Memorandum

City of Lawrence

City Manager’s Office

TO:	David L. Corliss, City Manager
FROM:	Diane Stoddard, Assistant City Manager
Date: CC:	October 1, 2014 Casey Toomay, Assistant City Manager
RE:	Wicked Fiber Request Update

At the September 9, 2014 City Commission, the City Commission discussed a request from Wicked Fiber to proceed with a fiber-to-the-home fiber optic pilot project in Lawrence. During the discussion there were several questions asked by the Commission.  The purpose of this memo is to provide the City Commission with an update on discussions with Wicked Fiber representatives since the last City Commission meeting and discuss a possible fiber leasing framework that would enable the Wicked Fiber proposal to proceed in a competitively neutral fashion, which addressing several recommendations from CTC, our fiber consultant, and the RFI review committee.

Subsequent to the meeting, staff met with Wicked Fiber representatives and Wicked Fiber provided this prospectus, further detailing the structure of their request.    

Questions and Answers:

The City Commission had several questions from the earlier discussion.  City staff has prepared some responses to the questions and Wicked Fiber representatives have provided some answers to several of the questions. 

Possible Fiber Leasing Framework:

As previously summarized, the City’s Fiber RFI Review Committee recommended the City adopt a fiber leasing framework that would establish a market rate for the leasing of dark fiber and establish a standard lease template.  Also, the City’s technology consultant, CTC, recommended that the City establish a policy regarding city projects related to fiber opportunities and standards for fiber installation.  In order to spur pilot projects, such as proposed by Wicked Fiber, staff recommends that the policy include ways for a company to defray the least cost if it provides certain service levels and meets other criteria.  This will enable a leasing framework that will meet the City’s goals of spurring enhanced internet services while doing so in a competitively neutral fashion. 

City staff has researched fiber leasing arrangements and produced a staff memo and drafted a policy resolution with standard lease agreement that attempts to address these issues.  Staff suggests that the City Commission adopt the policy resolution setting the City’s policy on fiber and dark fiber leasing.  The policy would enable any company to approach the City about leasing dark fiber, on a first come, first served basis.  The framework would make it relatively easy for approvals to be granted for companies wishing to lease dark fiber with the City.  The policy includes the ability of a company to receive reduced or waived fees from the market rate during the first five years of operation if they provide certain services desired by the city.  At the end of the five year period, the company would be subject to market rate leasing established by the policy.  The following is a general outline of the fiber leasing policy draft:

• Establishes a market rate of $250/year/fiber mile.
• Companies using City fiber must use the fiber to provide symmetrical high speed internet services of at least 100 megabits per second
• Standard lease term is 5 years with two renewable 5 year extensions
• Connections to the City’s fiber network can only be made at established vault locations
• Only the City or city-approved vendors can splice into the fiber
• Private companies are responsible for costs associated with connections to the City’s network and infrastructure
• Companies will be appropriately insured
• Companies must follow the City’s right of way regulations
• In order to spur high speed internet development in Lawrence, market rate lease fees may be waived for the first five years for companies meeting the following criteria:
• Provide service to at least 300 residential or business customers and achieve this service level within 24 months of signing the agreement with the City
• Provide free service to households with a net income at or below 100% of the net income eligible for food assistance as defined and published by the Kansas Department for Children and Families
• Provide free service to non-profit organizations and institutions within its service area

It should be noted that the draft policy and the standard conditions document still require further revisions, such as provisions that would enable it to be a contract document, and specific references to the actual portions of the City’s fiber network that are being leased. 

Other policy issues: 

There are a few policy issues that are not addressed in the fiber policy draft.  These issues relate to common carriage and the 5% usage fee that Wicked Fiber currently pays.  The Commission may not wish to include either of these items into the policy, or consider if either a common carriage requirement or a 5% usage fee requirement should be a basic term of leasing, be an additional requirement to get waived market rate, or be a requirement to access a loan guarantee.  In the discussion on these items, the City Commission may want to weigh in on whether either of these items would be a barrier to entry for other possible future providers, or whether they are part of what the community should get in return for leasing dark fiber.  Staff was also concerned with whether a common carriage system would require staff intervention between companies, which would require additional resources to administer. 

Areas of Agreement:

In discussions with the Wicked Fiber representatives, staff and the representatives were able to reach agreement relating to splicing issues and hand hole issues noted in the draft policy.  Also, staff understands that based upon capacity concerns and security concerns relating to the run of fiber between City Hall and the Judicial Law Enforcement Center, Wicked is withdrawing its request for fiber in that existing fiber run.  Additionally, staff believes that the standard leasing framework would work for Wicked Fiber related to their request to the City. 

Recap of Wicked Fiber Request:

To recap, Wicked Fiber has made the following request to the City:

• A $1 million loan guarantee from the City for phase 1, the build-out of the network to two pilot neighborhoods in central and west Lawrence.  Update:  Staff has suggested that a smaller loan guarantee, along with a smaller initial pilot project may be more appropriate in order to demonstrate the project success and reduce the financial exposure for the City.  Wicked Fiber appears willing to consider a smaller amount, such as $300,000 for extension to 300 addresses. 
• Waiver of first $20,000 in franchise fees each year for the next 5 years retroactive to Q3 2012
• Permission to co-locate splice cases in City of Lawrence hand holes at locations where Wicked Broadband currently leases City of Lawrence fiber, or connects to existing City of Lawrence fiber.  Update:  City staff and Wicked Fiber have agreed to create a fiber vendor listing, but otherwise retain City control over fiber splicing and segregate Wicked Fiber into hand holes separate from the main City fiber.  This addresses security concerns previously raised by staff. 
• Permission to splice fiber leased from the City using in-house resources. As with the City’s current contractor, this activity would be done under the supervision of City of Lawrence staff.  Update:  See above.
• A 30 year lease of one buffer tube (12 count) of single mode fiber (SMF) in the fiber-optic cable connecting City Hall with the Law Enforcement Center at $10. Update:  Staff understands that Wicked Fiber is withdrawing this request based on information provided by staff relating to capacity and security concerns in this particular jointly owned fiber run.
• A 30 year lease of two buffer tubes (24 count) of SMF on each new fiber-optic cable installed by the City of Lawrence in the next 120 months at $10.  Update:  Staff recommends that future fiber runs fall within the new leasing framework and be considered upon request after the installation of the fiber. 

The establishment of the fiber policy outlined above would address Wicked Fiber’s request for leasing fiber and as new fiber is installed, Wicked could utilize the policy to establish additional fiber leases with the City.  The policy also addresses the co-location and fiber splicing issues, both of which City staff believes are important security issues.  The City would establish a list of approved vendors that companies leasing fiber could use to make connections to the City’s fiber. 

Loan Guarantee: 

Wicked Fiber has stated that the loan guarantee is necessary for them to proceed with their project.  In their answers to questions, they provide more details about the proposed structure of the loan.  Staff suggests that if the City Commission wishes to back the loan, the City is a key party in structuring the loan so that the City understands its possible exposure in any given year.  As the loan is paid off, the exposure should be reduced annually.  It is not clear what the term of the loan may be at this point.  Additionally, staff suggests that any loan guarantee be considered a form of economic development assistance, separate from the fiber leasing policy. 

Franchise Fee payments:

The current CWC agreement with the City dating back to the beginning of 2012 requires CWC to pay the City 5% of gross revenue as compensation for utilizing the various traffic signals, water towers, and light poles owned by the City.  Other vendors utilizing the City’s water towers, for example, pay a market rate lease rate for such occupancy.  Again, if the City Commission wishes to waive the first $20,000 of these franchise annually, staff suggests that this be considered as economic development assistance. In the first two quarters of 2012, the City received approximately $7000 in franchise payments from CWC.  Staff would estimate annual payments at $14,000 based upon those payments.   

Possible Next Steps:

Staff is continuing its discussion with Wicked Fiber related to items in this memo.  At a future date, the City Commission may wish to consider future adoption of the fiber policy proposed by staff, establishing the framework by which dark fiber would be leased by the City to help spur high speed internet service development.  In order to incentivize development of this infrastructure, the policy provides for a mechanism for companies meeting certain criteria to receive waived lease rates for the first five years of operation. This policy would govern any future fiber lease requests from Wicked Fiber related to future build-outs. Additionally, the City Commission could consider at the same time Wicked Fiber’s request for the loan guarantee and franchise fee payment waiver as economic development assistance for their project.  It would be helpful if the City Commission had any direction related to any of these items being discussed with Wicked Fiber.