HomeMy WebLinkAbout2.d. FTTH/Rudder Franchise TransferAGENDA ITEM: FTTH /Rudder Franchise Transfer
AGENDA SECTION:
Discussion
PREPARED BY: Jamie Verbrugge, City Administrator
AGENDA NO.
ATTACHMENTS: Letter from Rudder Capital Corp. dated
October 31, 2006 (redacted)
APPROVED BY:
RECOMMENDED ACTION: Council discussion and guidance to staff
4 ROSEMOUNT
CITY COUNCIL
City Council Work Session: November 15, 2006
EXECUTIVE SUMMARY
Cable television franchise owner FTTH, Inc. has notified the City that it will apply to transfer its franchise
to a different investment group led by Rudder Capital Corp., of St. Paul, Munn As a first step in the
transfer process, FTTH is asking the City to waive within the next month its nght of first refusal to
purchase the system.
BACKGROUND
The City of Rosemount granted a nonexclusive franchise to FTTH in 2002 to build a cable television
system in the community. The franchise includes provisions regarding extent of service and geographical
areas to be served.
Among other provisions, the agreement prohibits F 11 H from selling or transferring the franchise unless
approval is granted by the City Section 9 -5 -f of the agreement gives the City the right of first refusal to
purchase the system. Under the terms of that provision, FTTH must provide a purchaser's written
proposal and FTTH's written acceptance of the proposal The City gives up its right to purchase if it does
not notify FTTH that it is exercising the nght of first refusal withm 90 days of the notice of the proposed
sale, or if the City approves the sale in the meantime The provision also requires the purchasing company
to agree to accept the rights and obhganons of F 11 H under the existing agreement. FTTH must
reimburse the City for reasonable fees for its costs to review the sale.
Along with the process required by the agreement with the City, the sale is subject to review by the
Minnesota Pubhc Utilities Commission (PUC). The buyer and seller are also required to file Form 1240
designated by the Federal Communications Commission. Filing of the form triggers a review by the City
that can run up to 120 days, or longer if inadequate information is provided. The existing franchise
prohibits the prospective owner from exercising working control of the system until the City approves the
sale.
DISCUSSION BETWEEN COMPANIES AND STAFF
Late this summer, F7 "1 H and Rudder held informal discussions with City staff regarding the companies'
preliminary work on a franchise sale Rudder is an investment group as descnbed m the attached letter
dated October 31. The companies indicated that F 11El's parent company, Contractor Property
Developers Corp., will continue to maintain an ownership stake m the system
In August, after the City raised the issue of the right of first refusal, the companies expressed the opinion
that the right is limited to some parts of the physical system that has been built within Rosemount, but
would not include control operations or F Tl H's agreements with cable programming providers.
In the letter received by the City on November 2, Rudder formally asked the City to waive its nght of first
refusal, based on Rudder's intention to "serve the customers m Rosemount in a professional and
respectful manner" and as a way for the City to avoid "potential costly infrastructure risks and potential
political issues with the citizenry of Rosemount." Rudder also asked the City to make a decision on its
nght of first refusal before December 13, 2006, to allow it to integrate FTTH "as expeditiously as
possible" and to proceed on further investments in the system.
As of the writing of this memorandum, the companies have not informed the City that they have filed
with the PUC. They have also not provided an FCC Form 1240. If the letter received November 2
constitutes formal notice of the proposed sale, Rudder's request would give the City 40 days to consider
exercising the right of first refusal rather than the 90 days hsted m the existing franchise.
SUMMARY
Staff is requesting the Council's direction on the issue of right of first refusal to purchase the F 11 H
system. If Council members want more time to consider the issue, it can be revisited at the December
work session.
2
FILE No.142 06/30 '06 2156 ID: FAX: PAGE 2
October 31, 2006
Mr. Jamie Verbrugge
City Administrator
City of Rosemount
2875 145 Street West
Rosemount, MN 55068 -4997
Dear Mr. Verbrugge and Ms. Lindquist,
Rudder Capital Corporation
Ms. Kim Lindquist
Community Development Director
City of Rosemount
2875 145 Street West
Rosemount, MN 55068 -4997
Please consider this letter as a formal request for action by the City of
Rosemount We respectfully ask you to carefully consider the following
information and we also respectfully ask you to waive the City of Rosemount's
right of first refusal of the franchise agreement currently held by I- I I H.
Background of FTTIi:
FTTH was founded in Minnesota by CPDC to provide uali phone, Internet and
video services. CPDC has invested in excess of to develop an
organization that can provide these services, and has specifically developed the
'head -end' facility to appropriately serve video customers over fiber and fiber
/copper combinations.
Background of Rudder:
Rudder is an organization deeply experienced in developing long -term growing
subscriber -based businesses in the phone, Internet and video industries. The
management team of Rudder includes Randy Mortensen, COO of Rudder, who
built a non regulated company eventually acquired by Xcel Energy, where Randy
continued to run the organization as a division of the regulated utility. Ron
Noden, President of Rudder, was co- founder and President of an Internet
Service Provider (ISP), that successfully served thousands of locations across
the United States. Vern Swedin, CEO of Rudder, was a co- founder and CEO of
the aforementioned ISP and also was the catalyst for one of the most successful
growing companies of Video subscribers for DirecTV.
The Acquisition:
As you are aware, Rudder Capital Corporation ('Rudder') and Contractors
Property Development Corporation ('CPDC') entered into an agreement for the
purchase of ETTH by Rudder. We will provide the City of Rosemount with a copy
of the agreement between Rudder and CPDC on Friday.
Rudder Capital Corporndon Filth Street Tower. 55 East Fifth Streit. Suite 1220, St. Paul, MN 55101 6SY- 2929911
Additional Rudder Community impact around the acq uisition:
The team at Rudder is energized about the opportunity to work with the City of
Rosemount to be a proficient and reliable supplier of services. In addition,
Rudder is planning to develop our separate video installation and commercial
video installation business for the State of Minnesota to headquarter from
Rosemount, as part of our ongoing effort to be a good corporate citizen. We
anticipate that the installation business may eventually bring dozens of jobs to
Rosemount and quite probably involved in excess of 100 sub contractors.
Currently, our video installation business operates in eight offices in the South
and Southeast United States. Rudder intends to have the Rosemount facility
house the Minnesota residential installation for video services and will eventually
house the national commercial instailatior division of our organization.
Costs of Ac uisition and additional investments since 417/2006:
Cost of Investments to make:
FTTH and Rosemount represent a significant business opportunity. Our mission
is to successfully navigate this opportunity to ensure that FTTH is a viable
business able to serve the community successfully and to be a good corporate
citizen. To accomplish this, careful analysis of the market and the Return on
Investment need to be considered. Being a profitable entity will ensure quality
ongoing customer experiences for our subscribers in Rosemount and elsewhere.
Phased Plans for Rosemount would include:
•Phase One
Phase Two
!Phase Three
•Pha
`Assuming approval, appropriate agreements and workable ROI financial models.
"Assuming service acceptance level adequately covers ROI financial model.
Projected Potential Costs /Investments:
In addition, we anticipate additional costs for additional licensing for content to
exceed during 2006. Assuming that the ROI supports the phases and
allows for completion, the total investment for FTTH could potentially exceed
Rudder Capital Corporation Fdth Street Tower.55 East Fifth Street, Smote 1220,5f. Paul, MN 55101 651-292-9911
m
X
FILE No.143 06/30 '06 21:57 ID: FAX: PAGE 1
The Decision:
As written in the Franchise Agreement for FTTH, the City of Rosemount has the
right of first refusal. Under the agreement, there is a 90 -day period for the city to
exercise or decline the right to acquire the Franchise and company.
First and foremost, we respectfully ask that the City of Rosemount choose to
decline or waive their right to acquire FTTH. We strongly believe that an
independent organization like Rudder will work hard to serve the customers in
Rosemount in a professional and respectful manner. We also believe that by
using a private company, the city continues on a course of business that avoids
potential costly infrastructure risks and potential political issues with the citizenry
of Rosemount.
Secondly, we respectfully ask the City of Rosemount to decline or waive their first
right to acquire FTTH prior to December 13, 2006. This would allow for Rudder
to provide complete integration of FTTH as expeditiously as possible, and allow
for Rudder FTTH to immediately address the planning and execution around the
Phases as listed above in this document.
Upon your approval of the two items above, we will respectfully submit for the
transfer to Rudder the Franchise currently held by FTTH.
Thank you for the opportunity to work with the City of Rosemount and thank you
for your consideration in this process.
If you have an uestions please contact me at of the number listed below or my
cell phone We look forward to our upcoming meeting on Friday,
November 3, 2006.
Sincere/
L O
Ronald E. Noden
President
cc: Mike Waldo, CPDC
Randy Mortensen, Rudder Capital Corp
Rudder Capitol Corporation Fifth 5lre t Tower. SS East Fifth Street, Suite 1220. St Pahl, MN 5S101 651 292.9911