HomeMy WebLinkAbout7.a. Cable Franchise for FTTH (Fiber to the Home)CITY OF ROSEMOUNT
EXECUTIVE SUMMARY FOR ACTION
CITY COUNCIL MEETING DATE July 2, 2002
AGENDA ITEM: Cable Franchise for FTTH
AGENDA SECTION:
OLD BUSINESS
PREPARED BY: Thomas D Burt, City Administrator
AGE MR t 7 j�
fj
ATTACHMENTS: Letter from Charter, Response to
APPROVED BY:
Charters concerns from City Attorney, and Franchise
Ordinance
At the public hearing on January 15, 2002 that was then continued to February 19, 2002, there was
no public comment as it related to the consideration of the cable franchise for FTTH However, City
Attorney Vose did mention Charter may comment at some point in the future Attached is a copy of
a memo from legal counsel for Charter Communications objecting to the franchise based on the
"level playing field' argument City Attorney Bob Vose has reviewed Charters claim and disagrees
and is recommending City Council pass the attached ordinance granting a franchise to FTTH
City Attorney Vose will be present to address questions from City Council
RECOMMENDED ACTION: Motion to approve an Ordinance granting a franchise to
FTTH Communications L L C to construct, operate and maintain a cable system
COUNCIL ACTION:
Cole, Raywid Braverman,
TO Rosemount City Council
c/o Robert J V Vose
FROM Susan Whelan Westfall
Geoffrey Cook
Gerie Voss
Los Angeles offce
2381 Rosecrans Avenue, Suite 110
El Segundo California 902454290
Telephone (310) 643 -7999
Fax (310) 643 -7997
DATE June 6, 2002
RE Charter Communications' Response to FTTH Communications' Application
For a Cable Franchise
I. Introduction and Summary
We are counsel to Charter Communications "Charter which holds a franchise with the
City of Rosemount "City to provide cable television services throughout the City On January
7, 2002, FTTH Communications, L L C "FTTH submitted its application for a franchise to
provide service to the City The City Council subsequently drafted a proposed cable ordinance
for FTTH "Proposed Ordinance Charter opposes the grant of this franchise to FTTH, because
the Proposed Ordinance violates '_Minnesota law and Charter's current renewal franchise
Further, FTTH has not demonstrated the proper financial or technical qualifications' to obtain a
cable franchise
See 47 U S C 541(a)(4)(C) In awarding a franchise, the franchising authority may require adequate
assurance that a cable operator has the financial, technical, or legal qualifications to provide cable service
L.L.P.
Susan Whelan Westfall
ATTORNEYS AT LAW
Direct Dial
(508) 945 -7235
1919 PENNSYLVANIA AVENUE, N W, SUITE 200
SWestfall @CRBLaw com
WASHINGTON, D C 20006 -3458
Telephone (202) 659 -9750
Fax (202) 452 -0067
www crblaw com
TO Rosemount City Council
c/o Robert J V Vose
FROM Susan Whelan Westfall
Geoffrey Cook
Gerie Voss
Los Angeles offce
2381 Rosecrans Avenue, Suite 110
El Segundo California 902454290
Telephone (310) 643 -7999
Fax (310) 643 -7997
DATE June 6, 2002
RE Charter Communications' Response to FTTH Communications' Application
For a Cable Franchise
I. Introduction and Summary
We are counsel to Charter Communications "Charter which holds a franchise with the
City of Rosemount "City to provide cable television services throughout the City On January
7, 2002, FTTH Communications, L L C "FTTH submitted its application for a franchise to
provide service to the City The City Council subsequently drafted a proposed cable ordinance
for FTTH "Proposed Ordinance Charter opposes the grant of this franchise to FTTH, because
the Proposed Ordinance violates '_Minnesota law and Charter's current renewal franchise
Further, FTTH has not demonstrated the proper financial or technical qualifications' to obtain a
cable franchise
See 47 U S C 541(a)(4)(C) In awarding a franchise, the franchising authority may require adequate
assurance that a cable operator has the financial, technical, or legal qualifications to provide cable service
II. The Proposed Ordinance Violates Minnesota Level Playing Field Law and
Charter's Franchise
The City Council has drafted the Proposed Ordinance based upon Charter's current
renewal franchise with the City Howe), er, the Proposed Ordinance contains several terms which
are substantially different from those in Charter's franchise and are less burdensome on the
Grantee Therefore, Charter believes the Proposed Ordinance violates Minnesota law The
Minnesota Level Playing Field statute states, in pertinent part, that
No municipality shall grant an additional franchise for cable
service for an area included in an existing franchise on terms and
conditions more favorable or less burdensome than those in the
existing franchise pertaining to: (1) the area sen ed, (2) public
educational, or go\ enimental access requirements, or (3) franchise
fees 2
Further, Charter's renewal franchise requires that additional franchises contain "substantially
similar" terms to Charter's franchise 3 Because the Proposed Ordinance contains material
differences in see eral terms, it also violates Charter's renewal franchise
The substantive areas in which the Proposed Ordinance differs from Charter's franchise
are (1) the area sett ed, (2) public educational, or governmental access "PEG requirements,
(3) construction timetables, (4) construction bond requirements, and (5) provision of in -kind
services Listed below is an analysis of each substantive area
1. The Area Served
The primary area in which Minnesota law requires an additional franchise to be
comparable to an existing franchise is the "area served While the Proposed Ordinance and
Charter's franchise contain the same language pertaining to the "area served," it is not the same
m practice First, although each ordinance requires the Grantee to provide service in the
territorial area defined as the "corporate boundaries of the City as it exists from time to time,"
FTTH is permitted to construct and build out its system in phases Charter was required to serve
the area upon completion of its eighteen -month buildout schedule, whereas, FTTH is not
required to serve the City until it completes its six year buildout schedule While the April 3,
2002 Report to the City of Rosemount prepared by Kennedy Graven "Kennedy Graven
Report") opines that FTTH will serve "nearly all" of the area Charter serves within six years, s it
2 Minn Stat 238 08(1)(b)(emphasis added)
'Charters franchise proN ides that "[a] dditional Cable Franchises granted by the City shall be granted [on] the
substantially similar substantn e terms and conditions" City of Rosemount, Ordinance No XI 21, Section 2(3)
(April 20, 1999) Charter Franchise
Charter Franchise 4(3), Proposed Ordinance at Exhibit B In fact, FTTH's service area appears to be only one
portion of the service that F= had initially proposed to serve under a fifteen -year buildout schedule Report to
the City of Rosemount Prepared by Kennedy Graven (Apr 3, 2002) at 5 Kennedy Giaven Report")
'Kennedy Graven Report at 6
2
does not identify what comprises `nearly all" of Charter's service area The area served must be
closely comparable under Minnesota law Moreover, even if FTTH were to offer service within
Charter's service area within six years, FTTH still would receive four times as long as Charter
had to provide the same services 6
Second, while the Proposed Ordinance requires FTTH to provide service to the entire
City, it allows FTTH to provide service at a cost that, effectively, would make its services
available to affluent communities only FTTH's initial cost of installing fiber to the home will
be significantly more expensive than upgrading an existing cable system Analysts estimate that
new build construction for a company like FTTH could be twice that of upgrades, which can run
between $10,000 and $25,000 per mile 7 FTTH will likely need to charge high monthly
subscription fees in order to recoup its construction costs Although FTTH's application claims
that its rates w ill save subscribers up to $34 05 per month, FTTH's estimates are almost one year
old s Moreover, this price differential between FTTH and Charter's services is based upon a
combined package of telephone, digital television, and Internet services when many subscribers
solely need basic cable service 9 Only those City residents who can afford new, expensive
homes with built -in wiring and who therefore are more likely to order premium cable services
will be willing to pay FTTH's high monthly subscription fees
2 PEG Requirements
The second area in which Minnesota law requires an additional franchise to be
comparable to an existing franchise is the PEG requirements The PEG requirements in the
Proposed Ordinance differ from the requirements in Charter's franchise in several respects (a)
up -front vs incremental payments of PEG grants, (b) cost credits, and (c) requirement to transfer
title to PEG equipment to the City As a result, the Proposed Ordinance provides FTTH with
less burdensome PEG requirements than those given to Charter
(a) Up -front vs incremental PEG payments
6 The Kennedy Graven Report also states that FM will immediately serve "as many as 96 living units that are
currently unable to receive service from Charter," but it does not explain what constitutes a "living unit" or 'A hether
96 such units is in fact, a significant or a minimal portion of the City's residents Kennedy and Graven Report at 7
"emphasis added
7 K C Neel, Deadend at the headend? For cash poor overbudders, time may be running out, Cable World, Mar 18,
2002, at 17
'See FTTH Franchise Application, competitive pricing published as of 7 /25/01
9 FTTH cannot justify its higher costs, and consequently the right to provide service to a smaller territorial area,
simply because FTTH made the business decision to build a system with a capacity to offer more than cable service
Although FTTH's system will be able to offer cable, telephone, and Internet on its system, FTTH's system w ill be
capable of delivering the same cable capacity as Charter's upgraded system Because the City is charged with the
duty to regulate cable sern ices, the City should be concerned only with the fact that FTTH's cable capacity will be
the same as Charter's capacity Therefore, FTTH should not be able to charge significantly higher prices and serve a
smaller territorial area because it chose to install a fiber -to -the -home network
Charter's franchise requires it to pay a $60,000 capital equipment grant within forty -five
days of the effective date of its franchise 10 However, the Proposed Ordinance requires FTTH to
pay $30,000 within forty -five days of the effective date of the franchise 11 FTTH's second
$30,000 payment is not required until the third anniversary of the effective date of the
franchise 12 Therefore, the Proposed Ordinance allows FTTH to spread out the burden of this
PEG payment over three years, whereas, Charter's franchise required that it undergo the full
financial burden within forty -five days of the effective date of the franclse
(b) Cost credits
The Proposed Ordinance offers FTTH an additional financial benefit that is not offered to
Charter The Proposed Ordinance states that public and educational institutions may elect to
receive dark fiber facilities in lieu of a basic data service to permit interconnection 13. If an
institution makes this election, then FTTH will receive a credit towards its second PEG
payment 14 In accordance with its franchise, Charter provides free installation of one (1) two
way activated cable drop, one (1) cable outlet. and monthly basic cable service without charge to
public and educational institutions within the City 15 Like FTTH, Charter should be entitled to
receive similar credits for providing free drops and service to City institutions Therefore, not
only is the City providing FTTH with a lesser financial burden by allowing it to remit
incremental PEG payments, it also has given FTTH, and not Charter, the opportumty to receive
credits towards these payments
(c) Transfer title to PEG equipment
Charter's franchise contains an additional PEG requirement not listed in the Proposed
Ordinance Charter's franchise requires it to "transfer title to any PEG equipment which it owns
currently to provide PEG programming to the City and repair or replace such other PEG
equipment as the City deems necessary Charter has endured the financial and time
consuming burden of transferring title to its PEG equipment to the City and remains ready to
repair and replace the City's PEG equipment as necessary The City has not provided any
justification as to why it has removed this burden from FTTH
3. Construction timetables
Charter's franchise required it to activate its upgraded system within eighteen months of
the effective date of this franchise 17 However, the construction timetable for FTTH is
1° Charter Franchise 6(4)(c)
Proposed Ordinance 6(4)(b)
12 Id
"Proposed Ordinance 2(9)
14 Id
Charter Franchise 2(10)
16 Charter Franchise 6(4)(b)
17 Id at 4(3)
considerably more lenient The Proposed Ordinance permits FTTH to complete its construction
in accordance with Exhibit B 18 Accor ding to Exhibit B, FTTH has six years to complete its
construction of a service area that appears to cover only a portion of the City Even the Kennedy
Graven Report, which indicates that FTTH proposes to expand its system to "nearly all" of the
area Charter currently serves within six years, 19 makes clear that the City would be allowing
FTTH six years, a considerably longer time frame, to serve this area In its letter to Kennedy
Graven, Charter explained that it upgraded its system in approximately four months 20 Even if
FTTH expands its system to serve the entire Charter area within six years, that is four tames
longer than Charter's required eighteen -month schedule, and eighteen tames longer than it took
Charter to upgrade its system Although FTTH is completing initial construction. and Charter is
upgrading its system, both undertakings require significant time and financial expenditures to
complete construction Neither the City nor FTTH has provided an adequate explanation as to
why FTTH should be granted four or more times as much time as Charter had to serve City
residents
4 Construction bond requirements
Charter's franchise and the Proposed Ordinance require the Grantee to post a $50,000
performance bond 21 However, Charter's franchise lists an additional construction bond
requirement not found in the FTTH ordinance Upon initiation of construction and its system
upgrade, Charter must provide an additional construction bond of S50,000, or shall increase its
performance bond to $100,00022 The City does not offer any justification as to why it would
require an additional bond from Charter, the established cable operator in the City, instead of a
bond from the new entrant, FTTH Both Charter and FTTH's construction will utilize City
rights -of -way in a similar manner Although Charter has no objection to providing the additional
construction bond, Minnesota law necessitates that the City requires an additional $50,000 bond
from FTTH
5 Provision of In -Kind Cable Services
Both Charter's Franchise and the Proposed Ordinance contain a provision requiring the
Grantee to provide in -kind cable service to municipal buildings 23 However, these provisions are
not "substantially similar" from a practical perspective In fact, FTTH will not actually be
required to provide in -kind service until 2008, because the FTTH plant will not pass municipal
buildings until it completes construction in six years Alternatively, Charter has prof ided in-kind
services to municipal buildings since the City adopted Charter's Franchise Ordinance in 1999
is Proposed Ordinance 4(3)
is Kennedy Graven Report at 6
20 Letter from Arne "Tucker" Carlson, Charter s Minnesota Government Relations Director, to Robert J V Vose,
City Attorney, Regarding City of Rosemount, FTTH Franchise Requirements (Feb 7, 2002) The City Attorney
disputes whether Charter actually completed its upgrade in four months Kennedy Graven Report at 6 However,
the City Attorney has no basis for his claim that Charter likely accomplished its upgrade over several years
Charter Franchise 8(1), Proposed Ordinance 8(1)
zz Charter Frangluse 8(2)
23 Charter Franchise 2(10), Proposed Ordinance 2(9)
Accordingly, the proposed franchise differs from Charter's current franchise in terms of
the area served, PEG requirements, construction timetables, construction bond requirements, and
provision of in -kind services The Proposed Ordinance eliminates several burdensome
requirements from Charter's franchise and provides FTTH with financial benefits not offered to
Charter Therefore, the Proposed Ordinance violates both Minnesota law and Charter's renewal
franchise
III. FTTH Does Not Possess Sutficient Financial Qualifications to Obtain a Franchise
Section 621 of the Cable Act states that a franchising authority may require adequate
assurance that a cable operator has the financial qualifications to pro-, ide cable service In its
application, FTTH provide only a vague statement that it "will draw upon the resources of
Contractor Property Developer's Company [("CPDC")] for its capitalization X 24 Although FTTH
attached CPDC financial documents to its application, there is no indication as to the extent that
CPDC will provide financial support to FTTH Moreover, there is no evidence that CPDC has
made a legally binding commitment to finance the establishment and operation of FTTH's
operation In fact, the Kennedy Graven Report acknowledges that CPDC is highly leveraged
and admits that the City has "not conducted a thorough analysis of the financial status of either
FTTH or CPDC The Kennedy Graven Report has based its conclusion that FTTH is
financially qualified solely upon the Minnesota Public Utility Commission's "MPUC approval
of FTTH's financial qualifications 26 However, the MPUC only evaluates that applicant's ability
to finance it start-up costs as a CLEC and does not consider long -term profitability as a CLEC or
in any other capacity 27 The MPUC's decision does not assess FTTH's financial wherewithal to
establish and run a high speed, broadband system
FTTH's apparently limited financial qualifications are especially troublesome in an era
where overbuilders are quickly losing market value and facing bankruptcy 28 Several
overbuilders have had business plans similar to FTTH These companies have attempted to
develop a fiber optic network that would provide subscribers with a variety of services including
cable. Internet, and telephone However, initial construction of such a network requires a
substantial capital investment An overbuilder could spend as much as $500 million to build its
24 FTTH Franchise Application at no 10
zs Kennedy Graven Report at 8
sa Id
n Id
28 Industry articles posted on the Optical Solutions websne http /(www opticalsoluhons coin do discuss benefits of
installing fiber optic systems and the success of overbuilders See Eric weiffering Plymouth faint believes it's time
for fiber optics at home, Star Tribune, Feb 18 2001, Press Release, Optical Solutions Inc and Contractor Pioperty
Developers Co (CPDC) Begin Consimcnon ofFirst Fiber -To- The -Nome Netmork nt the Nin Cities Area, May 3,
2001 How ever, the majority of these articles are outdated and do not take into account the economic recession that
has occurred in the past year
0
fiber optic system in a single city 29 Despite their substantial initial investment, many
o` erbuilders are unable to register a sufficient amount of customers to generate a profit and
eventually claim bankruptcy 30
The most recent overbuilder to experience a financial collapse is Metromedia Fiber
Network "MFN MFN, an overbuilder with an extensive metropolitan area fiber network,
filed for bankruptcy on May 20, 2002 31 MFN admitted that it made the same mistakes as many
others have in the industry while growing its business MFN out -paced the demand and, as a
result, was overbuilt and unable to service its debts 32
MFN's demise came after tw o other seemingly promising overbuilders, WINfirst and
WideOpenWest "WOW suffered major financial problems In January 2000, WINfirst
proposed to build broadband systems in Austin, Dallas, and Sacramento and began laying fiber
optic cable lines in Del Paso Heights later that year 33 In October 2001, WINfirst launched its
broadband service (including cable TV, telephone and high -speed Internet access) to Sacramento
residential customers 34 However, in February 2002, Bechtel sued WINfirst for $9 9 million,
claiming the company failed to pay for fiber -optic cable construction work 35 On March 11,
2002, WINfirst's parent, WIN, filed for bankruptcy protection 36 Even given the assistance of its
once strategic partner, Bechtel Corporation, WINfirst was unable to survive
In addition, WOW, an overbuilder with franchises covering Denver, Dallas, Cleveland,
Detroit, Chicago, and Columbus, Ohio, was the country's 13 largest MSO with approximately
400,000 customers by the end of 2001 37 However, following in the overbuilder trend, in April
29 WINfirst's Sacramento system cost approximately $500 million Duffy Hayes, Are Overbuilders Keeping the
Pace, Whether competitive cablecos have a place in the broadband services mat ket is a question that can only be
answered on a region -by- Legion basis, CED, Apr 1, 2002, at 58
30 It appears that one of the only remaining viable overbuilders is Knology, Inc Knology's regional strategy
focuses its business in southeastern cities with between 70,000 and 300,000 homes and geographic densities of at
least 75 homes per mile to generate profits K C Neel Deadend at the headend? For cash pow oveibuddeis, time
may be i mining out, Cable World Mar 18, 2002, at 17 However, in its quarterly financial report filed in May
2002, Knology admitted it had substantial doubt about the viability of the company if its current negotiations to
restructure its finances did not succeed Keith Russell, Knology still wants to build cable network, The Tennessean,
May 23, 2002
Metromedia Fiber Network, Inc to Reorganize Through a Voluntary Chapter 11 Filing, Company to Continue
Operations and Reduce Expenses, Retains Impala Partnerr and UBS Wei burg as Advisors, PR Newswire, May 20,
2002
32 Id
33 Clint Swett, WINfirst parent in Chapter 11, The Company had invested million in its bid to penetrate the capital
market, Sacramento Bee, Mar 13, 2002, at D1
34 Id
35 Id
36 Linda Haugsted, WlAfnrst the Latest Struggling Overbudder, Multichannel News, Mar 18, 2002, at 3
37 K C Neel, Deadend at the headend 2 For cash poor overburlders, time may be running out, Cable World, Mar
18, 2002, at 17
2002, WOW ceased building its Denver network and will not resume construction until further
financing is available 38
Even smaller overbuilders with less ambitious agendas have folded For example, Digital
Access Inc, obtained franchises in Wisconsin Kansas, Missouri, Tennessee, and Indiana and
made plans to build 870 -MHz networks that would serve 75 homes per node 39 However, the
company expected $500 million in investment capital that never materialized and folded in
March 2001 40 Or American Broadband Inc which last year abandoned its plans to build a
network to compete vtith Adelphia Communications Corp in Buffalo 41 Further, Starpower
Communications, although still in business, last year refused to complete construction of its
system in Prince George's County, Maryland 42
In each situation, the overbuilder was unable to enroll enough subscribers to generate
profits Many of these ailing companies were unable to complete construction and left the local
franchising authorities to repair damaged streets Analysts estimate that an overbuilder needs to
pi ovide service to approximately twenty percent of the people in a community in order to be
remotely viable 43 Overbuilders have consistently found that it is very difficult to take twenty
percent of the customers away from their incumbent cable operators 44 With such a trend
occurring among overbuilders, new entrants into the market should be required to provide
detailed evidence that they have secured appropriate funding Currently, FTTH has indicated
only that it will rely on CPDC, without any legal commitment by CPDC, for its funding It has
not adequately explained how it will finance its operations so as to avoid the fate of the other
companies described above
IV. FTTH Does Not Possess Sufficient Technical Qualifications to Obtain a Franchise
FTTH's cable franchise application provides a limited description as to how it will
competently provide service in the City First, FTTH fails to provide an adequate channel line
up Although FTTH states its planned channel capacity and lists the types of channels associated
with each digital package, it does not provide a precise channel lineup Second, and perhaps
more importantly, FTTH does not adequately explain how it will provide back office support or
customer service representatives "CSRs to assist subscribers with any concerns
The Kennedy Graven Report acknowledges that FTTH does not have experience in
providing video services 45 It claims that FTTH's alliances with other companies will provide
3s Id
39 Id
40 Id
41 Id
42 Id
43 Duffy Hayes, Are Overbuilders Keeping the Pace, Whether competitive cablecos have a place in the In oadband
services mmket is a question that can only be answered on a region -by- region basis, CED, Apr 1, 2002, at 58
44 Id
45 Kennedy Graven Report at 9
3
FTTH with the proper technical and managerial expertise For assistance in deploying its
network, FTTH is relying upon technology and capital from Optical Solutions Inc However,
given the uncertainty in this market, FTTH has not provided alternative technological and
financial resources should the alliance between FTTH and Optical Solutions deteriorate In
addition, FTTH is depending upon its affiliation with Netw ork Telco, Inc to provide technical
and managerial assistance But FTTH fails to explain the types of assistance that Network Telco
will provide, including the number of CSRs it will use to staff call centers and the type of
training it will provide to engineers FTTH only provides general statements about Network
Telco's business in its franchise application As in the case of WINfirst, these strategic alliances
have not often succeeded If they fail here, FTTH has not demonstrated the technical ability to
survive on its own
As overbuilders continue to lose money and fail to attract the subscriber revenue that they
had expected, many are forced to layoff employees to cut their costs Prior to filing for
bankruptcy protection, WIN first laid off 300 employees, or 41% of its workforce 46 Even RCN
Corp an overbuilder that appeared to be among the lone surviving oN erbuilders, recently laid off
200 employees in Chicago after the company began to take a downturn 47 With such major cuts
to their workforce, one can only expect that their customer service will suffer as well These
layoffs leave far less people to serve as CSRs at call centers and to respond to customer
complaints FTTH, which has a business strategy similar to its predecessors, eventually may
need to cut its workforce and dedicate fewer resources towards customer service
Accordingly, FTTH has not demonstrated the technical qualifications to obtain a
franchise Although FTTH has chosen to align itself with more established companies, it has
failed to explain how it will use these alliances to adequately provide service to the City
Moreover, the history of this industry instructs us that these partnerships have often failed Even
if the City decides to pass the Proposed Ordinance, Charter urges the City to require FTTH to
post a greater performance bond or an additional construction bond to protect itself against any
financial problems that may arise
V. Conclusion
Charter respectfully requests that the City deny FTTH's request for a cable franchise
The Proposed Ordinance differs from the Charter franchise in several key substantive areas and
is less burdensome than the Charter franchise Asa result, the Proposed Ordinance violates
Minnesota's Level Playing Field Law and Charter's renewal franchise Further, FTTH's
application does not provide adequate assurance that it has the necessary financial or technical
qualifications to obtain a franchise for the City of Rosemount Charter respectfully requests that
the City Council decline to pass the Proposed Ordinance at its June 18, 2002 meeting
K C Neel, Deadend at the headend For cash poor overbuzlders, time may be running out, Cable World, Mar
18, 2002, at 17
4' Linda Haugsted, Access Oulfzt Cries Foul in Chicago, Multichannel News, Apr 15, 2002, at 10
MEMORANDUM
TO: City of Rosemount
FROM: Bob Vose
DATE: June 13, 2002
RE: Response to Charter's Legal Opinion dated June 6, 2002
BACKGROUND
FTTH Communications, L L C "FTTH initially planned to provide cable service in
the City but only in the Evermoor development Kennedy Graven, FTTH, and Charter
Communications "Charter") each analyzed whether such service would be lawful under
the Minnesota Cable Act, Chapter 238, and related laws
On January 7, 2002, FTTH submitted a franchise application contemplating service to the
entire City "FTTH Application The FTTH Application proposed that the system be
bwlt -out in phases over a 15 year period Kennedy Graven provided a report dated
April 3, 2002, concerning the FTTH Application "Kennedy Graven Report") On
May 2, 2002, the City Council approved the FTTH Application including FTTH's
qualifications to provide cable service in the City However, the City did not grant a
cable franchise to FTTH because the franchise terms and conditions, including the
required build -out period, had not been finalized
Charter reviewed the FTTH Application and indicated that the proposed build -out period
was too long The City and FTTH have subsequently discussed the build -out schedule
and other franchise terns and conditions Based in part on Charter's input, the City and
FTTH have shortened the required build -out period The City provided a copy of the
proposed FTTH franchise to Charter for review In response, Charter provided a legal
memorandum dated June 6, 2002 "Charter Opinion
This responds to concerns raised in the Charter Opinion
ANALYSIS
1. FTTH's Qualifications
Charter indicates that FTTH has not demonstrated adequate financial and technical
qualifications to provide cable service in the City Charter indicates that the Kennedy
Graven Report incorrectly relies on the fact that the Minnesota Public Utility
Commission "MPUC has approved FTTH's financial and technical qualifications
Charter indicates that the MPUC's rep iew of FTTH's qualifications to provide telephone
RJV- 216120vl
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service is not adequate for purposes of determining its qualifications to provide cable
service
Specifically, Charter raises concerns about FTTH's financial qualifications by identifying
several other cable competitors that have had financial troubles The Charter Opinion
states
[l)n each situation, the overbuilder was unable to enroll enough subscribers to
generate profits With such a trend occurring among overbuilders, new
entrants into the market should be required to provide detailed evidence that they
have secured appropriate funding Currently, FTTH has indicated only that it will
rely on CPDC, without any legal commitment by CPDC, for its funding It has
not adequately explained how it will finance its operations so as to avoid the fate
of the other companies described above
Charter indicates that the MPUC does not appropriately examine a company's expected
long -term profitability
Charter also indicates that FTTH has not shown adequate technical qualifications because
it has not fully explained how managerial support will be provided or how customer
service representatives "CSRs will assist subscribers Charter indicates that FTTH's
reliance on technology and capital from Optical Solutions Inc and technical and
managerial assistance from Network Telco, Inc is inadequate The Charter Opinion
states
Although FTTH has chosen to align itself with more established companies, it has
failed to explain how it will use these alliances to adequately provide service to
the City Moreover, the history of this industry instructs us that these partnerships
have often failed
Charter's concerns are unpersuasive The City reviewed and approved FTTH's
qualifications in approving the FTTH Application Charter provides no compelling basis
to undo the Council's decision
For the reasons detailed in the Kennedy R Graven Report, the City may rely on the
MPUC's review and approval of FTTH's financial and technical qualifications to provide
local exchange telephone service There is no need for the City to apply a higher standard
to its review of FTTH's qualifications The MPUC has authorized FTTH to construct a
telephone network in the City, such construction is underN ay, and issuance of a cable
franchise will simply permit FTTH to provide cable service over that telephone network
In addition, we again note that an incumbent cable operator such as Charter does not have
"standing" to seek judicial review of the City's determination regarding FTTH's
qualifications as a cable operator In re Application of Dakota Telecommunications
Group, 590 N W 2d 644, 648 (Minn App 1999) Charter lacks standing because the
RSV- 216120vi
RS220 -94
Minnesota Cable Act is intended to promote competition not protect the incumbent's
monopoly In re Id, citing, Minn Stat 238 01 (statute intended to "discourage
concentration of control and ownership
2. Level PlaN ing Field Statute and Charter's Franchise
Charter indicates that while the proposed FTTH franchise is based upon Charter's
franchise, the proposed FTTH franchise differs regarding (a) the area served and
construction timetable, (b) public educational, or governmental access "PEG
requirements, (c), construction bond requirements, and (d) provision of in -kind services
Charter claims that these terms are substantially different and less burdensome Charter
further claims that the proposed FTTH franchise would violate the Minnesota "level
playing field" statute and Charter's franchise'
We previously analyzed the "level playing field" statute and Charter's franchise and
concluded that substantially similar burdens are required However, the statute and
Charter's franchise do not require identical franchise terms and conditions Each issue
raised by Charter is discussed below
A Area Served and Construction Timetable
Charter indicates that while the proposed FTTH franchise contains the same "area
served" language as Charter's franchise, the obligations are not actually the same because
FTTH is permitted to construct and build -out its system in phases Although the City
provided Charter with a copy of the proposed FTTH franchise, Charter seemingly
misunderstands FTTH's construction schedule
Due largely to Charter's concerns, the build -out schedule proposed in the FTTH
Application has been shortened The FTTH franchise would require system construction
in tvt o phases Collectively, the two phases cover a larger geographic area than Charter
currently serves 3 Charter need only serve those portions of areas 1 and 2 where there is
sufficient density (30 homes per mile) However, FTTH must offer service to every
home in phase I by the beginning of 2005, substantially complete extension of energized
trunk cable throughout area 2 by the end of 2005, and offer service to every home in area
The "level playing field' statute provides "No municipality shall grant an additional franchise for cable
service for an area included in an existmg franchise on terms and conditions more favorable or less
burdensome than those in the existing franchise pertaining to (1) the area served, (2) public educational, or
governmental access requirements, or (3) franchise fees Minn Star 238 08(1)(b) Charter s franchise
provides 'Additional Cable Franchises granted by the City shall be granted [on] the substantially similar
substantive terms and conditions City of Rosemount, Ordinance No XI 21, Section 2(3) (April 20
1999)
'During the City's consideration of FTTH's Application, the City requested and Charter provided a map
depicting areas it currently serves FTTH's franchise will include a service area map (Exhibit B) depicting
the areas of the City it must initially construct and serve The area FTTH will be required to sera e is
geographically larger than the area Charter is currently serving including, for example, areas South of 120'
St and Vest of Bacardi AN e
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RS220 -94
2 by the beginning of 2008' Thereafter, FTTH will be required to extend service to
newly developing or annexed areas of the City based on the density requirement in
Charter's franchise
Charter claims that any construction timetable longer than eighteen months is
inappropriate because Charter's renewed franchise required Charter to upgrade its system
within eighteen months Charter indicates that its system was actually upgl aded in
approximately four months 4 Charter did not address the length of time over which its
system was initially constructed the entire 15 years of the initial franchise teen and the
first 3 years of the renewed franchise term The Charter Opinion suggests that this
comparison is inappropriate
Charter does not provide a rationale for its suggestion that the City should only consider
Charter's renewed franchise, not its initial franchise or the amount of time over which its
system was actually constructed Charter maybe relying on the "level playing field"
statute's reference to "terms and conditions more favorable or less burdensome than those
in the existing franchise However, we believe that the statute requires the City to
consider the relevant obligations pursuant to either the incumbent's initial or renewed
franchise
The phrase "existing franchise" is not defined in the Minnesota Cable Act However,
the purpose of the "level playing field" statute is to ensure that a competitor is not
authorized to provide cable service under more favorable or less burdensome obligations
than the incumbent Accordingly, it is clear that the phrase "existing franchise" refers to
the incumbent's franchise It would be nonsensical to further limit the meaning of
"existing franchise" to include only the terms and conditions of incumbent's
authorization at a given moment in time
First, this interpretation would give the incumbent operator an incentive to negotiate
franchise amendments to protect its monopoly When completion of initial construction
or an upgrade became imminent, the incumbent could seek franchise amendments
requiring completion of construction within months, weeks or days In this case, for
example, Charter apparently could have negotiated a four -month upgrade requirement
Even with unlimited resources, it would be infeasible for a competitor to complete initial
construction within a few months, weeks or days This result could not have been
'Proposed Ordinance 4(3) and Exhibit B
Letter fiom Arne "Tucker" Carlson, Charter's Minnesota Government Relations Director, to Robert J V
Vase, City Attorney, Regarding City of Rosemount, FTTH Franchise Requirements (Feb 7, 2002) The
City Attorney disputes whether Charter actually completed its upgrade in four months Kennedy Graven
Report at 6 However, the City Attorney has no basis for his claim that Charter likely accomplished its
upgrade over several years
s "Franchise" is defined and means "any authorization granted by a municipality in the form of a franchise,
privilege, permit license or other municipal authorization to construct, operate, maintain, or manage a
cable communications system in any municipality Minn Star 238 02, Subd 5
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intended since one of the stated purposes of the Minnesota Cable Act is to promote cable
competition
Moreover, this interpretation would not allow the City to compare relevant obligations
Charter awkwardly suggests that its upgrade requirement should be applied to FTTH
because it is equivalent to an initial construction requirement Charter's Opinion states
"Charter was required to serve the area upon completion of its eighteen -month buildout
schedule w hereas FTTH is not required to ser e the City until it completes its six year
buildout schedule ie Charter mischaracterizes its upgrade requirement Charter was
required to improve its existing system not "buildout" a new system Similarly, Charter
was not subject to new service area requirements "upon completion of a buildout
schedule In fact, immediately after renewal Charter was required to continue to operate
its existing system to serve those areas of the City it was already serving
Charter's renewed franchise does not contain initial construction and service area
requirements because these activities occurred during the preceding 15 years of the initial
franchise term If the City were required to mechanically apply the provisions of
Charter's renewed franchise, FTTH would have no initial construction requirement
FTTH would instead be required to upgrade its existing system within eighteen months
Alternatively, FTTH might suggest that it only be required to upgrade after constructing
and operating its system over a 15 year period as Charter has done
The "level playing field" statute does not obligate the City to mechanically apply
provisions in Charter's renewed franchise to FTTH Instead, the City must seek to
impose obligations on FTTH that are not materially less burdensome than those that are
or were imposed on Charter or its predecessors Notably, Charter does not claim that the
initial construction and service area requirements imposed on its predecessors were more
burdensome than those proposed in the FTTH franchise'
Finally, Charter claims that neither the City nor FTTH have provided "an adequate
explanation" for allowing FTTH to construct its system in phases over several years
When Kennedy Graven, FTTH, and Charter previously analyzed FTTH's plan to only
to serve Evermoor, all parties agreed that the favorableness or burdensomeness of a
franchise requirement must be based on the cost The Charter Opinion states
FTTH's initial cost of installing fiber to the home will be sigmficantly more
expensive than upgrading an existing cable system Analysts estimate that new
build construction for a company like FTTH could be twice that of upgi ades,
Much can run between $10,000 and $25,000 per mile'
Charter Opinion, p 2 (emphasis in original)
Charter's system continues to be constructed and expanded 18 years after its predecessor was granted a
franchise
8 Charter Opinion, p 3, citing, K C Neel, Deadend at the headend For cash -poor overbudders, time may
be running out Cable Woild, Mar 18, 2002, at 17
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The City Council considered the high cost of constructing FTTH's system in evaluating
FTTH's Application The Council also considered the fact that FTTH intends to deliver
telephone, data/intemet, and cable services over its system whereas Charter currently only
provides data/mternet and cable services Based on these factors, the City Council
determined that a phased build -out over a reasonable time is acceptable
B PEG Requirements
Charter also indicates that certain PEG requirements in the proposed FTTH franchise
differ from those in Charter's renewed franchise
(1) Capital Support Charter objects to the obligation that FTTH pay $30,000
initially and $30,000 at the third anniversary of the franchise to purchase PEG equipment
Charter paid $60,000 upon franchise renewal
These obligations are not substantially different We believe the relatively minor
difference in the timing of the payments is justified Charter had completed its initial
system construction and had been a monopoly cable provider in the City for 15 years
when this obligation was imposed Additionally, Charter's renewed franchise required a
system upgrade which, by Charter's own estimate, was significantly less expensive than
FTTH's initial system construction
(2) Service to Institutions Charter does not object to the requirement that it
provide free cable services to institutions while FTTH provides data services Charter
objects to FTTH's right to receive a credit toward its second payment if public and
educational institutions elect to receive dark fiber facilities in lieu of the basic data
service Charter wants to receive similar credits for providing free drops and service to
City institutions
Charter is not entitled to a credit for its drops and free cable services because FTTH will
not receive a credit for its drops and free basic data service Further, the City and Charter
have an agreement concerning Charter's provision of data services to institutions for a
fee Accordingly, both Charter and FTTH have a financial incentive to provide robust
data services to institutions Charter has not demonstrated that these financial incentives
will be substantially different.
(3) Charter's renewed franchise required it to "transfer title to any PEG
equipment which it owns currently to provide PEG programming to the City and repair or
replace such other PEG equipment as the City deems necessary Charter indicates that
FTTH should be subject to a comparable burden
We agree with Charter FTTH should be required to reimburse a proportionate share of
the costs incurred by Charter in repairing or replacing PEG equipment dedicated to the
City of Rosemount
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C Construction Bond Requirements
Charter's franchise and the proposed FTTH franchise require a $50,000 performance
bond Charter's franchise requires an additional construction bond of S50,000 upon
initiation of system construction Charter claims that Minnesota law mandates that the
City require an additional 550,000 bond from FTTH
The "level playing field" statute does not apply to construction or performance bonds
Accordingly, Minnesota law does not mandate imposition of this requirement on FTTH
Because FTTH has received MPUC certification to construct its system, the City has
elected not to require this additional bond pursuant to its cable franchising authority In
the future, the City could impose additional bonding requirements on FTTH and all other
right -of -way users pursuant to a right -of -way ordinance However, based on the
obligations in Charter's franchise, we understand that the City will waive this
requirement should Charter engage in future system construction triggering the additional
bonding requirement
C In -Kind Service Requirements
Charter's franchise and the proposed FTTH franchise require the provision of in -kind
cable service to certain municipal buildings and institutions Charter claims that these
requirements are not "substantially similar" because FTTH will only be required to
provide service as its system construction is completed and the system passes the
buildings Charter again claims that the relevant comparison is to its renewed franchise
not its initial franchise
For reasons detailed above, Charter's interpretation is incorrect
CONCLUSION
With the exception noted above, we do not believe that Charter has identified any terms
or conditions of the proposed FTTH franchise that would violate the "level playing field"
statute or Charter's franchise
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s
CITY OF ROSEMOUNT
ORDINANCE NO.
AN ORDINANCE GRANTING A FRANCHISE TO FTTH
COMMUNICATIONS, L L C, A MINNESOTA LIMITED LIABILITY
COMPANY, TO CONSTRUCT, OPERATE, AND MAINTAIN A CABLE
SYSTEM IN THE CITY OF ROSEMOUNT, SETTING FORTH CONDITIONS
ACCOMPANYING THE GRANT OF THE FRANCHISE, PROVIDING FOR
REGULATION AND USE OF THE SYSTEM AND THE PUBLIC RIGHTS -OF-
WAY, AND PRESCRIBING PENALTIES FOR THE VIOLATION OF THE
PROVISIONS HEREIN,
The City Council of Rosemount (City) ordains
STATEMENT OF INTENT AND PURPOSE
The City intends, by the adoption of this Francluse, to brig about competition for cable services
with the award of a competitive franchise Such a development can contribute significantly to the
communication needs and desires of residents of the City Further, the City may achieve better
utilization and improvement of public services with the development and operation of a competitive
Cable System In addition, a competitive franchise increases the choice for the residents of
Rosemount.
Past studies by the City have led the way for organizing a means of procuring and securing a Cable
System which, in the judgment of the City, is best suited to meet the needs of the community This
has resulted in the preparation and adoption of this Franchise
FINDINGS
In the review of the request and proposal for an initial francluse by FTTH Communications, L L C,
(Grantee) and negotiations related thereto, and as a result of a public hearing, the City makes the
following findings
1. The Grantee's technical, financial, legal qualifications and ability, and character
were considered and approved in a full public proceeding after due notice and a
reasonable opportunity to be heard,
2 Grantee's plans for constructing, upgrading, and operating the System were
considered and found adequate and feasible in a full public proceeding after due
notice and a reasonable opportunity to be heard,
3 The Franchise granted to Grantee by the City complies with the existing applicable
Minnesota Statutes. federal laws and regulations, and
4 The Franchise granted to Grantee is nonexclusive
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Rs22a94
SECTION 1.
SHORT TITLE AND DEFINITIONS
1 Short Title This Franchise Ordinance shall be known and cited as the Cable
Commumcahons Ordinance
2. Definitions For the purposes of this Franchise, the following terms, phrases, words, and
their deri ations shall have the meaning given herein When not inconsistent with the
context, words in the singular number include the plural number The word "shall" or
"must" are always mandatory and not merely directory The word "may" is directory and
discretionary and not mandatory
a. Basic Cable Service means any service tier, which includes the lawful
retransmission of local television broadcast signals, and any public, educational, and
governmental access programming required by the Franchise to be earned on the
basic tier Basic Cable Service as defined herein shall not be inconsistent with 47
U S C 543(b)(7)
b Cable System or System means a system of antennas, cables, wires, lines,
towers, waveguides, or other conductors, Converters, equipment, or facilities located
in the City and designed and constructed for the purpose of producing, receiving,
transmitting, amplifying, or distributing audio and video System as defined herein
shall not be inconsistent with the definitions set forth in Minn Stat 238 02, subd 3
and 47 U S C 522(7)
C. Cable Programming Service means any video programming provided over a cable
system, regardless of service tier, including installation or rental of equipment used
for the receipt of such video programming, other than
i Basic Cable Service,
u Video programming offered on a pay per channel or pay per program basis,
or
ill A combination of multiple channels of pay per channel or pay per program
video programming offered on a multiplexed or time shifted basis so long as
the combined service
(1) consists of commonly- identified video programming, and
(2) is not bundled with any regulated tier of service
Cable Programming Service as defined herein shall not be inconsistent with the
definition as set forth in 47 U S C 543(1)(2) and 47 76 901(b)
RN- 214022v4
RS220-94
d Cable Service or Service means the one -way transmission to subscribers of (i)
video progr or (u) other programming service, and subscnber interaction, if
any, which is required for the selection or use of such video programming or other
programming service pursuant to Minn Stat 238 01 et seq and 47 U S C 521 et
seq as may be amended from time to time
e "City" means the City of Rosemount, Minnesota
f Class IV Channel means a signaling path provided by a Cable System to transmit
signals of any type from a Subscriber terminal to another point in the System
g Converter means an electronic device which converts signals to a frequency
acceptable to a television receiver of a Subscriber and by an appropriate selector
permits a Subscriber to view all Subscriber signals included in the service
It Drop means the cable that connects the ground block on the Subscriber's
residence to the nearest feeder cable of the System
i "FCC" means the Federal Commumcations Commission and any legally appointed,
designated or elected agent or successor
J. Francluse or Cable Franchise means this ordinance and the contractual
relationship established hereby
k Franchise Fee includes any tax, fee, or assessment of any kind imposed by a
franclusing authority or other govemmental entity on a cable operator or cable
subscriber, or both, solely because of their status as such,
The term "Franchise Fee" does not include
(A) any tax, fee, or assessment of general applicability (including any such tax, fee,
or assessment unposed on both utilities and cable operators or their services but not
including a tax, fee, or assessment which is unduly discriminatory against cable
operators or cable subscribers),
(B) in the case of any franchise granted after October 30, 1984, any payments which
are required by the franchise to be incurred by the cable operator for public,
educational, or governmental access facilities,
(C) requirements or charges incidental to the awarding or enforcing of the franchise,
including payments for bonds, security funds, letters of credit, insurance,
indemnification, penalties, or liquidated damages, or
(D) any fee imposed under Title 17
Grantee is FTTH Communications, L L C., its agents and employees, lawful
successors, transferees or assignees
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Rs22a94
in Gross Revenues means all revenue received directly or indirectly by the Grantee,
its affiliates, subsidiaries, parent, or person in which Grantee has financial interest of
five percent (5 or more, from the operation of its System, including but not
limited to Cable Service fees, interest, Installation and reconnection fees. upgrade
and downgrade fees, advertising revenue, Franchise Fee receipts, revenues generated
by sales on home shopping channel(s), leased channel fees, Converter rental fees,
Lockout Device fees or fees for any other Cable Services provided via the System
The term Gross Revenues shall not include bad debt, or any taxes on services
furnished by Grantee which are imposed by any municipality, state, or other
governmental unit and collected by Grantee for such govermnental unit
n Installation means the connection of the System from feeder cable to the point of
connection with the ground block
o Lockout Device means an optional mechanical or electrical accessory which
inhibits the viewing of a certain program, certain channel, or certain channels
provided by way of the Cable Communication System
P. Normal business hours means at least 8 am to 5 p m In all cases, "normal
business hours" must include some evening hours at least one night per week and /or
some weekend hours
q Normal operahne conditions means those service conditions wluch are within the
control of Grantee Those conditions which are typically not within the control of
Grantee include, but are not limited to, natural disasters, civil disturbances, power
outages, telephone network outages, and severe or unusual weather conditions
Those conditions which are typically within the control of Grantee include, but are
not limited to, special promotions, pay per -view events, rate increases, regular peak
or seasonal demand periods, and maintenance or upgrade of the System
r PEG Access or "PEG" means public, educational and governmental programming
channels, equipment, facilities, funding, or operations as the context may require
s PEG Fee means a fee to subscribers for support of PEG Access
t Pay Television means the delivery over the System of pay per channel or pay -per-
program audio visual signals to Subscribers for a fee or charge, in addition to the
charge for Basic Cable Service or Cable Programming Services
U Person is any person, fine, partnership, association, corporation, company, or
other legal entity
V. Right -of -Way or Rights-of- -Way means the area on, below, or above any real
property in the City in which the City has an interest including, but not limited to
any street, road, highway, alley, sidewalk, parkway, park, skyway, or any other
place, area. or real property owned by or under the control of the City, including any
other Rights -of -Way dedicated for travel purposes and utility easements
RJV- 214022v4
RS22b94
w Right-of-Way Ordinance means such ordinance adopted by the City creating
requirements regarding regulation, management and use of Rights -of -Way,
including registration and permitting requirements.
X. Service interruption means the loss of picture or sound on one or more cable
channels (for longer than a momentary period)
Y. Standard Installation means any residential installation which can be completed
using a Drop of 200 feet or less
z Subscriber means any Person who lawfully receives service via the System
SECTION 2.
GRANT OF AUTHORITY AND GENERAL PROVISIONS
1 Grant of Franchise This Franchise is granted pursuant to the terms and conditions
contained herein
2 Franchise Required It shall be unlawful for any Person to construct, operate or
maintain a System or provide Service in City unless such Person shall first obtain
and hold a valid Francluse
3 Grant of Nonexclusive Authonty
a The Grantee shall have the right and privilege pursuant to this Franchise,
subject to the requirements of any applicable ordinance, rule or procedure, to
construct, erect, maintain, and operate a Cable System in, upon, along,
across, above, over and under the Rights -of -Way in the City and shall have
the right and privilege to provide Cable Service The System constructed
and maintained by Grantee or its agents shall not interfere with other uses of
the Rights -of -Way Grantee shall make use of existing poles and other
above and below ground facilities available to Grantee to the extent it is
technically and economically feasible to do so
b Notwithstanding the above grant to use R ghts -of -Way, use of such Rights
of -Way shall not be inconsistent with the terms and conditions by Nhtch
such Rights -of -Way were created or dedicated and with all legal
requirements related to the use of such Rights -of -Way, including the terms
and conditions of any applicable Right -of -Way Ordinance This provision m
noway limits Grantee's rights pursuant to Minn Star 23835
C. This Franchise shall be nonexclusive Additional Cable Franchises granted
by the City shall be granted on substantially similar substantive terms and
conditions
4. Lease or Assignment Prohibited No Person may lease Grantee's System for the
purpose of providing Service until and unless such Person shall have first obtained
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Rs22a94
and shall currently hold a valid Franchise.
5 Franchise Term This Franchise shall be in effect for a period of 15 years from the
date of acceptance by Grantee
6. Compliance with Applicable Laws Resolutions and Ordinances The Grantee shall
at all times during the term of this Franchise be subject to all lawful exercise of the
police power, statutory rights, local ordmance -making authority, and eminent
domain rights of the City This Franchise shall comply with Minnesota franchise
standards contained in Minn Stat 238 01 et seq
7 Territorial Area Involved This Franchise is granted for the corporate boundaries of
the City as it exists from time to time, subject to the construction schedule attached
as Exlubri B Grantee shall construct and build out its System in its initial service
areas as provided in Exhibit B Upon completion of such System construction. and
in the event of annexation by City or as development occurs, any unserved territory
shall thereafter become part of the territory for which this Franchise is granted
provided, however, that Grantee shall not be required to extend Service beyond its
existing System boundaries unless there is a minimum of thirty (30) homes per cable
mile The Grantee will, in areas with less than (30) homes per cable mile, survey the
potential customer base as to their interest in receiving Service The Grantee will
determine actual construction costs for such areas and Persons residing in the area
will be offered Service upon payment of a portion of the System construction cost
The formula shall be as follows a cost equal to the construction costs, including
material, labor and any necessary casements, per mile multiplied by a fraction whose
numerator equals the actual number of homes per mile, and whose denominator
equals thirty (30) homes Those Persons wishing to become Subscribers and
requesting Service will bear the remainder of the construction costs on a pro rata
basis The Grantee may require that the payment of these costs by such potential
Subscribers be made in advance, the potential Subscriber may also reduce the pro
rata cost by signing a contract for Services Access to Cable Service shall not be
denied to any group of potential residential Subscribers because of the income of the
residents of the area in which such group resides Grantee shall be given a
reasonable period of time to construct and activate cable plant to service annexed or
newly developed areas but in no event not to exceed twelve (12) months from notice
thereof by City to Grantee
8 Written Notice All notices, reports, or demands required to be given in writing
under this Franchise shall be deemed to be given when delivered personally to any
officer of Grantee or City's Administrator of this Franchise or forty -eight (48) hours
after it is deposited in the United States mail in a sealed envelope, with registered or
certified mail postage prepaid thereon, addressed to the party to whom notice is
being given, as follows
If to City City of Rosemount
c/o City Administrator
2875 145 Street West
Rosemount, MN 55068 -4997
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RS220.94
With copies to. Robert J V Vose, Esq
470 Pillsbury Center
300 South 6` Street
Minneapolis, MN 55402
If to Grantee FTTH Communications, L L C
4483 Evermoor Parkway
Rosemount, MN 55068
Attn John Schultz
With copies to Christopher K Sandberg
Lockndge Gnndal Nauen
Suite 2200
100 Washington Avenue South
Minneapolis, MN 55401 -2179
Such addresses may be changed by either party upon notice to the other party given
as provided in this Section
9 Drops to Public Bwldin Grantee shall provide, free of charge, Installation of one
(1) fiber optic drop and data services to the institutions identified in Exlubit A
attached and such other public or educational institutions within the cable service
territory which the City may designate and which are within 200 feet of the System
At minimum, the service delivered by Grantee shall be of a cost equal to or
exceeding that of its basic video offering The Grantee will be responsible for
connecting public and educational institutions within the city as that zone is built out
by the Grantee Data service will be terminated at an agreed upon location where
the institution will be able to connect the data service to its distribution network (i e
LAN) Internal distribution and use by the institution is permitted
Additional Drops in any of the above locations shall be provided by Grantee at the
cost of Grantee's time and material Drops to subsequently designated institutions
in excess of 200 feet shall be provided by the Grantee at the cost of Grantee's time
and materials less the cost of the 200 feet closest to the building Grantee shall have
one (1) year from the date of the City designation of additional mstitution(s) to
complete construction of the Drop
Public and educational institutions identified in Exhibit A may elect to receive dark
fiber facilities in lieu of a basic data service to permit interconnection In such case,
the Grantee shall receive a credit equal to the incremental cost of the additional fiber
strands for public facilities that share a sheath with the Grantee's fiber network In
addition, the Grantee shall receive credit for fiber facilities over 200' that are placed
for the exclusive use of the public or educational institution at 100% of the cost of
Grantee's time and materials Grantee shall also receive credit for annual
maintenance costs associated with dark fiber provided pursuant to this paragraph
which will be figured at an industry average of 6% of the construction cost of the
fiber facility These credits will be offset against the second payment of 530,000
RJV- 214022v4
RS220-94
due in year three
SECTION 3.
CONSTRUCTION STANDARDS
1 Registration, Permits and Construction Codes
a Grantee shall strictly adhere to all state and local laws and building and
zoning codes currently or hereafter applicable to location, construction,
installation, operation or maintenance of the System in the City
b. The City shall have the right to mspect all construction or installation work
performed pursuant to the provisions of the Franchise and to make such tests
as it shall find necessary to ensure compliance with the terns of the
Franchise and applicable provisions of local, state and federal law
2 Repair of Rights -of -Way and Property Any and all Rights -of -Way or public
property or pm ate property, which are disturbed or damaged during the
construction, repair, replacement, relocation, operation, maintenance or
reconstruction of the System shall be promptly and fully restored by Grantee, at its
expense, to the same condition as that prevailing prior to Grantee's work, as
approved by City in the case of Rights -of -Way and other public property If, after
reasonable notice, Grantee fails to promptly perform the restoration required herein,
City may perform the restoration of the Rights -of -Way, public, or private property as
required herein at Grantee's expense
3 Conditions on Right -of -Way Use
a Nothing in this Franchise shall be construed to prevent the City from
adopting and enforcing requirements for the usage of Rights -of -Way or from
constructing, maintaining, repairing or relocating sewers, grading, paving,
maintaining, repairing, relocating and/or altering any Right -of -Way,
constructing, laying down, repairing, maintaining or relocating any water
mains, or constructing, maintaining, relocating, or repairing any sidewalk or
other public work
b All System transmission and distribution structures, lines and equipment
erected by the Grantee shall be located so as not to obstruct or interfere with
the use of Right -of -Way and to cause minimum interference with the rights
of property owners who abut any of said Right -of -Way and not to interfere
with existing public utility installations The Grantee shall furnish to and file
with the City the maps, plats, and permanent records of the location and
character of all facilities constructed, including underground facilities, and
Grantee shall file with the City updates of such maps, plats and permanent
records annually if changes have been made in the System
C If at any time during the period of this Franchise City shall elect to alter or
RAV- 214022v4
Rs22a9a
change the grade or location of any Right -of -Way, the Grantee shall, upon
reasonable notice in a mariner consistent with applicable ordinances, remove
and relocate its poles, wires, cables, conduits, manholes and other fixtures of
the System If the City enters into an agreement to reimburse other
occupants of the Right -of -Way for such relocation or removal, Grantee shall
be likewise reimbursed.
d The Grantee shall not place poles, conduits, or other fixtures of System
above or below ground where the same will interfere with any gas, electric,
telephone, water or other utility fixtures and all such poles, conduits, or other
fixtures placed in any Right -of -Way shall be so placed as to comply with all
requirements of the City Grantee shall utilize existmg poles, conduits, or
other wire holding structures of existing utilities to the extent technically and
economically feasible City shall have no obligation to assist Grantee in
obtaining the consent for use of existing facilities from any utility company
e The Grantee shall, upon request of any Person holding a moving permit
issued by the City, temporarily move its wires or fixtures to permit the
moving of buildings with the expense of such temporary removal to be paid
in advance by the Person requesting the same, and the Grantee shall be given
not less than ten (10) days advance notice to arrange for such temporary
changes
f The Grantee shall have the authority to trim any trees upon and overhanging
the Rights -of -Way only to the extent necessary to prevent the branches of
such trees from coming in contact with the wires and cables of the Grantee.
g Nothing contained in this Franchise shall relieve any person from liability
ansmg out of the failure to exercise reasonable care to avoid injuring
Grantee's facilities
4 Undergrounding of Cable Grantee must place newly constructed facilities
underground in areas of the City where all other utility lines are placed underground
Pedestal mounted terminal boxes may be placed above ground if existing technology
reasonably requires, but shall be of such size and design and shall be so located as
not to be unsightly or unsafe, all as may be approved by the City in accordance with
applicable requirements
5 Drop Bunal Grantee shall bury all Drops in a reasonable time period which shall
not exceed ten (10) business days, subject to weather conditions and the completion
of required utility locates In the event the ground is frozen, Grantee shall be
permitted to delay burial until the ground is suitable for burial which in no event
shall be later than June 30th
6 Erection, Removal and Joint Use of Poles No poles, conduits, amplifier boxes,
pedestal mounted terminal boxes, similar structures, or other wire holding structures
shall be erected or installed by the Grantee w ithout prior approval of the City with
regard to location, height, type and other pertinent aspects
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7 Safety Requirements
a The Grantee shall at all tunes employ ordinary and reasonable care and shall
install and maintain in use nothing less than commonly accepted methods
and devices for preventing failures and accidents which are likely to cause
damage, injuries, or nuisances to the public
b The Grantee shall install and maintain its System and other equipment in
accordance with all federal, state and local laws and regulations, and the
requirements of the National Electric Safety Code and in such manner that
they will not interfere with private radio, police and fire communications or
any installations of the City or of any public utility serving the City
C All System structures, and lines, equipment and connections m, over, under
and upon the Rights -of -Way, wherever situated or located, shall at all times
be kept and maintained in good condition, order, and repair so that the same
shall not menace or endanger the life or property of the City or any Person
8 Emergency Use of Facilities In the case of any emergency or disaster, the Grantee
shall upon request of the City, make available its facilities to City during the period
of emergency or disaster
SECTION 4.
DESIGN PROVISIONS
1 Systein Upgrade Mimmum Channel Capacity
a Grantee shall develop, construct and continue for the term of this Franchise a
fiber optic system which is engineered and activated so as to be capable of
delivering a minimum of 80 video programmed channels The Grantee's
System design is more fully detailed in Exhibit C attached
b All programming decisions remain the discretion of Grantee, provided,
however, that any change in the broad categories of video programming or
other information services shall require the approval of the City consistent
with 47 U S C 544(b), which approval shall not be unreasonably withheld,
and further provided that Grantee notifies the City and Subscribers in wnting
thirty (30) days prior to any channel additions, deletions, or realignments,
and further subject to Grantee's signal carnage obligations hereunder and
pursuant to 47 U S C 531 -536, and further provided that Grantee may not
eliminate, move or renumber any PEG access or other community
programming channel required hereunder without prior approval of the City
Grantee shall conduct programming surveys from time to time to obtain
input on programming decisions from Subscribers.
c Grantee shall interconnect with any adjoining Cable System at such time as
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consent from the adjoining operator is received Nothing herein shall require
Grantee to interconnect unless the operator of the adjoining System agrees to
pay a pro rata share of the interconnection costs
Reserved Capacity for Institutional Services In the event public institutions within
the City elect to utilize the System for non commercial applications, in addition to
those sen ices provided in Section 2 9, the Grantee shall offer service on reasonable
terms and conditions to be agreed upon between the City and the Grantee Grantee
shall not be required to provide any particular service or application which Grantee
lacks technological ability or regulatory approval to provide A requesting
institution may provide equipment or seek regulatory approval independent of
Grantee in order to provide such service or application la reserved capacity
Construction Timetable Grantee shall complete construction related to the System
as set forth in Exhibit B Failure to timely complete such construction shall be a
violation of this Franchise
Operation and Maintenance of System The Grantee shall render effective service,
make repairs promptly, and interrupt service only for good cause and for the shortest
time possible Such interruption, to the extent feasible, shall be preceded by notice
in accordance with Section 2 9 herein and shall occur during periods of minimum
use of the System
Technical Standards The techmcal standards used in the operation of the System
shall comply, at minimum, with the technical standards promulgated by the FCC
relating to Cable Systems pursuant to Code of Federal Regulations Title 47, Section
76 601 to 76 617, as may be amended or modified from time to time, which
regulations are expressly incorporated herein by reference
Special Testin g
a The City may require testing of a location or locations within the System or
the System as a whole Demand for such special tests may be made on the
basis of complaints received or other evidence indicating an unresolved
controversy or noncompliance The City shall endeavor to so arrange its
request for such special testing so as to minimize hardship or inconvenience
to Grantee or to the Subscribers caused by such testing
Before ordering such tests, Grantee shall be afforded thirty (30) days to
correct problems or complaints upon which tests were ordered If the thirty
(30) days have elapsed without correction of the matter in controversy or
unresolved complaints, the tests shall be conducted by a qualified engineer
selected by City
In the event that special testing determines that the System or Grantee is the
source of technical difficulties in violation of the FCC technical
specifications as required by this Franchise, the cost of said testing shall be
reimbursed by the Grantee
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7 FCC Reports The results of any tests required to be filed by Grantee with the FCC
shall also be filed with the City or its designee within ten (10) days of the conduct of
such tests
8 Nonvoice Return Capability Properly installed fiber facilities will meet the
statutory requirement for nonvoice return capability
9 Lockout Device Upon the request of a Subscriber, Grantee shall provide a Lockout
Device
SECTION 5.
SERVICES PROVISIONS
1 Regulation of Service Rates
a The City may regulate rates for the provision of Cable Service, equipment,
or any other communications service provided over the System to the extent
allowed under federal or state law(s) The City reserves the right to regulate
rates for any future services to the extent permitted by law
b A list of Grantee's current Subscriber rates and charges shall be maintained
on file with the City and shall be available for public inspection Grantee
shall give the City and Subscribers written notice of any change in a rate or
charge no less than thirty (30) days prior to the effective date of the change
2 Non Standard Installations Grantee shall install and provide Cable Service to any
Person requesting other than a Standard Installation provided that said Cable
Service can meet FCC technical specifications In such case, Grantee may charge
for the incremental increase in material and labor costs incurred beyond the Standard
Installation
3 Sales Procedures Grantee shall not exercise deceptive sales procedures when
marketing any of its services within City Grantee shall have the right to market
door -to -door during reasonable hours consistent with local ordinances and
regulation
4 Telephone higumes and Complaints
a Availability Grantee will maintain an adequate number of local, toll -free or
collect call telephone access lines which will be available to its Subscribers
24 hours a day, seven days a week so as to receive Subscriber complaints,
requests, and inquiries During normal business hours, trained
representatives of Grantee shall be available to respond to Subscriber
inquiries Grantee will ensure that (1) an adequate number of trained
company representatives will be available to respond to customer telephone
inquiries during normal business hours, and, (2) after normal business hours,
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the access line may be answered by a service or an automated response
system, including an answering machine Further, inquiries received after
normal business hours must be responded to by a trained company
representative on the next business day
b Telephone Answer Time and Busy Signals Under normal operating
conditions, telephone answer time by a customer representative, including
wait time, shall not exceed thirty (30) seconds after the coimection is made
If the call needs to be transferred, transfer time shall not exceed thirty (30)
seconds These standards shall be met no less than ninety (90) pei cent of the
time under normal operating conditions, measured on a quarterly basis
Under normal operating conditions, the customer will receive a busy signal
less than three (3) percent of the time
5. Installation, Outage and Service Calls Under normal operating conditions, each of
the following four standards will be met no less than ninety five (95) percent of the
time measured on a quarterly basis (1) Installations will be performed within seven
(7) business days aftei an order has been placed, (2) Grantee will begin working on
service interruptions promptly, in no event later than twenty -four (24) hours after the
interruption becomes known, and Subscriber requests for repairs shall be performed
within twenty -four (24) hours of the request unless conditions beyond the control of
Grantee prevent such performance, (3) The "appointment window" alternatives for
Installations, service calls. and other installation activities will be either a specific
time or, at maximum. a four -hour time block during normal business hours The
Grantee may schedule service calls and other installation activities outside of normal
business hours for the convenience of the customer, (4) Grantee may not cancel an
appointment with a customer after the close of business on the business day prior to
the scheduled appointment, (5) If a representative of Grantee is running late for an
appointment with a customer and will not be able to keep the appointment as
scheduled, the customer will be contacted The appointment will be rescheduled, as
necessary, at a time which is convenient for the customer
6 Complaint and Other Service Records Subject to Grantee's to maintain the privacy
of certain information, Grantee shall prepare and maintain written records of all
complaints received and the resolution of such complaints, including the date of
such resolution Such written records shall be on file at the office of Grantee
Grantee shall provide the City with a written summary of such complaints and their
resolution on a quarterly basis Grantee will also provide detailed compliance
reports on a quarterly basis with respect to the objectively measurable service
standards herein in a form mutually agreed upon
7 Billing and Subscriber Communications Grantee must give Subscribers thirty (30)
days advance written notice with copy to City before any changes in rates,
programming services, or channel positions Bills must be clear, concise, and
understandable, with itemization of all charges for Services, equipment charges, and
any optional services, charges, and other activity during the billing period In case
of a billing dispute, the cable operator must respond to a written complaint from a
subscriber within 30 days
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8. Subscriber Contracts Grantee shall file with the City any standard form Subscriber
contract utilized by Grantee If no such written contract exists, Grantee shall file
with the City a document completely and concisely stating the length and terms of
the Subscriber contract offered to customers The length and terms of any
Subscriber contract(s) shall be available for public inspection during normal
business hours
9 Refunds and Credits In the event a Subscriber establishes or terminates Service and
receives less than a full month's Service, Grantee shall prorate the monthly sate on
the basis of the number of days in the period for Ahich Service was tendered to the
number of days in the billing Refund checks will be issued promptly, but no later
than the return of the equipment supplied by the Grantee if Service is terminated If
Service is interrupted or discontinued for a total of more than 48 hours in any 30 day
period, Subscribers shall be credited pro rata for such interruption beginning with the
date of interruption Credits for will be issued no later than the Subscriber's next
billing cycle following the determination that a credit is warranted
10 Late Fees Fees for the late payment of bills shall not accrue until the normal billing
cut-off for the next month's service and in no event less than one (1) month after the
unpaid bill in question was sent to the Subscriber customer service center and bill
payment locations will be open at least during normal business hours Payments at
the cable operators drop -box location shall be deemed received on the date such
payments are picked up by the cable operator which shall occur within 24 hours after
every due date The cable operators shall continue to provide a "grace period" of at
least five (5) days after each due date Late fees shall not exceed the Grantee's
actual and demonstrable costs associated with collection of late payments as may be
determined by a court of competent jurisdiction
11 Drop Box Grantee shall maintain a local drop box for receiving Subscriber
payments after hours
12 Additional Customer Service Requirements The City expressly reserves authority
to adopt additional or modified customer service requirements to address Subscriber
concerns or complaints in accordance with law
SECTION 6.
ACCESS CHANNEL(S) PROVISIONS
Public, Educational and Government Access
The City is hereby designated to operate, administer, promote, and manage
community programming (public, education, and govenument programming)
(hereinafter "PEG access') in the Cable System
Grantee shall dedicate five (5) channel(s), with channel defined as a six (6)
MHz spectrum allocation, for PEG access and community programming use
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All residential Subscribers who receive all or any part of the total services
offered on the System shall be eligible to receive such channels at no
additional charge The channel(s) shall be activated upon the effectiN e date
of this Franchise and thereafter maintained The City may rename,
reprogram, or otherwise change the use of these channels in its sole
discretion, provided such use is non commercial and ietains the general
purpose of the provision of community programming Nothing herein shall
diminish the City's rights to secure additional channels pursuant to Mmn
Stat 238 084, which is expressly incorporated herein by reference The
City shall provide ninety (90) days prior written notice to Giantee of City's
intent to activate access channels and shall allow Grantee reasonable time to
vacate said channel(s)
c The VHF spectrum must be used for the PEG access channel(s) required in
this Section Grantee shall designate the channel locations of any other
access channels) but may not move or otherwise change the channel number
or location of any PEG access or community program channel without the
written approval of the City
d Upon the Effective Date of this Francluse, Grantee will cable cast all video
taped programming provided by the City or City's designee Witlun one year
of the Effective Date of this Franchise, the Grantee will provide live video
feed from City Hall
e Any PEG programming originated from FTTH facilities will be provided to
all public buildings
2 Charges for Use Channel time and playback of prerecorded programming on the
PEG access and community program channel(s) must be provided without charge to
the City and the public
3 Access Rules City, or its designee, shall implement rules for use of any access
channel(s)
4 Access Support
a Grantee shall collect from Subscribers and quarterly pay to the City in
support of PEG operations the full amount of revenues generated by a 25
per month, per Subscriber fee beginning upon the Effective Date of this
Franchise This fee may be separately itemized as a "PEG Fee" and passed
through to Subscribers independent from rates regulated pursuant to FCC
regulations The City may require increases in the PEG Fee up to a limit of
$125 increased annually by the Consumer Price Index (CPI) or three percent
(3 whichever is less The City may not increase the PEG Fee by more
than twenty -five cents 25) in any given year The City shall notify
Grantee of any such increase on or before September 30, assuming a Tanuary
1 implementation Should Grantee change the date of any annual rate
change from January 1, and so notify the City, then the City shall notify
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Grantee of any PEG increase at least mnety (90) days prior to the new
Grantee rate change date Such payment shall be separate from and in
addition to the Franchise Fee
b Within forty-five (45) days of the Effective Date of this Franchise, Grantee
shall pay City $30,000 00 as a capital equipment grant On the third
anniversary of the Effective Date, Grantee shall make a second $30,000 00
payment The second payment maybe reduced as provided in Section 2 9
herein Grantee may recoup said grants by an addition of up to twenty -five
cents (S 25) to the PEG Fee Such additional PEG Fee shall be retained by
Grantee until such time as the capital grant above is recouped Upon such
recoupment, Grantee shall notify the City The City shall have the option of
leaving the recoupment addition as part of the PEG Fee on a going forward
basis Grantee shall pay this additional amount to the City in its regular PEG
Fee payment to the City In the year of recoupment, the City may not
increase the PEG Fee an additional amount
SECTION 7
OPERATION AND ADMINISTRATION PROVISIONS
1 Administration of Franchise The City shall have continuing regulatory jurisdiction
and supervision over the System and the Grantee's operation under the Franchise
2 Delegated Authority The City may delegate to any other body or Person authority
to administer the Franchise and to momtor the performance of the Grantee pursuant
to the Franchise, provided, however, the City shall not delegate any enforcement
power it may have pursuant to this Franchise or any applicable laws
3 Franchise Fee
a During the term of the Franchise, Grantee shall pay to the City a Franchise
Fee in an annual amount equal to five percent (5 of its Gross Revenues
b Any payments due under this provision shall be payable quarterly The
payment shall be made within sixty (60) days of the end of each of Grantee's
current fiscal quarters together with a report in form reasonably acceptable to
City and Grantee and which shows the basis for the computation
c All amounts paid shall be subject to audit and recomputation by the City and
acceptance of any payment shall not be construed as an accord that the
amount paid is in fact the correct amount
4 Access to Records The City shall have the right to inspect, upon reasonable notice
and during normal business hours, any records maintained by Grantee which relate
to this Franchise or System operations including specifically Grantee's accounting
and financial records, subject to the privacy provisions of 47 U S C 521 et seq In
addition or alternatively, Grantee shall provide copies of any such records upon
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request by City
5. Reports and Maps to be Filed with the City
a Grantee shall file with the City, at the time of payment of the Franchise Fee,
a report of all Gross Revenues certified by an officer of the Grantee
b Grantee shall prepare and furnish to the City, at the times and in the form
prescribed, such other reports with respect to the operations, affairs,
transactions or property, as they relate to the System, which Grantee and the
City may agree upon
c Grantee shall furnish to and file with the City upon request the maps, plats,
and permanent records of the location and character of all facilities
constructed, including underground facilities
6. Periodic Evaluation
a The City may require evaluation sessions at any time during the term of this
Franchise, upon thirty (30) days written notice to Grantee
b All evaluation sessions shall be open to the public Grantee shall notify its
Subscribers of all evaluation sessions by announcement of at least sixty (60)
seconds in duration on at least one (1) -Basic Service channel of the System
between the hours of 7 00 p in and 9 00 p in for five (5) consecutive days
preceding each session
c Topics which may be discussed at any evaluation session may include, but
are not limited to, application of new technologies, System performance,
programming offered, access channels, facilities and support, municipal uses
of cable, customer complaints, amendments to this Franclse, judicial
rulings, FCC rulings, line extension policies and any other topics the City
and Grantee deem relevant
d As a result of a periodic review or evaluation session, the City may request
Grantee to amend the Franchise to provide additional services or facilities as
are mutually agreed upon and which are both economically and technically
feasible
SECTION 8.
GENERAL FINANCIAL AND INSURANCE PROVISIONS
1. Performance Bond
a At the time the Franchise becomes effective and at all times thereafter, until
the Grantee has liquidated all of its obligations with the City, the Grantee
shall furnish a bond to the City in the amount of Fifty Thousand Dollars
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($50,000 00) in a form and with such sureties as are reasonably acceptable to
the City This bond will be conditioned upon the faithful performance of the
Grantee according to the terms of the Franchise and upon the further
condition that in the event the Grantee shall fail to comply with any law,
ordinance or regulation governing the Franchise, there shall be recoverable
jointly and severally from the principal and surety of the bond any damages
or loss suffered by the City as a result, including the full amount of any
compensation, indemnification or cost of removal or abandonment of any
property of the Grantee, plus a reasonable allowance for attorneys fees and
costs, up to the full amount of the bond, and further guaranteeing payment
by the Grantee of claims, liens and taxes due the City which arise by reason
of the construction, operation, or maintenance of the System The rights
reserved by the City with respect to the bond are in addition to all other
rights the City may have under the Franchise or any other law The City
may, from year to year, in its sole discretion, reduce the amount of the bond
b In the event this Franchise is canceled by reason of default of Grantee or
revoked, the City shall be entitled to collect from the performance bond that
amount which is attributable to any damages sustained by the City pursuant
to said default or revocation Grantee, however, shall be entitled to the
return of such performance bond, or portion thereof, as remains at the
expiration of the term of the Franchise
C. The rights reserved to the City with respect to the performance bond shall
not be deemed an exclusive remedy and are in addition to all other nglits of
the City whether reserved by this Franchise or authorized by law, and no
action, proceeding or exercise of a right with respect to the performance
bond shall affect any other right the City may have
2 Letter of Credit
a At the time of acceptance of this Franchise, Grantee shall deliver to the City
an irrevocable and unconditional Letter of Credit, in form and substance
acceptable to the City, from a National or State bank approved by the City,
in the amount of Ten Thousand Dollars ($10,000 00)
b The Letter of Credit shall provide that funds will be paid to the City, upon
written demand of the City, and in an amount solely determined by the City
in payment for penalties charged pursuant to this section, in payment for any
monies owed by Grantee pursuant to its obligations under this Franchise, or
in payment for any damage incurred as a result of any acts or omissions by
Grantee pursuant to this Franchise
c In addition to recovery of any momes owed by Grantee to the City or
damages to the City as a result of any acts or omissions by Grantee pursuant
to the Franchise, the City, in its sole discretion, may charge to and collect
from the Letter of Credit the following penalties
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i. For failure to complete system upgrade as provided herein, unless the
City approves the delay, the penalty shall be Two Hundied Dollars
($200 00) per day for each day, or part thereof, such failure occurs or
continues
u For failure to provide data, documents, reports or information
required herein or for failure to cooperate with the City during an
application process or system review or as otherwise provided
herein, the penalty shall be Fifty Dollars (S50 00) per day for each
day, or part thereof, such failure occurs or continues
in For failure to comply with construction, operation or customer
service, or maintenance and technical standards, including the
customer service requirements herein, the penalty shall be One
Hundred Dollars ($100 00) per day for each day, or part thereof, such
failure occurs or continues
iv For failure to provide the services Grantee has proposed, including,
but not limited to, the implementation and the utilization of the
access channels and the maintenance and/or replacement of the
equipment and other facilities, the penalty shall be One Hundred
Dollars ($100 00) per day for each day, or part thereof, such failure
occurs or continues
v For violation of any other provision of this Franchise or applicable
federal. state, or local law or regulation, the penalty shall be Fifty
Dollars ($50 00) per day for each day, or part thereof, such violation
continues
d Each violation of any provision of this Franchse shall be considered a
separate violation for which a separate penalty can be imposed
e Whenever the City finds that Grantee has violated one or more terms,
conditions or provisions of this Franchise, a written notice shall be given to
Grantee informing it of such violation At any tune after thirty (30) days
following receipt of notice, provided Grantee remains in violation of one or
more tenors, conditions or provisions of this Franchise, in the sole opinion of
the City, the City may draw from the Letter of Credit all penalties or monies
due the City from the date of the local receipt of notice The City may grant
additional time beyond the initial thirty (30) days in the event the City
determines such additional time is necessary to cure the alleged violation
f. Grantee may, within fifteen (15) days of receipt of such notice, notify the
City in writing that there is a dispute as to whether a violation of failure has
in fact occurred Such written notice by Grantee to the City shall specify
with particularity the matters disputed by Grantee All penalties shall
continue to accrue and the City may draw from the Letter of Credit at the end
of the thirty (30) day cure period notwithstanding Grantee's dispute
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regarding the violation
i The City shall hear Grantee's dispute at the next regularly scheduled
meeting or within sixty (60) days, whichever period is longer
u Upon determmation by the City that no violation has taken place, the
City shall rescind the notice of violation and refund to Grantee,
without interest, all monies drawn from the Letter of Credit by
reason of the alleged violation
g If said Letter of Credit or any subsequent Letter of Credit delivered pursuant
thereto expires prior to five (5) months after the expiration of the term of this
Franchise, it shall be renewed or replaced during the term of this Franchise
to provide that it will not expire earlier than five (5) months after the
expiration of this Franchise The renewed or replaced Letter of Credit shall
be of the same form and amount and with a bank authorized herein
h If the City draws upon the Letter of Credit or any subsequent Letter of Credit
delivered pursuant hereto, in whole or in part, Grantee shall replace the same
within ten (10) days and shall deliver to the City a like replacement Letter of
Credit for the full amount required herein as a substitution of the previous
Letter of Credit
i. If any Letter of Credit is not so replaced, the City may draw on said Letter of
Credit for the whole amount thereof and use the proceeds as the City
determines in its sole discretion The failure to replace any Letter of Credit
may also, at the option of the City, be deemed a default by Grantee under
this Franchise The drawing on the Letter of Credit by the City, and use of
the money so obtained for payment or performance of the obligations, duties
and responsibilities of Grantee which are in default, shall not be a waiver or
release of such default
The collection by the City of any damages, monies or penalties from the
Letter of Credit shall not be deemed an exclusive remedy and shall not affect
any other right or remedy available to the City, nor shall any act, or failure to
act, by the City pursuant to the Letter of Credit, be deemed a waiver of any
right of the City pursuant to this Franchise or otherwise
3 Indemrnfication of the City
a The City, its officers, boards, committees, commissions, elected officials,
employees and agents shall not be liable for any loss or damage to any real
or personal property of any Person, or for any injury to or death of any
Person, arising out of or in connection with the construction, operation,
maintenance, repair or removal of, or other action or event with respect to
the System or as to any other action or event with respect to this Franchise
b Grantee shall indemnify, defend, and hold harmless the City, its officers,
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boards, committees, commissions, elected officials, employees and agents,
from and against all liability, damages, and penalties which they may legally
be required to pay as a result of the exercise, administration, or enforcement
of the Franchise including, but not limited to, the reimbursement to City of
any msurance deductible paid by City
c Nothing in this Franchise relieves a Person, except the City, from liability
ansmg out of the failure to exercise reasonable care to avoid injuring the
Grantee's facilities while performing work connected with grading,
regrading, or changing the line of a Right -of -Way or public place or with the
construction or reconstruction of a sewer or water system
4 Insurance
a Grantee shall file with its acceptance of this Franchise, and at all times
thereafter maintain in full force and effect at its sole expense, a
comprehensive general liability insurance policy, including
broadcaster'sicablecaster's liability and contractual liability coverage, in
protection of the Grantee, and the City, its officers, elected officials, boards,
commissions, agents and employees for any and all damages and penalties
which may anse as a result of this Franchise The policy or policies shall
name the City as an additional insured, and in their capacity as such, the City
officers, elected officials, boards, commissions, agents and employees
b The policies of insurance shall be in the sum of not less than One Million
Dollars ($1,000,000 00) for personal injury or death of any one Person, and
Tv, o Million Dollars ($2,000,000 00) for personal injury or death of two or
more Persons in any one occurrence, One Million Dollars ($1,000,000 00)
for property damage to any one person and Two Million Dollars
($2,000,000 00) for property damage resulting from any one act or
occurrence
c The policy or policies of insurance shall be maintained by Grantee in full
force and effect during the entire term of the Franchise Each policy of
insurance shall contain a statement on its face that the insurer will not cancel
the policy or fail to renew the policy, whether for nonpayment of prenuum,
or otherwise, and whether at the request of Grantee or for other reasons,
except after sixty (60) days advance written notice have been provided to the
City
SECTION 9.
SALE, ABANDONMENT, TRANSFER AND REVOCATION OF FRANCHISE
1 City's Right to Revoke
a In addition to all other rights which the City has pursuant to law or equity,
the City reserves the right to revoke, terminate or cancel this Franchise, and
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all rights and privileges pertaining thereto, if after the hearing required by
9 2(b) herein, it is detemuned that
i Grantee has violated any material provision of this Franchise, or
u Grantee has attempted to evade any of the material provisions of the
Franchise, or
ill Grantee has practiced fraud or deceit upon the City or Subscriber, or
IV. Grantee is adjudged a bankrupt
Procedures for Revocation
a The City shall provide Grantee with written notice of a cause for revocation
and the intent to revoke and shall allow Grantee sixty (60) days subsequent
to receipt of the notice in which to correct the violation or to provide
adequate assurance of performance in compliance with the Franchise
b Grantee shall be provided the right to a public hearing affording due process
before the City prior to revocation, which public hearing shall follow the
sixty (60) day notice provided in subparagraph (a) above The City shall
provide Grantee with written notice of its decision together with written
findings of fact supplementing said decision
C. Only after the public hearing and upon written notice of the determination by
the City to revoke the Franchise may Grantee appeal said decision with an
appropriate state or federal court or agency
d During the appeal period, the Grantee may continue to operate the System
pursuant to the terms and conditions of the Franchise, unless the term thereof
sooner expires
Abandonment of Service Grantee may not abandon the System or any portion
thereof without having first given three (3) months written notice to the City
Grantee may not abandon the System or any portion thereof without compensating
the City for damages resulting from the abandonment
4 Removal After Abandonment, Termination or Forfeiture
In the event of termination or forfeiture of the Franchise or abandonment of
the System, the City shall have the right to require Grantee to remove all or
any portion of the System from all Rights -of -Way and public property within
the City provided, however, that the Grantee shall not be required to remove
the System if it is authorized to provide telecommunications service pursuant
to slate or federal law
If Grantee has failed to commence removal of System, or such part thereof
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as was designated by the City, within one hundred twenty (120) days after
written notice of the City demand for removal is given, or if Grantee has
failed to complete such removal within twelve (12) months after written
notice of the City demand for removal is given, the City shall have the right
to apply funds secured by the Letter of Credit and Performance Bond toward
removal and/or declare all right. title, and interest to the System to be in the
City with all rights of ownership including, but not limited to, the right to
operate the System or transfer the System to another for operation by it
pursuant to the provisions of 47 U S C 547
5. Sale or Transfer of Franchise
a No sale, transfer, or corporate change of or in Grantee, including, but not
limited to, the sale of a majority of the entities assets, a merger including the
merger of a subsidiary and parent entity, consolidation, or the creation of a
subsidiary or affiliate entity, shall take place until the parties to the sale,
transfer, or corporate change file a written request with the City for its
approval and such approval is granted by the City, provided, however, that
said approval shall not be required where Grantee grants a security interest in
its Franchise and assets to secure an indebtedness
b Any sale, transfer, exchange or assignment of stock in Grantee so as to create
a new controlling interest in the System shall be subject to the requirements
of this Section 9 05 The term "controlling interest" as used herein is not
limited to majority stock ownership, but includes actual working control in
whatever manner exercised As a minimum, "control" or "controlling
interest" as used herein, means a legal or beneficial interest (even though
actual workmg control does not exist) of at least five percent (5
c The City shall have such time as is pemutted by applicable law m which to
review a transfer request
d The Grantee shall reimburse City for all reasonable legal, administrative, and
consulting costs and fees associated with the City's review of any request to
transfer Nothmg herein shall prevent Grantee from negotiating partial or
complete payment of such costs and fees by the transferee
e In no event shall a sale, transfer, corporate change, or assignment of
ownership or control pursuant to Subparagraph (a) or (b) of this Section be
approved without the transferee becoming a signatory to this Franchise and
assuming all rights and obligations hereunder, and assuming all other rights
and obligations of the transferor to the City
f In the event of any proposed sale, transfer, corporate change, or assignment
pursuant to subparagraph (a) or (b) of this Section, the City shall have the
right of first refusal of any bona fide offer to purchase the System Bona fide
offer, as used in this Section, means an offer received by the Grantee which
it intends to accept subject to the City rights under this Section This written
RJV- 214022v4
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offer must be conveyed to the City along with the Grantees written
acceptance of the offer contingent upon the rights of the City provided for in
this Section
The City shall be deemed to have waived its rights under this Section in the
following circumstances
If it does not indicate to Grantee in writing, within ninety (90) days
of notice of a proposed sale or assignment, its intention to exercise its
nght of purchase, or
u It approves the assignment or sale of the Franchise as provided
within this Section
SECTION 10.
PROTECTION OF INDIVIDUAL RIGHTS
I Discriminatory Practices Prohibited Grantee shall not deny service, deny access, or
otherwise discriminate against Subscribers or general citizens on the basis of race,
color, religion, national origin, sex, age, status as to public assistance, affectional
preference, or disability Grantee shall comply at all times with all other applicable
federal, state, and local laws, and all executive and administrative orders relating to
nondiscrimination
2. Subscriber Privacy
a Grantee shall comply with the subscriber pnvacy- related requirements of
47 U S C 551 No signals including signals of a Class IV Channel may be
transmitted from a Subscriber terminal for purposes of monitoring individual
viewing patterns or practices without the express written permission of the
Subscriber Such written permission shall be for a limited period of time not
to exceed one (1) year which may be renewed at the option of the
Subscriber No penalty shall be invoked for a Subscriber's failure to provide
or renew such authorization The authorization shall be re-,ocable at any
time by the Subscriber without penalty of any kind whatsoever Such
permission shall be required for each type or classification of Class IV
Channel activity planned for the purpose of monitoring individual viewing
patterns or practices
b No lists of the names and addresses of Subscribers or any lists that identify
the viewing habits of Subscribers shall be sold or otherwise made available
to any party other than to Grantee and its employees for internal business
use, and also to the Subscriber subject of that information, unless Grantee
has received specific written authorization from the Subscriber to make such
data available Such written permission shall be for a limited period of time
not to exceed one (1) year which may be renewed at the option of the
Subscriber No penalty shall be invoked for a Subscriber's failure to provide
Rid- 214022v4
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or renew such authorization The authorization shall be revocable at any
time by the Subscriber without penalty of any kind whatsoever
C Written permission from the Subscriber shall not be required for the
conducting of System wide or individually addressed electronic sweeps for
the purpose of verifying System integrity or monitoring for the purpose of
billing Confidentiality of such information shall be subject to the provision
set forth in Subparagraph (b) of this Section
SECTION 11.
MISCELLANEOUS PROVISIONS
1. Franchise Renewal Any renewal of this Franchise shall be performed in accordance
with applicable federal, state and local laws and regulations The term of any
renewed Franchise shall be hunted to a period not to exceed fifteen (15) years
2. Work Performed by Others All obligations of this Franchise shall apply to any
subcontractor or others performing any work or services pursuant to the provisions
of thus Franchise, however, in no event shall any such subcontractor or other Person
performing work obtain any rights to maintain and operate a System or provide
Cable Service Grantee shall provide notice to the City of the name(s) and
address(es) of any entity, other than Grantee, which performs substantial services (m
excess of $70,000 00) pursuant to this Franchise
3 Amendment of Franchise Ordinance Grantee and the City may agree, from tune to
time, to amend this Francluse Such written amendments may be made subsequent
to a review session pursuant to Section 7 5 or at any other time if the City and
Grantee agree that such an amendment will be in the public interest or if such an
amendment is required due to changes in federal, state or local laws, provided,
however, nothing herein shall restrict the City's exercise of its police powers
4 Compliance with Federal, State and Local Laws
a If any federal or state law or regulation shall require or permit the City or
Grantee to perform any service or act or shall prohibit the City or Grantee
from performing any service or act which may be in conflict with the terms
of this Franchise, then as soon as possible following knowledge thereof,
either party shall notify the other of the point in conflict believed to exist
between such law or regulation Grantee and the City shall conform to state
laws and rules regarding cable communications not later than one year after
they become effective, unless otherwise stated, and to conform to federal
laws and regulations regarding cable as they become effective
b If any term, condition or provision of this Franchise or the application
thereof to any Person or circumstance shall, to any extent, be held to be
invalid or unenforceable, the remainder hereof and the application of such
term, condition or provision to Persons or circumstances other than those as
RN- 214022v4
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to whom it shall be held invalid or unenforceable shall not be affected
thereby, and this Franchise and all the terms, provisions and conditions
hereof shall, in all other respects, continue to be effective and complied with
provided the loss of the invalid or unenforceable clause does not
substantially alter the agreement between the parties In the event such law,
rule or regulation is subsequently repealed, rescinded, amended or otherwise
changed so that the provision which had been held invalid or modified is no
longer in conflict with the law, rules and regulations then in effect, said
provision shall thereupon return to full force and effect and shall thereafter
be binding on Grantee and the City
Nonenforcement by City Grantee shall not be relieved of its obligations to comply
with any of the provisions of this Franchise by reason of any failure or delay of the
City to enforce prompt compliance The City may only waive its rights hereunder
by expressly so stating m wntrng Any such wntten waiver by the City of a breach
or violation of any provision of this Franclse shall not operate as or be construed to
be a waiver of any subsequent breach or violation
Rights Cumulative All rights and remedies given to the City by this Francluse shall
be in addition to and cumulative with any and all other rights and remedies, existing
or implied, now or hereafter available to the City at law or in equity, and such rights
and remedies shall not be exclusive, but each and every right and remedy
specifically given by this Franchise or otherwise existing or given may be exercised
from time to time and as often and in such order as may be deemed expedient by the
City and the exercise of one or more rights or remedies shall not be deemed a waiver
of the right to exercise at the same time or thereafter any other right or remedy
Grantee Acknowledgment of Validity of Franchise Grantee acknowledges that it
has had an opportunity to review the terms and conditions of this Franchise and that
under current law Grantee believes that said terms and conditions are not
unreasonable or arbitrary, and that Grantee believes the City has the power to make
the terms and conditions contained in this Franclse
SECTION 12.
PUBLICATION EFFECTIVE DATE; ACCEPTANCE AND EXHIBITS
Publication Effective Date This Franchise shall be published in accordance with
applicable local and Minnesota law The Effective Date of this Franchise shall be
the date of acceptance by Grantee in accordance with the provisions of Section 12 2
2 Acceptance
Grantee shall accept tlus Franchise within sixty (60) days of its enactmentby
the City unless the time for acceptance is extended by the City Such
acceptance by the Grantee shall be deemed the grant of this Franchise for all
purposes provided In the event acceptance does not take place, or should all
RJV- 214022v4
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ordinance adoption procedures and timelines not be completed, this
Franchise and any and all rights previously granted to Grantee shall be null
and void
b Upon acceptance of tlus Franchise, Grantee shall be bound by all the terms
and conditions contained herein
e Grantee shall accept this Franchise in the following manner
i Tlus Franchise will be properly executed and acknowledged by
Grantee and delivered to the City
u With its acceptance, Grantee shall also deliver any grant payments,
performance bond and insurance certificates required herein that
have not previously been delivered
Passed and adopted tins day of 1 2002
ATTEST
CITY OF ROSEMOUNT
Lo
Its
a
Its
ACCEPTED This Franchise is accepted and the undersigned agrees to be bound by its terms and
conditions
FTTH COMMUNICATIONS, L L C.
Dated
IM
Its
RN- 214022v4
RS220 -9A
CORPORATE ACKNOWLEDGMENT
STATE OF MINNESOTA
SS
COUNTY OF DAKOTA
On this day of 2002, before me
undersigned officer, personally appeared
the
(Name of Notary)
known personally to me to be the
of FTTH Communications, L L C and that he, as such officers, being
authorized so to do, executed the foregoing City of Rosemount, Ordinance No for the
purposes therein contained, by signing the name of the corporation by himself as such officers
IN WITNESS WHEREOF, I have hereunto set my hand and official seal
Notary Public
My Commission expires
(NOTARIAL SEAL)
The "foregoing instrument' referred to above is City of Rosemount Ordinance No
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Rs22a94
EXHIBIT A
(Assuming all necessary permits and Right -of -Way clearances)
Government Buildings in Rosemount
City Hall
2875 145"' Street W
Fire Station 1
14700 Shannon Parkway
Fire Station 2/P W Building
14425 Brazil Avenue
Public Works Garage
14455 Brazil Avenue
Community Center
13885 S Robert Trail
Central Park Shelter
2875 145 Street W.
Family Resource Center
14521 Cunarron Avenue
Educational Buildings in Rosemount
Rosemount St Joseph Catholic School
14335 S Robert Trail
Rosemount Elementary
3155 W 144 Street
Rosemount Middle School
3135 W 143 Street
Rosemount High School
3335 W 142 Street
Shannon Park Elementary
13501 Shannon Parkway
Dakota County Technical College
1300 145 Street
District Office East
15180 Canada Ave
Rosemount Elementary, Rosemount Middle School, Rosemount High School and Shannon Park
Elementary shall receive dark fiber facilities in lieu
of bask data services
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EXHIBIT B
Attached is a map showing the schedule for construction of the Grantee's initial service areas
Grantee shall offer service to all homes or dwelling units in Areas 1 and 2 as depicted on the
attached map
The City and Grantee acknowledge that the Grantee has applied for necessary governmental
permits, licenses, certificates, and authorizations in order to construct a system serving the City and
that such system construction is underway as of the date of the granting of this franchise Grantee
shall continue to apply for pemuts associated with work in specific portions of the nght -of -way as
construction proceeds
Energized trunk cable must be extended substantially throughout Area 1 depicted on the attached
map within one year of the granting of this franchise Persons along the route of the energized cable
will have individual drops as desired during the same period of time Grantee shall initiate system
construction in Area 2 depicted on the attached map on or before January 1, 2005 Energized trunk
cable must be extended substantially throughout Area 2 within one year thereof
Upon completion of system construction in Grantee's initial service areas, Grantee will extend its
system and services in accordance with Section 2 7 of the Franchise The requirements herein may
be waived by the City upon occurrence of unforeseen events or acts of God The City may only
agree to such modifications by amendment to this Franchise
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Rs220-94
Rosemount Service Area Map
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Exhibit C
Description of Network Architecture
Modern cable systems are typically designed in hybrid fiber coaxial (HFC)
configurations, i e the main fiber runs terminate at optical nodes where the signal is
converted to analog and distributed to neighborhoods and homes via traditional coaxial
cables This design reduces the amount of coaxial plant and amplifiers to enhance
reliability and reduce exposure to signal ingress /egress, amplifier outages, distortion and
other mechanical failures
FTTH is deploying technology manufactured by Optical Solutions Inc FTTH
will construct a unique network architecture with a fiber -to- the -home deployment The
network includes a central office, or headend, which sends and receives laser driven light
to and from a residence- mounted node via the completely optical network The node at
the residence converts the fiber carried light signals into electrical signals for telephones,
televisions and data modems
FTTH's network design is superior to an HFC system design or digital subscriber
line (DSL) network because it provides more bandwidth/capacity The network will
allow individual subscribers to receive up to six telephone lines, up to 80 analog video
channels plus hundreds of digital video channels, and high -speed data at up to 10
megabits -per- second, scalable in 64 kilobit -per- second increments
Piberpoin
1'
4 way optical splatter
0
Optical Transmitter
8 way optical splitters 111 1 1 1
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