RECOMMENDATION

Staff requests that the City Council adopt the proposed Resolution which will enable the General Manager of Burbank Water and Power (BWP) to execute an agreement with the Los Angeles Department of Water and Power (LADWP) for the coordinate operation of BWP and LADWP fiber optic systems so that they may together provide to their customers telecommunication services which span the two cities.

These telecommunication services will be principally production video and audio transport for the media industry.  These services are designed to enhance the region�s attractiveness to the media industry by providing a very reliable dedicated fiber optic transport service for video, film, and audio.  This Agreement does not include the equipment necessary to provide telephone, cable, Internet, or wireless services.

This service will be funded from its revenues.  It will operate as a part of the BWP�s electricity utility enterprise.  It will not require support from the general fund nor will it result in any adverse rate impacts upon the electricity customers of the utility. 

BACKGROUND

In 1987, BWP and LADWP both began to install fiber optic cable into its electrical facilities in order to better operate those electrical facilities.  In the early 1990�s the major media companies in Burbank asked the city if they would consider sharing BWP�s fiber so the companies might be better able to operate their businesses.  Specifically, the companies sought ways to interconnect its facilities in Burbank and they were willing to pay a fair compensation to the BWP for the use of the fiber if it could be done effectively.  In Los Angeles it was telecommunication companies, rather than media companies that sought to use LADWP�s fiber in order to expand those systems.  Both utilities developed ways to provide the companies fiber that fully recovered the cost of providing such fiber to these companies.

Over the years as BWP and LADWP have provided such fiber, businesses have asked BWP for connections from Burbank into Los Angeles.  However, because of the limited amount of fiber on the Los Angeles network between the Burbank fiber system at Receiving Station E and the rest of the Los Angeles fiber network, it was not practical to provide such connections.  Only recently has it become practical to provide such an option.

Last year BWP and LADWP staffs found a way that would allow for providing such connections across the combined systems without requiring dedicated strands of fiber for each connection.  This approach, called wave division multiplexing, uses a single strand to carry many connections.  This approach makes it possible to connect points across the combined fiber systems of LADWP and BWP, where before it was not practical.

Early this year, in order to determine if this approach would work LADWP sought a trial from BWP to test this approach.  The test required extending BWP�s fiber system into NBC and connecting with an electronic device at LADWP�s Receiving Station E.  Over such a connection LADWP and BWP are able to send a television show over the Burbank system and then over the Los Angeles system to a private telecommunications port in Los Angeles that then sends it to New York city.  In addition, LADWP has developed a 24 hour center that monitors the transmissions to assure that the signal is transmitted as desired.  If the transmission should be lost, LADWP is able to quickly know such failure occurred, isolate where such loss occurred, and affect its repair or re-route the signal, as required.

Over the years BWP has hosted numerous trials with other technology and service providers.  However, seldom has a trial had the success and acceptance of this approach.  The service was embraced so strongly by the media companies that the trial remains in service even today.  While Pacific Bell provides a similar service there have been significant concerns regarding how such signals might get through should the Pacific Bell system fail.  In addition, the BWP/LADWP service will be monitored with the capability to isolate and identify any failure very quickly.    

While the trial was a success, there was no means in place to replace the trial with an on-going commercial service.  BWP immediately notified LADWP to seek the development of an agreement which would allow us to mutually serve these customers.  Burbank would serve the Burbank customers and Los Angeles would serve the customers located in Los Angeles.  Burbank called for the agreement as BWP recognized that LADWP did not have the authorization to provide services in Burbank without an agreement that would define the terms and conditions for such mutual services.

Over the last six months, Los Angeles and Burbank have developed this Agreement.  This Agreement is the first of its kind.  It allows Los Angeles and Burbank to retain its relationship with its own customers within its community without interference from the other utility yet it also allows for the combined fiber network to provide services between customers in Burbank and customers in Los Angeles.  The approach applies a unified rate with revenue sharing for those services that span the two communities.  This Agreement will be further explained in the following Analysis Section of this staff report.
 

ANALYSIS

This Agreement between BWP and LADWP will allow Burbank media companies to connect with media and telecommunication companies in Los Angeles.  The services provided under this Agreement allow for the exchange of high bandwidth, high resolution video and electronic film formats that are used in the production of movies, television shows, television news, and related media.  These services are not used for providing telephone services, cable television, or other commonly provided telecommunications service.  This application, while an important service in Burbank and Los Angeles where television and motion picture production is a major industry, is a very specialized service.

Since 1996, BWP has provided dark fiber service to Disney, Warner Bros., and other media companies to allow these companies to interconnect its own facilities.  It has been a very useful service to these companies and has allowed BWP to very economically upgrade the electrical control and monitoring of its electrical facilities to modern high speed technology that have reduced 34.5kV and 69kV line outages by 75%.

This service uses a technology called wave division multiplexing.  This is a technology similar to dark fiber but with an important difference, it allows multiple independent uses of the same strand of fiber.  Where dark fiber allows only one customer to transmit its own light signal down a single strand of fiber, wave division multiplexing allows multiple users or applications to each transmit its own light signal down a single strand of fiber.  Wave division multiplexing allows multiple users to send multiple light signals down a strand of fiber by having each light be a different color.  Wave division technology allows for a higher number of simultaneous uses of fiber optic cable than does dark fiber.

While this service is capable of allowing many users or applications to transmit and receive signals over a single fiber it does not have the intelligence of other telecommunication services such as cable TV, telephone, or the Internet.  This service cannot make telephone calls, record usage, route digital signals, locate a web address, or even connect to the Internet without adding electronic equipment that can provide the intelligence required to do these tasks.  It is a simple service that is designed to provide the transmission of specific television and motion picture production video and audio signals from one point to another point using less fiber than would be required with dark fiber.  Because it carries more signals over a single fiber it can be done less expensively than can dark fiber.  Because it is a stripped down service it can be done less expensively than other approaches.  Further, media companies have the expertise in their companies to interconnect and coordinate the transmission of such signals from point to point without requiring the services of the telecommunications provider.

Injecting these multiple colored light signals into a single fiber optic strand requires special equipment.  The cost for the equipment required to take up to eight different video signals and send them down one fiber is about $30,000 for each end of the fiber, for a total of $60,000.  For short distances it is less expensive to install multiple strands of fiber, but for long distances it is more cost effective to use this equipment.  The distance where it becomes more cost effective to use this equipment is in the range of two to four miles.

Ever since BWP first began to provide dark fiber service there have been requests from the media companies to connect to addresses in Los Angeles.  There is no dark fiber available on the LADWP system for these customers to reach addresses in Los Angeles.  LADWP has had numerous requests for connections into Burbank.  Again the lack of dark fiber on the LADWP system made those requests impossible to fulfill.

Earlier this year LADWP proposed a trial using the technology discussed above called wave division multiplexing to allow media companies in Burbank and Los Angeles to interconnect with one another.  The trial has been a technical success.  It has worked very well.

Perhaps the greatest challenge we met in developing the Agreement to provide this service to our customers was the governance and legal issues associated with municipal governments.  Municipalities have long provided water, electric, sewer, garbage collection, cable, natural gas, and other services that require the use of the public rights of way and are of a utility nature.  Municipalities generally serve only those within the community, but there are instances where a municipal will serve customers located outside their communities.  When serving outside of its community, a municipal is required to have the approval of the municipality where they intend to serve before serving any customers.  In this case, Los Angeles will serve customers in Los Angeles and not Burbank, and Burbank will serve customers in Burbank and not Los Angeles.  This concept has been incorporated into this Agreement.

Under this Agreement, Burbank and Los Angeles share the revenue associated with this service involving both utilities.  Under this Agreement, BWP will receive 30% of the revenue and LADWP will receive 70% of the revenue.  Los Angeles receives the greater share as they operate the system and provide the most assets.  Burbank provides only the equipment needed to connect the customer to the fiber while Los Angeles will provide the other devices, all located on its system, to make the system work.  Because of it size, Burbank does not require equipment to regenerate signals in order to restore the signal lost over long distances as may be the case in Los Angeles.

As an example, consider the trial that was conducted this last year at NBC.  In this case, Burbank�s equipment, which Burbank will buy under this Agreement, will cost just under $30,000.  This equipment will provide eight ports.  If only one port were used it would take 8.333 years to recover this $30,000 cost, with two ports it will take 4.16 years to recover the cost.  Since seven ports have already been requested, the equipment cost will be recovered in a little more than 1 year.

Because of the long payback it would not be prudent to install this equipment to serve a customer that used only one or two ports.  In those cases, unused ports at a nearby location would be used by so connecting the small customer to the unused port over the Burbank Fiber Network.  Such connections using the Burbank Fiber Network could be done over several miles.  Wave division multiplexing equipment would only be installed where a minimum of 3 or 4 ports would be used, so that the payback would occur in 2 to 3 years, or sooner.

Therefore, as shown above, this service will be able to sustain itself.

Southwestern Bell provides a transport service for the media industry.  This system operates in the Los Angeles/Hollywood area with extensions throughout Los Angeles into Burbank, Glendale, Culver City, and Santa Monica.  The media companies are concerned about the risks associated with having these vital services provided by a single company.  If the Southwestern Bell system should fail or otherwise become unavailable or problematic there would be no backup or alternative system.  Having Burbank and Los Angeles capable of providing such service provides the backup that these customers require to insure reliable and dependable delivery of news and television shows such as Jay Leno.

Additional reliability is provided by the LADWP by monitoring this network and these service at all times.  LADWP monitors all connections all the way from the source of the signal to its destination.  As an example of the speed and capability of this monitoring function, consider that during the recent NBC trial the signal from NBC to New York was lost.  NBC called the LADWP network monitoring center.  The Center was able to determine in only a few seconds that a cable was loose, that it was their cable, and where the loose connection was.  They were able to locate and tighten that connection in less than five minutes.  Being able to respond this fast is vital to the media industry.

This service is just one of many features that make Burbank and Los Angeles such a favorable region for media production.  It is good when these features can be provided to these employers without additional costs and without impacting the city streets or other municipal infrastructure.  This is a service that other communities without municipal utilities would probably not be capable of providing.  Los Angeles also understands the importance of taking advantage of those unique characteristics that we in Southern California can offer to retain our businesses and enhance our competitiveness, especially where we can do so with no increase in net costs and with the real possibility of gaining other benefits.

FISCAL IMPACT

This Agreement will cost the BWP $30,000 in return for a service contract that will produce sufficient revenues to return this investment in less than a year and half.  If the service continues beyond eighteen months, as expected, it will do so with a favorable cash flow.  We expect the recurring costs to be between 10% and 15% of the capital cost of the equipment.  The equipment is expected to have a service life of seven to ten years, but may actually be in service much longer.

The Agreement�s initial term is for five years.

This Agreement will be funded from the current telecommunications budget.

RECOMMENDATION

It is recommended that the City Council approve this resolution authorizing the General Manager of Burbank Water and Power to execute the Coordinate Network Agreement with the Los Angeles Department of Water and Power.    

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LADWP coordination agrm-council 10-19-04.doc

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