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Home My WebLink About9.b. Revocation of franchise issued to FTTH Communications, LLCAGENDA ITEM: Revocation of franchise issued to FTTH Communications, LLC AGENDA SECTION: NOW INASOI Ns PREPARED BY: Dwight Johnson, City Administrator AGENDA NO. q.b. ATTACHMENTS: Resolution, Violation Letter to FTTH Communications, LLC APPROVED BY: 1YD) RECOMMENDED ACTION: Approve a resolution revoking the cable franchise issued to FTTH Communications, LLC 4 ROSEMOUNT CITY COUNCIL City Council Regular Meeting July 21, 2009 EXECUTIVE SUMMARY BACKGROUND The City Attorney has drafted the attached resolution revoking the cable franchise for FIT H Communications, LLC effective October 19, 2009. The Council directed that this resolution be prepared at its July 15, 2009 workshop meeting. ISSUES A letter was sent to FTTH Communications, LLC dated March 12, 2009 detailing a number of violations of the franchise agreement. The company acknowledged that it was in violation of the franchise conditions and waived its right to a public hearing on the violations. The company has communicated to the City that it is unwilling or unable to correct the franchise violations, including the requirement to build out the portion of the City known as Area 1 by December 31, 2008. FTTH Communications currently provides service to the Evermoor neighborhood and a few other institutional establishments in the City. While FTTH Communications provides internet, telephone and video service:; to various customers, the City only exercises franchise control over the video portion of the services. Telephone and internet services are regulated by the state Public Utilities Commission. Therefore, thi attached resolution would only terminate the ability to provide video services in the community. During the la:,t 60 days, there has been little communication from FTTH Communications, LLC and no indications of forward progress in resolving the current problems. The recommended resolution would be effective on October 19, 2009 or about 90 days from the July 21s` meeting. Staff is recommending this future effective date so that: Affeci ed residents can be informed of the situation The likelihood of a sudden, announced loss of service is minimized. FTTH. Communications would be provided the opportunity to help provide an orderly transition to its customers. FTTH. Communications would have a certain limited time in which to continue to seek a buyer for the company or its assets. The City is removing a potential barrier to another company considering fiber service to Rosen iount. RECOMMENDATION Staff and the City Attorney recommend that the attached resolution be approved to revoke the cable franchise issued to FTTH Communications, LLC effective October 19, 2009. 2 CITY OF ROSEMOUNT, MINNESOTA RESOLUTION REVOKING THE CABLE FRANCHISE ISSUED TO FTTH COMMUNICATIONS, LLC WHEREAS, the City of Rosemount "City granted a cable franchise to FTTH Communications, LLC "FTTH pursuant to Ordinance No. X1.23 "Franchise and WHEREAS, FTTH currently operates a cable communications system "System in the City pursuant to the Franchise; and WHEREAS, in addition to cable services, FTTH provides telephone and other telecommunications services under the regulatory jurisdiction of the Minnesota Public Utilities Commission "MPUC and WHEREAS, in 2007, the City approved the transfer of the Franchise and ownership and control over FTTH to Rudder Capital Corporation "Rudder and WHEREAS, Rudder accepted and acknowledged the Franchise and obligations therein, and WHEREAS, in conjunction with the transfer, the City approved certain amendments to the Franchise requested by Rudder; and WHEREAS, by certified letter dated March 12, 2009, the City notified Rudder and FTTH of material violations of the Franchise, including failure to: timely construct and extend cable plant under Section 2.7 and Exhibits B and C of the Franchise; provide a sixty thousand dollar ($60,000.00) letter of credit to the City under Section 8.2(a) of the Franchise; cablecast all public, educational and governmental (PEG) access programming produced by the City or City's designee under Section 6.1(d) of the Franchise; provide certain PEG connections under Section 6.1(d) of the Franchise; timely make quarterly franchise fee payments to the City under Section 7.1 of the Franchise; timely make quarterly payments to the City to support PEG expenses under Section 6.4 of the Franchise. WHEREAS, the notice of violations indicated that the City may consider Franchise revocation under Section 9.1 of the Franchise which permits revocation for, among other things, material Franchise violations; and WHEREAS, Rudder and FTTH did not timely contest any of the violations noted and waived the right to a public hearing before the City Council concerning the existence, severity, or appropriate remedies for such violations; and WHEREAS, in communications with the City subsequent to the notice of violation, Rudder and FTTH acknowledged the violations and indicated that they are unable or unwilling to comply with the Franchise, that the System (and certain other telecommunications assets) are actively being marketed for sale, that the companies are considering termination of services in the City if the System cannot be sold, and that the companies will not continue operation of the System; and WHEREAS, under Minnesota Statutes, Chapter 238, including Section 238.08, Subd. 1, FTTH must hold a valid cable franchise in order to offer cable (video) service in the City; and WHEREAS, Minnesota Statutes, Section 238.084, Subd. 1(v) and (x) requires that any cable franchise contain provisions addressing franchise revocation and removal of a cable system from public rights -of -way upon revocation; and WHEREAS, continued delivery of cable service after franchise revocation would violate Minnesota Statutes, Chapter 238; and WHEREAS, Minnesota Statutes, Section 238.16 provides: Subd. 2.Gross misdemeanor; corporate violation. Any person violating the provisions of this chapter is guilty of a gross misdemeanor. Any sentence imposed for any violation by a corporation shall be served by the senior resident officer of the corporation. NOW, THEREFORE, BE IT RESOLVED THAT, based on the undisputed and acknowledged material violations of the Franchise, and FTTH's stated unwillingness to comply with the Franchise in the future, the City hereby revokes the Franchise effective October 19, 2009. BE IT RESOLVED FURTHER THAT staff is directed to notify the MPUC, law enforcement, FTTH's video programming supplier (NCTC), and any other appropriate agencies or interested parties of this Resolution. BE IT RESOLVED FURTHER THAT, if requested by FTTH, staff is directed to assist FTTH customers with transition to another video service supplier. BE IT RESOLVED FURTHER THAT staff is directed to take any other actions reasonably necessary to implement this Resolution with the least possible disruption to cable customers and residents. Adopted by the City Council of the City of Rosemount this day of 2009. ATTEST: City Administrator Mayor Kennedy C H A R T E D March 12, 2009 Offices in Minneapolis Saint Paul St. Cloud Randy Mortensen Rudder Capital Corporation 2980 Commers Drive Suite 200 St Paul, MN 55121 FTTH Communications, L.L.C. 4483 Evermoor Parkway Rosemount, MN '55068 470 U.S. Bank Plaza 200 South Sixth Street Minneapolis, MN 55402 (612) 337 -9300 telephone (612) 337 -9310 fax http: /www.kennedy- graven.com Affirmative Action, Equal Opportunity Employer RE: NOTICE OF FRANCHISE VIOLATIONS; NOTICE OF POTENTIAL FRANCHISE REVOCATION Dear Mr. Mortensen: Robert J. V. Vose Attorney at Law Direct Dial (612) 337 -9275 Email: rvose @kennedy- graven.com VIA CERTIFIED MAIL RETURN RECEIPT REQUESTED As you know, we are attorneys for the City of Rosemount "City This is to formally notify you that FTTH Communications, L.L.C. "FTTH") is again in violation of the City's cable franchise. By letter dated May 15, 2007, the City notified FTTH that it had failed to comply with certain system build -out requirements. The City ultimately drew $31,200 in penalties from FTTH's letter of credit for this and other violations. In response, and in conjunction with a transfer of ownership and control over the cable system to Rudder Capital Corporation "Rudder the City amended the franchise to modify and extend the build out timelines. FTTH and its new corporate owner, Rudder, actively negotiated these modifications and agreed to meet the new build -out timelines. As amended, Section 2.7 of the franchise and Exhibits B and C require system construction and extension of energized trunk cable substantially throughout Area 1 or phase 1 as depicted in Exhibit B by December 31, 2008. FTTH has failed to timely complete construction within that delineated area of the City. In addition, Section 8.2(a) of the franchise was amended to require FTTH to provide a sixty thousand dollar ($60,000.00) letter of credit to the City. The letter of credit amount was increased to secure FTTH's compliance with the build -out timelines and other franchise requirements. However, FTTH has failed to provide the letter of credit. 347568v1 RJV RS220 -239 any such dispute at a regularly scheduled Council meeting within sixty (60) days of notice of such dispute. For purposes of contesting revocation, FTTH is entitled to a sixty (60) day cure period after which the City must hold a public hearing affording due process. The violations alleged in this notice are very serious. It may be difficult for FTTH to remedy all violations simultaneously. However, FTTH must promptly remedy the failure to pay franchise fees and PEG fees and failure provide a letter of credit. Unless these corrective actions are completed within sixty (60) days, the City must consider revocation of the franchise. Finally, the City is aware that Telcom Construction, Inc. has filed a mechanic's lien statement alleging that FTTH owes that subcontractor approximately $375,000 for system construction work. We further understand that the subcontractor has filed suit against FTTH. Under Section 7.4 of the franchise, the City is entitled to inspect any records FTTH maintains that relate to the franchise or system operations including specifically FTTH's accounting and financial records. The City hereby demands review of FTTH's financial records at a mutually agreed upon time and place. Promptly propose the time and place for production of such records within a period not to exceed ten (10) days. Yours truly, i Mmq 42-e--- Robert J.V. Vose cc: Charlie LeFevere, City Attorney Dwight Johnson, City Administrator 347568v1 RJV RS220 -239