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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