Memorandum

City of Lawrence

City Manager’s Office

TO:	David L. Corliss, City Manager
FROM:	Diane Stoddard, Assistant City Manager
CC:	Cynthia Wagner, Assistant City Manager
Date:	May 17, 2011
RE:	Staff Report Regarding Request from Community Wireless Communication for Comprehensive Agreement with the City of Lawrence

Please place the following item on the May 24, 2011 City Commission meeting agenda:

Receive staff report regarding request from Community Wireless Communications (CWC) to execute a comprehensive right-of-way agreement with the City and direct staff regarding the key issues with the request, if appropriate.

Background:

In April 2011, the City received a request from Community Wireless Communications (CWC) seeking an agreement with the City to allow CWC access to various City-owned infrastructure throughout the community, including traffic installations, fiber optic cable installations, and fiber optic conduit, in exchange for providing new fiber optic installations within City conduit, and 5% of CWC’s gross revenue. It is staff’s understanding that CWC wishes to finance the fiber optic cable that will fill the City’s conduit by seeking private bank financing and utilizing the fiber optic cable as collateral for the loan and then retaining 10% of the fiber optic cable for CWC’s use. CWC indicates that under its current revenues, 5% would be equivalent to approximately $14,000-15,000 annually. CWC expects its revenue to grow in future years.

March 2010 CWC Request:

In March of 2010, the City received a similar request from CWC, which included a proposal to aggregate all of Lawrence Freenet’s (a non-profit company) current agreements and transfer them to CWC (a for-profit company), allowing for the installation and operation of wireless communication equipment on water towers, street lights, and certain traffic poles in the community and downtown area. CWC wished to have full access to the City’s rights of way and easements. In exchange for this access, CWC was proposing to provide the City with a payment equal to 5% of its broadband revenue, in addition to the 5% of its video revenue, which it has already committed to the City under a video service provider (franchise) agreement authorized in 2009. In response to the request and the staff report, the City Commission provided direction at its May 4, 2010 meeting (see attached minutes), to work on the transfer of the Freenet agreements to CWC, but emphasized the importance of maintaining consistency regarding how private for-profit companies were handled related to fees for water tower leases, etc. Staff had discussion with CWC concerning fees, but the issues related to the fees were not resolved. Subsequently, in late 2010 or early 2011, many of the Freenet agreements expired. These agreements authorize Freenet access on several of the City’s water towers and also in the downtown area.

In 2009, CWC was granted a video franchise agreement, which enabled access by CWC to the City’s rights-of-way and easements for the purpose of providing video services in accordance with the terms of the franchise agreement. Under this agreement, CWC must pay the City 5% of its gross video revenue.

Discussion of fiber grant

In December of 2006, the City received a grant from the Kansas Department of Transportation (KDOT) to install fiber optics into a City-owned conduit along 6^th Street to provide connectivity between the City’s traffic signal network along that corridor (Intelligent Transportation System- ITS). The City provided a grant match of $250,000 for the $500,000 project. Fiber optic installation along 6th and Iowa is complete. There are some additional funds remaining in the 6th street project which will be utilized to extend the fiber optics to North Lawrence. Staff had recommended the City Commission authorize the issuance of a Request for Proposals (RFP) related to the excess fiber now available in the conduit along 6^th Street. The RFP would enable the City Commission and staff to evaluate proposals from all interested parties.

The City just received notification of award of a new $150,000.00 ITS grant to extend the fiber optic along 23rd Street, from Iowa to the East Hills Business Park. The grant would require a $30,000 match for a total project of $180,000. This funding, along with the funds remaining in the 6th street ITS project budget, would enable the City to extend the fiber optic network along all of the remaining empty conduits (along North 2nd and 23rd Street) installed by Lightcore about 10 years ago under a license agreement as in-kind payment to the City for use of City right-of-way. There are other isolated sections where there are conduits in the ground, but the sections lack substantial continuity – as a result, installing fiber optic cables (any place other than 6th, 23rd, Iowa and North 2nd) would be much more expensive (since installing conduit is the most expensive item of a fiber optic project). This grant has not been formally considered by the City Commission, but is the subject of another agenda item.

Summary of Current Agreements:

Lawrence Freenet and CWC have a number of existing agreements with the City of Lawrence. It is important to point out that Lawrence Freenet is a not-for-profit company and CWC is a for-profit company. It is staff’s understanding that the relationship between the two companies is that CWC is the service provider for Lawrence Freenet and owns the equipment with which Freenet provides its service.

The Freenet agreements acknowledge the not-for-profit nature of the company and require Freenet to provide regular quarterly reports documenting free service and establishes a target of 10% of users to receive free service. The non-profit status and the provision of free internet service to low income residents has been the basis for the City’s assistance to Freenet, which includes providing free access to certain parts of the City’s infrastructure system and minimal free electricity to power the equipment to support wireless service in the downtown area.

The agreements with Lawrence Freenet date back to 2005 and include the following general agreements for equipment on City-owned infrastructure, which are set forth more thoroughly in the attached summary:

r Freenet:

o Water Towers- 18^th & Kasold, Stratford Tower, 6^th & Kasold, Harper

o City Hall

o License Agreement for installation on certain traffic control signals throughout the City

o License Agreement for installation on a designated number of the City’s downtown light poles and traffic signals

o License Agreement for the use of the right-of-way located at 23^rd and Harper

r CWC:

o Video service provider agreement

o (Note: CWC/Freenet utilizes street lights throughout Lawrence based on an agreement with Westar Energy.)

The City currently utilizes Freenet wireless service to monitor the City’s water towers for security purposes. Presently, the City pays $6,000 per year to Freenet/CWC for this service.

Ownership of Fiber Optic Infrastructure

The industry wide common practice is to maintain sole proprietorship and control of the fiber optic network by one single entity (City of Lawrence in this case) to ensure timely maintenance and protection of this infrastructure. Sharing the fiber optic cables among private/public agencies are also very common, and are done through a variety of legal arrangements.

The City’s fiber optic cable (already installed along West 6th Street from City Hall to Iowa, and along Iowa from west 6^th Street to 23rd) will be shared by various City departments (traffic, police, utilities, fire/medical, information systems etc.). There have also been staff discussions between the City and Douglas County and the University of Kansas. This fiber optic cable and conduit is the communication backbone of the City involving traffic signal operation, pump stations, emergency response by police and fire, and communication and data transfer among various city buildings and offices. Therefore, it is of utmost importance to maintain access and ownership of this infrastructure with the City. Having a third party as a co-owner of this infrastructure creates a complex ownership arrangement that has serious implications with respect to maintenance, access, legal liability, and long-term sustainability.

Key Issues:

There are several policy issues that the City Commission should consider. A past value expressed by the City Commission has been providing a level playing field for for-profit companies by charging the same access rates for City infrastructure. Policy issues regarding the CWC request are 1) equal treatment for all for-profit companies and 2) potentially creating a situation were the City gets less-than-market rate revenue for its infrastructure access. City Commission direction would be needed regarding these policy issues.

The City’s current agreements with for-profit companies on the City’s water towers provide significant revenue for the City. The average monthly lease payment is close to $2,000 for the water tower locations. Additionally, the City has recently authorized a franchise agreement with NextG, a telecommunications provider, that has agreed as part of its franchise with the City to pay a rate of $500 per year per attachment to any City-owned poles in Lawrence, in addition to payment of five percent (5%) of its annual gross receipts.

Staff has identified the following items as key areas of interest for the City related to this request:

Historically, the City has attempted to establish relatively uniform regulations and rates regarding for-profit businesses so that the City does not provide a competitive advantage of one business over another. Additionally, State law requires franchise agreements be competitively neutral.
Historically, the City has desired to receive market-rate revenue for lease of space on City-owned infrastructure.
It is important that the City maintain control and ownership to ensure reliability, continuity of service, and security of its data systems and infrastructure that are critical for the operation of City utility systems, public safety communications systems, and the delivery of other city services, such as traffic control.
There is value in enhancing connectivity throughout the community and between sites owned by the City.

Staff has attempted to outline possible pros and cons for the City related to the CWC proposal.

Recommendation:

Staff recommends that the City Commission receive a staff report regarding the request from Community Wireless Communications (CWC) and direct staff regarding the key issues with the request, if appropriate. Once direction is received, staff can begin work on drafting agreements with CWC that meet the City Commission’s direction. The agreement (s) would then come back before the City Commission for authorization at a later date.

Staff recommends that if the City Commission would like to grant the CWC request, that the City receive 5% of gross revenue or the market rate for water tower infrastructure access, whichever is greater. Additionally, it appears that there is an opportunity to possibly defray the City’s costs related to video surveillance at the water tower locations, which is currently $6,000 per year that the City pays to Freenet/CWC. It appears that ownership of the fiber is a key consideration for the City. Staff would recommend that protection of the City’s ownership interests in the fiber and that the City maintain control over the conduit infrastructure.

In summary, the City Commission should provide direction regarding CWC’s request for a master agreement and the issue of equal treatment of for-profit companies.