgow is situated in a "dead" area for line-of-sight television, all ~iewers rely on cable.) Before the cit~ started its own service, the commercial provider offered 26 channels. Scripps-Howard now offers 47 channels at $12.S0 per month, compared with the cit~ service, which provides 49 channels at $1S.S0 per month. The cit~ also offers six premium channels and one pay- per-view channel. The telephony service is very limited, and is being offered on an experimental basis at this time.. There are about 100 subscribers receiving dia~ tone. Glasgow is experiencing unidentified technical difficulties in delivering telephone services over cable that have not been resolved satisfactorily to date. The local area network is a 2 Mbps Novell Local Area Network (LAN), which supports electronic mail, a local bulletin board service, and provides Internet connection through MCI. ¯ A Web site is being planned. 400 education workstations and 40 homes are currently on the educational network. The incumbent local exchange carrier is GTE, which thus far has taken a hands-off position with regard to the City’s involvement in telecommunications. ~ North Carolina Information Highway - The North Carolina Information Highway is an advanced switched broad-band digital communications network that will eventually reach all points of the state. The project is a collaborative effort of the state and 26 local telephone companies, including GTE, Bell South, and Sprint/Carolina Telephone. The system provides high- speed video, data, multi-media, and voice communications to about 100 Governmental sites around the state, including schools, universities and colleges, libraries, administrative offices, hospitals, and prisons. The program grew out of several independent initiatives that focused on specific applications and user communities, such as distance learning for schools, telemedicine for prisons, and state telephone and data networks. The network is based on high-volume fiber optics links, ATM switches, and SONET digital transmission systems. The state’s investment in the project covers expenses associated with end-use applications. The one-time investments for the fiber optics network and message-handling switches are being borne by the telephone companies. Rates and fees for recovering the state’s portion of the telephone companies’ investments have been negotiated with the telephone vendors, subject to approval of the State Public Utilities Commission. In addition to a monthly base fee, usage charges are based on the amount of time services are us6d and the type of transmission service involved. Bell South is seeking approval to offer the services to private-sector users, as well. The ICT Group 3 9 Blacksburg Electronic Village, VA - The Blacksburg Electronic Village (BEV) is a co-operative project of Virginia Tech University, Bell Atlantic of Virginia, and the Town of Blacksburg that links residents and businesses to the Internet. The network was established as a five-year study, and is now almost two years old. BEV is a non-profit organization that administers the network. Virginia Tech provides access to the Internet. Bell Atlantic provides the communications infrastructure. Start-up costs were essentially donated by Bell Atlantic and Virginia Tech. Citizens gain access to the system from home or office via dial-up modem; Ethernet access is also available to users at the University, some offices, and "hundreds" of apartment units in town. Almost 100 businesses have signed up as information providers. About 25% of the town’s residents are reported to have signed up for service. It is not known how many of these are affiliated with the University.. Anchorage Telephone Utility, AK -- The Anchorage Telephone Utility (ATU) is owned by the Municipality of Anchorage and provides service to an area with a population of about 260,000. Even though the ATU is a municipally " operated utility, their telephone services are regulated by the Alaska Public Utilities Commission. Until recently, ATU’s high-speed services were limited to T-1. (1.544 Mbps). Within the past five months, ATU has been offering tariffed services on a transparent fiber-based local area network in 5 Mbps segments to support Ethernet-type operations. The utility is investigating ISDN, frame relay, and ATM switching services as potential future offerings. ATU is anticipating local service competition if and when the Telecommunications Reform Act becomes law. The most likely competitors are Alascom (owned by Pacific Telecom, Inc.) and AT&T. It is of interest to note that a ballot proposition that the Municipality divest itself of the telephone utility was put before the voters a few years ago, and was rejected. 3.2.3.4 Development of Telecommunications in Singapore Although the regulatory and competitive env~ironment is totally different than in the US, the attempt to develop an advanced telecommunications infrastructure in the City-State of Singapore is instructive in terms of the technological approach and the planned array of applications. The stimuli for telecommunications development in Singapore are economic development, enhancement of individual potential, linking of communities, and improvement in the quality of life. The vision is that of a broadband information infrastructure that will interconnect computers in virtually every home, office, school, and factory. Overlaying the wired infrastructure is a wireless network that will support mobile and portable computing, telecommunications, and information exchange. High-level participation by people from a number of key sectors in the Singapore community and The ICT Group 40 economy has led to the formulation of a set of "anchor applications" designed to have great impact on the community: A network aimed at linking public and private sector organizations in construction and real estate to facilitate the exchange and processing of documentation for regulatory approval and automation of the construction procurement process. The system is intended to reduce the delays in regulatory approval, and to reduce labor costs through efficient information exchange. A network of borderless libraries providing the public access to library catalogs and to selected information retrieval on demand. A Leisure Information and Reservation system that links the tourism community including travel agents, hotels, attractions, transportation providers, and trade associations. This system will provide information on events and activities, transportation schedules and availability, and facilitate reservations and ticketing, This service would be available on multimedia kiosk systems located at various public places, as well as through links to office and home computers. The public kiosk system would support a variety of additional applications and transactions. A National Procurement Network to link goods and service providers to enterprises that need such items. The network would support the entire procurement cycle, including purchasing, order processing, and electronic payment. An on-line information service featuring Singapore attractions, government information, news, and financial data. A Student’s and Teacher’s Workbench to facilitate collaborative learning, deliver enriched courseware to classrooms, customize teaching and assignments to the needs of students, support communications among teachers, students, and parents. To facilitate this vision, Singapore Telecom announced plans to provide fiber-to-the-block service to all high-rise buildings, both industrial and residential, by 1997. 3.2.4. investor-Owned Utilities A few investor-owned utilities have achieved significant success in the telecommunications market: The ICT Group 4 1 Wiltel Communications-- Wiltel was established in 1985 by the Williams Pipeline Co as a telecommunications subsidiary. They installed 11,000 miles of fiber optics in unused pipelines. The system, which extended from Kansas City to Los Angeles, cost $120 million to build. Over the years, Wiltel expanded its scope and operated a commercial long distance network. In 1955, Wiltel sold their network service operations, the Wiltel Network, to LDDS Communications for $2.5 bill.ion. The transaction did not include Wiltel Communications Systems. Entergy-- This large southern utility uses its private communications network to offer telecommunications services to consumers. The network was originally installed to monitor company operations and to support Demand Side Management (DSM). DSM was reportedto save about 5% of the system capacity. The fiber optics network extends about 1,100 miles in Arkansas, Mississippi, and Louisiana. Their Customer Control 2000 test project in Chenel Valley, AK, a Little Rock suburb, provides pay-per-view movies, Sprint long distance service, and Southwestern Bell telephone services to customers over coa:dal cable. The technology used is a robust fiber-to-the-node network (see Section 3.4.1.4). Customer sites are equipped with controllers for major appliances, a prog-rammable user interface to config’ure service, and a switch. Customers enter values and life style preferences. The system cycles appliances according to preferences and time- of-use information provided by the utility. Customers have a choice to shift their appliances to lower cost eneroc-y periods or to accept service interruptions rather than incur top-tier prices. The utility can also initiate or terminate service remotely, predict and confirm load changes occurring in response to price changes, read meters remotely, detect and pinpoint outages more quickly, and issue itemized bills. The trial has not been in operation long enough to gauge full results. Reg-ulators want to see the complete results before they are convinced that the DSM savings will pay for the system infrastructure. Potomac Electric Power (PEPCO)/Metricom- This is a joint venture to deploy, own, and operate a wireless network to provide data communications services to an area of 4,000,000 potential customers. The services supported include electronic mail, information retrieval from corporate LANs, Internet access, commercial on,line service access, stock trades, and shopping. PEPCO will invest $7 million in the joint venture and own 20% of the enterprise. The system will provide rapid wireless communications with commercial DSM customers and ultimately with all customers. It is expected that the system will accelerate storm restoration response time. Bell South/Duke Net/Caro Net- Bell South bid $70.9 million for the right to build a Personal Communications System (PCS) network covering parts of North Carolina and South Carolina. Bell South plans to transfer its license The ICT Group 42 for PCS services to a consortium formed with DukeNet Comm, CaroNet (a subsidiary of Carolina Power and Light), and 32 other independent telecommunications providers. Southern Company- Southern created a subsidiary to market excess capacity from its-800 MHz packet radio system. Southern owns five major utilities in Alabama, Georgia, Mississippi, and Florida, covering a service area with 3,300,000 customers. They plan to offer digital .dispatch, paging, data, and telephone interconnect service in a wide-area seamless network. The communications integration will help to improve service restoration after severe weather conditions. Midwest Resources, Inc.- Midwest Resources (MWR)* installed the first segment of a metropolitan fiber optics network 15 years ago. MWR Telecom (MWRT) is a commercial spin-off of MWR that operates as a Competitive Access Provider. It utilizes its 110 miles of fiber in Des Moines, IA, to meet the utility’s internal voice, data, and video requirements.. Excess capacity is sold to MCI, AT&T, Sprint, and to 70 end-user organizations, including insurers, banks, software companies, and governmental agencies. The fiber network replaces increasingly costly telephone company protective relays. MFS and MWR jointly operated a similar telecommunications-bandwidth business in St. Louis for several years until MWR sold its interest to MFS. (St. Louis is not in MWR’s utility-service area.) MWR recently sold MWRT ~to Midwest Capital Group, another business entity in which MWR has an ownership stake. MWRT and US West, the Bell operating company serving Des Moines, appear to have a de facto rapprochement, in which MWRT does not seek to enter the local-exchange-service business and US West tolerates or endures MWRT’s bandwidth-service competition. PG&E/Microsoft/’TCI - While this is not an operational system, it is worth noting that PG&E, Microsoft, and TCI are collaborating .in a market trial of an Energy Information System in Walnut Creek, CA. Applications of the system include: time of use pricing; demand side management (distributed load control); outage detection; segregated billing; on-line energy use and forecast; and electronic billing and bill paying. In addition to the utility-related functions, the system will support such home automation applications as lighting control and security systems. TCI delivers telemetry and messaging services through two-way fiber/coax communications. A special TV set-top box generates an easy-to-use interface that allows the home owner to select a "MWR merged with Iowa-Illinois Gas and Electric Co. on July 1,1995 to form MidAmerican Energy Company. The ICT Group 43 preferred home power profile and to receive energy use and pricing information from the system. The first phase of the trial, which was a technical shakedown, was completed in late 1994. Phase 2, which will involve about 100 homes, is currently underway. It is expected that the complete trial, which will ultimately involve around 1000 homes and businesses, will run through mid-1996. 3.3. Legal-and Regulatory Review The regulatory bodies, both in States and at the Federal government levels are moving firmly toward open competition in telecommunications. Generally, there is little doubt that open competition is coming soon. The specifics of the final laws and reg-u_lations will not be known until the compromise version of the pending Federal le~slation iS enacted and the final rules for competition from the California Public Utilities Commission (CPUC) are issued. Generally, the legislation and rules seem to be in agTeement in areas effecting the City and have little effect on the ability of the City to collect fees, taxes or rentals. The City, like any other entity, may enter into competitive provision of telecommunications and information services. Franchise fees and taxes will be allowed to continue so long as they are not discriminatory between different providers of the same types of services. Additionally, the City cannot prevent a franchise provider from entering into any type of telecommunications or information service. Fees for righbof-way and pole or duct usage are intended to be limited and controlled for utilities that are reg-ulated. However, since the Palo Alto utilities are not reg~ated, it appears that they are exempted from these controls. The final details of the le~slation and rules will not be known for several months. The primary areas of disagreement revolve around the timing of degrees of deregulation for Bell operating companies and long distance providers getting into each others business. There is little discussion about limiting other types of organizations from entering into or providing competitive information or telecommunications services. 3.3.1 California Public Utilities Commission CPUC issued a report in November 1993 report entitled "Enhancing California’s Competitive Strength: A Strategy For Telecommunications Infrastructure (Infrastructure Report)," in which they stated their intention of opening all telecommunications markets to competition by January 1, 1997. The California Leg-islature subsequently adopted Assembly Bill 3606 (Ch.1260, The ICT Group 44 Stats. 1994), similarly expressing legislative intent to open telecommunications markets to competition by January 1, 1997. On September 15, 1994, the CPUC issued Decision (D.) 94-09-065 (Investigation (I.) 87-11-033) in which they opened intra-LATA (Local Access and Transport Area, called Service Area by Pacific Bell) toll markets to competition effective January 1, 1995. The CPUC is now focusing onthe process of opening local exchange markets to competition. An Assigned Commissioners’ Ruling issued November 4, 1994 solicited comments on the appropriate process whereby local exchange markets could be opened to competition by January 1, 1997. Responsive comments were filed during November 1994. On December 8, 1994, a second Assigned Commissioner’s Ruling presented a plan for achieving the Commission’s and the Legislature’s goal of local exchange competition by January 1, 1997. The December 8 ruling proposed that rules for competition be developed by formulating three separate subject areas: (1) Open Access and Network Architecture Development (OANAD); (2) local competition; and (3) consumer protections and regulatory streamlining. The CPUC Interim Rules for Local Exchange Service Competition in California were issued on 26 April 1995 along with the Consumer Protection and Consumer Information Rules for CLCs (Competitive Local Carriers). The interim rules, which were scheduled to be released in June 1995, were finally approved on July 24, 1995, These rules provide a framework to allow fa~fies based telecommunications providers, that is, firms with their own lines, switches, and other equipment, to begin competitive service by January 1, 1996. Authority for other fij-ms to resell telephone services will be granted by March 1, 1996. For all practical purposes, it will be several months before actual competition on a large scale can begin. These rules will allow the prospective competitors to begin application for CLC status so that these procedures may be complete by the time that the final rules are issued in 1996. At least four other states have already acted on local competition including Connecticut, Maryland, Massachusetts, and New York. MFS announced on July 5 that its affiliate Intelenet received authorization to provide integrated local-exchange and long-distance service in Connecticut. (Intelenet evolved from MFS’s earlier acquisition of Centex, a business telecommunications firm formed during the 1970s in San Francisco.) 3.3.2 Federal Legi slat io n The US court decree that separated the Bell local exchange companies from AT&T in 1984 basically confined them to their monopoly local exchange business, and also barred them from providing long-distance service and engaging in equipment manufacture. The Bell companies continue to seek release from these constraints, while AT&T and the other long-distance The ICT Group 45 carriers oppose such release, pointing to the Bell companies’ monopoly position in local exchange service, which is the critical "bottleneck" facility through which users obtain access to long-distance carriers. The control over user access to competing long-distance carriers was what forced AT&T to divest the Bell companies in 1984. The terms of allowing competition in local exchange service are at the core of the legislative debate over the conditions under which the Bell companies will be allowed to provide long-distance service and manufacture telecommunications equipment. The Bell companies seeking to enter these non monopoly markets have not offered to withdraw from the local exchange business. Local exchange telecommunications is a monopoly service throughout the US and has been so since early this century. Early attempts to have more than one company serve a given area foundered when competing companies refused to interconnect each others’ customers. Full interconnection did not occur until the Bell system a~eed to interconnect others in 1913 to avoid breakup by the activist trustbusters of that era, who among other things sundered the Rockefeller oil enterprise into several separate companies. Whether more than one provider can now coexist in a given market remains to be seen. Besides interconnection, the terms and conditions for resale of local-exchange service are in dispute. Any transition from monopoly to non monopoly pluralistic local-exchange service is still in the talking stage and even the rules for successful entry by non incumbents have not yet been framed. The US Congress is currently developing legislation to allow full competition in local exchange business. In June 1995 the US Senate passed the Pressler Bill as Senate $652 which provides for replacement of the 1934 Communications Act with the "Telecommunications Competition and Deregulation Act of 1995". The House version of a similar bill is HR1555. The final version of $652 and the current House Draft of HR1555 are very similar in many ways. A vote on HR1555 is expected in August 1995 and it is expected to pass. Subsequently, a compromise version of the bills will be worked out in committee and the final Act is expected by the fourth quarter of 1995. _Both of these bills include provisions for full competition with some possible phasingrin of long distance carriers into local exchange and local exchange carriers into long distance allowing for assurance of competition before dereg-ulation. Provisions for other business such as utilities to enter both local and long distance, however, appears to be supported by both bills in the interest of promoting competition to off-set risks from deregulation. $652 explicitly provides for the entry of utility companies into the provision of services for telecommunications, information or related services. The specific excerpt from the Act relating to this is presented in Appendix F (see SEC 205 of the Act). Related sections of the HR1555 bill are presented in Appendix G. The specific section of the US Code of Federal Regulations (CFR) The [CT Group 46 which is amended by both $652 and HR1555 (47 U.S.C. 224) is presented in Appendix H. Both $652 and HR1555 require any regulated entity that owns or controls utility poles, conduits or right of way to make these facilities available to any telecommunications provider at reasonable and fair market prices. Simple rules for fair pricing are provided in both bills and $652 provides for the FCC to issue final rules on this within 2 years of the date of enactment. The APPA (American Public Power Association) in an 8 June 1995 memorandum on HR1555 feels that municipal and cooperative utilities are exempt from this provision in HR1555. This is likely to be true for the City of Palo Alto since the Municipal Ut~flities are not regulated. $652 explicitly allows the continuation of franchise fees and local taxes while prohibiting local authorities from preventing a cable television operator from entering into other information or telecommunications services (see Section 201 in Appendix F). HR1555 also allows for franchise or similar fees or taxes so long as they are not discriminatory (see Section 243(e) and Section 106 (b) in Appendix G). 3.4. Assessment of Applicable Technologies and Trends This section discusses the status and trends of technologies applicable to the implementation of a broadband, two-way telecommunications system. The focus of this investigation is on the interoperability and integration of the various technological elements comprising an advanced telecommunications network and how these factors are likely to change in the future. The findings reported in this section are based on the experience and knowledge of the study team, and have been supplemented by discussions with technical specialists, literature review, and on-line research. In the highly dynamic technological environment applicable to the planning of an advanced telecommunications network, it is appropriate to examine the choices that must be made, the risks implicit in such choices, and appropriate strategies to ensure that the plan is well-founded yet sufficiently flexible to adapt to changes in requirements and technologies. Telecommunications systems are comprised of three basic elements, termination equipment at the customer premises on the ends of each communications link, the physical media and protocols that support the transport of information through the network, and the switching or routing mechanisms that direct the messages from origin to their intended destinations. This discussion will focus on primarily on transport and to some extent on switching, since these are the network elements under the control of the system planner. The termination equipment (e.g., telephone The ICT Group 4 7 station equipment, data terminals, computers, TVs, and radio receivers) is beyond the control of the network planner and is considered only to the extent of the network interface standards that must be observed. 3.4.1. Transmission Media An ideal transmission system transports signals independent of their format and associated handling protocols and delivers them to their destination in the same form as they were when originally picked up. For voice and video transmissions, this means that the received signal waveforms should be the same at both transmitting and receiving points. In actual practice, some compromise is accepted in the encoding, transmission, and decoding of audio and video signals because of limitations in the conversion and processing of the information. Certain standards are applied to ensure that the resulting transmission will produce audible or visual results that are acceptable to the user. An analog channel is characterized by its bandwidth (a measure of its information- handling capacity) and the signal-to-noise ratio achieved at the receiver. In a digital transmission system, the quality of the channel can be measured in terms of the bit error rate of the received signal (the ratio of incorrectly received bits of data to the total volume of data transmitted) and the data throughput (the actual rate at which information is successfully transmitted through the channel). These characteristics are typically related to the bandwidth of the channel and the standards and protocols used to process and transmit the data. Four basic media for signal transmission and distribution are currently in use: ¯Copper telephone cable (twisted wire pairs) ¯Co-axial cable ¯Fiber optics Wireless transmission 3.4.1.1 Telephone Cable Telephone twisted pair cable has been in use in essentially the same form for over a hundred years. Consequently, this type of wiring can be found anywhere basic telephone service is provided, and its characteristics are adequate for local distribution of telephone services. With the ever increasing demands for voice and data transmission, the cable characteristics have been improved over the years and electronics were developed to ¯ increase the cable signal-carrying capacity. The ICT Group 4 8 Several recent developments in signal processing have greatly improved the capability to transmit digital data over conventional telephone lines. This capability is made possible by using compression techniques known as Asymmetric Digital Subscriber Line (ADSL) and High Bit Rate Digital Subscriber Line (HDSL). Using ADSL and a compression technique known as MPEG-2, it is possible to achieve a maximum data transmission rate of 1.5 Mbps over a single pair of wires over a distance of up to 18,000 ft without intermediate repeaters. M.PEG is the Motion Picture Experts Group and the MPEG-2 format enables VHS-quality video transmission at rates as low as 1.5 Mbpso Another development demonstrated the capability to transmit at 7.7 Mbps over a distance of 12,000 ft. This capability is sufficient to support mdltiple video, voice, and high-speed data channels simultaneously on a standard telephone line. This performance was achieved by using a compression technique that amounts to about seven bits per Hertz. Bellcore (the research arm of the Regional Bell Operating Companies) estimates that between 50 and 55% of all U.S. households have telephone .wiring that is capable of supporting this technique. Some U.S. telephone companies are planning to use these techniques to offer video dialtone over standard telephone lines, subject to regulatory approval. This is an interim step to permit video distribution before fiber optics deployment becomes widespread in the public telephone network.~ To implement ~s service, the telephone companies must incorporate the compression system, a centralized video library, and appropriate control and switching equipment at each wire center. Subscribers must also have compatible terminal equipment and decompression circuitry to retrieve the video signal in a form that can be handled by conventional television receivers. The standards proposed are: ADSL at 1.5 Mbps, HDSL at 2.0 Mbps and VHDSL (’Very high-bit rate digital subscriber line) at 5.0 Mbps. Bell Atlantic appears to be the principal adherent of ADSL. However, not all U.S. telephone companies are enamored of ADSL, even as an interim measure. Private discussions with one telephone company researcher indicated that there were reservations about the possibility of interference or "cross-talk" on ADSL-equipped lines. 3.4.1.2 Co-axial (coax) cables are essentially copper .conductors surrounded by a dielectric material enclosed in a metallic shield covered by an insulating surface. The electrical characteristics of these cables allows them to provide broadband transmission capabilities. In principle, coax cables can operate frequencies exceeding I GHz. However, since attenuation (signal loss) The I CT Group 49 increases with frequency, repeater spacing must decrease in order to maintain adequate signal levels. Attenuation is also a function of the diameter of the cable. Large diameter cables have less attenuation. Because of its broadband capabilities, co-axial cables are widely used as the distribution medium for CATV (the acronym for cable television). Initially, the systems were limited to a top frequency of 300 MHz, but over the years the bandwidth was expanded to 550 MHz. Recent developments have raised the upper limit to 750 MHz, with the goal to push the upper limit to I GHz. Since each standard U.S. NTSC television channel requires a bandwidth of 6 MHz, the spectrum on the co-axial cable is usually divided into 6 MHz slots. In the lower end of the spectrum, the channels coincide with the standard Very High Frequency (VHF) TV broadcast band, namely: TV-channels 2 to 6:54 to 88 MHz TV channels 7 to 13:174 to 216 MHz. The 88 - 108 MHz band is usually retained for FM broadcasting. Eleven additional channels are located between 108 and 174 MHz and 14 more channels between 216 and 300 MHz. The 300 MHz systems thus could accommodate 37 channels. When the system bandwidth was increased to 552 MHz, the upper band spectrum accommodated an additional 42 channels. Thus, with this arrangement, the total capacity was increased to 79 channels. The spectrum below 54 MHz is not used forTV distribution and has been set aside in most conventional cable systems for upstream (reverse) transmission. Depending on the quality of the filters used, the available spectrum can be from 5 to 50 MHz. Most cable systems limit this spectrum to 30 MHz. In cable television systems, the reverse channel may be used to transmit video from remote sites back to the headend. To take advantage of spare capacity, some CATV operators offer full-duplex 10 -Mbps digital transmission channels. In addition, some operators are beginning to offer telephone Service to cable subscribers. Although the feasibility of telephony over cable has been. demonstrated, no uniform standards have yet been set. One approach is to use 25 KHz-wide analog channels. Using this allocation, a 6 MHz channel can accommodate 240 voice channels. With three to five 6-MHz channels available in the low band, 720 to 1200 voice channels could be accommodated in the reverse direction. (To support transmission in the forward direction, the same number of 6-MHz channels would have to be set aside at the top of the spectrum.) Because of the typical tree structure used by most cable TV systems, traffic becomes more concentrated as signals approach the headend, resulting in increased noise and interference and degrading upstream signal quality. The I CT Group 50 For a normal residential area, a usage factor of four to eight users per channel can be assumed to meet the demand. Based on these assumptions, the number of subscribers that could be served in the unused spectrum from a single nodal point is.: Channels 4 subscribers/channel 8 subscribers/channel 720 2,880 5,760 1,200 4,800 9,600 Other proposed system approaches use the spectrum above either 550 MHz or 750 MHz (depending on system bandwidth) in a digital mode. The utilization of this portion of the spectrum can be based on equipment developed for cellular or PCS telephones. The digital modulation technique used could be Time-Division Multiple Access (TDMA) or Carrier-Division Multiple Access (CDMA). In the past, the cost for CATV modems for connecting the telephone sets to the system were high due to the relatively low demand for these devices. With the explosive growth in cellular telephone usage, the prices for these items have dropped dramatically. Hence, by taking advantage of this technique, the implementation of telephone service via the CATV network could become very competitive. A significant disadvantage of telephony service over co-ax or fiber optic systems is that the typical systems do not carry direct current (DC) necessary to operate the subscriber telephone during a local power failure. This capability is required by the FCC to assure communications capability for at least one telephone per living premise or work area for safety considerations. This is further complicated by the need to power the interface and decoder electronics required to separate the telephone signal from the line signal containing all services (voice, data and video) on co-ax or fiber optic systems. Standard twisted pair telephone service provides this power over the twisted pair from rechargeable battery banks in the central switching office. On co-ax or fiber optic systems, this power is most cost-effectively provided from "neighborhood" level remote rechargeable battery systems. This requires many battery "huts" to be provided with the associated costs for building space and additional maintenance and operations costs over that of having the battery system in one central location. In most schemes the DC power is transmitted from the neighborhood battery systems to the end user location over twisted pair that is provided along with the co-ax drop to the user premises. Some system designs utilize the co-ax cable itself to carry the DC along with the customer signal. In addition to telephony, the cable system could provide one or more channels with 10 Mbps service on demand. To provide this capability, several upstream and downstream 6-MHz channels could be set aside to be made The ICT Group 5 1 available on subscriber request. If suitable arrangements could be made to use the Cable Co-op B-cable, the City of Palo Alto might have an opportunity to provide special telephone and data services to its citizens. 3.4.1.3 Fiber Optics In 1970, Corning Glass produced the first silica optical cable. The cable had a loss of 20 dB/km. Since then, the attenuation has been reduced to 0.2 dB/km, allowing repeater spad_ng to be extended to around 300 km at a transmission rate of 1 Gbps (1,000 Mbps). The dramatic improvements in fiber optics characteristics has had a major impact on all forms of sig-nal transmission. As a result of these improvements, all long-haul carriers have converted their transmission facilities to fiber optics. The current state-of-the art is to provide fiber optics transmission systems with a capacity of 2.4 Gbps. Future development may increase the transmission capability to 4 Gbps. With Waveleng~.h Division Multiplexing (WDM), multiple frequencies can be supported simultaneously on a single fiber. Laboratory demonstrations have been made of 20 simultaneous light frequencies on the same fiber. Available systems today can provide for four separate light frequencies on the same fiber, thereby increasing the transmission capability by a factor of four. WDM systems with eight frequencies are trader .deve!opment. A disadvantage of operating at 2.4 Gbps is the high cost of the multiplexing electronics. With the falling costs of fiber optics cable, the use of multiple strands at lower bit rates is the preferred approach for local distribution. Fiber optics have some distinct.advantages over coaxial Cable, namely greater overall information handling capacity and freedom from electrical influences. However, for short haul transport, coax cables are usually adequate and are more cost-effective. Coax can support data transmission rates of up to one Gbps directly (over short runs) but fiber cables need optical transducers/detectors to convert electrical signals to light pulses and back again. Coax can also can carry DC for powering repeaters and terminals. For the designer of local area networks and local distribution.systems, a significant criterion should be how user requirements can be met in the most cost-effective manner. Based on the foregoing considerations, most broadband systems have become hybrid systems, in which th6 major trunk lines are implemented in fiber and the tail ends are coaxial cables. 3.4.1.4 Hybrid Fiber-Coax Systems The preferred architecture that appears to be emerging to support broadband telecommunications networks is a hybrid approach in which fiber optics are The [CT Group 52 used to provide transmission from the video headend/telephone central office to some intermediate node and coaxial cable is used to provide distribution to customer locations. The network concept proposed for Pacific Bell’s Consumer Broadband Network is a hybrid fiber-coax system based on AT&T’s H-FC-2000 design. In this design, fiber is terminated in a neighborhood node that serves about 480 to 600 homes. From each neighborhood node, four to six coaxial cables distribute signals to about 125 homes each. The neighborhood node provides the electrical power that is carried by the coaxial cable to power subscribers’ telephones. Several other major suppliers of telephony and cable television distribution systems have joined to develop their versions of a hybrid fiber-coax system. There is no universal agreement on how far into the network the fiber should penetrate. Some proponents argue that current economics dictate that fiber should terminate in a 500-home neighborhood node. They assert that if traffic and customer density increase in a given area, or the relative costs of short-haul fiber versus cable installations decrease in the future, the fiber distribution node can be brought closer to the subscriber’s premises. Other people favor a fiber-to-the-curb approach, in which the distribution node serves 50 homes or less. The fiber-to-the-curb advocates argue that fiber-to-- the-neighborhood is false economy- that it will cost more to bring the fiber closer to the subscriber premises in the future and that investment in greater bandwidth now is a better choice. Much more analysis of the various factors and assumptions is needed before a rational conclusion can be drawn. 3.4.1.5 Wireless Transmission Several wireless network technologies have emerged recently that provide alternatives to the conventional wired network approaches. These include cellular telephones and specialized mobile radio, PCS, wireless cable, and wireless data networks. Wireless systems compete with terrestrial telecommunications networks for customers. At the same time, they represent an opportunity, since all wireless systems ultimately rely on some form of terrestrial infrastructure. The opening of additional spectrum for public use had a dramatic effect on the development of wireless facilities. The first major element was the release of frequencies for cellular telephones. The effects of this development are well known. Another factor was the simplification of equipment approval and the removal of license requirements for low level transmission equipment. The next major development is the semi-mobile PCS system. Licenses have been awarded for all major metropolitan areas. The first systems will go on line in 1996. The ICT Group 53 Another major development was the release of frequencies in the 2 GHz band for wireless CATV. Currently 36 channels are being offered by a wireless operator in Philadelphia. However, with .the ongoing developments in digitizing and compression of video signals, the operator intends to put eight or nine TV channels into each 6 MHz slot. This would give the operator the capacity to offer at least 288 channels. Several wireless data networks are in operation around the country, the most notable of these being ARDIS, which began as a joint venture of Motorola and IBM, and RAM Mobile Data, which began as a joint venture of RAM Broadcasting and Bell South. Both RAM and ARDIS have extended their coverage to major metropolitan areas across the country and target their services to mobile workers: professionals, field service personnel, or any one who works.in the field and needs regular access to data. In contrast to ARDIS and RAM, which use relatively high power transmitters to cover a good portion of an urban area, the newly emerging Ricochet system by Metricom, Inc. of Los Gatos employs an array of microreceivers installed on utility poles and deployed in a mesh configuration about 1/4 mile to two miles apart. Metricom is installing the Ricochet system in many cities, including Palo Alto. The system is based on micro transceivers mounted an utility poles. Each transceiver covers a circle with one mile radius: The equipment operates in the 900 MHz band which does not require an FCC license. The system operates at 77 kbps (now being extended to 100 kbps) in a 160 kHz channel. The available spectrum is divided into 162 channels. The end-users receive data service with user throughput as high as 40 kbps. The Ricochet network can be used for point to point communications or for interconnection to the public network. 3.4.1.6 Direct Broadcast Satellite (DBS) Service Hughes Communications and the United States Satellite Broadcasting Company (USSB) have recently launched a new generation of television service for the continental United States. This service allows subscribers to receive television programming directly from satellites on easily installed 18 inch satellite dishes. Programming includes most major cable services, sports, Pay Per View (PPV) movies, and specialized programming aimed at smaller audiences. The FCC calls this new class of television service Direct Broadcast Satellite (DBS) and the Hughes/USSB service will likely be the premier DBS service in the U.S. for some time. Hughes calls their programming service DIRECTVTM. They have created a subsidiary called DIRECTV Incorporated which is managing their DBS operation. Two satellites, DBS-1 and DBS-2 operate in the 12.2 to 12.7 GHz band. The two satellites have a total of 32 transponders and can carry from 140 to 180 digital TV channels (the number depending upon the amount of compression The I CT Group 54 utilized). The two satellites use the same frequency band but with opposite polarization so that both systems can be received by the same receiver. In the design stage are satellite systems that can handle 300 or more channels. These DBS services provide direct competition for cable television services. DBS allows for reeeption of digital satellite broadcast through subscriber receivers and small (18 inch) satellite dishes. Total channels available are currently about 160. Costs are $29.95 per month for 38 basic channels and up to $29.95 per month for 14 premium movie channels. A total of 92 pay-per- view channels are available. The premium movie and pay-per-view channels include multiple channels for different time zones allowing the subscriber to select different viewing times for the same movie. This selection capability is called near-video-on-demand. Costs for the home satellite receiver are currently $699.00 but are expected to come down to about $400 to $500 by the end of 1996 when the exclusive rights of the current manufacturers expire. Thomson Consumer Electronics builds the decoders and the18 inch antennas under the RCA name. The hardware is called Digital Satellite System or DSSTM. Thomson sells two packages of DSS hardware. Each package contains decoder, dish, remote, and cables to connect the decoder to a TV or VCtL A group of major Cable Multi System Operators (MSOs) have joined together and formed Primestar Partners, Limited which also offers a fully digital 65 channel Direct-To-Home service to North America. Primestar and the DIRECTV/USSB service are the only two DBS services available at this time but six other services are reported to be in development. Primestar differs from the DIRECrV/USSB service in several ways. They do not require customers to buy the decoder or dish; instead, they lease it and include the lease cost in the monthly subscription fees. They use a much larger dish which is about 3 feet in diameter which must be professionally installed. Installation prices vary wildly with normal installations ranging from about $150 to $350 plus about $75 for any desired additional outlets. Services available change but current examples are about $40 for basic (18 channel) service and $20 for six movie channels. Advantages of DBS are: ¯Crystal dear laser disk quality Near-video-on-demand (DIRECTV/USSB) Disadvantages of DBS are: ¯High cost of the receiver and dish The ICT Group 55 Lack of local broadcast stations 3.4.2.Digital Service Hierarchies 56 kbps/64 kbps Digital Service -- Digital service is offered in a variety of packages characterized by their transmission sig-nal formats. The basic digital channel transmits data at 56 kbps or 64 kbps, depending on whether certain control sig-nals are embedded in the data stream, or are transmitted on a separate data channel. 56 kbps service will be phased out in the future as all . signaling will be conducted out-of-band, allowing the full 64 kbps for data transmission. North American Digital Hierarchy - The North American digital hierarchy is comprised of sets of 64 kbps channels. The DS-1 series (known synonymously as T-l) is capable of carrying 24 voice circuits, each digitized into a 64 kbps data stream (desig-nated as DS0), for a total bandwidth of 1.544 Mbps. DS-3 (44.736 Mbps) is capable of carrying 28 DS-1 signals or 672 DS0 voice signals, The Synchronous Digital Hierarchy developed for Synchronous Optical Networking (SONET) utilizes the Synchronous Transport Sig-nal (STS) designations. This hierarchy runs from STS-1 at 51.84 Mbps to STS-48 at 2488.32 Mbps. For fiber optics transmission systems, the rates are synonymous but the OC- (optical carrier) desig-nation is applied. For example, OC-48 describes a channel operating at 2488.32 Mbps. Integrated Services Digital Network (ISDN) - The ISDN series is another standard defined by the International Telecommunications Union (ITU) Telecommunications Standards Sector (formerly CCITT, the International Consultative Committee for Telecommunications). Basic Rate ISDN (sometimes referred to as 2B + D) consists of two 64 Kbps B channels and one 16 Kbps D channel, for a total bandwidth of 144 kbps. The 16 kbps D channel carries network control information and can support 9,600 bps X.25 packet data service, as well. With some application equipment, it is possible to combine service for both B channels through a technique that is termed "inverse multiplexing." Inverse multiplexing allows a single Basic Rate ISDN line to support data communications at 128 kbps if the user interface devices on both ends of the call are equipped for this capability. It is also possible to operate equipment that requires greater bandwidth than 128 kbps over multiple Basic Rate ISDN lines, using the same inverse multiplex operation. Many video conferencing systems use this capability to achieve switched digital transmission capacities of 384 kbps for higher quality video conferencing. This service is commonly termed executive video conferencing and is accomplished by inverse multiplexing a total of six B channels on three Basic Rate ISDN switched connections. For larger aggregations of Basic Rate ISDN lines, a DSl-compafible transmission system is utilized in a form designated as Primary Rate ISDN. In this scheme, a total The ICT Group 56 of 23 Basic Rate ISDN B channels are combined with all signaling from the related D channels multiplexed into a 24th 64 kbps channel on the DS1 ~ystem. This Primary Rate ISDN scheme is designated as 23B+D. H Series and the Evolution of Broadband ISDN -- An older hierarchy defined by CCITT utilized multiples of 64 Kbps channels and was known as the H series. Examples ofthis hierarchy that are still encountered are the Hll channel at 1.536 Mbps and the H12 channel at 1.920 Mbps; these channels are at the foundation of ISDN. The Broadband ISDN (B-ISDN) series evolved from the H series. B-ISDN channels range from 32.768 Mbps to 138.24 Mbps, which are designated as H21 and H4, respectively. This series has now been superseded by the SDH designations with STS-1 as the basic transmission signal unit of 51.84 Mbps. 3.4.3.Asynchronous Transfer Mode The direction of all telecommunications is digital. All forms of signal (voice, data, fax, video, etc.) can be handled more effectively with distal processing, transmission, storage and switching. The limitation to this being universal is the cost of electronics. The costs implied that the first cost-effective applications were in high-use concentrated communications, such as the backbones of communications networks. As the costs of electronics and processing capability come down, the distal applications in telecommunications are moving further out on the networks toward the end user. Anticipating the need to address coordinated and standardized transmission and switching of high speed digital communications, the B-ISDN standards were developed in the late 1980s. An element of this standard is the need to accommodate digital traffic with diverse characteristics. This diversity requires the ability to handle a wide variety of services, including low speed, high speed, circuit-switched, packet-switched, continuous bit rate and variable bit rate. These services cover voice, data, and all types of video. These requirements were addressed by using a standardized, small, fixed-size packet for all traffic. Previous packet switching schemes had utilized variable sized and large packets to accommodate specific data needs. These small packets are multiplexed through asynchronous time division multiplexing (ATDM). This combination of small packets and ATDM multiplexing is referred to as ATM. The packet size selected was a 53 byte packet with five bytes used for flow control and path, channel, and error functions. The remaining 48 bytes is the user information field. Further development of standards is continuing for specific interface~ protocols necessary to connect with legacy networks (LAN and LAN connectivity such as Ethernet, FDDI, Frame Relay, and Switched Multi- The I CT Group 5"7 megabit Data Service [SMDS]), and with end user devices. These standards are generally grouped under the banner of ATM standards, though ATM itself is only the 53 byte packet and the use of ATDM to multiplex it. The speed levels defined for ATM user network interface (UNI) service were the S~S-3 level of 155.52 Mbps and STS-12 at 622.08 Mbps. Since the need is perceived for an end user interface (personal computer) for data, video and voice, recent manufacturer-defined protocols for a 25 Mbps UNI have been generally accepted and are be~nning to appear in the market. A significant principle in ATM (and its related protocols) is that it provides a means for combining all forms of communications on the same transmission and switching vehicle. In addition, it can effectively accommodate varying amounts of data (speed) between different calls and during the same call, utilizing only that a_mount of backbone capacity necessary to carry the offered traffic. This ATM approach lends itself well to network requirements such as a full-service network for Palo Alto, in which the voice, data, fax, and video needs of all users could be supported through one connection (drop) per customer over a communications backbone network. Two current drawbacks to ATM are cost and protocol definition. The electronics costs for this type of networking are still generally too high for ATM to the desktop or PC. Furthermore, since the market for end user interfaces is weak, the protocol definitions needed for this level of interface are still in development. The effective application today for ATM is the network backbone. Protocols and lower cost electronics continue to be developed, however, and more desktop ATM applications are seen every month. Wide-svread ATM desktop deployment may be expected within a few years. The ICT Group 58 4.MARKET ANALYSIS 4.1.Overview and Summary This phase of the study covers a preliminary analysis of the Palo Alto markets for telecommunications. The analysis considers the varieties of users and providers of telecommunications in Palo Alto, now and for several years into the future. The preliminary analysis identifies services that might be marketable, the facilities needed, and the respective market seg-ments that m~ght be served. Numerical estimates of market sizes for each service, and a review of other providers serving these markets are presented. Consideration is given to competitive market behavior and telecommunications industry issues that have a bearing upon the prospects for success of a new entrant. The study has identified and considered a variety of telecommunications services that are reasonable to expect will be provided to users in the Palo Alto market. The preliminary analysis has led to the finding that several candidate service offerings should receive further consideration by the City of Palo Alto, while others do not warrant further effort or attention at this time. Each of the candidate services that might be provided constitutes a separate and different prospective business venture because each differs in market size and structure, and in facilities and other resources needed to provide the service.. The g-uiding principles in selecting candidate services for consideration have been the inclusive needs and interests of the Palo Alto community and the practical possibilities afforded by available facilities, technology and other resources. The study has drawn upon demographic and employment data obtained from the City of Palo Alto, interviews with City staff and selected telecommunications users and providers, a comprehensive database of businesses and institutions in Palo Alto (PA095), and the study team members’ experience, industry knowledge and judg-ment. The range of telecommunications market seg~rnents considered includes all possible users. Applicable telecommunications services are considered for each market segment. Market size estimates of total revenue are presented for each service and market segment for 1995, 1998 (three years), and 2002 (seven years). The five major market segments considered include: City offices ° Small businesses The ICT Group 59 ¯Large businesses ¯Medical/dental facilities ¯Residential users These market segments represent the total population of potential users within Palo Alto. The analysis includes users in Stanford commercial lands that are within the City jurisdiction, but excludes those that are not, such as those located on the academic premises. The estimates exclude any neighboring communities. The quantitative market estimates were compiled by a market estimating model developed by The ICT Group. Results are derived utilizing available market and statistical data on business and residential demogTaphics and telecommunications costs, prices and usage. Reliance on the experience, judg-ment and professional knowledge of the ICT Group was utilized where data was unobtainable. Estimates and supporting data are presented in Appendix C. The services identified as candidates for potential telecommunications market offerings by Palo Alto include some that directly utilize the City’s utility ducts and poles and others that are independent of these facilities. The eight candidate services-are as follows: ¯Leasing duct space or pole capacity ¯Leasing inter-premise fiber or metallic cable facilities ¯Leasing non-switched inter-premise bandwidth or bit-rate services Local switched higher speed distal services (data and video) ¯Internet access service °Local switched voice grade services °Long Distance voice grade services o Entertainment television services (CATV) Each service is separately described and explained with respect to how it could be provided, prospective users, estimated market size, potential competition by other providers, and assessment of suitability for further consideration of market entry by Palo Alto. The ICT Group 60 Some of the proposed information utility services are recognizably similar, in concept but not in technical detail, to the City’s other utility services. Notably, long distance resale is similar to the resale of power, gas, and water. The provision of Internet access service bears similarity to long distance service resale. Some specific differences also emerge. Most of the information utility service markets tend to be smaller than the energy markets. None of the available information utility markets affords a monopoly position, with the possible exception of entertainment .cable television, and one of the principal markets, local exchange service~ is currently completely occupied by Pacific Bell. A summary of projected market revenues by telecommunications service are presented below and are illustrated graphically in Figure 3. These projections represent a preliminary estimate. The specific assumptions utilized in the development of these figures are expected to be adjusted during the Alternatives Analysis phase of work for this study as additional information is acquired and further considerations are applied. Palo Alto Telecommunications Market Projections Service Offering Linking of bandwidth on a 1~~ network !~nment (CATV) Totals: 1995 2~341,~ 4,0~6,~ 5254~S 6,047,787 20,50~ 6,303~7S 15~6S,675 21~4S~33 Service 1998 22~7~X~ 4,145~561 5~357,456 7,468~18 4,472,494 12,615~81 16214253 21~03,447 $ 74~564,619 2002 2,447,714 5,497,7~9 8,632,113 13,157,425 15,477,726 16~551,3~1 22,38S~24 What emerges from this examination of market potential is that there are opportunities for the City of Palo Alto to become an important provider of telecommunications and information utility services to its Palo Alto constituents (and possibly neighboring communities) in what is increasingly being described as the information age. These include opportunities to utilize not only the City’s existing infrastructure of ducts and poles for telecommunications lines but also its resources and experience in providing cost-effective service for its historic utility service customers. Not the least of The ICT. Group 6 1 the City’s assets for providing information utility service is its established customer billing capability, a necessity for any service provider. Several interesting opportunities warrant further pursuit. The Internet access and high speed switched digital services represent very high growth markets. Switched local exchange voice and cable television services represent large markets but are complicated by the existence of current monopoly provid.ers, such as Pacific Bell and Cable Co-op. The long distance aggregator service is significant because it is by far the largest market and can be entered relatively easily.. Leasing of duct space, pole capacity, cable facilities, and bandwidth take advantage of existing or potential City assets. The ICT Group 62 Figure 3 Palo Alto Telecommunications Market Projections (1995-2002) $90,000,000 $80,000,000 $70,000,000 $60,000,000 $50,000,000 $4O,00O,O0O $30,000,000 $20,000,000 $10,000,000 $0 1995 Source:ICTGroup Estimates 1998 2002 Long distance voice service aggregator Switched voice Internet access provider Switched data and digital video Entertainment (CATV) Leasing of dark fiber or cable facilities Leasing of duct space or pole capacity Leasing of bandwidth on backbone network The ICT Group 63 4.2. Market Segmentation 4.2.1.City of Palo Alto Employers Breakdown Appendix B provides summaries of data from the American Business Lists (ABL) database acquired for this study. Table B-1 summaries the distribufion of Palo Alto employers by major Standard Industrial Classification (SIC) categories and by numbers of employees. Table B-2 elaborates on the types of businesses listed in the "other services" and "other" categories in Table B-1. Summary quantifies of large and small (50 employees or less) businesses were developed from this informafion for the market analysis. The ABL database was reportedly developed from telephone book listings. The completeness or accuracy of the list is not known; l~owever, the totals are generally, consistent with similar estimates from other sources including the Palo Alto Planning Department and the Association of Bay Area Governments (ABAG). The database provides useful information on each employer including employee range, sales volume range, address, Zip+4 and SIC code. This database listing is being provided to the City with this report. With the proper mapping software on the City Geographic Information System (GIS), it is possible to generate useful graphic map representations using various attributes, such as SIC codes and number of employees, 4.2.2.Employers Further data on employers and employees in Palo Alto is contained in Appendix C. Table C-15(a) (Page C-19) shows the total employment and average number of employees for business firms of varying size in Palo Alto. Table C-15 (b) shows projections of estimated employment for the years 1995- 2002 for large and small firms in Palo Alto. (For the purpose of this study, small firms are defined as those with less than 50 employees.) These data were derived from the ABL data base and were rationalized against similar figures available from the City Planning Department and from ABAG. The employer figures were used as the basis for sizing related market segments and were utilized in costing various services. These figures do not include Stanford University. Table C-15(c) identifies firms in Palo Alto with numbers of employees in the following categories: 250 to 499 employees, 500 to 999 employees, 1000 to 4,999, and 5,000 to 9,999 employees. This list does not include hospital or educational institutions. Table C-16 (Page C-21) shows the distribution of the Palo Alto business telecommunications market by employment district. The district definitions, floor square footage and estimates of employees per district of business locations were developed by the Palo Alto Planning Department. The The ICT Group 64 geographic location of employment districts in Palo Alto is shown on amap provided by the City Planning Department (PA069). The ICT Group integrated the information on this map into the telecommunications infrastructure map, which has been provided with this report as Figure 1. It is interesting to note that over 70% of the business telecommunications market is in three districts: Stanford Research Park (39%); San Antonio/West Bayshore (19%); and Downtown (13%). This geographic market distribution has no bearing on the market analysis reported here but will be useful in the Alternatives Analysis phase of work for this study. The totals from this data were used in the market analysis as a basis of comparison with the ABL database and ABAG summaries. 4.2.3.Employment Table C-17(a) (Page C-22) shoes employment projections for the Palo Alto area of influence for the years 1995- 2002, derived from ABAG statistics. Table C- 17(b) shows Planning Department estimates for comparison. The ABAG data were used to calculate the employee population numbers used in the market analysis. Table C-17(c) shows employment data for Stanford University that were obtained from the University Community Relations Department. These data are presented for reference but were not used in the market analysis. 4.2.4.ivied ical/Dental Table C-17(d) (Page C-24) shows employment data in medical and dental facilities. These data were developed from the ABL database. These statistics were used to derive market segment figures for medical and dental businesses. Where possible, this information was rationalized against information developed by the City. 4.2.5.Residential Table C-18 (Page C-25) shows residential population statistics and projections. These data were developed from the Palo Alto City Profile (PA033) and from documents compiled by the Planning Department (PA094) and ABAG (PA069). Each source presented different elements with some overlapping information areas that permitted good rationalization. City population statistics were used in the development of service revenue estimates. 4.3. Market Estimates for Candidate Service Offerings Detailed market analysis estimates developed in the study are presented in Appendix C. Tables C-1 through C-5 summarize the total projected revenues for all evaluated market segments and service offerings for three different years: 1995, 1998, and 2002. These projections represent 100% of the available The ICT Group 65 market and do not reflect the effects of.competition. Competition will be considered further in the Alternatives Analysis phase of the project since it will be dependent upon the alternative architectures and organizations developed. The total market estimates and associated revenues were based on current prices when available, or on cost-based pricing with a rate of return when market prices were not available. 4.3.1.Leasing of Duct Space or Pole Capacity 4.3.1.1 Service Description This service entails offering the use of space in the City’s utility ducts and on its poles for the placement of telecommunications cables by users in conformance with City specified practices. This service addresses users who wish to rent space to install their own telecommunications cables for technical, privacy and security reasons. The anticipated uses include the provision of telecommunications links between operations at separate premises and facilities within the service area. The expected users are businesses and institutions needing telecommunication links between their own separated premises or between their premises and those of other allied concerns. (Residential users are considered unlikely to utilize this offering.) For example, organizations that employ dedicated circuits or leased lines to interconnect premises or to provide links to remote databases would be candidates for this service. Other potential uses include connections to and among telecommunications carriers and network service providers. For example, the City has entered into an agreement that allows Metricom, Inc. to attach radio equipment for its wireless data network (see Section 3.4.1.5) on City street light poles. The City will need to maintaIn control over access to and actions with regard to its ducts and poles, and may choose to control or perform the installation and maintenance of users’ cables, for reasons including liability and maintaining the integrity of the City’s ducts and poles. To maintain an orderly market, Palo Alto will need .to guard against the potential practice of buying up Palo Alto’s supply of this scarce resource, in effect cornering the market, and then reselling it at higher prices, to the de~ent of users, without benefit to the City. Moreover, the City w~ need to guard against the possibility that all available space will be rented by others, preempting future city use without new construction. Short duration, rights of revocability and preemption, and restrictions on resale and arbitrage in space rental agreements may be helpful. On the other hand, undue caution can preclude beneficial sale opportunities, so an appropriate balance must be found. The ICT Group 66 4.3.1.2 Market Analysis Duct pricing is based upon a derivation of monthly prices from capital investment and rate of return. Assumptions are utilized for percent of available capacity, probable average run distance, probable customers and probable runs per customer. Also, an average of industry figures for pole space leasing is utilized. These assumptions are all soft and need to be further investigated for actual pricing objectives. Additionally, impending US Congressional legislation now under consideration will likely include provision for FCC rule-making concerning pole and duct leasing costing methods that will need to be considered. 4.3.1.3 Market Size Estimate Table C-6 summarizes market estimates and provides supporting data for duct space and pole capacity leasing service. The ICT Group estimates the demand in Palo Alto for duct and pole space to be about $4 million now, rising slightly through 2002 through minor g~:owth projection. These estimates are based upon a presumed price of $1.75 per year per pole space and $12 per year per foot of duct space. (These figures are based on industry averages.) Estimated usage is nearly 6,000 pole spaces and about 300,000 duct space feet by about 250 business users, of whom about 50 are in medical and dental facilities. Only about. $10,000 of the expected $4,000,000 revenue in this service offering is projected to be from pole space. The estimate of market size for this service is independent of the .market sizing for leasing fiber optic or metallic cable facilities (Section 4.3.2) or leased bandwidth (Section 4.3.3). Each of these service markets is sized as though the other services are not offered. If a future system alternative to be evaluated involved a combination of these service offerings, each service would likely take a portion of the available markeL In general, it is expected that the total market for all services would be only slightly larger than the market for a single service alone. The overall market would depend on the particular mix of services being offered. 4.3.1.4 Competitor Assessment Pacific Bell co-owns the poles with the City and owns extensive duct facilities. Pa~c Bell usually does not rent duct or pole space to others, but reportedly has done so under particular circumstances. Pacific Bell could presumably rent pole or duct space again, but they are unlikely to compete with the City in this market. MFS, which has recently constructed ducts in the principal business areas of the City, is very unlikely to lease duct space, preferring to use their ducts for their own cables. A few large businesses have installed inter- ~premise ducts in areas including Stanford Research Park. These organizations are also regarded as unlikely to rent space to others, and in any The ICT Group 6"7 event the areas that such ducts serve are very limited. Consequently, the City of Palo Alto is likely to be the only source for those who may wish to rent duct and pole space within the city. 4.3.2.Leasing Fiber or Metallic Cable Facilities 4.3.2.1 Service Description This service entails the leasing of telecommunications cables between specific points within the service area. The lessee would have exclusive use of the rented cables. This service is similar to the duct and pole space leasing service (Section 4.3.1) but in this case, the City, rather than the user, provides and owns the telecommunications cables. The cables could be metallic wire (twisted-pair or co-axial cable) or high capacity optical fiber, depending upon customer needs and preferences. The uses and users are expected to be similar to those identified in 4.3.1, but this service is expected to prove advantageous for a wider range of users who need such telecommunications links. 4.3.2.2 .Market Analysis Pricing for fiber and cable leasing is based upon investment considerations and assumptions similar to those of Duct and Pole leasing above. US Congressional le~slation under consideration does not expLidtly address this area and pricing can be considered independently. Probable customers are based upon ICY consulting experience with little other information being available. 4.3.2.3 Market Size Estimate Table C-7 summarizes market estimates and provides supporting data for leasing "dark" fiber or metallic cable. The ICT Group estimates the demand in Palo Alto for such service to about $5 million now, rising slightly through 2002 through sma~ growth projections: The estimates for fiber are based upon the prices stated above for pole spa.ce and duct space, plus $0.33 per year per foot per fiber strand. For wire pairs, Pacific Bell prices are used: $1,017 per year for 1 mile and $1,399 for 2 miles. Estimated fiber usage is about 4,300 pole spaces and about 225,000 duct space feet by about 250 business users. Most of these users are expected to be in industry and commercial establishments, including about 50 in medical and dental facilities. Estimated metallic cable usage is 250 runs at I or 2 miles by about 560 business users. Most of these users are expected to be in industry and commercial establishments, including about 120 in medical and dental facilities. More than 10% of the expected usage is for City offices. Metallic cable usage accounts for nearly 45% of the total revenue, more than $2 million per year. The ICT Group 68 As explained in Section 4.3.1.3, the market size estimate for this service is independent of the market sizing for leasing of either duct space or pole capacity (Section 4.3.1) orleased bandwidth-(Section 4.3.3). Each of these service markets is sized as though the other services are not offered. The same considerations regarding multiple services that were discussed in Section 4.3.1.3 apply here, too. 4.3.2.4 Competitor Assessment Pacific Bell provides similar services and so is a competitor in this market. MFS has facilities in Palo Alto that could provide similar service, but MFS has shown a strong reluctance to rent wire or fiber strands, preferring rather to use its facilities to sell transmission service. The issues discussed in Section 4.3.1.1 regarding arbitrage, resale and preemption apply to this service as well. 4.3.3.Leasing Point-to-Point Bandwidth or .Bit-rate Services 4.3.3.1 Service Description This service entails the provision by the City of telecommunications links between specific points within the service area for users who do not need o~ want cable facilities for their exclusive use. To provide such service, the City would install metallic cable or high capacity optical fiber link facilities capable of serving multiple uses between points where customer demand is needed or anticipated. The City would then lease portions of that transmission capacity (or bandwidth) to different users. This service is comparable to the du~ space/pole leasing and dedicated cable leasing services described previously, but in this case, the traffic of multiple users is carried together on high-capacity facilities operated by the City. This service is expected to prove advantageous for an even wider range of users who need point-to-point telecommunications links. 4.3.3.2 Market Analysis Lease pricing for digital transport capacity is based upon a simple average of prices from current Pacific Bell rates for 64 kbps to 1.5 Mbps digital leased line service. The projected mileage and number of customers is based upon ICT Group consulting experience with little other information being available. 4.3.3.3 Market Size Estimate Table C-8 summarizes market estimates and provides supporting data for bandwidth capacity leasing service. The ICT Group estimates the demand in Palo Alto for such service at about $2 million now, rising slightly through 2002 through small growth projections. These estimates for digital service The ICT Group 69 capacity are based upon Pacific Bell prices for services ranging from 64 kbps to 1.544 Mbps per second, for which an equally weighted average price is about $592 per month per megabit per second for a 1.5 rrifle run. Estimated usage is about 330 runs by about 250 business users, including about 50 in medical and dental facilities and most are in industry and commercial establishments. More than 10% of the usage is anticipated for City offices. Average monthly outlays are estimated at nearly $600 for smaller businesses .(less than 50 employees) and for medical and dental offices and clinics, while for larger firms and hospitals the. estimate is nearly $2,400 and for City offices it is more than ~,000. The market size estimate for this service is independent of the market sizing for leasing of duct space or pole capacity (Section 4.3.1) or leasing fiber optic or metallic cable (Section 4~3.2). Each of these service markets is sized here as though the other services were not offered. The same considerations regarding multiple services that were discussed in Section 4.3.1.3 apply here, too. 4.3.3.4 Competitor Assessment Pacific Bell and MFS both provide such services in Palo Alto. The usual practice of MFS is to price about 10% under Pacific Bell’s tariffs, which are filed with the CPUC and are a matter of public record. Pacific Bell can not currently change their prices at will to meet competition. 4.3.4.Entertainment Television Services 4.3.4.1 Service Description Entertainment television service through cable is currently a one-way broadcast capability. The cable service is similar to traditional over-the-air broadcast, except that the radio frequency signal distribution is provided by co- axial cable. This arrangement enables much larger, number of channels to be sent over the cable television system than could be sent over the air because cable is not limited by the frequency allocations that apply to over-the-air broadcast. The number of channels that can be provided on a cable system depends upon its design and the cost of electronics used..Currently, the Palo Alto Cable Co-op system supports 77 channels including .seven premium channels, six pay-per-view channels and 19 local broadcast channels (such as KRON Channel 4 and KPIX channel 5). Basic service fees are about $30.00 per month. Added fees apply for premium channels and pay-per-view. Many cable operators and telephone companies are conducting, experiments and market tests of enhanced cable services. These enhanced services include datacommunications, voice, telephony, interactive video, video-on-demand and near-video-on-demand. The data and voice services are considered in The ICT Group 7 0 other service areas of this analysis. The enhanced video services are reportedly not being well received in the test market trials with the possible exception of near-video-on-demand. Near-video-on-demand requires the transmission of the same. program material on different channels with differing start times so that subscribers have the convenience of selecting a convenient viewing time. Providing this capability requires additional channel capacity on the distribution system. Competition for this capability is coming from direct broadcast satellite. Because of the uncertainty of the market demand for enhanced video services, The ICT Group has made no revenue projections for these services at this time. 4.3.4.2 Market Analysis Prices, revenue, total subscribers, and per-subscriber revenue for CATV service are based upon data provided by Palo Alto Cable Co-op. Projected growth rates are based upon historic rates, industry experience in growth, and expectations for some loss due to competition from direct broadcast satellite services. The breakdown into market segments is by ICT Group consulting estimates. 4.3.4.3 Market Size Estimate Table C-9 summarizes market estimates and provides supporting data for CATV entertainment television service. Average revenue per subscriber is $35.98 per month in Palo Alto and $38.00 system-wide. Annual revenue is about $12 million system-wide, with about $6 million from Palo Alto subscribers in 1995, projected to grow to about $7.5 million by 1998 and $8.6 million by 2002. 4.3.4.4 Competitor Analysis The primary provider in Palo Alto is currently the Palo Alto Cable Co-op. The revenue reflected here is based upon the continuation of this service. Some competition is expected from direct broadcast satellite. This expectation is ~ reflected in the revenue figures of the analysis. Potential competition may be expected from Pacific Bell when changes in regulatory controls allow their entry into this market. 4.3.5.Internet Access Service 4.3.5.1 Service Description Internet access service is an information utility service that provides users with access to the Internet. Internet denotes the large network of computers The ICT Group 7 1 worldwide that are equipped, operated and interconnected by telecommunications in a standardi~,ed manner that enables users to interchange information. From its beginningsin the 1960s until April 1995, the cost of the internal network telecommunications infrastructure was provided at public expense by the federal government. In recent years, the costs for operating the various entities that comprise the Internet have been distributed among the endausers, access providers, network operators, and the telephone companies that provide the basic network infrastructure. Each of the users and providers pays for the services they use or the portions of the network tt~ey operate. Until recently, most users were in large technical establishments such as academic, industrial and government offices and laboratories. Now, the numbers of large and small residential and business users are increasing rapidly. The fast-growing number of Internet users in the US is about 21 million and is predicted by Internet watchers to reach more than 100 million in 5 years or less. The number of Worldwide Web sites (information postings sites, pictorial and increasingly used for advertising) currently doubles every 53 days. Personal microcomputers (or terminals on larger computers) are the tools through which individuals util~e the Internet’s information resources. The users" computers connect to the international network via localized serving computers that perform the mediation necessary for network access. Individual-user computers, either singly or linked in groups (LANs), connect via local telecommunications links to an Internet access server computer, which in turn is linked to other computers at higher levels of aggregation on the international network. Internet access provision is the se~’vice of operating Internet access computers through which large numbers of users can be connected to the global Internet computer network. Most of the current commercial providers of Internet access for individuals or small groups rely upon the local exchange telephone service for user connections to the access server. Users dial a local telephone number to connect to the access, provider’s service computer. The growing use of pictorial matter (imaging) on the Internet is driving user demand for higher speed telecommunications services for Internet access; such services include the telephone companies’ ISDN, and are further discussed in this report as another possible service .offering by the City. Cable television offers the opportunity-for individuals to obtain faster (i.e., higher bandwidth) connections to the Internet than are generally possible through local telephone services. Large-scale Internet users (i.e. corporations) typically connect directly to higher level computers on the network through high- speed leased connections instead of using dial-up connections. The City of Palo Alto could provide Internet access service to users in Palo Alto (and elsewhere) by acquiring and operating Internet access computer The ICT Group 72 facilities to provide this service. The City’s access service computer would connect to the network at an appropriately higher level. The City could act alone to provide such service or could engage one or more partners for mutual benefit. The City’s experience in providing utilities services to end users, including its ongoing capabilities for billing such services, is a useful asset in providing this form of information utility service. 4.3.5.2 Market Analysis Prices are based upon current industry pricing. Current market size is based upon available user statistics. Projected market growth is based upon ICT Group consultant projections. The projection for Internet market growth is generally felt in the industry to be very high. With current growth rates at 100% per year, it is obvious that the growth cannot continue long. The projections used here are based upon a smooth curve flattening out early next decade.. This projection results in a very large population of users by that time. This is projected at these levels because of the high value generally felt to be provided by the information and services becoming available on the Internet network. It is expected that the Internet will continue to be the "only game in town" for such wide-spread services in a public forum. The new information and services continues to increase at a tremendous rate. New service and.information providers are currently being added at a doubling rate of 53 days. The nature of the services and information are such that the personal and business values are very high and therefore the potential market is dramatically large. A si~cant capability provided by the Internet is that it is a network that is universally available for any user or service and is nearly world-wide. It has, in fact, become the de facto international public data network likethe current voice long distance network so universally in use. Although it was not planned for this use, it has become the pre-eminent available, unrestricted, universal public data network. It now appears that this network is unstoppable and is not owned or operated by the telephone companies of the world. Any computer can join with connecting trunks (from the telephone company) but without the networking intelligence (or switching) being owned or controlled by anybody but the end users. It is almost a revolution. 4.3.5.3 Market Size Estimate Table C-10 summarizes market estimates" and provides supporting data for Internet access service. Internet users and usage are growing spectacularly. The ICT Group estimates the 1995 Palo Alto market for Internet access services at about $6 million, with projected growth to $12 million by 1998 and $15 million by 2002. These estimates are for Palo Alto users. However, the potential market that could be served by an Internet access facility located in The ICT Group 73 Palo Alto is larger than these numbers, because users can dial in from outside Palo Alto and local dialing numbers could be provided to users in more distant places. Users in Palo Alto and elsewhere are expected to be widely distributed in homes, business and institutions. New users are coming from smaller business and commercial establishments and from homes, which previously did not have Internet access. 4.3.5.4 Competitor Analysis The number of Internet access providers serving Palo Alto is large and growing. Most of the end user access providers are relatively small new firms, but large operators include MCI and some limited access from on-line computer service providers such as Prodigy and America On Line. Pacific Bell offers access service now for large users and has announced service to smaller and individual users to be offered later this year. Microsoft is widely expected to provide some form of Internet access along with its forthcoming on-line service, perhaps ~s year, and will soon offer Internet access software for microcomputers. How this emerging market will shake out remains to be seen; the market leaders are not yet apparent. Price, service, and speed are expected to be the major elements in securing market share. 4.3.6.Long Distance Voice Grade Service Aggregator 4.3.6.1 Service Description Long Distance telecommunications service is defined as the service that is provided between local service areas. Long distance is provided separately from local telecommunications sei’vice, through which most users obtain access to long distance service. -Long distance network facilities are connected to local service facilities. A reseller typically serves customers through the local service provider, Pacific Bell. The reseller’s customers’ long distance calls are routed to the reseller’s local switch, which collects billing information and routes calls to the wholesaler’s POP. The reseller provides or arranges for billing, operator and directory assistance, and sales. Substantial economies of scale are inherent in long distance telecommunications, so the ability to gather a substantial amount of traffic at one place affords low resource costs that can be reflected in wholesale prices and passed through to the benefit of users. Large organizations typically avail themselves of these economies and long distance carriers compete for this bulk business as well as for retail business. The businesses and residents of Palo Alto can be recognized as a potentially large aggregation unit for long distance traffic and the City of Palo Alto might The ICT Group 74 act as aggregator and reseller. In such a role the City would be acting as the provider of an information utility service. The City of Palo Alto could provide long distance service to users in Palo Alto (and elsewhere ) by acquiring and operating switching facilities appropriate for this service and arranging with long distance carriers for bulk services and with Pacific Bell for routing the City’s long distance customers’ calls to Palo Alto’s switch. The City’s switching facilities would connect to Pacific Bell’s local switches and to the long distance carriers’ POPs. The City could presumably also connect customers to the long-distance carrier’s POP through its own switching and transmission facilities. The City could act alone to provide such service or could engage one or more partners for mutual benefit. The City’s experience in providing utilities services to end users, including its ongoing capabilities for billing such services, is a useful asset in providing this form of service. 4.3.6.2 Market Analysis Estimates of long distance revenue for each type of user are ICT Group consulting estimates based upon experience with previous customers. The usage, however, does vary across different customers and is uncertain. The population figures are based upon available statistical information with some estimates for average employee size within a given size range. 4.3.6.3 Market Size Estimate Table C-11 summarizes market estimates and provides supporting data for long distance aggregator service. The Icr Group estimates the 1995 Palo Alto market for long distance services to be about $21.5 million, approaching $22 million in 3 years and exceeding that level in 7 years. These estimates are for Palo Alto users. They do not include neighboring cities or Stanford University. However, the potential market that could be served by a long distance resale facility located in Palo Alto is larger than these estimates because users can dial in from outside Palo Alto and local dialing numbers could be provided to users in more distant places. Large users can be directly connected to Palo Alto’s fatty. Users in Palo Alto and elsewhere are expected to be widely distributed in homes, businesses and institutions. 4.3.6.4 Competitor Analysis Currently, four major long distance carriers operate in the US including AT&T, MCI, Sprint and Wiltel. Each of these networks have access facilities (POPs) in Santa Clara County, with two of these in Palo Alto. Each network sells long distance services directly to users at retail via the local service network In Wiltel’s case, service is provided under the identity of its parent LDDS). Each network- also sells discounted wholesale or bulk services to large users and to resellers who in turn sell at retail directly to users, in competition with other resellers and with the wholesalers’ retail operations. The ICT Group 75 Pacific Bell is currently restricted by from providing long distance service under the Federal court judgment that broke up AT&T in 1984. Long distance service is provided only by several long distance carriers, none of whom currently provides local service. Impending Congressional legislation will probably open the market for long distance services to the Regional Bell Operating Companies (RBOCs), but the big uncertainty is the speed with which Bell entry into long distance will be allowed. (The Bell companies ongoing efforts to remove these restrictions and enter the long distance business are addressed in this report’s discussion of local exchange service in Section 4.3.8.) The Federal Court-supervised consent decree that separated the Bell companies from AT&T bars Pacific (and the other RBOCs) from providing long distance service beyond defined service areas within a state, known as LATAs. Non-Bell local service companies are not subject to this prohibition. Inter-LATA service can currently be provided only by long distance carriers, - not by Pacific Bell. As of January, 1995, California regulatory practice in Palo Alto and other localities further reduced the local areas within the LATA that remain the . monopoly province of Pacific Bell. These areas are defined by zones that extend up to 16 miles from the local exchange wire center. Intra-LATA calls beyond the local zones can be carried by either Pacific Bell or by a long distance carrier that the caller chooses. (These calls are known as "local toll calls" or "local plus" calls in Pacific Bell parlance.) Concurrently with this action, Pacific Bell substantially raised the price of basic local telecommunications service and reduced the price of local toll calling, with CPUC consent. Many .resellers rushed into the long-distance service market after the AT&T break~up in 1984. Many of these resellers have perished, but some have prospered, such as LDDS. MFS has an affiliate, Intelenet, that provides long distance services through a combination of MFS facilities and resale. 4.3.7.Common-Carrier Switched, High Speed Digital Services 4.3.7.1 Service Description These services entail the use of higher speed switched digital facilities and capability to provide high speed computer communications, image transmission, and video conferencing that can not be provided by the local exchange voice grade services. Modems used to operate computers and other digital devices on the voice grade network are currently limited to transmission speeds of about 28.8 kilobits per second. A growing number of users and uses, particularly Internet and on-line services access (CompuServe, Prodigy and America On-line) employing graphics and image, remote LAN The I CT Group 7 6 access (telecommute) and video conferencing are driving the demand for higher speed switched digital services. Current switched digital services include, but are not limited to, Pacific Bell’s services known as Switched Digital Service 56 (SDS-56) and ISDN. SDS-56 service operates at 56 kbps on ordinary telephone wires, with either two-wire or four-wire connection to the customer’s premises. SDS-56 also requires special equipment at the local switch and at the user’s communicating device. Pacific Bell has provided this service for several years and continues to do so; it is used primarily by businesses and seldom in residences. ISDN provides higher speed digital service of up to 128 kb/s. (An additional channel with 16 kbps transmission speed is included in the ISDN package. This additional channel can be used for sending packet-switched data transmissions, but the extra bandwidth can not be used concurrently with the basic 128 kbps service. ISDN requires augmented local switching facilities and user devices but can use the existing 2-wire premise line facilities to provide two separate user channels each operating at 64 kilobits per second. It can be used for voice as well as non-voice service. However, special costlier digital telephone instruments are required. These instruments require external electrical power, unlike standard analog telephone sets that are powered by the network. ISDN capability is readily available for standard local exchange switches. User premise devices for ISDN service are commercially available now at $300 to $500 and prices can be expected to decline substantially as sales volume grows. ISDN service was Conceived and initiated by the telephone industry more than a decade ago and has been adopted more widely elsewhere than in the US. It is nowgaining rapid acceptance here, largely because of Internet and telecommuting and, to a lesser extent, limited-motion video conferencing. Internet access was far from the minds of the ISDN planners but has emerged unexpectedly to provide strong US demand for ISDN service that had languished and was near moribund here. Pacific Bell and other Bell companies introduced ISDN about six years ago. During these first six years Pacific Bell garnered about 20,000 connections; by late May 1995 the number had reached about 35,000 and was growing at about 3,000 .per month. In addition to ISDN, higher speed digital connections could be provided through the use of a high speed digital backbone network that could be provided throughout the City or to key target areas. This type of system would likely be a fiber optics based system that would also provide for entertainment (TV) and possibly voice service connections. To provide local exchange switched digital services the City could utilize its duct and pole facilities. It would also need to acquire, install and operate local The ICT Group 77 digital network and switching facilities and telecommunications network lines (fiber, co-ax and/or twisted pair) from a switching center to each served customer premises, Interconnection with other digital networks and with long distance carriers would also be required. Entry may be more readily achievable into the local exchange digital market . than into the voice grade market, and may provide a natural migration path. The small size and rapid growth of the digital market means that a new entrant need not displace an incumbent. Local cormections need to be made to users as and when they become customers; it may not be necessary to wire the whole city before any customers can be served. The premium nature of the service, with early adopters coming on first, may find users more willing to accept a larger portion of the connection cost as an initial instaflation charge. 4.3.7.2 Market Analysis The market for digital data is currently growing at an incredible rate. The projections for current growth were obtained from Pacific Bell for ISDN services (Consultant Liaison Program Seminar, May 23, 1995) and Matrix Information Directory Services for Internet (Matrix Home Page on World Wide Web). Future growth projections through the next decade are ICT Group consulting estimates based upon perceived values and need for both individuals and businesses. The increasing use of image, video and graphics in business, Internet, and telecomrnuting applications are the major drivers for this growth. There are currently four personal computers for every ten people in the US. Electronics Industry Association estimated that household penetration of personal computers stood at 33% in January 1995, and could reach 40% by the end. of the year (US Consumer Electronics Industry in Review, ’95 Edition, EIA, Washin~on, DC (1995)). Palo Alto household computer penetration is even higher than the national average, perhaps approaching 50%. 70% of all home offices have a personal computer. Personal computer sales increased by 16.6% in 1994. For the first time last year, the sales of household personal computers exceeded those of television sets. Pacific Bell’s president, Dave Dorman, said in a speech last March that modem sales had doubled since the previous May to a total of 50 milton (Networld + Interop Trade Show, Las Vegas, NV, 28 Mar 95, reported on Business Wire). He also said that business data communications was growing at 30% per year and that half of all business communications would be data sometime in mid-1995. Satisfaction of this need will necessitate the provision of dramatically increased switched digital data service. The ICT Group 78 4.3.7.3 Market Size Estimate Table C-12 summarizes market estimates and provides supporting data for common carrier switched digital service. The ICT Group estimates 1995 revenues for all local switched digital services provided in Palo Alto to be about $20,000, growing to more than $4 million by 1998 and nearly $13 million by 2002. 4.3.7.4 Competitor Assessment Pacific Bell currently provides end-user and small business data switching through ISDN services (at 56 kbps to 128 kbps, depending upon the application) and is expected to provide higher speed switched data services sometime in the next few years. What is uncertain is the speed with which the Pacific Bell services may be made available. Pacific Bell currently provides LAN-to-LAN data switching for small and large business through Frame Relay (at 56 kbps to 1.536 Mbps) and for larger business through SMDS (at data rates from 1.17 Mbps to 34.Mbps): Pacific Bell plans to offer packet switched service through ATM transport at data rates of 1.2 Mbps and 45 Mbps. This ATM service is not yet tariffed but is expected to be available by early 1996 in larger metropolitan areas. MFS has a switched digital services affiliate in San Jose that does not have switching facilities in Palo Alto but might serve customers here through the MFS intercity facilities. Cable Co-op could enter the market for switched digital services, using its installed infrastructure as a nucleus for its implementation. This is a potential area for partnership between the City and Cable Co-op. Whether others would enter the market knowing that the City and Pacific Bell both serve it would depend upon how well and completely these two serve it. Tl~e City could achieve an advantageous position in this dramatically growing market through early entry with cost-effective service. 4.3.8.Common-Carrier Switched Voice Grade Services 4.3.8.1 Service Description These services support the local exchange portion of the familiar universal telephone network that provides worldwide voice and non-voice communications. Pacific Bell currently holds a monopoly position in Palo Alto and all nearby communities as the sole provider of local exchange services. However, the CPUC has ordered that the local exchange market be opened to competitive services as early as January 1996. (See Section 4.3.8.3 for changes in the local exchange regulatory environment.) More than 99% of all Palo Alto households and businesses now use Pacific Bell local exchange services. The I CT Group 7 9 The local exchange network provides the capability to connect communications lines from each telephone number at the customer’s premises to a local exchange switch. This switch connects the customers’ lines to other lines within the local exchange area or, through interconnections with other switches, to any other communications line in the worldwide network. For each line connected to it, the local switch provides a network address (the familiar telephone number), dial tone, electric power for the telephone instrument, and billing information for each call. Through the local exchange network, the user gains access to long distance carriers and to computer networks. With appropriate equipment at the customer’s premises, the universal telecommunications network also provides a wide variety of voice grade data services such as facsimile and a diverse array of computer communications. These services permit direct links between cooperating computers and access to a variety of on-line information services, including the Internet. Many services carried on this multifunctional network combine voice and computer functionality. These services include, for example, voice mail and query-and-response services such as those commonly used for bank account information and telephone directory assistance, and machine-to-machine communications, such as those commonly used by retail merchants for credit card authorization. The universal network as it has evolved during the past century does not provide high speed non-voice digital service that is. increasingly in demand. High-speed service uses the existing local lines but requires augmented loc~ switch facilities and user premise devices, described in this report under Switched High Speed, Digital Services. Pacific Bell’s telecommunications network lines in Palo Alto pass over and under the city’s streets and other terrain. Many of the overhead lines are carried on the same poles that carry the Palo Alto Utilities electrical power wires. The poles are, in fact, jointly owned by the City of Palo Alto and Pacific Bell. The City and Pacific Bell each use separate underground ducts, for their respective power and telecommunications network.lines and cables, and each- builds and uses ducts independently of the other. Many of the City’s ducts are capable of carrying telecommunications lines but, with minor exceptions, are not used for that purpose. The City’s ducts and poles together reach all residence and nonresidence service points in Palo Alto. To provide local exchange telecommunications service, the City could utilize its duct and pole facilities as a resource for building the necessary system backbone. Telephone service could also be provided over cable television facilities. For both the duct/pole approach and the cable television approach, the City would need to install and operate cross-connection and central switching facilities, provide telecommunications lines to each user premise, The ICT Group 8 0 and arrange interconnection with nearby local exchange service providers and long distance carriers. It should be pointed out that entry into this business, while practical technically, is a major business undertaking. 4.3.8.2 Market Analysis Pricing for this service is based upon current Pacific Bell rates. The total population of lines can be confidently projected from the number of users in the population and workforce (from available statistics). The distribution of lines between service line types is an ICT Group estimate based upon previous consulting experience. The sensitivity to the distribution of line types is not high since the differences in rates among the various line types are not great. 4.3.8.3 Market Size Estimate Table C-13 summarizes market estimates and provides supporting data for common carrier local exchange service. The ICT Group estimates 1995 revenues for all local, exchange voice grade services provided in Palo Alto to be nearly $16 million, growing to slightly more than that amount by 1998 and remaining less than $17 million by 2002. 4.3.8.4 Competitor Assessment The primary competitor in this service area is currently Pacific Bell. However, CPUC has just issued rules that open the local exchange market to competition in 1996. ("CPUC Targets 1996 for Local Competition", CPUC News, CP-068, 24 Jul 95) Competitive local carriers with their own facilities (such as lines, switches, and radio towers) can offer service as early as January 1, 1996 subject to approval of their specific applications. Authority for other carriers to provide resale services should be granted as early as March 1996. CPUC has still targeted January 1, 1997 as the date for implementing full competition for all telecommunications markets. A major question is the speed with which any of the competitors will actually be able to implement competitive local service. The potential exists for other interests such as MFS, TCI, Sprint, and AT&T to consider entry into this area. The timing and terms for allowing Palo Alto or any other non incumbent local exchange carrier anywhere in the US to provide switched voice service is the subject of current reg~atory and legislative proceedings, in which the incumbent monopoly Bell local exchange providers are major adversaries of the long distance carriers AT&T and MCI, among others. The terms and conditions under which Pacific Bell might be required to share the Palo Alto local exchange service market remain incomplete but The I CT Group 8 1 resolution appears to be on the near horizon. Palo Alto must defer serious consideration of providing local e~change service until these issues are more clearly resolved, but should continue to monitor developments that produce significant change. 4.3.9.Other Services Not Evaluated Four other basic service types were considered as possible services for the City to consider as a part of the Market Evaluation but were determined to be of minimal value or to be included in the consideration of other service areas. ¯ These services included: ¯Network LAN service for selected customers ¯Local switched data and distal video (vice common carrier service) ¯Local switched voice (vice common carrier service) °Data network access provider The Network LAN service envisioned the provision of private network services for specific industry or commercial customers. Investigation and evaluation during the study has determined that there is no substantial market for this service. The industrial customers that could be candidates have all implemented their own private network systems and are not likely to abandon them and the implied company control of these networks in favor of a City provided service. Local switched data and local switched voice services were envisioned as a possible compromise for offering such services without having to apply as a common carrier. With the impending Confessional and CPUC actions relating to open competition in common carrier switching, the distinction between local service versus common carrier service appears to be diminished and no advantages would be gained by not providing full common carrier service. For this reason, the local switched-only services were not considered. The data network access provider service envisioned the possibility of adding access to other networks on a dedicated basis, to the local switched data service. Since the local switched service was not to be considered and this access service would naturally be a part of common carrier data service, this was not considered as a separate market. The ICT Group 82 4.4. Potential for Expansion into Neighboring Markets No evaluation was performed on market areas outside Palo Alto. It is very probable that many services offered could also be provided outside of the Palo Alto city limits. Long distance and Internet access are services that could be easily offered beyond the city limits without the necessity for network expansion. Depending upon the sales and promotion efforts made, it is reasonable to expect that expansion into neighboring geog-raphic areas could increase the revenue of these services by 50% to 100%. If a backbone network was built and extended, for example, along the current Palo Alto Cable Co-op route, this network would pass twice as many addresses as those only within the City of Palo Alto. The distribution and population of businesses, employees and residents along the extended portions of this route have not been evaluated in this study. This network extension, however, would increase the market for the services of leasing of dark fiber or cable, leasing of bandwidth on the network, entertainment (CATV), common carrier switched digital and common carrier switched voice. Of these services, the largest markets are in entertainment and in both switched voice and data. ¯ Since revenues for these services in.future years primarily include residential users, it may be assumed from the Cable Co-op figures (50% of subscribers outside Pa!o Alto) that a similar market penetration here may be probable. These considerations imply that extension of services beyond the City limits as described here may reasonably be expected to present an overall potential market revenue increase of 75% to 100%. 4.5. Overview of Deregulation and Competition Competition has been the watchword of US telecommunications for the past quarter century, and it is manifest in the Palo Alto telecommunications markets. These manifestations are not homogeneous throughout the telecommunications markets but rather differ among them and are specific to each market. The previous Market Analysis sub-sections of this report addressed competition issues .specifically in the context of each of the respective service markets set forth there. The following sections present an overview of telecommunications competition and of the competing participants in the Palo Alto markets. 4.5.1.Telecommunications Competition Impending Congressional legislation and recent CPUC rulings are creating major impact=on the competitive environment for telecommunications services in Palo Alto, California, and throughout the nation. Previous restrictions on cross-ownership of cable television and telephone networks are likely to be overturned, opening the way for direct competition between The ICT Group 83 cable and telephone operators. The local telecommunications market is being opened up to competition by other telecommunications providers, including the long distance carriers. The local exchange companies are lobbying hard for authority to provide long distance services. -The state of the legislation and regulatory changes have been reviewed in Section 3.3 of this report. A historical overview of the transition from monopoly to competition is presented in Appendix I. 4.5.2.Palo Alto Market Participants To understand the Palo Alto telecommunications markets and the roles that the City of Palo Alto might undertake in serving these markets, it is helpful to explore some detail relating to current and prospective telecommunications service providers in Palo A_lto. The current telecommunications market in Palo Alto can be partitioned meaningfully into three kinds, in terms of what is provided and how it is provided: services provided through the universal telecommunications network services provided through the cable television network direct connection of facilities or users to each other without a third party network Palo Alto is served by the universal telecommunications network, operated locally by Pacific Bell, which provides telephone and data communications services, and by a local cable television network, Cable Co-op, wtiich distributes television program services t0 Palo Alto and other nearby communities. Both of these providers currently occupy monopoly positions in Palo Alto. These two firms occupy the only monopoly positions found now in Palo Alto. All of the other Palo Alto markets are competitive. Both Pacific and Cable Co-op are exploring prospective roles in competitive markets (Pacific is pushing hard), and both anticipate that the scope of their respective monopoly positions will be narrowed or eliminated in coming years. Neither Pacific nor Cable Co-op has shown any sign of intent or willingness to voluntarily relinquish their respective monopoly positions, though each is looking at entering the other’s monopoly market, among others. Competition already exists in local and regional telecommunications service through the wireless cellular telephone system. Cellular One and GTE Mobilnet are the major cellular carriers providing service in the Palo Alto area. Cellular subscriptions have grown significantly, aided in part by the plummeting costs of cellular telephone equipment. However, cellular The ICT Group 84 service costs still remain high, compared with conventional telephone service. The new generation of micro-cellular personal communications services (PC.S) promises to open up the competition for convenient, wireless communications. Pricing of PCS services has not yet been announced. Pacific and the other Bell companies are working vigorously to end the government prohibitions that bar them from providing television programming in their local exchange telecommunications service markets. Pacific is thus a potential television competitor in Palo Alto. Cities have previously had entry control power in cable television. Whether that control over new entry will continue is unclear, but will clearly bear upon the prospects .for future competitive entry. DBS services are a present and future competing alternative to cable television services, and are expected at the very least to moderate cable service growth in coming years. The high picture quality, potentially huge program variety, compact size of newer receiving antennas, expected .continuing decline in price of receiving devices, and the cable free plug and play convenience will all contribute to rising popularity of DBS. DBS ~s unlikely to completely supplant cable services, particularly in the near term, for multi-story buildings or other residences where some individual occupancy units may not afford a clear line of sight from antenna to satellite. Additionally, DBS cannot provide local broadcast television channels. If customers cannot receiVe satisfactory off-the-air local reception, the satellite system service will have a disadvantage compared with cable service. Even without municipal entry control, no new entry has been attempted into the local exchange market in Palo Alto or other established cities. While prospective entrants might be contemplated in Palo Alto, such entry remains conjectural. One plausible entrant is MFS, which could serve some business customers through its own network and could serve residential and other business customers through Pacific Bell’s local lines if Pacific permits such action, by compulsion or voluntarily. MFS has openly proclaimed its intent to provide integrated local exchange and long distance service, but hasn’t moved to do so yet in Palo Alto. At least one new wireless service, has beg’un operating in Palo Alto under a recent agreement with the City. Metricom provides wireless digital data communications services in Palo Alto and other cities at speeds of up to 40 kbps at $29.95, the same monthly subscription charge as Cable Co-op’s television program service. The service is especially attractive for, but not limited to, mobile laptop microcomputers. Wireless digital data services such this one are expected to co-exist with rather than supplant wireline local exchange high speed digital data services. .The ICT Group 85 Long distance services in Palo Alto are provided through Pacific Bell’s local network (except for those large users who can and do gain direct access to long distance carriers). Long distance service is competitive in Palo Alto as it is throughout the US. The Palo Altomarket is served competitively by AT&T, MCI, Sprint, Wiltel and several firms (of varying degrees of visibility) that resell the transmission services of the four underlying careers. Competition is active, as evident in advertising, direct promotion and, to some extent, prices. The high capital cost of-creating a national long distance network, and the abundance of current capacity makes it unlikely that additional carriers ~,’ill enter in the near future. Resale entry barriers are much lower, but resellers tend more to be in a consolidation than a new entry phase. A new entrant needs a differentiating quality to enter at this stage. MFS, as mentioned above, is a prospective entrant. It would be unsurprising to see market presence in Palo Alto by LDDS, which recently bought Wiltel, one of the four nationwide networks. Information utility services such as Internet access service to end users are openly competitive, and tend to be even more so than the open entry long distance reseller market. Because of the de facto separation between the providers of end user access and those who function at the higher aggregation levels; the latter refrain from service to end users. Whether that distinction will continue remains to be seen. For example, it has already been mitigated by the affiliation of end user server AT&T with BBN Planet (in which Stanford also has a stake). Pacific Bell, MCI and Microsoft soon will offer Internet access in Palo Alto. Internet access is available through a local phone call in Palo Alto to numerous providers and the number grows and changes. For this fast growing market also, a new entrant needs a differentiating quality to enter at this stage. IV[FS has a new Palo Alto network serving the City’s principal business areas with high capacity direct connections. MFS direct connections provide for access to long distance carriers and inter-premise communications. MFS has affiliates in local exchange, long distance and high speed switched data services and has technical resources, skill in utilizing Pacific Bell’s fadliries and services to complement its own, experience in other dries in the US, and employs vigorous marketing. All ofthese areas of strength indicate that MFS will be a sig.~ficant participant in Palo Alto business telecommunications. TCI, with its substantial experience, capabilities and efforts focused on direct connections will be a significant participant Lf and when it acquires Palo Alto intracity facilities. This could occur through its relationship with Cable Co- op, thereby complementing TCI’s existing high capacity inter-city fiber facility that now links Palo Alto to the wider world. The ICT Group 86 Sprint has joined with a number of powerful partners in the cable television industry to mount a comprehensive effort to compete in the local telecommunications market through cable television and PCS access. Sprint’s partners include TCI, Cox Communications, and Comcast Corporation. Sprint owns 40% of this joint venture; TCI o,~,ms 30%, while Cox and Comcast each own 15%. Further, the Cable companies will contribute their ownership of Teleport Communications Group (TCG) to this venture. TCG has built fiber optics networks serving businesses in 37 metr6politan areas and has received authorization to provide local telephone services in nine states, including California (Wall Street Journal, 30 Mar 95). The joint venture has not announced any plans for the Palo Alto area yet, but TCI’s relation with Cable Co-op and Sprint’s active presence in the Palo Alto area make it likely that they could become players in the Palo Alto local telecommunications market. These current and prospective competitors in the Palo Alto information and telecommunications market are summarized in Table D-1 in Appendix D. Other participants can fully be expected appear in Palo Alto as the competitive market develops under the open-entry concepts now g-uiding US and California telecommunications policy and practice. The ICT Group 87 ABAG ABL ADSL. APPA ARDIS AT&T ATDM ATM ATU BEV BISDN CAP CATV CCITT CCLM CD-ROM CDMA CLC CPA CPE CPUC DBS DC DEC DSM DSS EOC FCC FDDI FM GAATN Gbps GHz GLOSSARY Association of Bay Area Governments American Business Lists, Inc. Asymmetric Digital Subscriber Line American Public Power Association ARDIS, a wireless data network provider AT&T Network Sys[ems Asynchronous Time Division Multiplexing Asynchronous Transfer Mode Anchorage Telephone Utility Blacksburg Electronic Village Broadband ISDN Competitive Access Provider a generic name for cable television, formerly known as Community Antenna Television International Consultative Committee for Telecommunications (former name of the Telecommunications Standards Sector of the International Telecommunications Union Customer-controlled Load Management Compact Disk- Read Only Memory Carrier Division Multiple Access Competitive Local Carrier City of Palo Alto Customer Premises Equipment California Public UNities Commission Direct Broadcast Satellite Direct current Distal Equipment Corp. Demand Side Management Dig-ital Satellite System Emergency Operations Center Federal Communications Commission Fiber Distributed Data Interface Frequency Modulation Greater Austin Area Telecommunications Network Gigabits per second (1000 Megabits per second) Gigahertz The ICT Group 8 8 GIS GTE HDSL HFC HP ICT ISDN kbps LADWP LAN LATA LD LDDS MB Mbps MCI MFS MPEG MSC MSO MWR MWRT NBC NEC NTSC OANAD OPX PAUSD PBX PCS PEPCO PG&E POP PPV RBOC RFI Geographic Information System GTE Corporation High bit-rate digital subscriber line Hybrid fiber-coax Hewlett-Packard Corp. The ICT Group Integrated Services .Digital Network Kilobits per second Los Angeles Department of Water and Power Local Area Network Local Access and Transport Area Long distance LDDS Communications Single measured business line (sometimes called 1MB) Megabits per second MCI Communications Corp. Metropolitan Fiber Systems, Inc. Megahertz Motion Picture Experts’ Group (Palo Alto) Municipal Service Center Multi-System Operator Midwest Resources, Inc. Midwest Resources Telecom National Broadcasting Co., Inc. NEC Corporation National Television System Committee (the U.S. Standard) Open Access and Network Architecture Development Off-premises extension Palo Alto Unified School District Private Branch Exchange Personal Communications System Potomac Electric Power Company Pacific Gas and Electric, Inc. Point-of-presence Pay-per-view Regional Bell Operating Company Request for Information The ICT Group 8 9 RFP SCADA SIC SLAC SMDS SONET T/S TCG TCI TDMA TV ULAN UNI USSB UTC VHDSL VHF WAN WDM Request for Proposal System Control and Data Acquisition Standard Industrial Classification Stanford Linear Accelerator Center Switched Multi-megabit Data Service Synchronous Optical Network Traffic Signal Teleport Communications Group TCI Cablevision, a cable TV provider Time Division Multiple Access Television Utilities Local Area Network User Network Interface United States Satellite Broadcasting Co. Utilities Telecommunications Council Very high bit data rate subscriber line Very High Frequency Wide Area Network Wavelen~h Division Multiplexing The ICT Group 9 0 Documents: REFERENCES Documents received from the City on 17 May 95 PA001 Telephone Directory, City of Palo Alto (4 copies) (all) PA002 Information for Critical Resource Decisions2- 1994 Residential Energy and Water Use Survey (Appendix) Prepared by Resource Management Intl (RMI) (Unpublished work, Feb 95) PA003 Information for Critical Resource Decisions-- 1994 Commercial Energy and Water Use Survey (Appendix) Prepared by Resource Management Intl (RMI) (Unpublished work, Mar 95) PA004 Information for Critical Resource Decisions-- 1994 Commercial Energy and Water Use Survey (Appendix) Prepared by Resource Management Intl (RMI) (Unpublished work, Mar 95) PA005 Staff Working Draft-- Senate bill on competition and deregulation of telecom services, introduced by Sen. Hollings (14 Feb 95) PA006 Discussion Draft-- Senate bill for pro-competitive, deregulatory national policy framework for. telecom, introduced by Sen. Pressler (31 Jan 95) " PA007 Compensation Plan, City of Palo Alto-- Classified Employees, effective 5/1/94 through 4/30/96 (Revised 1 Ju194) PA008 Compensation Plan, City of Palo Alto- Management and Confidential Personnel and Council Appointees, effective 7/1/94 through 6/30/95 PA009 Organizational Charts-- City of Palo Alto and PA Utilities Dept (undated 94?) PA010 Amended and Modified Franchise Agreement by and between the City of Palo Alto on behalf of the Joint Powers and Cable Communications Cooperative of Palo Alto, Inc. (executed 28 Feb 91) PA011 Comprehensive Plan, City of Palo Alto- Housing element, Policies and Programs Draft IV (3 Nov 94) The ICT Group 9 1 PA012 Comprehensive Plan, City of Palo Alto-- Community Design element, Policies and Programs Draft IV (3 Nov 94) PA013 Comprehensive Plan, City of Palo Alto-- Governance and Community Services element, Policies and Programs Draft IV (3 Nov 94) PA014 Comprehensive Plan, City of Palo Alto- Transportation element, Policies and Programs Draft IV (3 Nov 94) PA015 Comprehensive Plan, City of Palo Alto- Natural Environment element, Policies and Programs Draft IV (3 Nov 94) PA016 Comprehensive Plan,~ City of Palo Alto- Draft Map package, Maps produced by CPA GIS New multi-family housing sites (24 Feb 95) Existing major housing sites (24 Feb 95) Bay to Foothills path possibilities (1 Sep 94) Urban structure (1 Sep 94) Bikeways (1 Sep 94) Potential modifications to arterials (1 Sep 94) Pedestrian Pathways (1 Sep 94) Proposed transit services (1 Sep 94) Regional rail transit (1 Sep 94) Caltrain grade separations (1 Sep 94) Natural areas and wildlife habitats (1 Sep 94) City structure, prepared by Calthorpe Associates (Aug 94) Maps provided to ICT in January 1995 PA017 Map 15B, Electric power distribution, Middlefield-Kipling, Lytton- University, 1" = 40 ft (DL) PA018 Map 15C, Electric power distribution, Forest-Lytton, Bryant-Cowper, 1" = 40 ft (DL) PA019 Map 15D, Electric power distribution, Middlefield-Kipling, Hamilton- Homer, 1" = 40 ft (DL) The ICT Group 92 PA020 Map 15, Electric power distribution, Palo Alto-Homer, Middlefield- Emerson, scale not specified, Rev 11-94 (see also PA 023) (DL) PA021 Map 15A, Electric power distribution, Forest-Lytton, Bryant-Alma, 1" = 40 ft, Rev 12-94 (DL) PA022 Electric power distribution, University-Cowper, scale not specified (DL) PA023 Electric power distribution, Middlefield-Emerson, Palo Alto-Homer, scale not specified (see also PA 020) (DL) PA024 Electric power distribution, Lytton-Forest, Bryant-Alma, scale not specified (DL) PA025 Electric power distribution, Forest-Lytton, Cowper-Bryant, scale not specified (DL) Documents received from the City on May 22, 1995 PA026 Request for Information for Broadband Telecommunications Grid, Prepared by SpectraNet Intl (30 Nov 94) (on loan,) renn PA027 Request for Proposals for Telecommunications Development, City of Anaheim (20 Apr 95) (on loan) PA028 Presentation to Cable Co-op by Daniels and Associates (Objectives, Current Situation, Strategic Options) (Mar 95) (on loan) " PA029 City of Anaheim Telecommunications Task Force, Presentation (Jan 94) (on loan) PA030 1994 Survey of Utility Fiber Optics Applications and Developments, Prepared for UTC (formerly Utility Telecommunications Council) The Telecommunications Association by Association Research (Sep 94) (including floppy disk) (on loan) PA031 Palo Alto Ordinance No. 3781, Amending PA Municipal Code by adding Chapter 2.35 to Title 2, Establishing Utility Users’ Tax and Providing for Collection, passed 3 Nov 87, adopted 16 Nov 87~ (16 Nov 87) PA032 Final Report on Phase II of the Organizational Review, Vol 1, Hughes, Heiss and Associates (25 Jul 94) Executive Summary The I CT Group 9 3 PA033 PA034 PA035 PA036 PA037 PA038 PA039 PA040 PA041 City Profile, CPA Comprehensive Plan Update (Feb 93) Companies with 1000 or more employees (Source, SJ Chamber of Commerce Industrial Directory) (undated) Rapidly growing companies in the Silicon Valley (Economic Development Team, Joint Venture Silicon Valley, Preliminary Report (undated) Anchors of the Valley, High-tech firms with sales > $250M (Economic Development Team, Joint Venture Silicon Valley, Preliminary Report (undated) Pop-Facts Census 90 Updates and Projections, National Decision Systems (25 Apr 95) CPA Demand Electrical System, List of Major Commercial and Industrial Accounts (4 May 95) Staff Report: Conduit Licensing Agreement with Digital Equipment Corporation, CMR: 516:93 (7 Oct 93) Staff Report: Agreement with Metropolitan Fiber Systems of California, Inc. for Installation of Fiber Optic Cables, CMR: 254:94 (28 Apr 94) (see also PA045) Staff Report: Fiber Optic Communication Utility, CMR:295:94 (19 May 94) PA042 PA043 PA044 PA045 PA046 Staff Report: City of Palo Alto Access to Internet, CMR:150:94 (7 Feb 94) City of Palo Alto On-Line with Internet, Dianah Neff, Director of Information Resources (undated, approx Apr 94) Ross Stores, Site Opportunity Discussion, Premier Properties (22 Mar 93) (contains population and demographic data) Staff Report: Agreement with Metropolitan Fiber Systems of California, Inc. for Installation of Fiber Optic Cables~ CMR: 301:94 (2 Jun 94) City of Anaheim, Questions and Answers related to Request for Proposals for Telecommunications Development (26 May 95) (received by FAX from Van Hiemke 2 Jun 95) The ICT Group 94 Documents PA047 - PA057 received from APPA 6 Jun 95 PA047 "Municipal Utility Telecommunication Revenue Opportunities", R. Blom, Los Angeles Dept Water and Power, presented at APPA Engineering and Operations Workshop (Mar 94) Valuable reading, discusses potential utility infrastructure products, roadblocks, actions to enhance revenue (marketing agency, pole attachment fees, pole ownership, build/rent conduit, install conduit in fee right of way, dark fiber lease, communication antenna attachments) " PA048 ’’Telecommunications Business Plans for Municipal Electric Utilities", R. Stassi and F. Fletcher, Burbank Public-Service Dept, presented at APPA 1994 annual conference (27 Jun 94) (basic overview of planning considerations) PA049 "The City of Denton Fiber Optic Communication Applications and Installation" R. Wells, Supt Metering, Substations, and Elec Utilities, Denton (TX) Muni Utilities, presented at APPA Cable Comm Workshop 1992 (Oct 92) ~echnical discussion of installation considerations) PA050 "Installing a Town Wide Fiber Optics System", K. Lostok, Engr Mgr Braintree (Mass) Elec Light Dept, presented at APPA Engineering and Operations Workshop (23 Mar 94) PA051 "Regulation of~ Cable Television/Franchise Renewal", B. Clinkenbeard, Duncan (OK) Power and Light, presented at APPA Communications Infrastructure Workshop (31 Oct 94) PA052 "Regulation of Cable Television/Franchise Renewal", J. Lower, Duncan, Weinberg, Miller and Pembroke, P.C., presented at APPA Communications Infrastru~re Workshop (31 Oct 94) PA053 Selected Bibliography on Fiber Optics and Electric Utilities, R.W. Beck and Assoc., 1993 Cable Communications Workshop (4 Nov.93) PA054 "The Fiber Optic Highway: If You Build It Will They Come?" F. Fletcher, City of BurbanK, 1993 Cable Communications Workshop (4 Nov 93) PA055 Public. Power and the Electronic Superhighway: A Window of Opportunity", W. Ray, Glasgow (KY),T. Coombes, APPA, & J. Bailer, The ICT Group 9 5 PA056 PA057 Baller Hammer, P.C., 1993 Cable Communications Workshop (4 Nov 93) Financial Considerations for Municipal Cable TV Operations, R. Corbi,. Shrewsbury (MA) Electric Light Plant and Community Cablevision, presented at APPA Accounting, Finance, Rates & Information System Spring Committee Meetings (30 Mar 93) (Very good background: system background and services, subscriber analysis, competitive rate analysis, financial planning considerations) Background Materials on Fiber Optics and Cable Television, R.W. Beck and Assoc., 1993 Cable Communications Workshop (.4 Nov 93) PA058 City Manager’s Report, Public Hearing to Approve or Disapprove a Security Interest Granted by Cable Communications Cooperative of Palo Alto, Inc. to TCI Cablevision of California, Inc.. CMR:133:95 (6 Feb 95) Maps PA059 - PA064 received from Mike Beanland 6/9/95 PA059 PA060 Underground Conversion Projects, Dwg UG-LO-E-004 (Rev 11/94) [CPA] Co-axial Cable Broadband System, Dwg CM-CK-E-004 (16 Sep 94) PA061 100 Communications.(Rev 9 Mar 89) PA062 200 Telemetering (Rev 27 Apr 92) PA063 300 Electric (Rev ~ Sep 92) PA064 Cable Co-op Co-axial Cable (undated) Documents received by Lloyd from Planning PA065 Projections 94- "Forecasts for the San Francisco Bay Area to the Year 2010: Population, Labor Force, Households, Income, Jobs". Pp 275-280 only-Total jobs, agricultural and mining jobs, manufacturing and wholesale jobs, retail jobs, service jobs, other jobs. Association of Bay Area Governments (ABAG) (Dec 93) PA066 Development Totals Since 1 / 1/80 (Commercial/Business facilities: Usage, Space, Projected Employment, by Palo Alto Employment Districts) Source: Planning? (Revised 26 Jul 93) The ICT Group 96 PA067 PA068 PA069 PA070 PA071 1990 Census Data, City-wide. ABAG Regional Data Center (29 Jun 92) Map: City of Palo Alto: Road Centerlines with Census Tracts (Produced by Palo Alto GIS?) Draft (undated) Zoning Map: City of Palo Alto and Environs: Palo Alto Employment Districts List of Palo Alto Census Tracts with Neighborhood Names Source: Planning (13 Jan 94) Stanford Briefing Paper: Campus daytime population 91-92,. Stanford Commercial Property (area, no. of firms or buildings,, no. of employees Page 4 of unidentified document Source: Stanford (undated) Documents received from Van on 6/13 PA072 PA073 PA074 PA075 PA076 Telecommunications, The New Utility, Milpitas City Council Work Session (15 Aug 94) (Return to Van) Entering the Fiber Optics Marketplace, Primer for Utilities, Pipelines, and other Right-of-Way Companies, Utilities Telecommunications Council (1993) (Return to Van) Travel Tips: Implications to Cities due to the Information Superhighway, Cecilia Quick, Assistant City Attorney, City of Milpitas. City Attorney’s Dept, League of California Cities Annual Conference (Oct 94) (Return to Van) Intentionally left blank Public Technology, Inc. Member Update (Summer 94) (On Loan) Features article about "Palo Alto’s Adventures on the Internet PA077 PA078 Local Government’s Roles and Choices on the Information Superhighway: Tenants or Architects of the Telecommunications Future? (undated, around Apr 94) (Return to Van) Features articles about ’~Felecom and the Law", "Local Govt.: The Silent Investor in .Wireline Telecom Networks", ’~Felecom and Urban Economic Development", "Electronic Access to Local Govt. Data". The Information Superhighway Game. National League of Cities (1994) (On Loan) The ICT Grot~p 97 PA079 Intentionally left blank PA080 PA081 Milpitas City Council Agenda Reports: Approve Consultant Agreement-Telecommunications Master Plan (1 Nov 94) Includes consultant agreement and exhibits (scope of services, estimated cost, personnel bios, schedule) Telecommunications Policy, League of California Cities (Apr 94) PA082 Permit to attach, install, operate, and maintain a wireless data communications radio network on City-owned facilities. Issued by CPA to Metricom. (Undated, unsigned) PA083 Exploring an Electric Utility’s Role in Cable Communications and Fiber Optics. NWPPA/APPA Cable Comm and Fiber Optics Workshop (7-8 Feb. 95) (Return To Van) Sessions include Role of Municipal Utilities in Telecom, Case Study(Springfield, MO), Development of Telecom Strategy (Goals, Marketing, Technical, and Financial Issues). PA084 "A Network Architecture for Palo Alto Public Schools", DEC Network Systems Lab Tech Note TN-J2 Version 3 (Jun 95). Additional map received from Mike Beanland 6/19 and 6/22 ¯ PA085 MCI Fiber Optic Cable Route (Palo Alto), Permit Issue, Rev 1 (12 Jun 95) (4 copies) Received on loan from Seth Fearey, Hewlett-Packard 6/23 PA086 "San Diego: City of the Future- The Role of Telecommunications", Report of the Mayor’s Advisory Committee on the City of the Future, International Center for Communications, San Diego State University (Mar 94) (RETURN) Received from Phil Plymale, Public Works 6/5 PA087 Map showing MFS Revised routes (Get formal title from Dieter) Received on loan from Van Hiemke PA088 Video- ’The Future is Now-- Advantages of. Owning and Operating Your Own Communications Network". Prepared by Glasgow (KY) The ICT Group 98 Electric Plant Board, American Public Power Assodation Catalog No. 774 (1994?) (ON LOAN) PA089 PA090 FAX from Michael Bills (PA Planning) to Lloyd Krause, Employment Projections (City and Tracts), ABAG Projections ’94 data (Pp 270 - 274, 281): Total population, household population, persons per household, households, employed residents, mean household income (1980 -2010) " A Vision of an Intelligent Island", IT2000 Report, National Computer Board Singapore (Mar 92) (Provided by EDB Singapore- Redwood City office PA091 PA092 PA093 PA094 PA095 "Request for Strategic Partners for Telecommunications Infrastructure", No. VC95300014, City of Austin (includes Addenda 1 - 4) (original release 7 Mar 95, latest rev 6 Jun 95) Received from the City of Austin 7/5 City of Palo Alto, City Manager’s 1995-1996 Proposed Budget, Volume II, Utility Funds (Lent by Tom Habashi, Returned) Letter from Lew Bauman, City of San Jos~ to Dianah Neff, City of Palo Alto, RE: Letter of Support-- Golden Triangle Regional Fiber Optic Network RFP (20 Dec 94) with Attachment-Golden Triangle Regional Fiber Optic Network "Changes in Palo Alto’s Population an Housing Characteristics, 1970- 1990", Staff Report CMR:399:92, City of Palo Alto Planning Department (3 Sep 92) Custom database listing for Palo Alto ordered from American Business Lists, Omaha, NE (Jun 95) The I CT Group 9 9 ~[nterview~ ond Personal (~ontacts: (~i _ty of Pal0 Alto; Michael Beanland Utilities Dept, Electrical Engineering Sched: Tues, 5/30 2 PM (done); called 6/7 re map package, LW 1:50P, re-visit Mon 6/19 10 AM Interviewers: 5/30 Team, 6/19 Glaser, Lohr Documentation: Maps PA059-PA064 provided 6/9, MB tracking down additional items, Mike advised 6/21 color maps of underg-round area are ready to pick up Glenn Loo. Utilities Dept., Information and Data Sen,ices Sched: Tues, 5/30 1:30 PM Mezz, revisit 7/12 re map preparation Interviewers: Glaser, Lohr Documentation: none Carol Jansen City Manager’s Office, Economic Resources Planning Sched: Tues, 5/30 10 AM 7th floor Called 6/12 re contacts at HP Interviewers: Glaser, Brandon Documentation: PA032 - PA045 Additional Contact Topi~ Query on contacts at MCI, Sprint Contact: Lloyd Krause Date of Contact: Telecon 6/21 (done) Documentation: none Palo Alto Library Mary Jo Levy Diane Jennings Interviewer: Brandon Sched: PB 5/30 8:30AM (done) Documentation: none Palo Alto Senior Center Linda Verhult 450 Bryant Interviewer: Brandon Sched: PB 5/30 3:30 PM (done) Documentation: none The ICT Group 100 Public Works, Fleet Manager Alan Simpson Interviewer: Brandon Sched: PB 5/31 8:30 A2vl (done) Documentation: none Bill Fellman ManageP. City-owned Real Estate Interviewer: Team Sched: Met 5/30, joined meeting with Mike Beantand Public Works Phil Plymale (Engineering Tech III),first contact for permit Interviewers: Glaser, Lohr Sched: Jun ~ 3:30 PM Documentation: (PA 087) Revised maps of MFS route, researching other fiber documentation Utilities Dept, Resource Conservation Elaine Rossignol (Tom Auzenne’s office) Topic: Statistics on elec customers by SIC Contact:. Lloyd Krause Date of Contact: Telecon 6/21 (done) Documentation: FAX PA Elec Customers by SIC Code (PA #?) Rachna (Carol Jansen’s office) Topi~ Lists of PA businesses from utilities and fire records Contact:. Lloyd Krause Date of Contact:. Telecon 6/16 (done) Documentation: picked up (PA "I’BA) Michael Bills Planning Dept Topic:. ABAG employment data Contact: Lloyd Krause Date of Contact: Telecon 6/15, 6/16 (done) Documentation: not yet available; PA to buy list from ABAG, avbl 3-4 wks Tom Auzenne Utilities Dept, Resource Conservation The ICT Group 101 Topic: Employment data in utility customers data base Contact: Lloyd Krause Date of Contact: Telecon 6/8, 6/9 Documentation: Will compile list and fax to LK Follow-up contact Topic: Business utility customer data base Contact: Lloyd Krause Date of Contact: Telecon 6/15 Documentation: Requested disk of business customers, needs to be arranged through billing, employment data not available, statistics to be compiled Elaine Rossignol and Trish Young (Tom Auzennes office) Topic: List of large utility, users Contact: Lloyd Krause Date of Contact: Elaine called to fax list 6/14 Documentation: List faxed Additional contact: Michael Bills, Planning Dept. Topic:. ABAG census data Contact: Lloyd Krause Date of Contact:. MB called 6/12 Documentation: Advised ABAG census data available (PA067?) Joyce White, Finance Dept, Revenue Collection - Topic Utility tax data Contact: Lloyd Krause Date of Contact: Telecon 6/12 Documentation: Declined request for written documentation; Aggregate elec/ gas/ water and telephone revenues provided verbally Michael Bills, Planning Dept Topi~ Palo Alto demographic, data Contact: Lloyd Krause Date of Contact:. telecon 6/8, visit 6/9 Documentation: PA065-071, not including PA067) Dick Whaley Utilities Dept, Engineering Div. Water-Gas-Wastewater Contact: Myron Glaser Date of Contact: Telecon 6/28 Topi~ Documentation on abandoned pipes The ICT Group 102 Result: Referred to Roger Cwiak and Charles Borg for map of abandoned pipe facilities. Polo AI~;o l~nifiCd Sch09! Di~ Walter Freeman, Nancy Palmer 25 Churchill, Palo Alto Interviewer: Brandon Sched: .6/7, 9 AM Bay Area Cities Contra Costa County Project Manager:. Eileen Doten Application and Permit Center Contra Costa Administration Bldg 651 Pine St, 2nd floor N Wing Martinez, CA 94553-0095 [Called 6/2; on vacation, supv to call back; called 7/21 LW] Cupertino: Don Brown City Manager Santa Clara County Telecom Group Interviewer: Glaser Sched: telecon 6/2, discussed SC Co Telecom Grp Documentation: none. City of Milpitas Elfin Vasion Telecom and Public Information Specialist Brief telecons 7/5, 7/6 Topics: Milpitas public survey, SC County Telecom Users’ Grp City of Mountain View Kevin Duggan City Manager The ICT Group 103 Contact: Myron Glaser (brief telecon 6/30) Result: Discussion of Santa Clara Telecom User’s Group. Forsburg~for details. Referred to Linda Linda Forsburg Exchanged voice mail messages 7/5, 7/6 Contact: Myron Glaser (Telecon 7/7) Result: Update on status of Santa Clara Telecom User’s Group Documentation: none City of San Carlos: Brian Moura Assistant City Manager Interviewer: Glaser Sched: Telephone Interview 6/21 City of Santa Clara: Mike Keller Fiber Optics Project Manager Sched: Telephone interview 6/12, follow-up 7/20 Interviewer: Glaser Documentation: to send address list with other contacts on municipal utilities with telecom ventures Sunnyvale Shawn Hernandez Dikector of Information Technology Interviewer: Glaser Schedule: Telecon 6/23 (done) Documentation: None San Jose Telecon Lew Bauman Golden Triangle Fiber Optic Network LW 7/21 Bauman returned call 7/25 The ICT Group 104 lViuni~ipaliti~ Elsewhere in California City of Anaheim Vishwa N. Tiwari Principal Telecom Engr 201 S. Anaheim Blvd, Ste. 701 Anaheim, CA 92805 Interviewer: Glaser Sched: Preliminary discussions 6/2, called Tuesday 6/6 re proposers LW 10:45A returned call, Van advised Bob Gorson, Anaheim to provide Executive Summary of RFP responses. 6/13 Van advised contact Vish directly re: non-disclosure. 7/6 FAX re non-disclosure 7/13 Vish returned call re FAX left msg, 7/13 Called LW, follow-up call 7/21 Documentation: none Burbank Sam Mahsaul Project Manager Returned call for Fletcher 6/29 Los Angeles Leslie Ka]asky Excess Capacity Coordinator 111 N. Hope St, Rm 221 Los Angeles, CA 90012 MG follow-up contact San Diego Contact: Nancy Lakdawala San .Diego Data Processing Corp. 5975 Santa Fe St (old addresss) San Diego, CA 92109 The ICT Group 105 Contact: Myron Glaser Called 6/23, Nancy called 6/26. Will send info on RFI Howard Stapleton ._ (referred by Nancy Lakdawala) City of San Diego Contact: Myron Glaser Called 6/27, left VM; Howard called 6/28, provided verbal update of San Diego process. Preparing City Manager Report for submission to Council 7/17, Follow-up 7/20 Municipalities Elsewhere in US Austin TX City Hall Vic Chanmugam (Purchasing) City of Austin Contact: Myron Glaser telecon 6/29 Result: Expect to make recommendation to City Council by end of Aug-ust. Documentation: PA091 received 7/5 (Request for Strate~c Partners) Glasgow, KY: Billy Ray, Superintendent, Municipal Utilities (have built coax system for municipal utility) APPA Cable Communications workshop 1992 Interviewer: Glaser Schedule: Preliminary telephone interview 5/30 (done) Documentation: none Seattle, WA Rudi Beartschi Dept Admin Svcs MG follow-up telecon 7/21 Have spoken to two of the three candidates, meeting with third scheduled next week; expect recommendations on who to negotiate with to Mayor’s Office mid-Aug to early Sept. The ICT Group 106 MG telecon 6/26 Springfield, MO Todd Murren, super~-isor of communications Interviewer: Glaser Sched:. Telephone interview 6/8 Documentation: none O~anizations and Associations American Business Lists Jay Topic: Info on PA business data base records and prices Action: Paul to buy for market estimation Contact: Lloyd Krause Date of Conta~ Telecon 6/19 (done) Documentation: on order Chilton Publications: Called Chilton Tues 5/30 re Convergence Magazine LW 5/30 7:30 AM Linda Summer 5/31 Linda to mail Nov 94 magazine, magazine received 6/3. American Public Power Association Washington, DC Mary Rule, library. Interviewer: Glaser Video on Glasgow Utilities project $50, available to members provided bibliography on telecommunications projects by utilities; selected papers ordered 6/1, selected papers arrived 6/6, check re 93 conf session on City experiences. LW 6/8 10:30 AM Dun and Bradstreet Sharon Topic:. PA business data base records and prices Contact: Lloyd Krause Date of Contact: Telecon 6/15, 6/16 (done). Documentation: Received SIC code list (PA#?) The ICI" Group 107 EDB (Economic Development Board) Singapore Redwood City office 210 Twin Dolphin Dr Redwood City, CA 94065 (Barry Sim-- new Regional Director) Contact: Myron Glaser Called 6/23; requested copy of Information Technology 2000 Report Documentation: PA090 "A Vision of an Intelligent Island" IT 2000 Report, National Computer Board Singapore (Mar 92) Electric Power Research Institute Ron Skelton Project Manager, EPRI report on Utilities and Telecom) Lloyd has contacted LW 6/2 10:35A E-mail message. Sched: Responded to E-mail message 6/29, returned will loan Chaff’well report when MWR Telecom Brent Norgaard Topic: Discussed MWRT services in Des Moines, IA Contact: Lloyd Krause Date of Contact: Telecon 6/7, 6/8 Documentation: None Palo Alto Chamber of Commerce, Lisa Topi~ Contacts at MCI, Sprint Contact: Lloyd Krause Date of Conta~ Telecon 6/21 (done) Documentation: none Stanford University Christy Lang Topic: SU population statistics Contact: Lloyd Krause Date of Contact:. Telecon 6/22 (done) The ICT Group 108 Documentation: none Local In du,stW Cable Co-op: Brad Anderson, Cable Co-op 3200 Park Blvd, Palo Alto Sched: Wed, May 31 10 AM; attend Strate~, Committee Meeting, July 25, 7:30 PM Interviewers: Team Documentation: System Cable Route Drawing Gary Roland Topic: 530 Cable route miles, 40-50% in PA Contact: Lloyd Krause Date of Contact: Telecon 6/19, 6/20 (done) Documentation: Cable system map (PA #?) Digital Equipment Corporation Dr Brian Reid Research Director, Western 250 University Ave. Palo Alto Director. Network Systems Laboratory Barbara (sec’y) Interviewer:. Glaser Called 6/14, scheduled tentative appt with Barbara Sched: Jun 15 11 AM (open to additional questions) Documentation: Tech Note on PAUSD Net Architecture (PA084) Hewlett Packard Seth Fearey 1501 Page Mill Rd MS 3U14 LW 6/7 2 PM SF returned call 6/13 Left VM msg 6/14 Interviewer: Glaser Sched: Thu Jun 22 1:30 PM (Done) Documentation: PA087 (San Diego Mayor’s Advisory Commission Report) (ON LOAN) The ICT Group 109 Hewlett Packard Hank Taylor Telecom Facilities Manager 3000 Hanover PA ¯ Contact:, Myron Glaser (In Europe until 7/5, left VM 6/28, Taylor returned call 7/5, set schedule) Schedule: Tue 7/11 1:15 PM The ICT Group 110 APPENDIX A SITUATION ANALYSIS SUPPORTING DATA Table A-1 OPX extensions The city has a total of 144 Off-premises extention (OPX) lines going to the following locations: Facility Comm. Theater Lucie Stem Rec Cultural Center Main Library Chiidrens Ubrary Rinconada Pool Junior Museum Water Quality Animal Services Downtown Library Mitchell Park Libr Mitchell Park Rec Mitchell Park Shed Ten’nan Library Golf Course Baylands Athl.Ctr Baylands Int. Ctr Peers Park El Camino Park Foothills Park Crime Prevention Refuse Disposal College Terrace Colorado Substat. Address OPX 305 Middlefieid Rd 16 305 Middlefield Rd.5 1313 Newell Rd.14 1213 Newell Rd.12 1276 Harriet St.2 Embarcadero Rd:2 451 Middlefield Rd.3 25.. Embarcadero Rd.9 3281 E.Bashore Rd.7 270 Forest Ave.5 3700 Middlefield Rd 7 700 Middlefield Rd.4 3700 Middlefieid Rd.1 661 Arastradero Rd.3 1875 Embarcadero Rd.2 1875 Embarcadero Rd.1 2775 Embarcadero Rd.2 Park Bulevard 1 (near train Station)1 Page Mill Rd.2 275 Forest Ave.1 1 2 1 2300 Wellesley St. Colorada Ave. FIRE STATIONS 1 University Park 2 Mayfield 3 Rinconada 4 Mitchell Park 5 Arastradero 6 Serra 7 SLAC 8 Foothills Park 301 Alma St. 2575 Hanover St. 799 Embarcadero Rd. 3600 Middelfield Rd. 600 Arastradero Rd.’ 711 Serra St 2575 Sand Hill Rd. Page Mill Rd. 7 1 1 1 1 5 3 1 LIBRARY LEASED DATA LINES Main library to Downtown (2400 bps) 270 Forest Ave. Terman Park Terman Dr. Childrens Lib.1276 Harriet St. College Terrace 2300 Wellesley St. Mitchell Park 3700 Middlefield Rd. The ICT Group A-1 Tal:~e A-2 - UTILITIES BROAD~AND LOCAL AREA NETWORK (CO..AX SYSTEM) (156.25 MHz Tras~zt:Jon Standard) FR E QU EN C Y ALL OCA TION C K4 R T BAND T7 T8 T9 TIO Tll T12 T13 T14 2.00 3.00 4.00 4+ 5.00. 6.00 FM1 FM2 FM3 A2- A2+ A1 A B ~:~:<’-~.-:~.-:kkk-:::k::::::: F G H I 7.00 8.00 9.00 10.00 11.00 12.00. 13.00 J K L M N 0 P Q R S T U V W AA i INBOUND/REVERSE FREQUENC¥(MHZ) BOTTOM TOP 5.75 11.75 17.75 23.75 29.75 35.75 41.75 47.751 54.O0 60.00 66.00 72.00 76.00 82.00 88.00 96.00 102.00 108.00 112.00 114.00 120.00 126.00 11.75 17.75 29.75 35.75 41.75 47.75 54.00 60.00 66.00 72.00 76.00 82.00 88.00 96.00 102.00 108.00 112.00!Piloi’" 114.00 120.00 126.00 132.00 Ii ULAN transponder @ 9.75 MHz Balance carrier @ (7.00 MHz) SCADA and kr=sceltaneous Dat~ Trafic Sig’n~ Control ""Reserved TIS Control’" LTC Modulator Video for Testing (~.00 MHZ) ULAN Telephone (74 MHz C~nter) U’dlilJes Wide Area Network City Telephones (85 MHz Center) ¯ "(Reserved City Telephone)’" ¯ "(Reserved City Telephone)"" OUTBOUND/FORWARD 150.00 156.00 156.00 162.00 168.00 174.00 180.00 186.00 192.00 198.00 204.00 210.00 216.00 222.00 228.00 234.00 240.00 246.00. 252.00i 258.00 264.00 270.00 276.00 282.00 288.00 294100 300.00 162.00 168.00 174.00 180.00 186.00 192.00 198.00 204.00 210.0~ 216.00~ 222.00 228.00 234.00 240.00 246.00 252.00 258.00 264.00 270.00 276.00 282’00 288.00 294.00 300.00 306.00 Video for Testing (151,00 MHz) ULAN Transponders @ 166.0 MHz SCADA and kr=scelJaneous Data Trafic Signal Control ¯ "Reserved T/S Control"" LTC Modulator Video for Testing (55.00 MHz) ULAN Telephone (230 MHz Ceoter) Ulillties Wide Area Network City Telephones (243 MHz Center) *"(Reserved City Telephone)’" "(Reserved City Telephone)’" ThelCTGroup A-2 Table A-3 SELECTED RESULTS FROM UTC FIBER OPTICS SURVEY TYPE OF COMPANY NO. OF COMPANIES BUSINESS TYPE !Elec iGas Dist :~Gas Xmsn iWater IGas Pipeline NO. CUSTOMERS AGE OF FIBER SYST YRS CURRENT CABLE MILES ;1-12 fibers i13-24 fibers 125-36 fibers i>36 fibers TOTAL CURRENT MILES PLANNED CABLE MILES 1-12 fibers 13-24 fibers ’ 2>~&3 ~ibf;~.~rs TOTAL PLANNED MILES !Muni/Govt I Investor-owned 511 56 I , 80.4% 15.7% 3.9% 52.9%1 0.0% 194,326 98.2% 37.5%i 17.9%; 3.6% 3.6% 1,045,965 SYSTEM APPLICATIONS- CURRENT iVoice Data Video I Protective Relay Other 4.7 7.0 53.9 17.2 132.2 1.1 204.51 17.2 26.6 6.7 11.1 6-1.6 27.4% 53.6% 3.3% 11.4% 4.3% 60.3 72.7 33.5 19.1 185.5 21.9 59.8 48.1 95.5 225.3 36.6% 37.1% 2.3% 17.0% 7.0% !SYSTEM APPLICATIONS- PLANNED Voice Data Video Protective Relay iOther ! 24.7% 5O.2% 9.8% 10.3% 5.0% 26.3% 45.3% 4.3% 17.3%1 6.8% ~=25.5K - 99.9Ki iCustomers 85.7% !19.0% i 4;8% 0.0% 49,994 3.9 6.5 23.0 6.0 0.0 35.6 6:5 23.5 3.8 10.7 44.6 25.7% 59.0% 1.7% 12.9% 0.7% 23.2% 48.1% 13.4% 14.5% 0.8% The ICT Group A-3 Table A-3 SELECTED RESULTS FROM UTC FIBER OPTICS SURVEY TYPE OF COMPANY NO. OF COMPANIES HIGHEST TRANSMISSION SPEED < 400 Mbps >400Mbps-<l Gbps =,1 Gbps - < 2 Gbps =, 2 Gbps WINDOW OF OPERATION 1300 nm 1500 nm WDM Other ELECTRONICS SYST- CURRENT :Async only , SONET capable I FDDi capable ELECTRONICS SYST- PLANNED Async only i FDDI capable MAX MILES BETWEEN !Repeaters I Protective relay nodes SYSTEM TOPOLOGY- CURRENT .IUnear (pt-pt) Route Diversity !Campus . ’Other SYSTEM TOPOLOGY-PLANNED iUnear (pt-pt) ! Route ~ Diversity !P~ng iCampus IOther Muni/Govt Investor-owned i’ 55.8% 23.1% 9.6% 11.5% 76.8% 37.5% 8.9% 21.4% 74.2% 23.9% 2.0% 80.6%1 13.9%1 2.8%I 2.8%~ 52.9%t 15.7%J 4.8%1 13.7% i 81.6%i lO.O%i 8.4% 38.5% 53.7% 7.8% 29.3 11.6 36.7% 52.2% 11.1% 13.6i 10.0 69.1%69.0% 3.3%-9.5% 24.9%1 6.4% 2.7%3.2% o.o%1 1.9% 125.5K - 99.9K !Customers 21 73.3% 13.3% 6..7% 6.7% 57.1% 14.3% 4.8% O.O% 85.3% 5.3% 9.3% 44.2% 48.8% 6.9% 19.0 10.8 55.0% 0.0% 37.9% 7.1% 0.0% 42.1%36.2%39.0% 6.7%8.9%3.5% 41.5%50.4%37.9% 6.9%1.9%7.1% 2.8%2.4%i 0.0% The ICT Group A-4 Table A-3 SELECTED RESULTS FROM UTC FIBER OPTICS SURVEY TYPE OF COMPANY NOI OF COMPANIES I Muni/Govt i lnvestor-owned 51-56 SERVICE AREA- CURRENT i Urban/suburban i Rural SERVICE AREA- PLANNED i Urban/suburban ;Rural REASONS FOR BUILDING SYSTEM INTERNAL COMM REQUIREMENTS .Very Important !Important i Neutral i Unimportant Very unimportant LEASE RESERVE CAPACITY (FOR PROFIT) iVery Important !Important ;Neutral Unimportant Very unimportant LEASE DARK RBER Very Important Important Neutral i Unimportant Very unimportant 72.9%58.9% 27.1%41.1% 73.O%ol 27.0% 92.3% 7.7% 0.0% 0.0% 0.0% 0.0°/o 30.0% 40.0% 0.0% 30.0% 3.2% 35.5% 35.5% 6.5% 19.4% 56.3% 43.7% 98.0% 2.0% 0’.0% 0.0% 0.0% 4.7% 16.3% 41,9% 14,0% 25.3% 0.0% 27.9% 25.6% 18.6% 27.9% !25.5K - 99.9K Customers 21 75.0% 25.0% 58.6% 41.4% 93.3%1 0.0% 5.7% 0.0% 0.0% 0.0% 33.3% 40.0% 13.3% 13.3% 0.0% 40.0% 26.7% 20.0% 13.3% PROVIDE DARK RBER TO INVESTORS iVery Important 3.6%2.6%0.0% Important ~3.6%20.5%7.1% Neutral 42.9%28.2%50.0% .Unimportant i 3.6%15.4%14.3% Very unimportant 46.4%33.3%28.6% The ICT Group A-5 Table A-3 SELECTED RESULTS FROM UTC FIBER OPTICS SURVEY TYPE OF COMPANY NOI OF COMPANIES OTHER REASONS iVery Important Important Neutral Unimportant IVery unimportant SYSTEM COST PER MILE OPG’W All Dielectric Self-Support iOther HOW IS FO SYSTEM USED t Energy Resource Managementl Meet Internal Comm Reqts Lease Dark Fiber i Lease Reserve Capacity IAIternate Access Service Service to End Users Deliver video to 3rd parties Other I USE OF FO CAPACITY Internal Requirements Held in reserve~ ’ Leased for profit Dark Fiber Leased for profit Lit Fiber Leased non-profit, cost-share! Other i Muni/Govt i lnvestor-owned 51 56 44.4%33.3% 0.0%i 33.3% 11.1%0.0% 0.0%33.3% 44.4%0.0% $59,426 $72,963 $47,354 $53,215 ~ $43,250 $64,6851 35.2%41.1%I 68.6%92.9%1 15.7%23.3% 11.8%16.1% 9.8°/o 21.4%1 15.7%26.8% 9.8%0.0% 3.9%3.6% 52.9% 39.8% 3.5% 0.0% 0.9% 3.0% 49.8% 35.3% 5.5% 5.2% 0.6% 3.5% 125.5K - 99.9K Customers 21 33.3% 0.0% 0.0% 16.7% 50.0% $32,880 $58,400 NA 42.9% 66.7% 14.3% 23.8% 9.5% 9.5% 9.5% 4.8% 69.7% 21.3% 2.2% 0.7% 1.5% 4.7% RESTRICTIONS IN PROVIDING 3RD PARTY SVCS PLIC 19.6%60.7%28.6% Other State 23.5%19.6%33.3% SEC 2.0%19.6%0.0% The ICT Group A-6 Table A-3 SELECTED RESULTS FROM UTC FIBER OPTICS SURVEY TYPE OF COMPANY tMuni/Govt HOW LONG SECURING 3RD PARTY BUSINESS ;< 1 yr !58.3%! 1 yr I 0.0% i 33.3%-2 yrs ,3 yrs I 0.0% i 8.3%z 4 yrs CURRENTLY MARKET/PLAN TO MARKET FIBER ,Yes t 39.2% No i 60.8% AREAS RBER CURRENTLY MARKETED IN ¯ Along Transmission Routes i 54.2% Outer Edge of Distribution i 11.1% iAIong Distribution System I 34.7% AREAS WHERE RBER WILL BE MARKETED ,Along Transmission Routes 52.3% Outer Edge of Distribution 9.6% !Along Distribution System 38.1% FO CAPACITY MARKETING WHOLE FIBERS Currently Market- Plan to market NO. OF COMPANIES Do not/do not plan to market DS-3 iCurrently Market Plan to market Do not/do not plan to market !DS-1 Currently Market Plan to market Do not/do not ~ian to market 9.8% 27.5%! 70.6% 2.0% 7.6% ¯ 82.4% 3.9% 15.7% 82.4% I Investor-owned 51 56 34.8% 4.3% 8.7% 4.3% 47.8% 42.9%! 57.1"/ot 71.2% 16.1% 12.6% 62.3% 14.4% 23.3% 23.2% 33.9% 62.5% 19.6% 26.8% 69.6%~ 14.3% 19.6% 78.6% !25.5K - 99.91~ iCustomers 21 16.7% 0.0% 50.0% 16.7% 16.7% 38.1% 61.9% 5.0% 0.0% 95.0% 36.4% 0.0%1 63.6% 4.8% 28.6%1 71.4% 4.8% 23.8% 66.7% 4.8% 23.8% 76.2% The ICT Group A-7 Table A-3 SELECTED RESULTS FROM UTC FIBER OPTICS SURVEY TYPE OF COMPANY i Muni/Govt NO. OF COMPANIES FRACTIONAL m-1 I ’Currently Market 0.0% ~Plan to marketI market’ 9.8% Do not/do not plan to 90.2% INDIVIDUAL VOICE/DATA CHANNELS Currently Market ~Plan to marketl~ i Do not/do not plan to market i SERVICE MARKETING SWITCHED SERVK;ES !Currently Market Plan to market! i Do not/do not plan to marketI i DEDICATED PRIVATE LINE SERVICES BETWEEN CUSTOMER FACILITIES Currently Market Plan to market! j Do not/do not plan to market l I CUSTOMERS TO IXC POPs iCurrently Market t Plan to market1 i Do not/do not plan to market l BETWEEN IXP POPs j Currently Market Plan to markett I I Do not/do not plan to market i OTHER Currently Market I Plan to marketI marketIDo not/do not plan to i lnvestor-owned 2.0%I 11.8%I 86.3%I 0.0% 7.8% 92.2% 5.9% 7,1%! 7,1% 91,1% 5,4%] 5.4%1 92.9%1 0.0% 7.1% 92.9%, i25.5K - 99.9K iCustomers 0.0% 9.5% 90.5% 0.0% 9.5% 90.5% 0.0% 9.5% 90.5% 4.8%10.7% 19.6%16.1%23.8% 76.5%82.1%76.2% 3.9%12.5%4.8%! 17.6%21.4%23.8% 78.4%66.1%76.2% 14.3% 19.6% 76.8% 2.0% 9.8% 90.2% 4.8% 14.3% 85.7% 2.0%1.8%,0.0% 3.9%5.4%0.0% "96.1%94.6%100.0% The ICT Group A-8 Table A-3 SELECTED RESULTS FROM UTC FIBER OPTICS SURVEY TYPE OF COMPANY NO. OF COMPANIES CUSTOMER MARKETS I INTERIEXCHANGE CARRIERS ICurrently Market Plan to market !Do not/do not plan to market! ALTERNATE ACCESS PROVIDERS Currently Market !Plan to marketi !Do not/do not plan to market i LOCAL EXCHANGE CARRIERS Currently Market !Plan to market !Do not/do not 31an to market CABLE Currently Market Plan to market Do not/do not ~lan to market PCS OTHER WIRELESS PROVIDERS Currently Market Plan to market Do not/do not plan to market , Investor-owned~ 51 56 3.9%21.4% 17.6%32.1% 80.4%64, 3% 2.0%21.4% 17.6%28.6% 80.4%64.3% 2.0% 13.7% 84.3% 2.0% 13.7% 84.3% 0.0% 9.8% 88.2% 3.9% 9.8% 88.2% 13.7% 5.9% 9.8% 0.0% 62.7% !Muni/Govt 7.1% 21.4% 78.6% 3.6% 21.4% 76.8% 1.8% 8.9% 91.1% 1,8% 8.9% 91.1%i 7.1% 1.8% 3.6% 0.0% 83.9% OTHER Currently Market Plan to marketi Do not/do not plan to market LOW COST/BELOW COST SERVICES OFFERED Schools Hospitals Public Service Agencies Other None of Above 25.5K - 99.9K 21 0.0% 14.3% 85.7% 0.0% 19.0% 81.0% 0.0% 14.3% 85.7% SOURCE: PA030 (1994 Utility Telecommunications Council Fiber Optics Survey) Customers 0.0% 14.3% 85.7% 0.0% 14.3% 85.7% 0.0% 14.3% 85.7% 14.3% 9.5% 14.3% 0.0% 66.7% The ICT Group A-9 APPENDIX B EXPANDED ABL EMPLOYERS’ LISTINGS APPENDIX C MARKET ANALYSIS ssau.mn~] lle~US ss~u!sn8 IIL’tUS V C) ~,,,. Q 0 000 0 000000.00 0 000 APPENDIX D COMPETITORS X n xx xx 0 0 ~x x APPENDIX E PALO ALTO UNIFIED SCHOOL DISTRICT EXCERPTS APPENDIX FROM SENATE TELECOMMUNICATIONS AND DEREGULATION ACT, S.652 S 632 ES I04~’ CONGRESS l-=-S~ssion AN ACT To provide for a pro-competitive, de-regulatory national policy framework designed to accelerate rapidly private sector deployment of advanced telecommunications and information technologies and services to all Americans by opening all telecommunications markets to competition, mad for other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SECTION 1. SHORT TITLE. This Act may be cited as the Telecommunications Competition and Deregulation Act of 1995’. SEC. 251. INTERCONNECTION. (a) Duty. to Provide Interconnect.ion: (1)In general: A local exchange carrier, or class of local exchange carriers, determined by the Commission to have market power in providing telephone exchange service or exchange aca:~s service has a duty under this Act, upon requestm (A)to enter into good faith negotiations with any telecommunications carrier requesting intercormection between the facilities and equipment of the requesting telecommunications carrier and the carrier, or class of carriers, of which the request was made for the purpose of permitting the telecommunications carrier to provide telephone exchange or exchange aca:ess service; and 03) to provide such intercormeetion, at ra~s that are reasonable and nondiscriminatory, according to the terms of the agreement and in accordance with the requirements of this section. (2) Initiation: A local exchange carrier, or class of carriers, described in paragraph (1) shall commence good-faith negotiations to conclude an agreement, whether through negotiation under subs~don (c) or arbitration or intervention under subs~don (d), within 15 days mSgr receiving a request from any telecommunications carrier seeking to provide telephone exchange or exchange access service. Nothing in this Act shall prohibit multilateral negotiations between or among a local exchange carrier or class of carriers and a telecommunications cartier or class of carriers seeking interconneetion under subsection (e) or subsection (d). At the request of any of the parties to a negotiation, a State may participate in the negotiation of any portion of an agreement under subsection (c). (3)Maxket power: For the puq~ose of determining whether a carrier has market power under paragraph (1), the relevant market shall include all providers of telephone exchange or exchange ace,s services in a local area, regardless of the technology used by any such provider. (b)Minimum Standards: An interconnect.ion agreement entered into under this section shall, if requested by a telecommtmications carrier requesting intercennec6on, provide form The ICT Group F-1 nondiscriminatory, access on an unbundled basis to the network functions and services of the local exchange carrier’s telecommunications network (including switching software, to the extent defined in implementing regulations, by the Commission); (2)nondiscriminatory acx, ess on an unbundled basis to any of the loc~ exchange carrier’s telecommunications facilities and information, including databases and signaling, necessary to the transmission and routing of any telephone exchange service or exchange access service and the interoperability of both carriers’ networks; (3)interconnection to the local exchange carrier’s telecommunications facilities and services at any technically feasible point within the carrier’s network; (4)interconnecfion that is at least equal in type, quality, and price (on a per unit basis or otherwise) to that provided by the local exchange carrier to itself or to any subsidiary, affiliate, or any other party to which the cartier provides inter~nnecdon; (5)nondiscriminatory access to the poles, ducts, conduits, and fights-of-way owned or controlled by the local exchange carrier atjust and reasonable rotes; (6)the local exchange carrier to take whatever action under its control is necessary, as soon as is technically feasible, to provide telecommunications number portability and local dialing parity in a manner that-- (A)permits consumers to be able to dial the same number of digits when using any telecommunications carrier providing telephone exchange service or exchange access service in the market served by the local exchange carrier, (B)permits all such carriers to have nondiscriminatory access to telephone numbers, operator services, directory assistance, and directory listing with no unreasonable dialing delays; and (C)provides for a reasonable allocation of costs among the parties to the agreement; (7)telecommunications services and network funcfiom of the local exchange carrier to be available to the telecommunications carrier on an unbundled basis without any unreasonable conditions on the resale or sharing of those services or functions, including the origination, transport, and termination of such telecommunications ,services, other than reasonable conditions required bya Stare; and for purposes of this paragraph, it is not an unreasonable condition for a State to limit the resale~ (A)of services included in the definition of universal service to a telecommunications carrier who resells that service to a category of customers different from the category of customers being offered that universal service by such carrier if the State orders a carrier to provide the Ttm ICT Group Fo2 same service to different categories of customers at different prices necessary to promote universal service; or of subsidized universal service in a manner that allows ,companies to charge mother carrier rotes which reflect the actual cost of providing those services to that carrier, exclusive of any universal service support received for providing such services in accordance with section 214(d)(5); (8)reciprocal compensation arrangements for the origination and termination of telecommunications; (9)reasonable public notice of changes in the information necessary for the transmission and routing of servi .ces using that local exchange carrier’s facilities or networks, as well as of any other changes that would affect the interopembility of those facilities and networks; and (c) (10)a schedule of itemized charges and conditiom for each service, facility, or function provided under the agreement. Agreements Arrived at Through Negotiation: Upon receiving a request for interconnection, a local exchange carrier may meet its interconnection obligations under this section by negotiating and entering into a binding agreement with the telecommunications carrier seeking interconnection without regard to the standards set forth in subsection (b). The agreement shall include a schedule of itemized charges for each service, facility, or function included in the agreement. The agreement, including any intercormection agreement negotiated before the date of enactment of the Telecommunicafiom Act of 1995, shall be submitted to the State under subsection (e). SEC. 201. REMOVAL OF ENTRY BARRIERS. (a) Preemption of State Rules: Part II oftitle II (47 U.S,C, 251 et seq.), as added by this Act, is amended by inserting after section 253 .the following: "SEC. 254. REMOVAL OF BARRIERS TO ENTRY. ¯ (a) In General: No State or local statute or regulation, or other State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications services. "(b) State Regulatory Authority: Nothing in this section shall affect the ability of a State to impose, on a competitively neutral basis and consistent with section 253, requirements necessary to preserve and advance universal service, protect the public safety and welfare, ensure the continued quality of telecommunications services, and safeguard the rights of ¯ (c) State and Local Government Authority: Nothing in this section affects the authority of a State or local government to manage the public rights-of-way or to require fair and reasonable compensation from telecommunications providers, on a competitively netrtral and nondiscriminatory basis, for use of public rights-of-.way on a nondiscriminatory basis, if the compensation required is publicly disclosed by such government. ¯ (d) Preemption: If, aRer notice and an opportunity for public comment, the Commission " determines that a State or local government has permitted or imposed any statute, regulation, or legal requirement that violates subsection (a) or (b), the Commission shall preempt the enforcement of such statute, regulation, or legal requirement to the extent necessary to correxrt such violation or inconsistency. The ICT Group F-3 ¯ (e) Commercial mobile services providers: Nothing m this section shall affect the application of section 332(c)(3) to commercial mobile services providers.’. (b) Provision of Telecommunications Services by a Cable Operator: (1) Jurisdiction of franchising authority: Section 621(b) (47 U.S.C. 541(b)) is amended by adding at the end thereof the following new paragraph: ¯ (3)(A) To the extent that a cable operator or affiliate thereof is engaged in the provision of telecommunications services- "(i) such cable operator or affiliate shall not be required to obtain a franchise under this title for the provision of telecommunications services; and "(ii) the provisions of this title shall not apply to such cable operator or affiliate for the provision of telecommunications services. "(B) A franchising authority may not order a cable operator or affiliate thereof to discontinue the provision of a telecommunications service. ’(C) A franchising authority may not require a cable operator to provide any telecommunications service or facilities as a condition of the initial grant of a franchise, franchise renewal, or transfer of a franchise. ¯ (D) Nothing in this paragraph affects existing Federal or State authority with respect to telecommunications services.’. (2) Franchise fees: Section 622(b) (47 U.S.C. 542(b)) is amended by inserting "to provide cable services’ immediately before the period at the end of the first sentence. (c) State and Local Tax Laws: Except as provided in section 202, nothing in this Act (or in the Communications Act of 1934 as amended by this Act) shall be construed to modify, impair, or supersede, or authorize the modification, impairment, or supersession of, any State or local law pertaining to taxation that is consistent with the requirements of the Constitution of the United States, this Act, the Communications Act of 1934, or any other applicable Fedei~ law. (d) Effective Date: The amendments made by this section take effect on the date of enactment of this Act. SEC. 204. POLE ATTACHMENTS. SeCtion 224 (47 U.S.C. 224) is amended-- (1)by insertin~ the following after subsection (a)(4): (5) The term telecommunications carrier’ shall have the meaning given such term in subsection 3(rm) of this Act, except that, for purposes of this section, the term shall not include any person classified by the Commission as a dominant provider of telecommunications services as of January 1, 1995.’; (2)by inserting after conditions’ in subsection ©(1) a comma and the following: or access to poles, ducts, conduits, and rights-of-way as provided in subsection (0,’; (3)by inserting after subsection (d)(2) the following: (3) This subsection shall apply to the rate for any pole alxachment used by a cable television system solely to provide cable service. Until the effective date of the regulations required under subsection (e), this subsection shall also apply to the pole attachment rates for cable television systems (or for any telecommunications cartier that was not a party to any pole attachment agreement prior to the date of enactment of the Telecommunications Act of 1995) to provide any telecommunications service or any other service subject to the jurisdiction of the Commission.’; and The ICT Group F-4 (4)by adding at the end thereof the following: (e)(1) The Commission shall, no later than 2 years after the date of enactment ofth= Telecommunications Act of 1995, prescribe regulations in accordance with this subsection to govern the charges for pole attachments by telecommunications carriers. Such regulations shall ensure that utilities charge just and reasonable and non-discriminatory rates for pole attachments. (2)A utility shall apportion the cost of providing space on a pole, duct, conduit, or fight-of-way other than the usable space among entities so that such apportionment equals the sum of~ (A) two-thirds of the costs of providing space other than the usable space that would be allocated to such entity under an equal apportionment of such costs among all attachments, plus (B) the percentage of usable space required by each such entity multiplied by the costs of space other than the usable space; but in no event shall such proportion exceed the amount that would be allocated to such entity under an equal apportionment of such costs among all attachments. (3)A utility shall apportion the cost of providing usable space among all entities according to the percentage of usable space required for each entity. Costs shall be apportioned between the usable space and the space on a pole, duet, conduit, or fight-of-way other than the usable space on a proportionate basis. (4)The regulations required under paragraph (1) shall become effective 5 years after the date of enactment of the Telecommunications Act of 1995. Any increase in the rates for pole attachments that result from the adoption of the regulations required by this subsection shall be phased in equal annual increments over a period of 5 years beginning on the effective date of such regulations. (f)(1) A utility shall provide a cable television system or any telecommunications carrier with nondiscriminatory access to any pole, duet, conduit, or fight-of-way owned or controlled by it. (2) Notwithstanding paragraph (1}, a utility providing electric service may deny a cable television .system or telecommunications cartier access to its poles, ducts, conduits, or fights-of-way, on a non-discriminatory basis wtiere there is insufficient capacity and for reasons of safety, reliability, and generally applicable engineering purposes. (g) A utility that engages in the provision of telecommunications services shall impute to its costs of providing such services (and charge any affiliate, subsidiary, or associate company engaged in the provision of such services) an amount equal to the pole alXachment rate for which such company would be liable under this section. SEC. 205. ENTRY BY UTILITY COMPANIES. (a) In General: (1) Authorized activities of utilities: Notwithstanding any other provision of law to the contrary (including the Public Utility Holding Company Act of 1935 (15 U.S.C. 79a et seq.)), an electric, gas, water, or steam utility, and any subsidiary company, affiliate, or associate company of such a utility, other than a public utility company that is an associate The ICT Group F-5 company of a registered holding company, may engage, directly or indirectly, in any activity whatsoever, wherever located, necessary or appropriate to the provision of- (A) telecommunications services, .03) information services, (C) other services or products subject to the jurisdiction of the Federal Communications Commission under the Communications Act of 1934 (47 U.S.C. 151 et seq.), or (D) products or services.that are related or incidental to a product or service described in subparagraph (A), (B), or (C). The IC’r Group F-6 APPENDIX G EXCERPTS FROM HOUSE COMMUNICATIONS ACT OF 1955, HR.1555 104¢ CONGRESS 1" Session To promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new tele~mmmunications technologies. IN THE HOUSE OF REPRESENTATIVES May 3, 1995 (a) Short Title: This Act may be cited as the Communications Act of 1995. SEC. 242. EQUAL ACCESS AND INTERCONNECTION TO THE LOCAL LOOP FOR COMPETING PROVIDERS. (a) Openness and Accessibility Obligations: The duty under section 201 (a) of a loc~ exchange carrier includes the following duties: (I)Interconneetion: The duty to provide, in accordance with subsection (b), equal access to and interconneetion with the facilities of the carrier’s networks to any other carrier or person offering (or seeking to offer) telecommunications services or information services reasonably requesting such equal access and intercormection, so that such networks are fully interopemble with such telecommunications services and information services. (2)Unbundling of network elements: The duty to offer unbundled services, elements, features, functions, and capabilities whenever technically feasible and economically reasonable, at just,.reasonable, and nondiscriminatory prices and in accordance with subsection (b)(4). (3)Resale: The duty not to prohibit, and not to impose unreasonable or discriminatory conditions or limitations on, the resale, on a bundled or unbundled basis, of services, elements, features, functions, and capabilities in conjunction with the furnishing of a t~lecommunications service or an information service. (4)Number portability: The duty to provide, to the extent technically feasible and economically reasonable, number portability in accordance with requirements p~escribed by the Commission. (5)~Dialing parity: The duty to provide, in accordance with subsection ©, dialing parity to competing providers of telephone exchange service and telephone toll service. (6)Access to rights of way: The duty to afford access to the poles, ducts, conduits, and fights of w~y of such carrier to competing providers of telecommunications services in accordance with section 224(d). (7)Network functionality and accessibility: The duty not to install network features, functions, or capabilities that do not comply with the standards established pursuant to section 248. (8)Good faith negotiation: The duty to negotiate, under the supervision of State commissions, the particular terms and conditions of agreements to fulfill the duties described in paragraphs (1) through (7). The ICT Group G-1 (b)Interconnection, Compensation, and Equal Access: Interconnection: A local exchange carrier shall provide access to and interconnection with the facilities of the carrier’s network at any technically feasible and economically reasonable point within the carrier’s network on just and reasonable terms and conditions, to any other cartier or person offering (or seeking to offer) telecommunications services or information services requesting such access. (2) Intercarrier compensation between facilities-based carriers: (A)In general: For the purposes of paragraph (1), the terms and conditions for interconnect.ion of the network of a competing provider of telephone exchange service shall not be considered to be just and reasonable unless-- (i) such terms and conditions provide for the mutual and reciprocal recovery by each carrier of costs associated with the termination on such carrier’s network of calls that originate on the network of the other carrier; (ii) such terms and conditions determine such costs on the basis of a reasonable approximation of the additional costs of terminating such calls; and (iii) the recovery of costs permitted by such terms and conditions are reasonable iri relation to the prices for tenon of calls-that would prevail in a competitive 03) Rules of construction: This paragraph shall not be construedm (i) to preclude arrangements that afford such mutual recovery of costs through the offsetting of reciprocal obligations, including arrangements that waive mutual recovery (such as bill-and-keep arrangements); or (ii) to authorize the Commission or any State commission to engage in any rate regulation proceeding to establish with particularity the additional costs of terminating calls, or to require carriers to maintain records with respect to the additional costs ofte .nmnating calls. (3) (~) 03) (c) (4) (A) Equal access: A local exchange carrier shall afford, to any other carrier or person offering (or seeking to offer) a telecommunicatiom service or an information service, reasonable and nondiscriminatory access on an unbtmdled basis-- to databases, signaling systems, poles, ducts, conduits, and rights-of-way owned or controlled by a local exchange carrier, or other facilities, functions, or information (including subscriber numbers) integral to the efficient transmission, routing, or other provision of telephone exchange services or exchange access; that is at least equal in type, quality, and price to the access which the carrier affords to itself or to any other person; and that is sufficient to ensure the full intemperability of the equipment and facilities ofth~ carrier and of the person seeking such access. Commission action required: In general: Within 15 months after the date of enactment of this part, the Commission shall complete all actions necessary (including any reconsideration) to establish regulations to The ICT Group G-2 impl~rn~t the r~uimments of this section. The Commission shall establish such regulations after consultation with the Joint Board established pursuant to section 246. Collocation: Such regulations shall provide for actual collocation of equipment necessary for intercormection for telecommunications services at the premises of a local exchange -carrier, except that the regulations shall provide for virtual collocation where the local exchange carrier demonswat~ that actual collocation is not practical for technical reasons or because of space limitations. (C)User payment of unbundling costs: Such regulations shall require that the costs that a carrier incurs in offering unbundled services, elements, features, functions, and capabilities shall be borne by the users of such services, elements, features, functions, and capabilities. (D)Imputed charges to carrier: Such regulations shall require the carrier, to the extent it provides a telecommunications service or an information service, to impute such access and interconnection charges to itself. "SEC. 243. PREEMPTION. "(a) Removal of Barriers to Entry: Except as provided in subsection (b) of this section, no State or local statute, regulation, or other legal requirement shall- "(1) effectively prohibit any carrier or other person from entering the business of providing interstate or inwastate telecommunications services or information services; or ¯ (2) effectively prohibit any carrier or other person providing interstate or in~ telecommunications services or information services from exercising the access and interconneetion rights provided under this part. "(b) State and Local Authority: Nothing in this section shall affect the ability of State or local officials to impose, on a nondiscriminatory basis, requirements necessary to preserve and advance universal ~rvice, protect the public safety and welfare, ensure the continued quality of telecommunications services, ensure that a pmvider’s business practices am consistent with consumer protection laws and regulations, and ensure just and reasonable rates, provided that such requirements do not effectively prohibit any carrier or person from providing interstate or intrastate telecommunications services or information services. ’(e) Construction Permits: Subsection (a) shall not be construed to prohibit a local government from requiring a person or carrier m obtain ordinary and usual construction or similar permits for its operations if- "(1) such permit is required without regard to the nature of the business; and "(2) requiring such permit does not effectively prohibit any person or carrier from providing any interstate or intrastate telecommunications service or information service. "(d) Exception: In the case of commercial mobile services, the provisions of section 332(c)(3) shall apply in lieu of the provisions of this section. "(e) Parity of Franchise and Other Charges: Notwithstanding section 2(b), no local government may impose or collect any franchise, license, permit, or fight-of-way fee or any assessment, reatal, or any other charge or equivalent thereof as a condition for operating in the locality or for obtaining aeoess to, occupying, or crossing public rights-of-way from any provider of telecommunications services that distinguishes between or among providers of telecommunications services, including the local exchange carrier. For purposes of this subsection, a franchise, license, permit, or right-of- way fee or an assessment, rental, or any other charge or equivalent thereof does not include any imposition ofgenerdl applicability which does not distinguish between or among providers of telecommunications services, or any tax. The ICT Group G-3 SEC. 105. POLE ATTACHMENTS. Section 224 of the Communications Act of 1934 (47 U.S.C. 244) is mended--- (1) in subsection (a)(4)- (A) by inserting after system’ the following: or a provider of telecommunications service’; and 03)by inserting after utility’ the folldwing:, which alxachment may be used by such cable television system to provide cable service or any other service,’; (2)by redesignating paragraphs (1) and (2) of subsection (b) as paragraphs (2) and (3), respectively; (3) by inserting before paragraph (2) of subsection (b)(as so redesignated) the following: (b)(1) A utility shall provide a cable television system or other provider of telecommunications services with nondiscriminatory access to any pole, duet, conduit, or fight-of-way owned or controlled by the utility.’; (4)in subsection (c)(2)(B), by striking cable television services’ and inserting the services offered via such attachments’; (5) by redesignaling subsection (d)(2) as subsection (d)(4); and (6) by striking subsection (d)(1) and inserting the following: (d)(1) For purposes of subsection (b) of this section, the Commission shall, no later than 1 year after the date of enactmerrt of the Communication Act of 1995, prescribe regulations for ensuring that utilities charge just and reasonable and nondise6mfinatory rates for pole attachments provided to all providers of telecommunications services, including such attachments used by cable television systems to provide telecommunications services (as defined in section 3 of ~ Act). Such regulations shall-- (2) (3) (A)apportion the cost of the entire pole, duet, conduit, or fight-of-way according to the percentage of usable space required for each entity, and 03)allow for reasonable terms and conditions relating to health, safety, and the provision of reliable utility service. An entity that obtains an attachment to a pole, conduit, or fight-of-way shall not be required to bear any of the costs of rearranging or replacing its attachment, if such rearrangement or replacement is required as a result of an additional attachment or the modification of an existing attachment sought by any other entity (including the owner of such pole, conduct, or fight-of-way). Whenever the owner of a conduit or fight-of-way hasmade such conduit or fight-of-way accessible, the owner shall provide wrilxen notification of such action to any entity that has obtained an attachment to such conduit or right-of-way so that such entity may have a reasonable oppommity to add to or modify its existing attachment. Any entity that adds to or modifies its existing attachment after receiving such notification shall bear an equitable share of the costs incurred by the owner in making such conduit or fight-of-way accessible. The ICT Group G-4 SEC. 106. PREEMPTION OF FRANCHISING AUTHORITY REGULATION OF TELECOMMUNICATIONS SERVICES. (a) Telecommunications Services: S~’tion 621(b) of the Communications Act of 1934 (47 U.S.C. 54 l(c)) is amended by adding at the end thereof the following n~w paragraph: ¯ (3)(A) To the extent that a cable operator or affiliate thereof is engaged in the provision of telecommunications services- "(i) such cable operator or atTaliate shall not be required to obtain a franchise under this title; and "(ii) the provisions of this title shall not apply to such cable operator or~. ¯ (B) A franchising authority may not impose any requirement that has the purpose or effect of prohibiting, limiting, restricting, or conditioning the provision of a telecommunications service by a cable operator or an ~ thereof.¯(C) A franchising authority may not order a cable operator or affiliate thereof- " (i) to discontinue the provision of a telecommunications service, or ¯ (ii) to discontinue the operation of a cable system, to the extent such cable system is used for the provision of a telecommunications service~ by reason of the failur~ of such cable operator or affiliate thereof to obtain a franchise or franchise renewal under this title with respect to the provision of such telecommunications service. ¯ (D) A franchising authority may not r~quim a cable operator to provide any telecommunications service or facilities as a condition of the initial grant of a franchise or a franchise ren~’~,~al.’. (b) Franchise Fees: Section 622(b) of the Communications Act of 1934 (47 U.S.C. 542(b)) is amended by inserting "to provide cable services’ immediately before the period at the end of the first sentence thereof. The ICT Group G-5 APPENDIX H EXCERPTS FROM 47USC SEC. 224 TELEGRAPHS, TELEPHONE, AND RADIOTELEGRAPH Chapter Vo Wire or Radio Communication CITE 47 USC See. 224 01/24/94 EXPCITE TITLE 47 - TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS CHAPTER 5 - WIRE OR RADIO COMMUNICATION SUBCHAPTER II - COMMON CARRIERS HEAD See. 224. Pole attachments STATUTE (a) Definitions As used in this section: (1) The term "utility" means any person whose rates or charges are regulated by the Federal Government or a State and who owns or controls poles, duets, conduits, or fights-of-way used, in whole or in part, for wire eommunication. Such term does not include any railroad, any person . who is cooperatively organized, or any person owned by the Federal Government or any State. (2) The term "Federal Goverrmaent" means the Government of the United States or any agency or instrumentality thereof. (3) The term "State" means any State, territory, or possession of the United States, the District of Columbia, or any political subdivision, agency, or insmmaentality thereof. (4) The term "pole attachment" means any attachment by a cable television system to a pole, duet, conduit, or fight-of-way owned or controlled by a utility. (b) Authority of Commission to regulate rates, terms, and conditions; enforcement powers; promulgation of regulations (1) Subject to the provisions of subsection (c) of this section, the Commission shall regulate the rates, terms, and conditions for pole attachments to provide that such rates, terms, and conditions are just and reasonable, and shall adopt procedures necessary and appropriate to hear and resolve complaints concerning such rates, terms, and conditions. For purposes of enforcing any demrminations resulting from complaint procedures established pursuant to this subsection, the Commission shall take such action as it deems appropriate and necessary, including issuing cease and desist orders, as authorized by section 312(b) ofthis title. (2) Within 180 days from February 21, 1978, the Commission shall prescribe by rule regulations to carry out the provisions of this section. (c) State regulatory authority over rates, terms, .and conditions; preemption; certification; cireumsmne~ constitutiag State regulation (1) Nothing in ~ section shall be construed to apply to, or to give the Commission jurisdiction with respect to Iates, terms, and conditions for pole attachments in any ease where such matter~ are regulated by a State. (2) Each State which regulates the rates, terms, and conditions for pole attachments shall certify to the Commission that - (A) it regulates such rates, terms, and conditions; and 03) in so regulating such rates, terms, and conditions, the State has the authority to consider and does consider the imerests of the subscribers of cable television services, as well as the imerests of the consumers of the utility services. (3) For pu~ of this subsection, a State shall not be considered to regulate the rates, terms, and conditions for pole attachments - (A) unless the State has issued and made effective rules and regulations implementing the State’s regulatory authority over pole attachments; and 03) with respect to any individual matter, unless the State takes final action on a complaint regarding such matter - (i) within 180 days after the complaint is filed with the State, or Ihe ICT Group H-1 (ii) within the applicable period prescribed for such final action in such rules and regulations of the State, if the prescribed period does not extend beyond 360 days aiter the filing of such complaint. (d) Determination of just and reasonable rotes; "usable space" defined (1) For purposes of subsection (b) of this section, a rate is just and reasonable if it assures a utility the recovery of not less than the additional costs of providing pole attachments, nor more than an amount determined by multiplying the percentage of the total usable space, or the percentage of the total duet or conduit capacity, which is occupied by the pole attachment by the sum of the opemring expenses and actual capital costs of the utility attributable to the entire pole, duct, conduit, or right-of-way. (2) As used in this subsection, the term "usable space" means the space above the minimum grade level which can be used for the attachment of wires, cables, and associated equipment. SOURCE (June 19, 1934, oh. 652, title II, See. 224, as added Feb. 21, 1978, Pub. L. 95-234, See. 6, 92 Stat. 35; amended Sept. 13, 1982, Pub. L. 97-259, title I, See. 106, 96 Star. 1091; Oct. 30, 1984, Pub. L. 98-549, See. 4, 98 Smt. 2801.) AMENDMENTS 1984 -Subsec. (c)(3). Pub. L. 98-549 added par. (3). 1982 -Subsec. (e). Pub. L. 97-259 struck out subsee. (e) which provided that, upon expiration of 5-year period that began on Feb. 21, 1978, provisions of subsee. (d) of this section would cease to have any effect. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98-549 effective 60 days after Oct. 30, 1984, except where otherwise expressly provided, see section 9(a) of PUb. L. 98-549, set out as a note under section 521 of this rifle. EFFECTIVE DATE Section effective on thirtieth day after Feb. 21, 1978, see section 7 of PUb. L. 95-234, set out as an Effective Date of 1978 Amendment note under section 152 of this rifle. CITE 47 USC See. 541 01/24/94 EXPCITE TITLE 47 - TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS CHAPTER 5 - WIRE OR RADIO COMMUNICATION SUBCHAPTER V-A - CABLE COMMUNICATIONS Part 111 - Franchising and Regulation HEAD See. 541. General franchise requirements STATUTE (c) Status of cable system as common carrier or utility Any cable system shall not be subject to regulation as a common carrier or utility by reason of providing any cable service. l’he ICT Group H-2 CITE 47 USC See. 542 01/24/94 EXPC1TE TITLE 47 - TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS CHAPTER 5 = WIRE OR RADIO COMMUNICATION SUBCHAPTER V-A - CABLE COMMUNICATIONS Part lIl- Franchising and Regulation HEAD See. 542. Franchise fees STATUTE (b) Amount of fees per annum For any twelve-month period, the franchise fees paid by a cable operator with respect to any cable system shall not exceed 5 percent of such cable operator’s gross revenues derived in such period from the operation of the cable system. For purposes of this section, the 12-month period shall be the 12-month period applicable under the franchise for accounting purposes. Nothing in this subsection shall prohibit a franchising authority and a cable operator from agreeing that franchise fees which lawfully could be collected for any such 12-month period shall be paid on a prepaid or deferred basis; except that the sum of the fees paid during the term of the franchise may not exceed the amount, including the time value of money, which would have lawfully been collected if such fees had been paid per annum. lhe IC’r Group H-3 APPENDIX I TELECOMMUNICATIONS COMPETITION Telecommunications Competition The US telecommunications industry, under investor ownership, evolved during much of its first century through precepts framed by early leaders, who adapted some concepts from postal services, such as universa~ service, price uniformity with its concomitant cost cross-subsidization, and monopoly. -The industry structure took form and substance without regulatory constraint during its first several d~mles; regulation began only ~ the structure was firmly in place. The guiding precepts included monopoly control of local exchange and long distance services; affordable pricing of basic local service (below cost whma nec~sary) to achieve universal service; cooperation not competition among the territorial monopoly local exchange service providers; and subsidies to basic local service and high cost service areas from long adhering to the fundamental precepts; when regulation began, regulators adopted and reinforced the precepts and practices. This symbiosis continued through the first two thirds of this century, until about a quarter of a century ago when universal service had been largely achieved and federal regulators began to selectively accommodate new entrants, first in provision of communicating devices that users could connect to the network, then in provision of long distance services. Although popularly ascribed to technology, the changes were driven by broader economic and political forces, the elaboration of which is unnecessary for the purposes of this report. These forces included economic opportunism by prospective entrants and discontent by the benefactors of eross-subsidizati0n, primarily large business users of telecommunications services, who successfully conducted sustained advocacy efforts. The price of long distance services has since fallen substantially under competition, the price of basic services has risen substantially, and the subsidy to basic service has been changed in form. Subsidy now is an acx,~s charge paid by all service users, including those residential, rural and smaller users who were formerly the beneficiaries. Some parties from whom the access charge subsidy is collected seek to avoid its cost and in so doing create a market for new forms of service such as those called alternative or competitive access, which inherently are usable only by large scale users. The advent of computer communications bythe late 1960s gave rise to deliberations over howto accommodate this convergence of monopoly telecommunications with communications computer services. The issue was resolved by recognizing the inherent non monopoly nature of computer services. The Bell local exchange service companies, because of their special monopoly position, were barred from providing computer information ~ services and since 1984 have been confined to providing monopoly local exchange services and barred from other competitive markets, including long distance service and telecommunications equipment manufacture; they are barred also from providing cable television program services wherever they provide local exchange services. How long these barriers to participation in competitive markets will remain is uncertain. The Bell companies" major efforts to lift the barriers are strenuously opposed by prospective competitors; the result has been years of standoff’. The Bell companies have gained a measure of freedom to provide information utility services inehiding Intemet access. The ICT Group 1-1