HomeMy WebLinkAboutStaff Report 119-10TO: HONORABLE CITY COUNCIL
FROM: CITY MANAGER DEPARTMENT: UTILITIES
DATE: JANUARY 25, 2010 CMR: 119:10
REPORT TYPE: INFORMATIONAL
SUBJECT: Status Update on Citywide Ultra High-Speed Broadband System
Project
RECOMMENDATION
This is an informational report and no Council action is required. The purpose of this report is to
provide the Council with an update regarding the following activities related to the Citywide
Ultra-High Speed Broadband System Project: (1) transition of project management from the
Administrative Services Department to the Utilities Department; and (2) an update on the City'S
pursuit of federal economic stimulus funding for the Broadband System.
BACKGROUND
In 2006, the City issued a Request for Proposals (RFP) for a company to build and operate a
Citywide Ultra-High Speed Broadband System in Palo Alto. In 2007, the Council directed staff
to enter into negotiations with a consortium of firms that would partner with the City to develop
the Broadband System. Staff negotiated at length in an attempt to reach agreement on the terms
of a public-private partnership. Unfortunately, the economic downturn restricted the
consortium's ability to obtain financing for the Network. On March 9, 2009, the consortium
withdrew from its participation in the project.
Since the consortium withdrew, seventeen (17) new dark fiber projects were started in the City.
Seven of these projects are for new customers. The additional dark fiber license fees will
generate approximately $200,000 in annual gross revenues.
On April 13, 2009, the Council directed staff to pursue economic stimulus funds for the
Broadband System project (CMR:143:09). The American Recovery and Reinvestment Act of
2009 (ARRA) offers $7.2 billion in grants for qualified broadband projects. Palo Alto's project
would be awarded by the Commerce Department's National Telecommunications and
Information Administration (NTIA) through the Broadband Technology Opportunities Program
(BTOP). In Round One, the BTOP program offered $4.7 billion in grants to fund broadband
projects in suburban and urban areas of the country and requires a 20 percent local match. The
Rural Utilities Service (RUS) of the Department of Agriculture offers $2.5 billion in grants,
loans and loan guarantees for broadband projects in rural areas of the country.
CMR: 119:lO Page 1 of6
The NTIA then announced it planned to offer three opportunities for submission of BTOP grant
applications (summer 2009, fall 2009, and spring 2010). In presenting its BTOP program, NTIA
stressed five key purposes:
• Access for end users in "unserved" areas;
• Access for end users in "underserved" areas;
• Support community anchor institutions;
• Improve access to public safety agencies; and
• Stimulate demand, economic growth, and employment.
On July 1,2009, the NTIA released a Notice of Funds Availability (l\TFOA) for the first round of
grant applications under BTOP. In the first round, "underserved" is defined in such a way as to
preclude communities with DSL and lor cable modem service from receiving any BTOP grant
support. Palo Alto was therefore ineligible to apply for first round grant assistance.
On July 13, 2009, staff held a study session with Council to review the federal economic
stimulus funding proposal being developed by staff and the criteria by which the project would
be evaluated by the NTIA. The staff proposal included a 25-mile extension of the current dark
fiber network into all neighborhoods and business districts within the City. Fiber would be
extended from the existing backbone ring to nodes strategically placed to connect to commercial
and public facilities and to provide a launching point for deployment of a fiber-to-the-premise
(FTTP) network. The backbone fiber count would be increased to provide sufficient fiber for
commercial users and, at each node, support an easy migration path if a FTTP network was built
out. In addition, the proposal included a citywide wireless component meant to address one of
the five "key purposes" for grant funding established by the NTIA.
During the study session, the Council provided numerous comments on the staff proposal which
primarily emphasized moving forward with an expansion of the City'S existing fiber network
into commercial areas to generate new revenues that could be used to support a build-out of the
network to all City premises. The Council inquired about potential partnerships with private
entities who would participate in building and operating the network. The Council
deemphasized the wireless component of the proposal in light of the primary goal of reaching all
premises with a 100 Mbps, synchronous, open access system.
DISCUSSION
Following the study session, the Utilities Department hired a full-time project manager (on a
temporary basis) to manage the Citywide Ultra-High Speed Broadband System Project and
further the City's vision of an open access FTTP network capable of delivering multiple
telecommunications services. The new project manager will focus exclusively on this effort
adding new momentum to this important initiative. On November 12,2009, the Administrative
Services Department formally transitioned responsibility for the Citywide Ultra-High Speed
Broadband System Project to the Utilities Department.
Staff continues to work with Columbia Telecommunications Corporation (CTC) to develop a
Broadband System implementation plan that is responsive to the Council feedback received
during the July 13, 2009 study session. This includes expanding the current dark fiber network
CMR: 119:10 Page 2 of6
to commercial business areas to enhance revenues, in addition to expanding into contiguous
residential neighborhoods as a future platform for the FTTP vision.
Staff is also pursuing the feasibility of placing nodes on Palo Alto Unified School District
(P AUSD) properties in exchange for broadband connections that would serve Palo Alto schools.
This option is being considered because the City's franchise agreement with Comcast ends in
July 2010. After this date, Comcast is no longer obligated to provide PAUSD with a broadband
institutional network (I-Net), except as to certain origination points. Connecting PAUSD to the
fiber network in exchange for placement of nodes on P AUSD properties would be beneficial in
an application for BTOP stimulus funds (addresses the "key purpose" regarding support to
community anchor institutions) and would further the goal ofFTTP in the community.
CTC has been directed to complete its scope of work under its current contract. This work
includes a preliminary assessment of action steps related to providing telecommunications
engineering services in support of an economic stimulus grant application(s) for the Broadband
Project. There are sufficient funds available under the contract for CTC to provide these
preliminary engineering services. Staff is currently preparing a scope of work for additional
contract telecommunications engineering services that will be necessary to support a
comprehensive business plan, which would include the documents that would serve as the
essential components of the City'S grant application.
The first round of these grant and loan programs produced almost 2,200 applications requesting
nearly $28 billion in funding -almost seven times the amount of funding available in that round -
for proposed broadband projects reaching all fifty states, five territories, and the District of
Columbia. The NTIA and RUS are currently reviewing these applications and expect to award
up to $4 billion in loans, grants, and loan/grant combinations in this round. The agencies began
announcing funding awards on December 17, 2009.
The NTIA and RUS have acknowledged that the initial application was overly burdensome (38
pages of detailed questions, numerous certifications, and approximately 10 attachments) and
have tentatively concluded that the application process should be streamlined.
On October 28, 2009, Mayor Drekrneier sent letters to U.S. Senators Barbara Boxer and Dianne
Feinstein asking them to co-sign a letter from Senator John Kerry to Assistant Secretary
Lawrence Strickland, the Administrator of the NTIA, urging the NTIA to make the application
process more accessible to community anchor institutions, as this is the intent of the American
Recovery and Reinvestment Act that created the Broadband Technology Opportunities Program.
Senator Kerry's letter pointed out to Mr. Strickland that big broadband networks to community
anchor institutions can be open to interconnection so that they may be used as 'jumping off'
points for the distribution of additional broadband services to individual homes and businesses in
the community.
On November 10, 2009, the NTIA announced that there would be only one more round of
funding, which will begin early in 2010. Although NTIA and RUS initially planned to hold three
rounds of funding, the experience in the first round led the NTIA and RUS to opt for only two
funding rounds.
CMR: 119:10 Page 3 of6
On November 16, 2009, the NTIA issued a Request for Information (RFI) for the purpose of
gathering information that will help them improve the application process and make targeted
revisions to the first NOFA, if necessary. If the rules governing BTOP applications are
significantly relaxed in the second-round and the definition of "underserved" is modified, it is
possible the City would be eligible to apply for stimulus funding.
On November 30, 2009, the City filed comments with the NTIA and RUS in response to the RFI.
The City urged NTIA to consider changes to the rules governing submission of NTIA grant
applications to allow greater participation by communities in critical high-technology corridors
like Palo Alto.
It should be noted that throughout the country, local and state plans to improve high-speed
Internet access with federal stimulus dollars have met strong opposition from incumbent carriers
such as AT&T and Comcast, in addition to other Internet service providers. The incumbents
assert that plans funded with stimulus dollars are essentially "overbuilds" and federal broadband
stimulus grants should be prioritized for projects in unserved or underserved areas with little or
no access to broadband. The NTIA and RUS broadband stimulus grant rules include a challenge
clause that allows the incumbent carriers to challenge applications if they believe broadband
service is already available in their operating territory.
On January 15, 2010, the NTIA announced the second round NOFA. This round allocates
approximately $2.6 billion to the BTOP program, of which approximately $2.35 billion will be
made available for comprehensive community infrastructure projects. Grant applications must be
submitted to the NTIA by March 15,2010.
In the second round of funding, the NTIA is adopting a "comprehensive communities" approach
as its top priority in awarding infrastructure grants, focusing on middle-mile broadband projects
that connect key community anchor institutions -such as libraries, hospitals, community
colleges, universities, and public safety institutions. According to the NTIA, comprehensive
community infrastructure projects maximize the benefits of BTOP by leveraging resources,
promoting sustainable community growth, and ultimately laying the foundation for reasonably
priced broadband service to consumers and businesses. This means that last mile projects are not
favored, unless there is a substantial middle mile component to that project. The NOFA also
states that last mile projects will be considered only after all middle mile projects are first
considered.
The NTIA is removing the requirement that infrastructure projects connecting community anchor
institutions, including community colleges, must be located in unserved or underserved areas,
though projects in unserved and underserved areas will receive additional favorable
consideration.
In addition, NTIA plans to award at least $150 million of the funding for Public Computer
Center projects, which will expand access to broadband service and enhance broadband capacity
at public libraries, community colleges, and other institutions that service the general public.
NTIA also plans to award at least $100 million for Sustainable Broadband Adoption projects,
CMR: 119:10 Page 40[6
which include projects to provide broadband education, training, and equipment, particularly to
vulnerable population groups where broadband technology has traditionally been underutilized.
Staff is currently reviewing the NTIA NOF A and revised governing rules to determine the
feasibility of the City submitting a grant application for an anchor institution network in view of
the NTIA's "comprehensive communities" approach, as this type of infrastructure project best
meets the goals of the City's citywide fiber to the premises project.
As it is currently laid out, the focus of the BTOP process is satisfYing the broadband needs of
"unserved" and "underserved" areas of the country. As a result, obtaining federal funding in a
community such as Palo Alto may be a significant challenge (see letter from CTC in Attachment
A). Moreover, the BTOP grant application process requires the preparation of a detailed
business plan (e.g., multi-year financial forecast, marketing plan describing service offerings and
price points, system design, etc.), but that will be required at a later due diligence phase of the
reVIew process.
To prepare a comprehensive business plan consulting services will be required to meet the
deadline for submission of a grant application. A contract amendment will be required to retain
the services of CTC to complete the preparation of a comprehensive business plan, which would
include the documents that would serve as the essential components of the City's grant
application. Due to the short timetable to submit a grant application, staff plans to return to
Council on February 1, 2010, with an amendment to extend the CTC contract and provide for
additional funds to prepare a business plan.
RESOURCE IMPACT
On October 19, 2009, the City hired a full-time project manager for the Citywide Ultra High
Speed Broadband System Project. Funds are available in the 2009-10 Fiber Optics Fund
operating budget to support this expense.
Staff plans to return to Council with an amendment to the CTC contract to provide additional
funds for their assistance in preparing a comprehensive business plan. This business plan would
include the documents that would serve as the essential components of the City's grant
application. Funds are available in the 2009-2010 Fiber Optics Fund operating budget to support
this expense.
If the City submits a broadband grant application to the NTIA, the Fiber Optics Fund reserves
(approximately $7 million) will be used to meet the 20 percent local matching requirement.
Commercial dark fiber revenues should grow as fiber is located closer to businesses.
POLICY IMPLICATIONS
This report is consistent with the Council's policy and program direction provided to staff.
ENVIRONMENTAL REVIEW
The actions requested in this report do not constitute a project for the purposes of the California
Environmental Quality Act. Build-out of the Broadband System is subject to the requirements of
the California Environmental Quality Act due to the installation, construction and maintenance
CMR: 119:10 Page 5 of6
of facilities in the public rights-of-way. Necessary environmental review will occur when
appropriate.
ATTACHMENT
Attachment A: eTC Letter
PREPARED BY:
APPROVED BY:
CITY MANAGER APPROVAL:
CMR: Il9:lO
'.nMFLEMING~
Management Specialist
TOMM MARSHAr~
Assistant Director, ~ln~ineering
Page 6 of6
ATTACHl\IENT A
TC
::':(}fv1N1LJf\J~CA~riC)J'JS
•••
ENGiNEERING &.
F"OR THE PUElUC INTEFi:EST
Columbia Telecommunications Corporation. 10613 Concord Street • Kensington, MD 20895
301.933.1488 • fax: 301.9333340 • www.CTCnet.us
Via Electronic Mail
Ms. Valerie Pong
Director of Utilities
City of Palo Alto Utilities Department
250 Hamilton Avenue
Palo Alto, CA 94301
Dear Ms. Pong:
December 18, 2009
This letter is written as a follow-up to our discussions regarding the likelihood of the City of Palo
Alto securing funding under the American Recovery and Reinvestment Act of 2009 CARRA) to
construct a so-called "last mile" fiber network to serve business and residential users.
As you are aware, ARRA provides a total of $7.2 billion in grants and loans to support qualified
projects. Ofthis total, $2.5 billion is allocated to rural areas under the Rural Utilities Service CRUS)
of the Department of Agriculture. The remaining $4.7 billion is to be administered by the National
Telecommunications and Information Administration (NTIA) of the Department of Commerce. 1
The guidelines established for the first round ofNTIA grant funding focused on bringing service to
unserved and underserved areas. NTIA set 40 percent broadband penetration as the threshold for
being underserved~a level at which Palo Alto does not qualify. And in terms of defining
"unserved" communities, NTIA set an extremely low threshold for the presence of "Broadband
Services"--defining it as two-way data transmission with advertised speeds of at least 768 kilobits
per second Ckbps) downstream and at least 200 kbps upstream. This threshold level is substantially
lower than the transmission rates provided to end users in Palo Alto by existing service providers.
Based on the advertised claims of existing service providers (e.g., AT&T and Comcast) operating in
Palo Alto, it can be reasonably assumed that all residents have access, if desired, to adequate
broadband services as defined by the NTIA. Thus, the City cannot be deemed unserved.
To get around these thresholds, some grant applicants have attempted to make the case that while
broadband service that meets the NTIA requirements is available in their communities, the high cost
of the service (which might range from $50 to $ 100 per month) makes it prohibitively expensive for
low-income residents. The end result, they argue, is that the community is effectively un-served.
However, this approach would not pass muster for Palo Alto.
1 Federal Register, Volume 74, Number 130, July 9, 2009.
Chapel Hill, NC • Madison, WI • Minneapolis, MN
Ms. Valerie Fong
December 18, 2009
Page 2
Additionally, we have noted that in the first round of applications filed by communities that have
existing commercial broadband services, many incumbent carriers (CATV, wireline and fiber optic)
have filed formal objections to the individual grant applications-often claiming that the proposed
service areas are fully served and hence not in compliance with NTIA policies.
In view of the forgoing, we recommend that CP AU consider re-channeling its planning efforts to
focus on applications that are more consistent with the prevailing NTIA policies such as
collaborative efforts with neighboring communities to construct "middle mile" networks linking
cities and public-sector institutions in the Bay Area.
Very truly yours,
Lee Afflerbach