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HomeMy WebLinkAbout2002-12-02 City CouncilCity of Palo Alto C ty Manager’s Summary Report TO:HONORABLE CITY COUNCIL FROM:CITY MANAGER DEPARTMENT: UTILITIES DATE:DECEMBER 2, 2002 CMR: 403:02 SUBJECT:APPROVAL OF THE CONTINUATION OF THE FIBER TO THE HOME TRIAL REPORT IN BRIEF RECOMMENDATION Staff recommends that Council: Approve continuation of the Fiber to the Home (FTTH) Trial for Internet service and other test services until September 30, 2003, provided that the net cumulative trial cash flow remains positive through the extended period. Direct the City Attorney’s Office to evaluate and advise on the actions that may be required to allow the Department of Utilities to operate a video service within the trial area and potentially thereafter throughout the City. BACKGROUND On June 7, 2001 the City of Palo Alto signed an agreement with Marconi Communications Inc. for a field trial for FTH-1000 FTTH equipment. This equipment was installed in order to operate the network for the FTTH Trial. The agreement was scheduled to end in September, 2001. Upon expiration of the agreement, the City of Palo Alto would be offered the option to: a)Either shut down the FTTH network and return the equipment to Marconi Communications Inc., or CMR:403:02 Page 1 of 4 b)Purchase the FTH-1000 equipment from Marconi, which would continue to provide services to FTTH participants. In view of considerable financial difficulties, Marconi Communications Inc. unexpectedly announced a plan to discontinue Deep Fiber passive optical networking PON equipment for FTTH by March, 2002. Marconi Communications Inc. later reversed its announcement assuring City staff that FTTH would continue to be supported and Marconi would, eventually, further develop the FTH-1000 platform. On July 11, 2002, Marconi Communications Inc. unilaterally extended the term of the trial of its FTH-1000 equipment through April 2003, thereby allowing the City several more months to make a decision regarding the disposition of the Marconi equipment. In addition, other providers have approached staff with requests for the opportunity to migrate the FTTH network from Marconi equipment to their equipment for a field trial. The architecture of the equipment from these other providers vary, but the terms and proposed conditions for the trial are similar to those outlined in the agreement with Marconi. Staff has not engaged in negotiations for an agreement with any of them and it does not have a present intention to engage in such negotiations at this time. However, should the City elect to choose another provider as a substitute to Marconi, the City will be required to competitively select the provider if the FTTH Trial appointment will be on terms and conditions that extend beyond a trial basis. DISCUSSION The FTTH trial has provided valuable training and education for CPAU on the construction and operation of a fiber optic based residential service while meeting all of its original objectives within the expected timeframe and budget. However, the fiber business continues to mature technical’ly and additional research with alternative equipment and operations parameters would be beneficial to the final system selection and build out process. Hence, rather than terminating the FTTH network by abandoning the use of the existing infrastructure, a continuation of the trial will allow testing alternative services and other equipment as prescribed in CMR:422:00 of November 13, 2000. Staff also needs to determine the actions, if any, that may be required to authorize the City to provide video services, which would potentially be a key revenue source for the FTTH build out, consistent with applicable law and the rights of any affected parties and any policy decision made to extend the FTTH project on a citywide basis. The City Attorney Office’s guidance will be critical to address this issue. CMR:403:02 Page 2 of 4 In addition, the extension of time would afford members of the community a greater opportunity to become acquainted with the FTTH project through the public displays at the Civic Center and the Main Library, thereby broadening the basis of understanding and potential acceptance of the FTTH project in the community. Based on projected revenue and operational costs staff has calculated that the extension through September 30, 2003 would yield a net positive cash flow of $1,290 per month. These funds could be applied toward testing construction and operation efficiencies that are developed during the trial extension. RESOURCE IMPACT Extending the term of the FTTH trial will not have a significant foreseeable impact on the budget or on manpower resources. Monthly fees being paid by the participants will cover continued operating expenses, plus the estimated $1,290 per month positive cash flow. The main costs would be ISP services and outsourcing of customer support. Contracts with reasonable terms and conditions have been renegotiated with the current providers. The projected balance sheet would be as follows: Paying participants 66 Monthly fee $85.00 Total Monthly Income $5,610.00 ISP Services (monthly) $2,300.00 Video Services (Local TV) $19.95 Customer Support (monthly) $2,000.00 TOTAL Monthly expenses $4,319.95 BALANCE (monthly) $1,290.00 POLICY IMPLICATIONS The staff recommendation does not represent any change to existing City policies, but does support the Utilities Strategic Plan Strategy No.4: Deliver products and services for competitive markets and Objective No.l: Enhance customer satisfaction by delivering valued products and services. The FTTH Trial was listed in the Strategic Implementation Plan as a key initiative. TIMELINE Services to continue running through September 30, 2003. CMR:403:02 Page 3 of 4 ENVIRONMENTAL REVIEW A mitigated negative declaration for the City’s fiber optic infrastructure project was approved by the Director of Planning and Community Environment on November 25, 1996. The FTTH Trial is a continuation of that project. PREPARED BY: ~~ DEPARTMENT HEAD: CITY MANAGER APPROVAL: Assistant City Manager CMR:403:02 Page 4 of 4