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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 RS220 -94 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 RJV- 216120vl 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 RJV- 216120vl RS220 -94 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 RJV- 216120vl R5220 -94 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 RJV- 216120vi RS220 -94 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 RN- 2161200 RS220 -94 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 RJV- 214022v4 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 RJV- 214022v4 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 RN- 214022v4 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 RJV- 214022v4 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 RIV- 214022v4 RS220-94 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 RJV- 214022v4 RS220-94 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 RN- 214022v4 RS22494 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, RN- 214022A R5220 -94 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 RJV- 214022v4 Rs22o-94 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 RJV- 214022V4 Rs22a94 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 RJV- 234022v4 RS220-94 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 RN- 214022v4 RS220 -94 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 R.iV- 214022v4 RS220.94 ($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 RN- 214022A RS220 94 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 RN- 214022v4 RS220 -94 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, Rrv- 214022v4 Rszza94 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 Riv- 214022v4 RM M4 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 RJV- 214022v4 Rs22a94 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 RS220 -94 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 RS22a94 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 RS22a94 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 Rs22a94 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 RIV- 214022v4 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 R.N- 214022v4 RS220-94 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 RJV- 214022v4 Rs220-94 Rosemount Service Area Map agai S Lebanon Hills Q, Regional Park 4 t Vall cr' Park i,d I� klk, y n' A p t le Vatl t- nP 140th St W m _i alt G t L_ „Park Service Expansion Schedule Service Area #1 2002 -2005 Service Area #2 2005 -2008 lymiangre� t� K❑ _'d Shannon Park Service Area #1 j y W ds Park j� 143rd t W 4r 145th St w Rosemdunto acni�_n. _j_ _hL I 130th`St -W' z f Club C (,1 d5 St V J, t m b Service Area #2 Inver Grove Helghts= jI 71 t t _136th St E iu I 117 d6tYD V1t y St t dakota County Technical Colleg t aP 4' University of tAinn"ote, Rosemount Reseal ch+Ce nter t 152nd St E 1 3id $t W== 13 m 4 r (6 C 160th St E T CD _a 160th St W t aP 4' University of tAinn"ote, Rosemount Reseal ch+Ce nter t 152nd St E 155tf St E, m 4 r M 160th St E T 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 RJV- 215015vl R5220 -94