HomeMy WebLinkAboutStaff Report 2511-54452.Fiscal Year 2026 Mid-Year Fiber Expansion Update (DISCUSSION 6:50 PM – 7:35
PM) Staff: Alexandra Harris Presentation
CITY OF PALO ALTO
TITLE
Fiscal Year 2026 Mid-Year Fiber Expansion Update
RECOMMENDATION
Utilities Advisory Commission
Staff Report
From: Alan Kurotori, Director Utilities
Lead Department: Utilities
Meeting Date: January 7, 2026
Report#: 2511-5445
This staff report and presentation are discussion purposes only; no commission action is
requested at this time.
EXECUTIVE SUMMARY
The City's Fiber Enterprise Fund has been fiscally sustainable over the past 20 years. The City's
fiber network has proven to be a valuable investment for supporting internal City department
communication needs and serving a limited base of commercial and institutional customers
who connect to the City's dark fiber backbone. From a competitive perspective, the City's
licensing of dark fiber to end users is a service which is a unique offering and is not typically
offered by retail internet service providers. Dark fiber service connections require businesses to
obtain their own technical resources to maintain the electronic transmission equipment.
Businesses can tailor their internal network configurations to meet bandwidth requirements for
specific applications. Third party telecommunication service providers instead offer only
"managed" network services to homes and businesses.
On December 19, 2022, City Council directed staff to proceed with the Fiber Expansion Plan to
implement the Fiber Rebuild project and Phase 1 of the Fiber-to-the-Premises (FTTP) project
without debt-financing. Included in the Council's motion was to a) maximize number of homes
and businesses reached; b) consider promotional rates to increase subscriptions (aka "take
rate"); c) define leading indicators and metrics to determine success; and d) recommend
Council accelerate expansion if metrics are positive, including a potential bond to streamline
construction and compress construction time as much as feasible (Staff Report #14800 1). One
1 Council Meeting December 19, 2022: Staff Report #14800:
https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=2275&dbid=0&repo=PaloAlto
Item No. 2. Page 1 of 5
of the primary goals of FTTP is to provide a competitively priced, local, high-speed internet
option which may reduce prices and enhance customer experience compared with other
available internet service providers.
A pilot for the FTTP project was developed in collaboration with the grid mod pilot and
continues to advance, with fiber cable installation starting in December 2025. Completion of
fiber construction in the pilot area and activation of the fiber hut at the Colorado substation is
scheduled to be completed by Ql 2026. In January 2026, the City anticipates launching a fiber
internet website for customers to sign up in the pilot area. For potential customers outside the
pilot area, they may register interest in future FTTP service when available.
Staff will return to the UAC and Council with data points, financials, and customer metrics once
available from the pilot, as part of determining the viability of Palo Alto Fiber prior to advancing
Phase 1 expansion.
BACKGROUND
In December 2022, Council considered three options for a City-owned FTTP service and directed
staff to proceed with the phased build approach. Under this approach, FTTP will be built out in
selected areas of the city using $34 million from the Fiber Fund and $13 million from the
Electric Fund, and the project will expand gradually from there to reduce the need for debt
financing. Building the fiber backbone and FTTP (aka "last-mile infrastructure") to provide fiber
broadband internet to the community required significant planning, coordination,
communication and construction over 24 -36 months. Staff recommended aligning the electric
grid modernization pilot project with the FTTP pilot to help minimize utility engineering pole
make-ready work, pole replacements, noise disruption, and construction activity in
neighborhoods, which has been effective.
On June 16, 2025, Council approved a comprehensive broadband internet rate range and
service package (Staff Report #2411-37763), providing flexibility to structure rates for special
promotions, in the initial pilot area, and in future areas as services are available, to enhance
competitiveness in offering City fiber services. The initial rate range and service packages will be
competitive with AT&T and Xfinity and will inform future phases and roll-outs. Recognizing the
evolving marketplace, staff will learn from the pilot and incorporate new service delivery
strategies.
ANALYSIS
Dark Fiber Licensing
3 Council Meeting June 16, 2025: Staff Report #2411-3776:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=83992&dbid=0&repo=PaloAlto
Item No. 2. Page 2 of 5
Item No. 2. Page 3 of 5
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Since COVID, the City‘s annual commercial dark fiber licensing revenues have declined from
3.4 million in FY 2020 to $2.3 million in FY 2025, primarily due to commercial customer
relocations and consolidations through merger and acquisitions. The number of customers on
the legacy EDF-1 rates, which included annual CPI increases, has decreased, with most
remaining customers now on the fixed fiber mileage EDF-3 rate. Meanwhile, annual dark fiber
licensing revenues from City departments remain relatively stable at $1.1 million in FY 2025.
Engage consultants to review and recommend modifications to the rate schedules,
ensuring retention of existing customers and support for future acquisition efforts.
Rebuild and expand congested fiber backbone segments, providing the necessary
capacity for new dark fiber connections.
Evaluate and optimize operational frameworks to streamline and modernize processes.
Engage marketing resources to advertise fiber services, ensuring clear communication of
benefits and availability.
Fiber-to-the-Premises (FTTP)
Item No. 2. Page 4 of 5
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existing facilities because costs are either assumed by the developers within the overall
construction costs, or shared with the City and other communication providers.
FISCAL/RESOURCE IMPACT
5).
STAKEHOLDER ENGAGEMENT
ENVIRONMENTAL REVIEW
6).
5 Fiscal Year 2025 Annual Comprehensive Financial Report: https://www.paloalto.gov/files/assets/public/v/1/administrative-
services/financial-reporting/annual-comprehensive-financial-reports-acfr/current-2011-acfrs/city-of-palo-alto-acfr-fye-
06.30.2025-final-secured.pdf
6 FTTP CEQA Report: https://www.paloalto.gov/files/assets/public/v/1/city-manager/communications-office/palo-alto-
fiber/mnd-final-docs/final-initial-study-mitigated-negative-declaration.pdf
Item No. 2. Page 5 of 5
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AUTHOR/TITLE:
Alan Kurotori, Director of Utilities
Staff: Alexandra Harris, Utilities Telecom Manager
January 7, 2026 www.paloalto.gov
Palo Alto Fiber
Expansion Update
2
Age n d a :
1.How we got here
2.Fiber Business (Dark Fiber, Fiber Internet)
Services
Infrastructure
3.Status Updates
3
How We Got Here
1990s
Initial Dark
Fiber Network
built
Commercial
Dark
Fiber Licensing
begins
Audit revealed
need for
Exploration for
potential
expansion "Last
Mile" builds
COVID 19
highlighted the
need for High-
speed, Reliable
Internet
Council
Approval to
rebuild the
backbone and
build Fiber-to-
the-Premises
Council update
on
4
Initially built for City department needs
Unused capacity available for commercial
licensing
Customers receive "dark fiber" and get internet
service from an Internet Services Provider (ISP)*
Dark Fiber vs Fiber Internet - SERVICES
Dark Fiber Service
City & Commercial)
Fiber Internet Service
Commercial & Residential)
Services are limited to areas the fiber infrastructure can reach
Initially explored as part of expansion plans
City becomes an ISP to transmit data over
our fiber network
Customers receive internet services from the
City*
5
Fiber Optic Network
Rebuild CIP to:
Modernize the
existing network
Support dark fiber
and fiber internet
services
Dark Fiber
Infrastructure
Fiber Internet
Infrastructure
Fiber-to-the-Premises
FTTP” CIP to:
Expand the fiber
network
Support fiber
internet services
Fiber Backbone
FTTP aka “Last Mile”
Fiber Backbone
Dark Fiber vs Fiber Internet - INFRASTRUCTURE
6
Dark Fiber Service
Business 1 Business 2 (campus)4 of 6 fiber strands
licensed:
2 for Business 1
2 for Business 2
Data Center
2 of 6 fiber
strands available
How Fiber Strands are Licensed
7
Fiber Internet Service
Data Center
Fiber Hut
under construction)Residents
4 fiber strands
on City’s Dark
Fiber for
Fiber Hut
Existing fiber infrastructure utilized to
support FTTP
New FTTP infrastructure to reach residents
businesses “premises”
How Fiber Strands Support FTTP
8
Dark Fiber Initiatives:
Modernize dark fiber business operations and infrastructure (ongoing)
Conduct cost of services and market study (FY 2026 to FY 2027)
Explore marketing and sales strategies (FY 2028)
Dark Fiber Status
Current Performance:
Net sales revenues which includes approximately $1.0 M from City departments,
has declined from $4.5M in FY 2020 to $3.7 M in FY 2025.
Cyclical in nature (vacancies, turnovers and new businesses)
9
Fiber Internet Status
What to Learn from the Pilot:
Construction – outside plant “OSP”
Technical – internet service side, operating and business support systems
Service delivery – installation, provisioning
Product – offerings and pricing
Pilot Takeaways so far:
Construction
Premises passed, Brownfield vs Greenfield
Decouple grid modernization from FTTP
Positive reception from residents
Strategic partnerships with contractors (installers; professional services)
Why the Pilot? To demonstrate operational feasibility (take rate is a data point)
Pricing Strategy:
Simple, promotional rates for initial rollout
Initial plans for 500 Mbps and 1 Gbps with flexibility for
future enhancements
10
Fiber Internet Status
Next Steps
Finalize promotional prices under the flexible rate
structure approved by Council in Jun 2025
Fiber hut installation Nov 2025 to Jan 2026
Fiber pilot area cable installation Dec 2025 to Jan
2026
Service “go live” target date by Mar 2026
Image 1. Fiber hut foundation work
11
Fiber Internet Status
Phase 1 Strategy
Continue to build Phase 1 while implementing pilot area customers
Apply lessons learned from pilot area to remaining phase 1 buildout
Decouple FTTP with Grid Mod except in strategic areas
Maximize opportunities of shared costs and efficiencies
Develop a scalable and executable marketing plan
Report out to UAC and Council in Q2 2026
Alexandra Harris
Telecommunications Program Manager
Alexandra.Harris@paloalto.gov