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HomeMy WebLinkAbout2003-01-27 City CouncilCity of PaRo A to Manager’s Repor TO: FROM: DATE: TITLE: HONORABLE CITY COUNCIL CITY MANAGER JANUARY 27, 2003 DEPARTMENT: UTILITIES CMR: 127: 03 APPROVAL OF AMENDMENT NUMBER 1 TO THE FIBER TO THE HOME BUSINESS CASE FOR DEVELOPMENT CONTRACT WITH UPTOWN SERVICES IN THE AMOUNT OF $132,500 RECOMMENDATION This report recommends that Council approve and authorize the Mayor to execute the attached contract amendment with Uptown Services, LLC in the amount of $132,500 to provide business plan development services for Fiber to the Home (FTTH) deployment. DISCUSSION The Utility Advisory Commission (UAC) has spent several months reviewing the FTTH Business Case Report with staff and consultant advisers. At the December 4, 2002 meeting the UAC, in a 5-0 vote, passed a motion reconm~ending Council adopt staff’s request to approve the proposed FTTH Business Plan contract with Uptown Services, LLC and staff’s plan development process. Staff is reconm~ending that the contract for Uptown Services be amended to enable .Uptown to continue the work began with the Business Case Study for the fo!lowing reasons: Uptown Services won the original business case contract as the second lowest proposer (the lowest proposal offered an incomplete set of services). Furthermore CMR:127:03 Page 1 of 4 Uptown’s proposal was offered at 63% of the fee of the next responsive bidder, and at 48% of the average fee of the 12 proposal offerings (including the low non- responsive offering). Based on business case Request For Proposal (RFP) results, staff believes that it is highly unlikely that a better pricing would be achieved by instituting an RFP process. In spite of Uptown’s modest pricing, Uptown was selected by a cormnittee strictly on the quality of its proposal, presentation and references. Having completed the business case, Uptown Services is already familiar with the Palo Alto situation, including the issues of concern to the UAC, the advisory team. The advisory team consists of; 1 Councilmember, 1 UAC member, 1 Palo Alto resident, and city staff and meets monthly to review and guide the study. Uptown has already prepared a model for Palo Alto which staff and advisory members have studied and have become familiar with. Also, Uptown has made preliminary contacts with potential regional partners who could be involved with Palo Alto in the business. A change of consultants would require redevelopment of a modeling tools, training of Palo Alto staff and advisory bodies regarding the tool, and redevelopment ofparmering relationships. Staff and the UAC are pleased with the quality of work, knowledgeability, professionalism and collaborative work methods of Uptown Services. It is doubtful that a better work effort and better working relationships could be achieved through an RFP process selection. The FTTH project is on a tight time line with key decisions scheduled for the spring of 2003. This schedule ca~mot be met if the RFP process is evoked. Staff’s plan development process is two-phased in response to the UAC’s request that the business plan be done in that fashion. The phases are summarized as follows: Phase 1: 1.Verify the Palo Alto customer survey data from the business case study. 2.Develop alternative architecture cost estimates, e.g. Hybrid Fiber Cost (HFC). 3.Recommend a wholesale or retail business model (Parmering and .branding strategy). 4. Investigate comparable municipal utility telecom efforts and report. 5. Legal and regulatory review of the selected business model issues. Staff expects that an interim and final report will be delivered to the UAC, with the final going to City Council during Phase 1. CMR: 127:03 Page 2 of 4 Phase 2: 1.Various survey efforts, including a survey of the prospective small business customers of FTTH, and product and marketing surveys or focus groups. 2.Development of the Business Plan including market strategy: Target market analysis (define customer segments and needs) Product planning, including strategy for handling alternative competing technologies Acquisition and retention planning, including competitive response strategies 3.Service delivery strategy, including the development of new processes and the impact on existing processes. 4.Organization and management strategy including staffing requirements with job descriptions and skill sets, staffing costs, and organization plan, Financial strategy, including discussions with City staff to identify and recommend the appropriate financing method. Also twenty four month "start up" funding requirements. 6.Legal analysis including the identification of processes, actions, etc. to establish the legal basis for the operation of the business. Staff anticipates at least one interim report, with the final report being delivered to the UAC, with the final going to City Council at the end of Phase 2. RESOURCE IMPACT The contract will be in the amount of $!32,500 and the funds are included in the FY 2002-2003 Operating Budget. ENVIRONMENTAL ASSESSMENT Approval of the Contract Amendment does not constitute a project under California Environmental Quality Act. Therefore, no Environmental Assessment is required. POLICY IMPLICATIONS CMR: 127:03 Page 3 of 4 The final report may recommend policy changes related to the Municipal Code and the City Charter. This project supports the Utilities Strategic Plan Objective 1, "Enhance customer satisfaction by delivering valued products and services" and Strategy 4 to "Deliver products and services for competitive markets." ATTACHMENTS: A: Amendment 1 to Contract C2141542B" UAC excerpt from December 4, 2002~~~~~_~ ~ PREPARED BY:~ erBla~:e Heitzman, Manag Uti’~s Telecomm DEPARTMENT HEAD: Director of Utilities CITY MANAGER APPROVAL: HARRISON Assistant City Manager CMR: 127:03 Page 4 of 4 AMENDMENT NO. 1 TO CONTRACT NO. C2141542 BETWEEN THE CITY OF PALO ALTO AND UPTOWN SERVICES, LLC FOR FIBER TO THE HOME BUSINESS CASE DEVELOPMENT This Amendment No.!to Contract No. C2141542 -("Contract") is entered into , by and between the CITY OF PALO _ALTO, a chartered city and a municipa! corporation of the State of California ("CITY"), and UPTO~N SERVICES, LLC, a Limited Liability Company in the State of Co!orado, !ocated at 5650 Greenwood Plaza Blvd., Suite 225E, Greenwood Village, CO 80111 ("CONSULTanT") . (Taxpayer I.D. Number 84-1559241) RECITALS: WHEREAS, the Contract was entered into between the parties for CONSULTANT to provide professional consulting services to CITY related to the fiber to the home business case development; and WHEREAS, the parties wish to amend the Contract to expand the CONSULTANT’s scope of work, extend the term and increase the maximum compensation; NOW, THEREFORE, in consideration of the covenants, terms, conditions, and provisions of this Amendment, the parties agree: SECTION I. Paragraph i.I. of Section 1 is hereby amended to read as follows: "This Contract will commence on the date of its execution by CITY, and terminate on June 30, 2004, unless this Contract is earlier terminated by CITY. Upon the receipt-of CITY’s notice to proceed, CONSULTANT wil! commence work on the initial and subsequent Project tasks in accordance with the time schedules set forth in Exhibits "A" and "A-I". Time is of the essence of this Contract. in the event that the Project is not completed within the time required through any fault of CONSULTANT, CITY’s city manager will have the option of extending the time schedule for any period of time. This provision wil! not preclude the recovery of damages for delay caused by CONSULTANT." SECTION 2. Paragraph 5.1.1. of Section 5 is hereby amended to read as follows: 030121 sm 0053188 "In consideration of the ful! performance of the Basic Services, including any authorized 1 reimbursable expenses, CITY will pay CONSULT~-T a fee not to exceed Two Hundred Fifty One Thousand Five Hundred Dollars ($251,500). The amount of compensation will be calculated in accordance with the rate schedule set forth in Exhibits ~B~ and "B-!", up to the maximum amount set forth in this Section. Al! trave! and mea! expenses shall comply with the City of Pa!o Alto’s Policy and Procedures for trave! and meal expense reimbursement. By signing this contract acknowledges receipt of the City of Palo Alto’s Policy and Procedures for travel and meal reimbursement. The fees of the consultants, who have direct contractual relationships with CONSULTANT, will be approved, in advance, by CITY. CiTY reserves the right to refuse payment of such fees, if such prior approval is not obtained by CONSULTANT." SECTION 3. Paragraph 5.1.2 of Section 5 is hereby amended to read as follows: "The full payment of charges for extra work or changes, or both, in the execution of the Project will be made, provided such request for payment is initiated by CONSULTANT and authorized, in advance and in writing, by the project manager. Payment will be made within thirty (30) days of submission by CONSULTANT of a statement, in triplicate,of itemized cost covering such work or changes,or both. Prior to commencing such extra work or changes, or both, the parties will agree,in advance and in writing, upon an estimated maximum cost for such extra work or changes. CONSULTANT will not be paid for extra work or changes, including, without limitation, any design work or change order preparation, which is made necessary on account of CONSULTANT’s errors, omissions, or oversights." SECTION 4. The following exhibits to the Contract are hereby amended to read as set forth in the attachment(s) to this Amendment, which are incorporated in full by this reference: a. Exhibit "A" to the contract is hereby amended to include Exhibit "A-l" entitled "Additional Scope of Work". b. Exhibit "B" to the contract is hereby amended to include Exhibit "B-I" entitled "Amended Rate Schedule". 030121 sm 005315g 2 Jan 23 03 08:38p Meil V. Sha,.J~-~-~uu~ THU 10:37 ~H CITY OF P~ UTILITIES 30329084.73 FFIX NO. 6505664536 p.1 P, 03/26 SECTION 5. Except as herein modified, all other provisions of the Contract, inciuding any exhibits and subsequent amendments thereto, shall remain in full force and effect. IN WITNESS WHEREOF, the parties have by their, duly authorized representatives executed this Amendment on the date first above written. ATTEST:CITY OF PALO ALTO City Clerk Mayor APPROVED AS TO FORM: UPTOWN SERVICES, LLC Senior Asst. City Attorney APPROVED: Assistant City Manager Director of Administrative Services Director of Utilities Risk Manager Taxpayer Identification No. 84-!5592~1 (Compliance with Corp. Code § 313 is required if the entity on whose behalf this contract is sig~ed is a cor!3, oration. In the alternative, acertified corporate resolution attesting to the signatory authority of the individuals si~ning in their respective capacities is acceptable) Attachments : EX!~IBIT "A": SCOPE OF WORK EXHIBIT "’A-l": ADDITIONAL SCOPE OF WORK EXHIBIT "B".: ~ATE SCHEDULE EXHIBIT "B-l": AMENDED RATE SCHEDULE 01123/2003 THU 12:27 [TX/~K NO 8820] ~001 3an 23 03 08:08p Meil V. Sha., JAN-23-2003 TNU I0=38 AM OITY OF PA UTILITIES 30329084’73 FAX NO. 6505664536 p.3 P, 05/26 CERTIFICATE OF ACKNOWLEDGMENT (Civil Code § 1i89) STATE ) ) notary p~blic in and for said Cou!~ty, personally appeared personally known to me (or proved to me on the- basis of satisfactory evidence) to ~e the person(s) whose name(s) is/are subscribed to the within instrument, and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their ~ignature(s) on the instrument the person(s), or the enUiLy upon behalf~ of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. of My COmmission expires 07/10K2006 030121 sm 0053188 01/23/2003 THU 11:57 [TXiRX NO 8818] ~003 Exhibit A: Scope of Work SCOPE OF WORK FOR FTTH BUSINESS CASE DEVELOPMENT (NUMBERING COINCIDES WITH RFP) ,Project Location The project location is considered to be CITY OF PALO ALTO Utilities Engineering Offices at 1007 Elwell Court, Palo Alto, CA. At times project activity may be conducted at the CITY OF PALO ALTO Civic Center at 250 Hamilton, .or other places in Palo Alto. Occasionally, the Consuli~ant wilt make presentations after work hours at the above locations. 2.4 Consultant Division of Work The Consultant shall complete-the fol!owing work elements: 2.4.t 2.4.2 Identification of I~ey revenue sources for the FTTH project: Upon being hired the Consultantwill immediately review the staff report on key revenue sources, and complete the ]~oltowing tasks: -2.4.1.1 Review the staff research efforts, and list any deficiencies. Deficiencies are ¯ areas where additional research needs to be done before sound decisions can be made, The Consultant shall discuss these with staff and the advisory team (or a sub-committee of the advisory team), and propose a plan to correct the deficiencies or to-compensate for them. 2.4.1.2 Have knowledge of and integrate into the report, expertise on a national and regional level regarding the key revenue sources of the telecom industry, and how they.would apply to a FTTH network. The Consultant shall use this knowledge to suggest adjustments to the conclusions .of the staff report. Bring and integrate into the report ideas regarding the timeliness of minor services and their potential to enhance the revenue stream. These sources should not s.erve as a determining factor in the build out decision. 2.4.1.3 Assist staff in conducting preliminary investigative meetings with potential business partners Be a point of contact for arranging meetings with potential partners. When requested by staff, attend meetings with potential partners (Consultant shall provide these services on a per diem basis). 2.4.1.4 Expand staff efforts regarding business models for each revenue stream and their associated costs. Recommenda specific business model for each service to beprovided over the FTTH network. 2.4.1.5 Within one month of being hired assist staff in presenting the key re~{enue sources report to the advisory and, if necessary, governing bodies. Throughout the process, help staff convey accurate information to advisory and governing bodies, and .in soliciting the appropriate support and approv.als. Market Study- Analyze and understand the Palo Alto datadeveloped by staff and, recognizing differences between the Palo Alto and regional market places, make necessary adjustments to the Palo Alto projections: The Consultant shall take information he has about telecom market behavior, the offering of services in our region and adjust Palo Alto data based on national and regional data. Once the data has been adjusted, the expert will make projections regarding Palo Alto’s market penetration and the associated revenue that wil! be generated over a 3, 5 and 10-year horizon. 2.4.2.1 Review staff proto-type survey instrument and make recommendations PAGE 1 OF 5 Exhibit A-: Scope of Work 2:4.3 2.4.4 2,4.2.3 2.4.2.4 regarding form and selection of survey sample populations. Focus suwey effort 6n capturing the unique customer characteristics affecting fiber optic service in Palo Alto. tf possible, furnish relevant analogous market research data from elsewhere. " Upon staff completion of the survey of relevant market segments, the Consultant shall meet with staff and review their market research. He Will note any deficiencies, and meet with staff and the advisory team to develop a plan for. adjusting, for the deficiencies. The expert will develop an understanding of the~Jifferences between Palo Alto and regionally customer demographics. Based on this, and his understanding of national and regional responses to service offerings in the tetecom market, he shall make a final recommendation regarding the service offerings and the pricing point of each, being mindful of the need for basic service offerings (e.g. lifeline rates) in each service category. He shall then.make reasonable adjustments to the staff projections of market shares and gross revenues. In the process he will consider the nature of Palo Alto. citizen loyalty, and, the type of services to be offered, as well as other factors, which migM influence the outcome. Based on his knowledge of competitor practices in the region, the Consultant shall further adjust the projections of Palo Alto’s market share and future.revenues. He shall also make other adjustments, which he deems appropriate, based on his expertise. He shali also recommend actions for Palo A!to to take to reduce the impact of competitors and other factors on its market share. Based on his expertise in market analysis the Consultant shall construct a statistical model of the forces affecting the Palo Alto market. Using this model, the Consultant shall, in the minimum, make. projections for a reasonable .worst case, best case, and nominal case for_ annual gross revenues from the Palo Alto FTTH project. These cases shall be projected for 3, 5 and 10 year horizons. Ehe Consultant shall make his model available to staff to run their own variationS of cases. Staff ultimately must have a strong understanding of the market in which the project would be operating. The Consultant shall make a presentation to staff and the advisory team regarding his analyze of the Palo Alto market for FTTH services, in his pr~esentation he will address competitive forces, Palo Alto strengths and weaknesses, customer loyalty and other issues that he deems significant. The expert will assist the staff in presenting the market study and associated recommendations to advisory and governing bodies (two evening sessions). Legal and Regulatory Analysis: It is imperative that the consult and his associates have good knowledge.of the legal and regulatory issues facing Palo Alto in a build out of the FTTH network. 2.4.3.1 The Consultant should identify all legal and regulatory hurdles that Palo Alto must ovdrcome to embark on this project. He should estimate the required resources and costs to manage the these issues.. 2.4.3.2 The Consultant should forecast the length of time Palo AJto should anticipate being delayed by legal and regulatory challenges, and should recommend critical start dates for these processes. Technical Feasibility - Identify and describe a system capable of delivering the services. The Consultant, with the assistance of his Subcontractor’s will make reasonable estimates of the costs of building and operating various alternative FTTH networks. Consultant will provide all necessary design and engineering expertise to PAGE 2 OF 5 Exhibit A: Scope of Work 2.4.5 2.4.6 complete this assignment. Consultant shall meet with the Utilities engineering staff and discuss his assumptions, methods, and fully describe his analysis in the development of his costs estimates. 2.4.4.1 Consultant will estimate the Costs and timing of a system wide deployment. Availability of construction expertise and staffing shall be integrated into these estimates. Customer interests (geographical segmentation) wil! also be considered in these forecasts. 2.4.4.2 Consultant shall estimate the costs and staffing (skill set acquisition and development) requirements needed to operate the FTTH network. Obsolescence and replacement shall be considered to develop life cycle costing, and annual cash flow requirements. Where possible, probable ranges of values shall be used in the analysis. 2.4.4.3 Consultant shall meet with Palo Alto Utilities Engineering staff and fully describe to their satisfaction: his assumptions, methods of analysis, sources of data, etc. used in the development of his estimates. Financial Feasibility: Analyze methods for funding the construction and i~itiai operation.of the FTTH network, The Consultant shall advise the city regarding the financial issues and legal implications of raising capital for the FTTH network building and initial operation.~. 2.4.5.1 The Consultant shall explain the options for financing based on construction costs, time frame and the cash flow for the buiid out. 2.4.5.2 The Consultant should address issues related to tax exempt financing, if any.. 2.4.5.3 The Consultant should address issues of partnering with non-tax exempt entities to assist with implementing.the project. 2.4.5.4 The Consultant shall meet with advisory and governing bodies to explain financing options and associated risk, if any. This information will be included in the final report presentations. Development of an integrated FTTH business model. The Consultant shall assume full responsibility for the integration of all the above information and any additiohal infoimation that he deems significant into a pro forma income statement and cash flow statement model of a Palo Alto FTTH business. 2.4.6.1 The model shall becapable of managing uncertainty through probabilistic modeling. 2.4.6.2 The Consultant shall make recommendations that are supported by the model. - 2.4.6.3 The Consultant shall identify all sensitive variables in the model and explain their range of possibilities and how these affect the outcome. 2.4.6.4 The Consultant shall accompany staffto make presentations of results and recommendations to advisory and governing bodies: The Consultant will explain sources of risk, and make recommendations for the mitigation of risk (four presentations). " 2.4.6.5 The Consultant shall train staff in the use of the model and turn the model over to staff for their use in future scenario modeling. 2.5 Chronological list of deliverables: This listing of deliverables is to be viewed as a summary from the "Division of Work" sections of this RFP, and includes only the major milestones of the project with relative time lines. Consultants can use this section to understand the timeline of the project. Consultants are to use this entire document to analyze the complexity and detail of the work in preparing their submittals. 2.5.1 Deliverable by staff: Section 2.3.1 (Investigation of key revenue sources for the PAGE 3 OF 5 Exhibit A:Scope of Work 2.5.2 2.5.3 2.5.4 2.5.5 2.5.6 2.5.7 2.5.8 2.5.9 2.5.10 2.5.11 2.5.12 2.5.13 2.5.14 2.5.15 FTTH) work will be completed by staff prior to.the commencement of work by the Consultant. This work will be delivered to the Consultant in the form of a written report with a section for each key revenue source. Deliverable by Consultant: The Consultant shall produce his written review of the staff report on key revenue sources (as described in section 2.4.1 .I) within two weeks of its delivery to him. Consultant deliverable: The Consultant shall have organized introductory meetings with at least two potential business partners for each key revenue source within four weeks of the initiation of his contract will the city. Consultant deliverable: The Consultant shall also meet with the advisory team and provide a verbal review in accordance with. section 2.4.1.1 and section 2.4.1.2 within seven weeks of the delivery to him of the staff report. At that time he will also provide an overview of the legal and regulatory issues that Palo Alto can anticipate facing with respect to engaging in the key businesses. Sta~ deliverable: All sections within Section 2.3.2.1 (development of protq-type market survey instruments and test application) will be completed prior to the selection of the Consultant. Consultant deliverable: The Consultant shall provide staff with written recommendations regarding revisions to the survey instrument within two weeks after the survey instrument has been delivered to him by staff. Consultant deliverable: Consultant recommendations regarding the selection of sample populations shall be delivered to staff within three weeks-of the delivery of staffs draft survey to the Consultant. Consultant deliverable:. Consultant shall deliver a summary of relevant analogous market research within 5 weeks of his receipt of the staff draft survey instrument. " Staff deliverable: Staff shall complete all portions of sections 2.3.2.2 and 2.3.2.3 (actual market surveys and compilation of statistical data for marketsegments) within six weeks of receipt of the Consultant’s review as described in section 2.4.1.3. Consultant deliverable: Within two weeks of the rec6ipt Of the market surveys and statistical compilation, the Consultant shall submit his written review noting deficiencies and the potential impact of these. Consultant deliverable: Within four weeks of the delivery df the market surveys the Consultant shall provide his adjustments based on competitive forces and his knowledgeof the business. Consultant deliverable: Within eight weeks after receiving the market survey the Consultant shall deliver the statistical business model for projecting future revenue streams under the influence of key variables, and make his presentations to staff and the advisory team. Staff deliverable: Staffwill compile trial cost data and make projections about build out costs, staffing requirements and timing. Staff will finish within 12 weeks of the date that upon which the Consultant washired. Consultant deliverable: Within four weeks of receiving staff’s engineering report on construction and operation, the Consultant shall note areas of his concern coming from his knowledge of similar build outs. At the same time he shall deliver his analysis for financing the build out of the FTTH network. Consultant deliverable: Within 8 weeks of the completion of the staff engineering report on costs of a FTTH build out and operation and also the market survey analysis, the Consultant shall deliver the integrated FTTH financial model as described in section 2.4.6. With the model he shall deliver his recommendations regarding the build out. PAGE 4 OF 5 Exhibit A: Scope of Work Consultant deliverable: Over the next several months following the delive~ of ~,,= ,,,,~,,u~ ~ude~, the Consultant shall assist staff and the advisory team in presenting the report and ~ecommendations to upper management, UAC, Council, and the public. These follow up presentations shall be charged on a per diem basis as a separate line item in the proposal. PAGE 5 OF 5 Exhibit "A-I’: Additional Scope of Work SCOPE OF WO~ J~OR TI-i~ FTTH BUSINESS PLAN DEVELOPMENT I. PRO~CT LOCATION The project location is considered to be Palo Alto Utilities En~neering offices at 1007 Elwell Court, Palo Alto, CA. At times project activity may be conducted at the Palo Alto Civic Center at 250 Hamilton, or other places in, or near, Palo Alto. Occasionally Uptown shall make presentations after work hours at the above locations. II. SCOPE OF SERVICES Uptown shall complete the following work using the process described in Section 1TI of this document. Any variation from this scope and process shall be approved, in writing by the City of Palo Alto Project Manager. Ultimately Uptown shall develop a detailed business plan for the FTTH broadband business. However Uptown shall first coordinate with the Palo Alto Project Manager and officials to achieve: Engineering Analysis: A final decision regarding the general network architecture to be deployed. Palo Alto Utilities staff and officials have asked that various FTTH designs be analyzed for costs and suitability of architecture. Also the alternative deployment of Hybrid Fiber Coax (I~C) is to be analyzed at the same level. Partnering and Branding: A final decision regarding partnering and branding strategies for each service. The business case called for retail video and Internet offerings from Palo Alto Utilities, with a wholesale telephone offering from a third party provider(s). Palo Alto staff and officials have requested and Uptown shall evaluate an alternative ~v.holesale strategy for Internet and video. Final branding decision shall be agreed upon with Palo Alto officials prior to commencement of the business planning process. En,~ineerin~ Analysis Plan Peregrine Communications (Peregrine) or Palo Alto Project Manager approved alternative sub-contractor shall provide additional engineering services during the business planning process. These services shall develop comparative construction estimates for alternative architectures to the FTTH design completed for the business case. Final alternatives will be declared by Palo Alto Project Manager prior to the commencement of the en~neering analysis. Alternatives might include HFC, all fiber non-PON network and blown fiber solutions. Partnering and Branding Plan Through several preliminary discussions with local video, telephone and Lntemet service providers, Uptown andPaio _Alto staff have laid a substantial foundation in the area of partnering. Uptown shall continue to develop a detailed partnering strategy based on the results of follow-on discussions with highly probable partners. This strategy shall also detail the final branding strategy for the overall business and each individual service. Uptown shall collaborate with Palo Alto Project Manager and officials to deliver a final detailed recommendation regarding each service. Comparative Municipal Telecommunications Analysis Over 100 municipally owned utilities have entered the telecommunications business by deploying one or more services like cable television, Intemet access and telephone. Palo Alto Utilities officials have expressed interest in understanding some of the hi~,ch level marketing, operations, finance and public policy strate~es and tactics employed their peers (similar in size, tecbmology deployed or service set). Uptown shall complete a survey of at least five of Palo Alto Utilities’ peers and provide a brief summary for each, along with a comparative matrix detailing key issues, costs, pricing, and other determinate values for all. Business Plan In conjunction with Palo Alto staff, Uptown shall develop one business plan for Palo ’Alto Utilities’ entry into the business of offering video, data and telephone services over a broadband system. This plan shall contain the following elements: ~larket Strategy Uptown shall develop a detailed marketing strategy for the proposed business. This marketing strategy shall contain the details related to target markets, product, design, sales and marketing tactics and budgeting. These components are as follows: Target Market Analysis Uptown shall use the results of Palo Alto’s market research to segment target markets for the Palo Alto Utilities service offerings. This effort shall define the opportunities for each segment in the consumer and business markets. Market segmentation models may be used to help delineate the targets and their primary characteristics. Each segment shall have unique requirements and this process shall identify and integrate them into the product-planning phase. Product Planning Uptown shall develop detailed product plans for services that meet the gaps identified in the target market analysis effort. These plans shall address the standard "Four Ps" (Product, Place, Price, Promotion) for the services which are to be offered. It is projected that services shall include some form of video, Intemet and telephone. This task shall further refine the service design to a level of detail that shall allow detailed and reliable budgeting for the operation. Se~wice design components shall include features and functionality, capital costs, 2 expenses, pricing, packa~ng and competitive analysis. The risk posed by alternative technologies to the revenue stream and infrastructure investment shall also be analyzed in this process. Acquisition and Retention Strategy Uptown shall develop a detailed acquisition and retention strategy for the FTTH broadband business. This strategy shall detail the recommended sales and marketing tactics that could maximize the effectiveness of Palo Alto Utilities’ acquisition efforts. This section of the business plan shall also provide details related to retaining subscribers on a going fo~vard basis and detail alternative sti:ate~es for countering competitive responses such as aggessive price cutting and bundling of multiple services. Budget Uptown shall develop a detailed monthly budget for all product development, sales and marketing activities of the first two years of operation. Service Delivety Strategy Uptown shall develop a detailed service delivery plan for the FTTH broadband network. This plan shall address all key processes that are required to deliver the services specified in the product-planning phase. Several City of Palo Alto financial, accounting, utilities and other processes will be impacted by the addition of telecommuh_ications services and those process impacts shall be identified. In addition, new processes will need to be developed to support the broadband service offerings. Uptown shall develop high level process maps for the following areas: sales, order processing, billing, collections, bill inquiry, customer service, trouble management, installation and repair. Organization atld MaJ~agemeitt Strategy Uptown shall develop a detailed organizationplan for the new telecommunications operation. The core element of this plan shall be an organizational chart. Job descriptions shall also be developed for each position in the organization. Wage scales and potential resource pools shall also be identified. Filz ai, cial Strategy Uptown shall develop a detailed financing strategy for the broadband business unit. This strategy shall outline different financing approaches and provide a detailed monthly view for the reco~mnended approach. A key deliverable from this task shall be a 24-month operating budget that the managers ofFTTH caaa use to guide and measure the business going forward. The results of this effort will also be used to justify investment (financing) in the venture. Legal Strategy Uptown assumes that the City of Palo Alto legal .department wil! be developing a lega! / regulatory strategy in support of the desired business plan. Uptown and Palo Alto Utilities shall create a basic outline of the expected business structure and service offerings that the legal teana can use to frame the study of the legal and regulatory issues and establish guidelines and strate~es as appropriate. The business plan shall be developed within the legal limits specified by the legal team. III. Business Plan Development Process Uptown shall develop this business plan in coordination with Palo Alto Utilities Project Manager, officials, and other stakeholders in the broadband venture. This section outlines the process that shall be used to develop Palo Alto Utilities’ FTTH business plan. Setting Goals The first step in developing the business plan shall be to define the goals for the business. Goals and strateNes shall be developed and quantified for each element of the business (marketing, service delivery, organizational and financial), such that the ongoing operation might be measured accordingly. Uptown shall facilitate meetings at which Palo Alto Utilities staff and other stake holders will develop this critical foundation as follows: The Mission Statement Uptown shal! facilitaie the development of a mission statement. The first step in developing meaningful goals for the broadband business shall be to develop its mission - its underlying reason for existence1. A good mission statement will define the company’s strateNc direction and position in both product and service temas. It should also clarify the competitive arena in which the company operates. At a minimum, the mission statement should answer the following questions: o What business are we in? °How do we differentiate ourselves from others? o What makes us unique? o Where do we plan to do business? o Why are we in business? Given the complex nature of the business being proposed, this step will be critical. It will provide the basis for all goal setting and help bring the diverse group of stakeholders together with a common view of the business. Defining Goals, Objectives and Strategies A goat is a general statement of desired direction and usually relates to improving something. Goals are generally related to filling some sort of gap identified by the company and may or may have a specific thne frame attached to their achievement. An objective is a measurable statement of accomplishment and a strategy is a method of achieving goals, objectives or both. A strategy usually includes inputs as well as desired outcomes, a time frame and milestones. t Any mission statement, goals and objectives developed for the broadband business unit will need to be consistent with those already in place for PALO ALTO UTILITIES. 4 Uptown shall facilitate the process of setting goals and objectives for each element of the broadband business. These goals and objectives shall serve as tl£e basis for developing specific strategies for the marketing, service delivery, organization and financial operating plans. 3~Iarket Goals The primary purpose of marketing goals and strategies is to maximize overall sales and revenue potential. A secondary goal is to acl~eve maximum productivity from sales, promotion and distribution activities. Uptown shall work with Palo Alto Utilities to establish goals for the following: o Sales of specific products and services Sales to specific customer segments o Sales by channel distribution These goals are obviously interrelated, and the process of setting them will require several iterations. Service Deliveo~ Goals and Strategies The primary purpose of service delivery goals and strategies is to minimize service costs, in order to maximize contribution margins of the company’s services. However, th~s must be achieved in the context of a strict quality standard ha all areas of service delivery, in support of the overall marketing goal of maintaining and expanding demand for the company’s products and services. Uptown shall work with CPUA Project Manager to establish goals for the following: o Standard (budgetary) costs for supplied materials, products and services that are inputs to the service delivery process Productivity standards for al! significant service delivery activities or processes Standard unit costs for each service o Staffratios for each worker group o Estimate of fixed operating costs o Service delivery capacity o Service delivery overhead structure These goals must match the sales goals set earlier. They will also be critical to the financing plan and development of a detailed operating budget. Ot~,anization and ;~lanagement Goals The primary purpose of organization and management goals and strategies is to put into place the skilled workforce and organizational environment required to achAeve the goals of marketing, service delivery and finance. Uptown shall work with Palo Alto Utilities Project Manager to develop goals and objectives for the following are as: Productivity standards for all worker classes Organizational structure for the broadband business Mix of skills and composition of the company’s workforce 5 ~Supervisor to worker ratios and span of management control o Development of staff skills ¯,~ump~uun for all personnei ,Growth and expansion of the workforce These goals and objectives will have an overarching impact on the marketing and service delivery strategies for the broadband business. Financial Goals Financial goals and strategies have two primary purposes. First, they support the capability of the company to generate profits through its operations (sales and service delivery). Second, they effectively manage the funds generated throug~ operations and ensure the continued financial solvency and growth of the business. An effective financial strategy can supplement operating profits, but the primary purpose of the financial strategy should be to ensure that the business has the financial resources required to support its ability to generate operating profits. Uptown shall work with Palo Alto Utilities Project Manager to develop goals and objectives (based on ratios) for the following areas: o Liquidity o Asset management °Profitability o Cash flow While the broadband business is assumed to be under the overall Palo Alto Utilities operating umbrella, it is assumed that these goals and objectives will still be measurable at the FTTH business unit level. Developin~ Operatin~ Plans On completion of the goals for each element of the business, Uptown will have the basis to begin developing the operating plans for each area of the business. Uptown and Palo Alto Project Manager shall keep the Attorney’s Office appraised of the development of the business plan process. It is assumed that City ofPalo Affto Attorney’s Office will develop a legal and regulatory plan in concert with Uptown as described below: Product, Sales an d Marketiug Plan Uptown shall develop a detailed sales and revenue plan for the broadband business. This plan shall be developed in support of the goals, objectives and strategies specified in the goal setting process. The product, sales and marketing plan shall cover the following areas: Detailed descriptions for each service being offered Mitigation of risk posed by alternative technologies Monthly and nom-ecurring prices by service type (e.g. phone, video, Jaaternet, etc.) Channe! strategies by service o Marketing strategies by service Alternative strate~es for addressing competitive responses Debunking strate~es and tactics to address incumbent °°Fear Uncertainty and ~. Mum-_oons ).Doubt" campai~mas (e.a.. " " T _ " Monthly sales projections for fLrst 24 months Monthly marketing expenses for first 24 months This plan shall serve as the roadmap for the development of all FTTH broadband service offerings. It shall also spell-out the specific marketing strategies and tactics to be used during the first two years of operation. Uptown’s plan will serve as a guide for product managers and marketing personnel in the broadband business unit. Service 1)elive,:v Plan Uptown shall develop a service delivery plan for the broadband business. This plan shall be developed in support of the goals, objectives and strate~es specified in the goal setting process. The service delivery plan shall cover the following areas. o Mapping of all core processes - sales, order processing, provisioning, installation, customer service, help desk, repair, billing, collections, network operations and product development ~Establistm~ent of measurements within each core process ,Development of standards for each process measurement Process mapping is a critical step in the development of a solid service delivery plan.. Given the number of parties involved in the delivery of any broadband service, it will be important for Palo Alto Utilities to understand the various interactions and to set standards for each. OrgaMzatiotz and Managemettt Plan Uptown shall develop an organization and management plan for the broadband business. This plan shall detail the staffing plan along with the management structure of the business. The plan shall include the following elements: ~Position descriptions for all new job functions in the business o Staffing requirements for each position ~Organizational and management structure o Broadband business’ position in the Palo Alto Utilities infrastructure governance and reporting relationships. ~ Breakdown of overhead costs that flow to new broadband business Given the highly sensitive nature of these issues, Uptown and Palo Alto Utilities staff will require the support of appropriate executives from the City’s utility, finance and human resources departments. Fi~ a~ cial Platt Uptown shall develop a detailed financial plan for the broadband business. This plan shall provide a comprehensive view of the business for the first 24 months of operation. Latter months shall be aggregated into annual totals. Uptown’s plan shal! include an income statement, balance sheet and statement of cash flows. It shall also reflect the 7 financing strategy that shall be developed by Uptown and the City of Palo Alto finance department. Final Report Uptown shall prepare a final report that details the outcomes discussed herein. IV. DELIVERABLES Uptown shall provide the following deliverables over the course of the contract. Business Structure (-Branding) Recommendation Uptown shall provide a detailed business structure recommendation for each service to be offered. This recommendation shall include updated business model analysis for each alternative that was evaluated. Architecture Analysis and Recommendation Uptown with its subcontractor, Peregrine or Palo Alto approved alternative, shall provide a spreadsheet-based analysis of the different architectures that were evaluated. This analysis shall follow the same format as the analysis provided in the business case project. Uptown shall complete the appropriate level of business case analysis and provide a recommendation regarding FTTH vs. HFC: Municipal Telecommunications Summary Uptown shall provide a summary report and matrix for analysis of Palo Alto Utilities’ peers in the telecommunications business. Mission, Goals, Ob,iectives and Strate,~ies Uptown shall provide a summary report on the mission, goals objectives and strate~es that have been developed by the broadband team. Operatin,~ Plans Uptown shall provide operating plans for the business plan components discussed in this scope of work. Financial Plan Uptown shall provide a detailed spreadsheet based operating budget (income statement, balance sheet and statement of cash flows) for the first 24 months of operation and annually for up to 15 years. V. SCHEDULE Uptown shall make reasonable effort to complete the business plan in a timely fashion. However, there are interdependencies with work of Palo Alto staff and there is a sequence in which the.work must be completed. The following table lists the tasks to be completed in sequential order: Task 1.Sig-ned contract for business plan 2.Evaluate architecture alternatives 3.Develop architecture recommendation (FTTH or HFC) 7. Develop business structure recommendation Legal / regulatory reviexv of business structure recommendation Complete municipal telecommunications analysis Presentation and approval of architecture and business structure recommendations to UAC (presentation of #6) 8.Set goals for business plan 9.Develop operating and financial plans 10. Presentation of business plan to UAC Dependencies None #1 #2 #1 #4 #1 #3, #5, #6 #7 #8 #9 Resources CPAU, Uptown Peregrine, CPAU, Uptown CPAU, Uptown Uptown, CPAU, business partners CPA Legal Uptown, CPAU UAC, CPAU, Uptown Uptown, CPAU, UAC Uptown, CPAU Uptown, CPAU, UAC Duration Unknown 3 weeks 1 weeks 3 weeks Unknown 3 weeks Unknown 4 weeks 10 Weeks Unknown As the table shows, a business plan may take up to 17 weeks to complete after a contract is signed with Uptown. This time frame may be compressed at the discretion of the Palo Alto Utilities Project Manager by either eliminating elements from the operatilag plans, or by starting the development of the operating plans prior to finalizing the architecture and business structure strategies. 9 E~hibit B:Compensation 1.Fees and compensation fnr the sorv~ooS ao~o~4h~d in tSe ~-~---’~-’+ *- Scope of Work: Business Case Development Study not to exceed Engineering Analysis (Per Section 2.4.4) not to exceed Estimated travel budget, including related to engineering analysis $51,000 $50,000 Sl 8,000 $119,000. Total for proposed Scope of Work 2. Variable Charges for Unforeseen additional work: Neil Shaw Uptown Donald Thompson Uptown Dr, Futro Peregrine ,,Jim Kline "Peregrine Douglas Pieri Peregrine Don Holland Peregrine $187.50 $187.50 $187.50 $137.50 $137.50 $137.50. $1,500.00 $1,500.00 $1,500.00 $1,100:00 $13-oo.oo ,1,1oo.oo EXHIBIT "B-I" AMENDED RATE SCHEDULE A. FIXED CHARGES: 1. Consulting Services Unless otherwise negotiated be~,een CPAU and Uptown, all consulting costs will be charged as fixed. Uptown’s fixed fee for the services (Uptown and Peregrine) described in Exhibit "A-1 9"Additional Scope of Work" will not exceed $1__~,500 (excluding expenses). A task-by-task breakdown is provided next. Task Phase I Strategy Development Wrap - Up o En~neering Analysis and Recommendation e Municipal Telecommunications Analysis ~,Business Structure Analysis and Recommendation Phase II Business plan development Total Fixed Cost $13,500 $ 5,OOO $ 20,000 I$ 85,000 $123,500 2. Travel Expenses Travel expenses are estimated to be no more than $9,000 for this project. This is for estimation purposes only and will certainly fluctuate according to the costs of air travel, rental car and hotel stays in the Palo Alto area and will be in accordance with the City of Palo Alto’s Policy and Procedures for travel and meal expense reimbursement. B. VARIABLE CHARGES Uptown does not plan to bill the City on an hourly basis. However, should work be required over and above the scope ori~nally identified, hourly mad daily rates for each resource are provided in the table below. In dividu al Comp any Nei! Shaw Uptown Donald Thompson Uptown Jim Kl~ne Peregrine Douglas Pieri Pere~m-ine Don Ho!land Peregrine Hourly Rate $187.50 5187.50 $150.00 $150.00 $150.00 Daily Rate $1,500 $1,500 $1,200 $1,200 $1,200 030121 sm 0053188 Attachment B Excerpt from the Utilities Advisory Commission Unapproved Minutes (page 14) of December 4t", 2002 Utilities Advisory Commission Motion Regarding the Fiber to the Home Business Plan: Dawes: I move that the UAC recommend to the City Council to proceed with the business plan as outlined in the, is this the City Manager’s recommendation here I don’t know exactly what the name of the item is, but to proceed with the proposed business plan Fiber to the Home business plan in accordance with item 1 of the agenda. Bechtel: Mr. Chairman, I think we ought to clarify and say, ’~/Ve are asked City Council to approve a contract." That’s what we’re being asked to do, not a plan. Dawes: I agree with Mr. Bechtel and so revised the motion to propose to the City Council, recommend to the City Council to approve the contract with Uptown Services, LLC. Carlson: Commissioner Ferguson, I’m suddenly lost. Go ahead. Ferquson: Let me, Commissioner Dawes, if you might make a friendly amendment. If we can simply move that we recommend to Council that they adopt the staff request? Dawes: That’s perfectly acceptable. Bechtel: Second. Carlson: If you look close, I think what we’re approving here is both a contract and a process, because we’ve all clearly asked for some really important First Phase things and I don’t know if I can speak for the rest of the Commission, but there’s still some skepticism here and we still want to see more detailed results that this really does pencil out in this very dynamic and competitive environment before we decide how many pencils we have to buy. So this is a long way from writing checks with lots of zeros, but it certainly deserves more analysis from many perspectives. Okay. Motion is made and seconded. All in favor? All Commissioners: Aye. Carlson: Any opposed? Okay. We’re going ahead. Thank you very much gentlemen.