December 7, 2004
SUBJECT: Award of Wireless Communications System Franchise to MetroFi, Inc.
REPORT IN BRIEF
In accordance with Article XVI of the Sunnyvale City Charter, MetroFi, Inc. has applied for a franchise to provide wireless services to the City’s residents. The services include high fidelity wireless (WiFi) broadband Internet access through the use of transmitters installed on top of streetlight poles throughout the City. MetroFi is actually a wholesaler of these services to other wireless carriers who, in turn, will offer the services directly to the residents. MetroFi has submitted the application fee of $300.00 and staff has completed a thorough review for compliance with City regulations. City staff has also met and negotiated with MetroFi regarding the proposal to meet the perceived needs of the City and its residents.
If awarded the non-exclusive franchise, MetroFi will pay as consideration an annual fee of $36.00 for each streetlight pole on which a transmitter is installed. MetroFi will also pay a security deposit of $3,600 for each block of 100 street light poles for which the City can use to repair, relocate or remove any transmitter if MetroFi defaults on any of the terms and conditions of the agreement.
Council is requested to introduce and adopt an ordinance (Attachment A) awarding a non-exclusive franchise to MetroFi, Inc. for a period of five (5) years with an option to renew for two successive five (5) year periods.
BACKGROUND
MetroFi first approached the City in April 2003 proposing to provide wireless broadband services to the residents of the City of Sunnyvale. Subsequently, the City entered into a 6-month temporary encroachment permit with MetroFi in June 2003 to install transmitters on 5 City-owned streetlight poles and traffic signals for testing purposes of their technology. The temporary encroachment permit expired in December 2003 when MetroFi was unable to successfully negotiate with Pacific Gas & Electric (PG&E) to power the transmitters.
In May 1996, the City entered into a franchise agreement with Metricom, another wireless carrier, who installed a wireless data network through the use of micro-cellular data network (MCDN) radios installed on City-owned streetlight poles. Unfortunately, Metricom filed for Chapter 11 bankruptcy in October 2001 and is no longer in business. During this same time period in early 2003 when MetroFi contacted the City, the City was also actively working with Aerie Networks, a Denver firm who acquired the intellectual property of Metricom and was proposing to reactivate the Metricom wireless network within the City of Sunnyvale. However, there was no response from Aerie Networks on their proposal and interest to proceed after several attempts to contact the company in November 2003. As a result of the lack of response from Aerie Networks, the City resumed discussions with MetroFi on their proposal to provide wireless broadband services.
MetroFi’s system is similar to the one previously installed by Metricom. However, unlike Metricom’s proprietary system, MetroFi will be using a technology that will be readily accessible by end users using non-proprietary hardware.
The proposed franchise with MetroFi will provide for an annual rental fee per pole of $36.00 with an annual Consumer Price Index (CPI) adjustment. This fee is comparable to the $40 per pole fee paid by MetroFi to the City of Santa Clara for similar service, the difference being Santa Clara’s ability to discount the cost of powering the radio transmitters because it operates its own electric utility. In Sunnyvale, MetroFi has negotiated the cost of electric service directly with Pacific Gas & Electric (PG&E). The fee is also comparable to the $36 per pole fee paid by MetroFi to the City of Cupertino and to the City of Mountain View.
The proposed franchise will require MetroFi to provide a security deposit per pole for equipment removal should MetroFi default on any of the terms and conditions of the franchise. The City will also enter into a Right of Entry (ROE) Agreement with PG&E, which is attached to the proposed franchise agreement, granting access to PG&E to the City-owned streetlight poles. The ROE Agreement also indemnifies the City from liability for damages resulting from MetroFi’s operations. In a separate agreement between MetroFi and PG&E, MetroFi provides a letter of credit to PG&E to cover costs of removing the equipment in the event of any breach of terms and conditions of the agreement.
The proposed term of the franchise is five years with options to renew for up to two successive five-year periods.
The franchise is non-exclusive because it does not give MetroFi the sole right to use City-owned streetlight poles and traffic signals or exclude other companies from providing the same or a similar type of service in the City.
EXISTING POLICY
Community Participation Sub-Element Policy 7.2.12C.1 – Use the Internet to enhance the lives of Sunnyvale citizens.
Telecommunications Policy, 1997
Community Participation Sub-Element Policy 7.2.11E.1 – Advocate that the Sunnyvale telecommunications infrastructure is a reliable broadband interactive digital network that will provide advanced telecommunications services for its citizens, businesses, industries and schools.
Community Participation Sub-Element Policy 7.2.11E.3 – Promote a telecommunication system designed to stimulate competition and innovation.
DISCUSSION
More and more cities are providing wireless services to their communities in an effort to make sure that as many individuals as possible have access to the Internet for free or at an affordable rate. MetroFi service is competitive in both price and connection speed with residential Digital Subscriber Line (DSL) and cable Internet services. The current monthly charge for MetroFi service is $19.95, which includes a modem rental fee, or $14.95 per month if customers chose to purchase the required modem. Access speeds are up to 1 megabit per second.
Future benefits to the City could be the availability of “HotZones” that would provide free-to-user Internet access at some City facilities and parks, should the City decide to negotiate terms for those services in a separate agreement with MetroFi. Council will consider a study issue on wireless technology at its December 2004 workshop and depending on its ranking, staff will address in that study issue how the City will determine which companies will be selected to provide those Internet services.
MetroFi is a wholesaler who contracts with third party Internet service providers, such as EarthLink, who actually bill the customers and, therefore, MetroFi is not a direct provider of services. As a result, the proposed non-exclusive franchise agreement does not require MetroFi to pay a certain percentage of gross revenues that would be typical in other franchise agreements. The payment of the annual pole top rental fee is considered to be the “franchise fee” in the proposed franchise agreement with MetroFi and is consistent with agreements entered into with the cities of Santa Clara, Cupertino and Mountain View.
FISCAL IMPACT
In consideration for award of a non-exclusive franchise to MetroFi, staff has negotiated payment of an annual fee of $36.00 per City-owned streetlight pole or traffic signal on which a transmitter is installed with the fee subject to an annual adjustment based on the CPI. The estimated amount of annual revenue will be $3,600 based on the initial installation of 100 transmitters if all transmitters are installed in the first year of the franchise. All installation, maintenance and utility costs will be paid by MetroFi.
Conclusion
Neighboring cities of Santa Clara, Cupertino and Mountain View have entered into similar agreements with MetroFi to install communications transmitters on streetlight poles. These transmitters will provide wireless access to residences within a certain radius around the device at an affordable and competitive cost. The proposed non-exclusive franchise agreement includes the provision of a security deposit so that the City can remove the transmitters in the event that MetroFi defaults on any terms of the agreement. Staff believes that the terms and conditions are fair and equitable to both the City and MetroFi and that the MetroFi service will provide a competitive alternative to residents for access to the Internet.
PUBLIC CONTACT
Public contact was made through posting of the Council agenda on the City’s official notice bulletin board, posting of the agenda and report on the City’s web page, publication in the San Jose Mercury News and the availability of the report in the Library and City Clerk’s office. Copies of the RTC were provided to MetroFi, Inc.
ALTERNATIVES
1. Introduce and adopt an ordinance awarding a non-exclusive franchise for provision of a wireless services network to MetroFi, Inc. for a five-year period and authorize the City Manager to execute the necessary documents and any associated agreements with PG&E that may be necessary.
2. Do not introduce or adopt an ordinance awarding a non-exclusive franchise to MetroFi, Inc. or enter into any associated agreements with PG&E.
RECOMMENDATION
Alternative #1 – Introduce and adopt an ordinance to award a non-exclusive franchise for provision of a wireless services network to MetroFi, Inc. for a five-year period and authorize the City Manager to execute the necessary documents and any associated agreements with PG&E that may be necessary.
Reviewed by:
Shawn Hernandez, Director, Information Technology
Prepared by: Marilyn Crane, Manager, Information Technology Services
Approved by:
Amy Chan
City Manager
Attachments
A. Ordinance Granting a Non-Exclusive Franchise
B. Franchise Agreement with Exhibits (pdf format)