PURPOSE

Staff is seeking authorization for the City Manager to enter into an agreement with Pacific Bell Telephone Company, a California corporation doing business as AT&T California, for the purpose of facilitating AT&T California�s Project Lightspeed related network enhancements. 

BACKGROUND

On March 7, 2006 the City Council received a comprehensive report and presentation from staff on the potential legislative, technological and legal changes in the telecommunications industry expected to impact the City over the next several months. During a follow-up Study Session on June 27, 2006, staff provided the Council with extensive information covering AT&T California�s desire to implement technological enhancements to its already existing network, known as Project Lightspeed, current telecommunications-related legislation, a cable franchise agreement negotiations update, and a brief analysis of the potential Utility Users Tax implications of these telecommunications changes.  The staff report from the June 27, 2006 Study Session has been included as Attachment A.  At that time, staff was directed by the Council to begin negotiations with AT&T for the purpose of facilitating the implementation of Project Lightspeed in Burbank.

During the �Request for Additional Agenda Items� portion of the June 27, 2006 Council Meeting, Council Member Gordon requested a report from staff with regard to Project Lightspeed be brought back to Council for discussion during a regularly scheduled City Council meeting.  On July 11, 2006, as step one of the two step process for adding items to a future agenda, staff provided Council with an additional Project Lightspeed report and presentation.

On August 18, 2006 a memo from staff was sent to the Council for the purpose of providing Council with a summary of the negotiations with AT&T, a copy of staff�s final version of the draft agreement with AT&T, and the latest revisions to the pending telecommunications legislation.  A copy of the August 18, 2006 staff report is included as Attachment B.            

Legislation

While three pieces of legislation (H.R. 5252, S. 2686 and A.B. 2987) continue to be debated at both the federal and state level, they remain fairly similar in that all three remove the current, locally controlled, franchising authority from municipal government and replace it with a uniform franchise structure.  In short, the federal legislation grants national franchise authority to the Federal Communications Commission and the state-wide franchise would be issued by the California Public Utilities Commission.  As was presented during the June Study Session, the following is a brief recap of the �pros and cons� of this pending legislation:

            Pros:

       Streamlines the franchise process

�        Creates uniform �rules� for service providers state-wide

�        Promotes competition and investment in infrastructure

�        May result in reduced cost for video services

�        May result in improved quality of services

�        Most components of existing agreements remain in place

Cons:

�        Creates possibility for �redlining� and partial build out

�        Takes away some local control of rights-of-way

�        Reduces �Channel 6� funding amount and use

�        Results in loss of revenue control � potential for state take-away

�        No �drops� or free service required for schools, libraries, etc.

A.B. 2987 has now been approved by the Senate Appropriations Committee and approval by the California Senate is expected prior to the August 29, 2006 City Council meeting.  Even though staff, the City�s lobbyists and City-affiliated professional organizations continue to lobby at both the state and federal level for modifications to the proposed legislation that will protect local revenue and control, the bill�s passage and signature by the Governor is still considered eminent.  The latest version of A.B. 2987 has been included as Attachment C.

AT&T�s Project Lightspeed

Prior to the June Study Session, AT&T met with or contacted Council Members for the purpose of providing you with an overview of Project Lightspeed.  Attachment D is a copy of AT&T�s presentation with regard to this high speed, large bandwidth, internet protocol-based technology.  In an effort to avoid redundancy and summarize this issue, some of the pros and cons of Project Lightspeed are presented below:

Pros:

�        Enhanced internet service to residents

�        Enhanced telephone service to residents

�        Competition for cable television provider

�        Potential for reduced television programming costs

�        Able to mostly use existing infrastructure/conduit

Cons:

�        Aesthetic and space impact on public rights-of-way

�        No guarantee that all residents will be served

�        Eventual VoIP build out could impact UUT

�        Impacts during construction

�        No timeline for build out

In order to begin the build out of Project Lightspeed in Burbank, AT&T needs to encroach upon City of Burbank-owned right-of-way and access electricity.  While this is typically an administrative process conducted at the staff level, AT&T has recently submitted 130 locations for encroachment, and staff is requesting City Council approval of the attached Public Benefits Agreement prior to authorizing construction.  AT&T has already begun discussions with Public Works Department staff on the potential locations of the new infrastructure and Burbank Water and Power staff concerning AT&T�s additional power needs. 

At the back of Attachment D are a map of the proposed new infrastructure locations and a digital rendering of the new �node� structure.   As you will see on the map, the vast majority of proposed locations are located in non-residential, commercial areas.  As currently proposed, each new location must be sited within 3,000 feet of a residence, on average, and adjacent to an existing AT&T node.  AT&T will then run fiber optic cable through their existing conduit, without the need for trenching, to their existing node and ultimately to the newly installed fiber node equipment.  The only visible construction required is a short trench between the existing copper node and the new fiber node, a concrete pad to place the fiber node cabinet on and connectivity to a source of power.   Construction at any given location is not expected to exceed 72 hours.   

In the attached rendering, it is important to note that the proposed new infrastructure is only the piece of equipment located on the right side of the photograph and labeled �Proposed 52B Fiber Node.�  The piece of equipment depicted on the left in the photograph represents the existing copper node.  These cabinets are currently located in approximately the same locations as the notations on the proposed Project Lightspeed build out map.          

ANALYSIS

A lack of agreement continues to exist within the municipal community and a great deal of uncertainty state-wide as to whether AT&T is required to obtain a franchise for Project Lightspeed.  While it is the intent of recent legislation to include alternatively delivered TV/Video service such as fiber or wireless as part of the federal or state-mandated franchise process (AT&T has been a vocal supporter of the streamlined franchising), it may not be until these issues are tried in court that we have conclusive resolution. 

The result of this political and legal uncertainty, coupled with AT&T�s desire to enter the Burbank marketplace as expeditiously as possible, has created an opportunity for AT&T and the City of Burbank to enter into an agreement of mutual benefit.  By entering into an agreement with AT&T, similar to the agreements in place in Anaheim and Santa Clarita, the City of Burbank could secure financial and performance obligations from AT&T resembling those found in our current cable franchise agreement and AT&T could begin construction on a relatively accelerated timetable.  Staff is in favor of an agreement with AT&T for the purpose of expediting the implementation of Project Lightspeed, enabling residents to receive increased internet speeds and services, improved VoIP services and a competitive alternative to cable and satellite services.

Through a series of several meetings and conference calls over the past several weeks, staff has completed negotiations with AT&T.  A copy of the final draft agreement is included as Attachment E.  As a result of input received from the City Council during the Study Session and Report to Council, the language contained in A.B. 2987 and the obligations contained in the Charter Communications Cable Franchise Agreement, staff developed approximately 20 �deal points� for discussion with AT&T.  Of those issues that are either included or excluded in the draft agreement, a list of the primary pros and cons has been developed for Council edification:  

Pros:

• Provides reimbursement to the City for all direct costs associated with permitting and installation of AT&T�s infrastructure.  Approximately $80,000.

• Provides for a one-time payment of $75,000 to the City.  (Similar to Cable Franchise Agreement capital payment)

• Ability to collect 2% of gross revenues for expenses related to PEG.  (A.B. 2987 limit is 1%)

• Free video service to be provided to public facilities located within planned service areas.

• Fee of 5% of gross video service revenue paid to City.  A.B. 2987 has not yet defined how payment will be remitted to cities and/or how that source of revenue will be protected from future State takings.

• AT&T to work with City on infrastructure locations that impose the least aesthetic and right-of-way impact.

Cons:

• No commitment to provide Project Lightspeed to entire community or designate a map of locations for service.

• Beyond responding to graffiti and/or damage issues within 48 hours, no obligation to mitigate the aesthetic impact of new infrastructure.

• No commitment to a timeline for any phase of infrastructure construction.

• No obligation to �air time� or local advertising.  Required as part of the Charter Communications Cable Franchise Agreement, but not required under A.B. 2987.

• City administrative costs associated with developing the draft agreement, cost of physically placing a digital version of �Channel 6� on AT&T infrastructure, while minimal, are included in the $75,000 one-time payment.

On August 22, 2006 staff spoke with Assembly Majority Leader Dario Frommer�s Chief of Staff, Dan Reeves, and David Jones, the City�s lobbyist in Sacramento.  Both Mr. Jones and Mr. Reeves confirmed that the passage of A.B. 2987 should occur within the next few weeks.  In an effort to mitigate the impacts to the City created by A.B. 2987, staff continues to support the approval of a Public Benefits Agreement with AT&T. 

FISCAL IMPACT

A comprehensive fiscal impact for the recommended action is difficult to quantify.  The only flat or guaranteed payment to the City by AT&T is the one-time payment of $75,000.  In that most revenue paid to the City from Project Lightspeed is tied to a percentage of charges paid by AT&T customers and no customer data is available, accurate revenue projections are difficult to produce.   Even with reliable customer projections for AT&T�s new digital video service, it is unclear what percentage of those customers represent captured market share from the current cable service provider or �new� net customers.  If A.B. 2987 is adopted and a Public Benefits Agreement is not approved, AT&T will not be obligated to pay actual costs associated with permitting and installation of AT&T�s infrastructure, a net General Fund cost of approximately $75,000.  Council also has the discretion to implement a percentage fee, not to exceed 2% of gross TV/video sale, for the purpose of funding PEG related expenditures. 

RECOMMENDATION

It is staff�s recommendation that Council adopt a resolution approving the terms and provisions of the Public Benefits Agreement between the City of Burbank and AT&T California for AT&T�s Project Lightspeed and that the City Manager or her designee be authorized to execute the agreement.  It is also requested that the City Manager or her designee be further authorized to approve minor revisions to the text of the agreement prior to the execution by the parties, provided that such revisions shall not materially alter the City�s obligations under the agreement and shall be approved as to form by the office of the City Attorney. 

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