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HomeMy WebLinkAbout0295.094.. May 19, 1994 THR HONORABLE CITY COUNCIL Palo' Alto, Californle ribor Optio Coamunioation utility Membe<s of the council: bPort in Briet 1.6 Tnd purpose of this report is to advise the City Council ot the current status of communication systems; to identify options available to the City in tty role as potential provider of communication services to the City'S residents and business co~unitYi and to requeat tne authorization of expenditures for a consultant-prepared study to investiqate the economic, technical, legal, ~nd public policy i~plication8 of various 6cen~rios of a City of Palo Alto owned and operated cO-nlJ!'lunications utility system. Sackground Our world is rapidly becoming an information-based society. IncreaSingly, corporations and bUsinesses are reliant upon high speed, broad-band, communications systems es&ential to (!ompoting in the local, regional, national and world econoldo3. P",lo Alto is the home of Geveral renowned firms specializing in stato.-of-tho-"rt communications technology; such finnR include Sun HicrosystoJas, Digital Equipment Corporation, Hewlett-Packard corporat.ion, and many others. These companies and other information-m.aed local businesses are experiencing an ever greater need for incr~a8ed higher speed transmission of massive amounts of information vith conneotion to the region, the nation and the world. Unlike standard City utility products such as water and electriCity, the fundamental infr8structure and service c~pabl1ity for an integrated communications systellls is not yet in placo .. CUrrent communications media include standard phone lines utilizing copper wire; coaxial cRble 'With intaractJve capabilities (as the City's in-place but not activated Cable B-11ne), wireless transm.1ssion, and fiber optics. Potential service providerB a};)ound; they include p'acific Bell, Sprint, Mel, Metropolitan Fiber systems (MFS), TOG, a subsidiary of Tele-communications Inc., and Palo Alto's cable Coop. Competition aspects of the communications industry are complex: requlatory provisions often preclude CMR:295:94 1 '.' .. . \ C) o competition, while a non-regulated market environment in some co~unlcation areas promotes fierce competition amonq private and non-profit carriers. Heat ctJrrent service and infrastructure providers focus on fiber optio ~YBterns aimed at high volllltle users wi thin concentrated geographic areas. The hi.gh technology employment and proximity to teaching inst.i.tutiol18 such as Stanford University render the city of palo Alto, and the silicon Valley in qeneral, a primary marketing area. Description of a Broadband communications System A broadband communication system essentially provides for two-way communication of larqe amounts of voice and video data. Sucn a system can be comprised of several media, including standard telephone lines, coaxial cable, wireless transroission, and fiber optics. Very high speed and high volu:me use is only possible, however, through the use of ftber optic cables. Fiber optic cables are sDlall glass tubes, not much larger than a hair, that work by converting data to a series of light pulses with an optical transmitter. Light pulses are sent through the glans tiber by a laser fl~shing on and off at very high opeeds. At the receiving end, II liqht"'sensitive receiver changes light back to electric pulses, and the data is r·etrieved. Fiber optic lines can transmit over 1000 megabits of infor~8tion per second per fiber. A single fiber casing can hold anywhere from 12··96 fibers, and .tItil), ba lees than a pencil width in tliam&ter. coaxial cahle normally carries approximately 500 megabits of information per second. Coaxial cable is generally used as a one­ way informational system, such as television communications via cable TV. Currently, several cable operato"ru are experirnentinq with two-way transmission capabilities, but there are no known "tried and true n results of such exploration. [)urinq the installation ot the City/Cable Coop cable TV lines, Palo Alto installed a second cable, the Cable B-line r for potential interactive c9~unications use. While that line has baen 1n place throughout the. city tor a number of years, it has not been activated J and its physical condition and ultimate useability, and therefore potential cost of such use, is 'unk.nown. If operable, however, it has great potential use to residents, small and medium aized businesses in the City, and in the provision of governmental sorvices. CMR:295:94 2 .... ,.:. .. ,. H" \ , ",., , , , " .J ;"" .. ,: .:. '. ':. r " , ! [ ; , , . . I I J. , , i ! . . ,,'. ;::.;;'i.,-,,:,:,~-.v;.~.J""~ ___ "'''-.. ~., .. -:.;..-: ... , ~,~.-" .:. ~,;~,. ., .. , ,.,~,.',.:: ,"".~ . Copper wires, or twisted pairs, are used in telephone systems t.hroughout the country. A standard phone line qenerally car.ries apvroxit:lately 91500 bits of information per second, and can carry up to 56,000 bits of information, but only for very short distances. A kay advantage: to phone lin\! use is that. copper 'Wires are ~verywhere; however distance, speed, and ultimately volume capabilities of copper are limited. In cOlllp.ari8on, the advantages of the use of fiber optics are 6ubstantial. It is a relatively inexpensive product; it can be .tnstalled beloli' ground or oftbove ground on telephone poles; its speed and volume capabilities arft high; the durability and ra&iBtance to weathering of qlass fiber is strong, consequently the 100119' term ~_airitenance of enclosed (underground) systems is rehltively low. Major corporations, research. and development firms, and acadomic institutions prefer fiber optic systems due t~ the OOOV.f) qualities, and, more importantly, the confidentiality and ral i'lbil-1ty of the medium. since optical fibers use photons instead of ehwtrons to transmit information, they are Unaffected :by oiect.ronio interferenco from pO'R'er generation equipment, lightning 8trlke~, etc. These attributes generally assure security and confidentiality of information to the usor. co-ax!ol ctlble, on the other hand, has thE'. unique charachteriatics of beil1q lltulti-drop, in that the infrastructure expense of providing sOL'vice to the home and small and medium-sized husinesses is relntively small in comparison to other communications media. The in-place installation of a separate cable liB-linen is a p-orceived plus to the cOl!\munications equation, particularly since th'e city of P.ello Alto has a proven partnership history in providing informational services to Palo Alto and surrounding communities. All of thes(J cOMunication media have the potential to be used Interactively~ That underscores the fact that the communications lIInd information technology "explosion, n will go forward, regardless of the city of P~lo Alto/s involvement or lack thereof. the City's PPtent~e as a Communications utility Provider president Clinton's administration, under the leadership of Vice­ president Gore, is actively promoting a. program to establish a national data super highway. smart Valley, Inc., an off-shoot of Silicon Valley Joint Venture, has recently been formed and staffed to assiat in silicon Valley efforts to place the County of Santa Clara at the forefront of information techftology achievements. As a full sorvice utility provider, the City of Palo Alto is in a unique position to partJ.cipate in, and potent.tally profit from, the communication al'ld information technology explosion. If successful, the city could position itself at the forefront of business and academio communities t.hat recognize the need to provide incentives CKR:295:94 3 "I' o 0 to ret.!n and attr.ct nQw business to the City of Palo Alto, and in the process provide unique qovernmentlll and private services to paJ.o Al to' 8 residents. At only t",o otl)er tilles In th~ clty·. history did on opportunity exist to explore b decIsion wIth the potential impact of Invoatiqatinq 4 cIty owned ~nd operated co~unlcations utility: in the l~te 1800's, when Palo Alto embarked upon the establishment of on eleot>:i" ut1l1t1~& "ysh,. and.ln 1917 with tho "st.blishment of a t;laB utility. -'l'ho outcome ot those actions h8ive been 8\.lb5tanti~l -Palo Alto prQ\'id(ts electric and iilas services to its residents and bU8ine~a co .. un1ty at substantially lower rates than surrounding cities and co.petltlva electric 4nd qDB service providera, ~nd the overall tinanoial contribution to:ward city-wide servicas of having a City-owned electric and g~G'utl11tleo is great. This 1& not to 8\lQgOSt that tho lssuC:8 related to the provision of elect.r Ie qt!.fI. &niJ cOMunicatlon uti Hty services are transiElrablei there are both eil'llil1ar itioa. and Bub!ltant1al dittorences. What this report does suggest is that the 14opportul11ty window" fOl" e>.:plQrinq the City ontex-ln9 into the I1Co-mmunications uti 11ty" business now exists, ~nd tho opennes-s or that \/indow period is rolatively short. The electric utility has already establIshed an internal cOW!.l.unications Gyste-s fol." utility "nd city use, and staft believes tho eloctric uti lity should ta'Kg a fundIng lead in exploring: the cOllUbunlcation utility busIness. _ A speCial account could be eotablished in the electric utility to trac)(. expenditures. If it. co~unicatlon utility 1s &Gt~bli8hed, these expenditures ~ould be incorporated in the start-up coats of tha new utility. The city Council's recent conoJdcration of the HFS application to establish a fiber opUc trunkline through Palo Alto with service to selected users 1s ftn (J-xA!:I.piO of several private service carriers' propos~16 to cOlUllunltles: throuqhollt the ntltion. Palo Alto's clear advantage in this debate 18 that the City 0l<ln8 existing conduit vittiin the stt'"eet syste., "Ie have contl"ol over riqhts to use telephone. poles throuqhout the ~ity, {albeit limited), and 'Wo have been in the business tor many, ,/g.z!ny years of providing: high quality, low coat Bulti-faceted utility servicos to our residents and business co~unlty. Fo'W citio&s throughout the State of C~lifornia or the nation have such exparience. P~lo-Alto has had severa! intornal inquiries and applicant requests to provide sOllie to-nil of cOllltunlcation services 'Within our city boundaries. So~e of thesQ requests, such as the Kstropolitan Fiber SYStQlIB, Inc. agreeaent rocently before the Ci ty council to install a fiber optic line through Palo Alto linking citi •• in the south bay with San Francisco, will work tovard tho establishmont of a bay area communications net~ork. This fiber cable is to ba placed in ClIR:295:9. ·i -'. \ .. /' . . ! :-. '. " • · --... ~-,'" approxinately 18 miles of oity stroets, with ~n emphasis on providing-communication services to very large couercial custolloru halpful (to HPS) in defraying the cost of providing tho north-south trunk line~ The KFS proposal is Bo~owhat analoqous to a -private sector" transport&tion propoa.al to establish a 10 lana tret'lva.y throuqhout the San Francisco Bay area, but with chosen selected interchlSl'lges, and private toll booths at all entrances .and exits to those interchangeB~ The treeway }!lay 00 essential to I!lajor businesses and communities, but is only available to those who can pay the price.. Jo(ost importantly, howevor, the MFS prQPos~l accomplishss now what tew inclividual cities ~re prep.!t;red to do~ and th.t 10 to link the region and the nation a. a ."hola to • til>er optics communications system. other recent communication propossls, ouch as the CitY/Q conduit licensing agreemGlnt with Digital Equipment t(J allow tor a privAtG fibor optic corporate link of Diqital's dQwnto~~ buildlnqa, utilize ox-ieting infrastructure and are within the jut:' iodictlonal boundaries of the city of Palo Alto. ~eye:t:al othor pl"oninent Palo Alto firll<s have sought City approval to inotall cQrporate tiber optic ne.tworks, including Xerox Reseat"ch, Howlett Packard corporation, and Sun Hicrosystems. Generally, private ca;rrier and corpo~ato requosts to install fiber optics require street oponing permits, encroachment permits, access to City pol os, or a combination thereof. In roost ct\ses, complex: legal p!!Irallleters preolude City denial of such requests in an arbit~&ry ~8nnerJ even though the it'.pacts on existing and futUro uti tities and infraBtructure maintenance l1lay be 8ubstant181. One issue thllt 18 now being addressed is how the city -aitl9atoa or (:ontt'o}s tho impaots of several fiber optic companies requostlnq accQas to the same public rights-of-ways. All of thOBO t'equ8Hts G8t~blish a need for tim.ely determination of tho City's l:'ole: in tho arel!i of cOllUllunioations. l:Q.Uoy Issues At a minimum, control and coordina.tion or privato carrier communications syst-ems is essential. But 'What level of involv6l1ent. in the communications industry should the City ultl • .ately considar? There are sev.Q:ral identifiable levels, ~nd all hav-a pros and, conI) of city involvement. In essence, the co~unicationo and information explosion industry enco~pa88e8 a gradation of hard and soft services~ A fundamental quastion 1s whother ono is interested into getting into the businoss of Balling potentia) transport of information, actual transport of information, capa.city of information to be transported, content/quality of information to be transported, or any or all of the abov.a. CMR:295:94 5 // ; I . ~ o For example, telophone .servicQ in recent years has capitalized on sellinq the same capaoity more than once. ~hat 1s why our long distance system WOl:KS very well most of tile tl.rte, but givell an "all-circuits-are-bu8y~ signal on Mother's Day. Should the Clty /8 role be involved in p1:ovldinq infrastructure that requires paycont tor capacity, whether used or not, or paying for the actual reception of information transfer? What kind of information does the (lom.m.unity wish. to transfer, and 'What kind of leqal or practical control over this interactive communicative process do we have? Finally, what's in the City's fiscal intersat to be involved in this issue? A non-technical summa:ry of the possible lovels of involvement is summarized as follows: 1) Lease of eXisting conduit and poles or approval of private systems for fiber optic system installation. The City presently leases conduit 8p~ce to cable Co-op for CATV cable use in epecific ~t"eaB, and Oigital Equipment shares an existing co~unications conduit for their downtown corporate buildinq loop. What opportunitios exist for future communications use from a City revenue perspective 1a unknown. Also unknown is what other public/private partnoring opportunities are avallable to the City that have noi: yet been explored. 2) There is littlo City expense to a conduit leasinq program; however, revenues to the City may ~lso he relatively minor unless substantial Changes were make to the City'S lease rate structure. While some cities are considering imposing fees on use of co:m1t\unications systems, particularly where use of City infrastrllctUl.""e is involved, substantial feas might not work to our cornpet.ttive advantage in retention of eXisting-busincsses and attracting new firms to the city . Installation bond ownership of fiber. optic cables throughout the City. Actual fibers could be installed by the city and leased or licensed to communications service provider::J or local businesses. This option is analogous to prOViding more t.raditional utility services, such as electricity, but 'irlit~lout the complexity of providinq full information&l gervices~ In eSAenc8, 'the Gity would be installinq data conduits instead of electrical wire conduits, but for p~ivate carr~er use. City acts as. a common carrJer providinq transport of data only. This is the closest Similarity to, how our current electric system works. Anyone could deliver services over the wire including the City as a service provider~ Tariffs could be set for different classes of se:rvice providers o.q., tor­ pl.'ofit, non-profit, government, etc. Cost of installinq the syste~ (including th~ possible activation of tho Cable B-line) would be borne by the City, to be offset by much higher potential revenues than afforded by City encroachment permitting processes or standard conduit licensing agreements. CHR'295,94 6 '. . . (' 3) "..', Installation, ownership, and operation of a full-service communications system within the city. Under this scenario, the City would operate franchise, or partnor with others to provide all leqally feasible and economically viable communications servic's, including the: possible activatiori and us .. of the city of Palo Alto/Cable coop B-line. Potential revenues to the city could be substantial, and could be based on the volume of information received and delivered throughout the cOlnmunications systems. It. primary advantage to an integrated City owned and operated system is that large volume users can help to pay the infrastructure. and service costs nacessitated by all participants, including small-to-medium businesses, residents I and local governmental aqenciea. such as the Palo Alto Unified School District. The potential downsides of a City owned and operated full service comnunications and information technology system are also great - predatory pricin9 prevails in the industry, and there are ssve~al firms, including telephone cotl\panies, t.hat have decades of 6:)(»arience in providing full customer service in the communications business. Technical risk is high, CiS the market has not yet deflued universal stBndards for 99rvice delivery over fiber optics, and the~'e are no known examples of fully operational interactive cable systems. Rapidly changing m!Jrkot Qonditions and the need for highly technically capable and highly paid personnel may limit the role of cities in the communicat.ions business, particularly where Bubstantial customnr service and/or the application of information technology is involved. Governmental agencies are more encumbered by processes and regulations than private industry, thereby restricting our ability to respond quickly and decisively, an a.ttribute not conducive: to operating rtlpidly changing busitlossss. Finally, industries involved in the information switchillg business cannot control content or the morality of shared information. Key to the consideration of an1 city inVOlvement is establishing the various levelfi of conuaunication and information sY£l;tems to be considered, and the potential economic advantage, or lack thereof, of each level of involvement. IaBuea to be explored There are substantial technical, legal, and operational issues to be explored in evalu~tin9 tho City of Palo Alto as an appropriate cOJlllDunications utility provider. While the .city has achieved a deserved reputation as 8 low cost, high service utility provider, we are much more limited in th~ area of communications. }l.ll utilities require capital expenditures for installation and infrastructure improvements; but the City to date· has been a monopoly provider with respect to water, gas, and electricity. In contrast, the information technology explosion has been accompanied with leqal determinations that are much more limitinq CKR,295:94 7 <, • I, to a lOCAl jurisdiction: moat importantly, we as a Cit.y cannot li'ait co.petition. At this tilllo, a business in Palo Alto cannot hook-up to another v~t$r or e.lectrical system-; and the rates are <john.in"" by the City. state and n .. tional legiBlat.ion and tnte.rpr&tivG: law in the ~roa of cOlllJllunications is moving at a v.ory fast ratG:, but r~llticftl direction appears to be enabling as opposed to restrictin9 access ,to the co~unicatlonB bUBines8~ The likelihood of aonopoly control for any single carrier, including local jurisdictions, 10 conBiderod re"ot6. The City of Palo Alto's ability to cOJ!lpete with private industry, to react quiokly and de.ci'Sively, and to t.a}(e risks .asaociated with normal private sector docision-making ~8y limit our abilities as a player in the coaaunicatlons industry. Nonethe-loss, exploration ot thOIHI iGG~e8 is ossontial to the City in ita :rola as a lull serv,ico communLty, and as a city that hal! histQrically be&n at the forefr<>nt on similiar state-of-the-art 1jJ9Ue,S. Several cities ""ross the nation have taken this step. Pi~r optic cQnDunicGtion systems havo been installed by municipal CjOvernnentu in Holland, Hlchigan; springfield, Missouri; and KanasB.6s, Virginia I to naae a fow. within santa Clara County, the CHr or S~nta clara recently approvod a consultant prepared study to I'tvoBtlqato the technical, legal, and fiscal feasibility of the dvsiqn and Inple~entation of a fibo"l optic conuounication system vithin tho City. Symury The "opportunity wh-.dow" tor the cIty to actively consider its role in tho ~Apldly e.erqing areas of telecommunica~ionB is currently opO:n~ it 'Will not remain opon for very long. The question of the city~s role a8 activo pl&yer or passive customer, or somewhere in bbtwaen, needs to bo identified 6o~m. In undertaking this t,,~sibility study, the city Council "ill be 1n a position to consoiously Bake: thnt deCision, .armed with solid data and a critical ~nalY9iB of tho City'B genuine alternatives. ~I<9Mqnd.t ~on Oirect statt to prepa~e a request for proposal for a consultant prepared. stUdy to invastlqato the legal, technical, and economio/fiscal considerations of ostablishing an integrated co .... unication utility for the City of Polo Alto. Cost of such 0 .s:tudy 1s expeo:te{\ to rdng8 between '$100,000 -$150,000, and is: re-co~endad to be funded from and Electrical ~"\1nd Reserves~ CHR:295.94 8 , . Respectfully Dub~itted, Gvr.t).r{V.{)hW~4{J ,/ CARor, L. JANSEN Manager, Bconomic Rosources Plannin9 ~~---- B ARl1 II. III' A. ist.nt~an.qer Ef~~ Dir~;'o~ utilities CIfR, 295, 94 9 .- ,··l . ~ .