Title
A Discussion regarding the Proposals Received for the Fiber to the Residents Project.
Brief Description: The City staff met with the Council Ad-Hoc Committee and determined to interview each of the companies that submitted a proposal for the Fiber to the Residents Project. The goal of the project is to provide high-speed fiber service to the residents and to reduce our existing debt in Velocity Broadband.
Body
Legislative History
None.
Purpose & Explanation
The City staff met with the Council Ad-Hoc Committee and determined to interview each of the companies that submitted a proposal for the Fiber to the Residents Project.
The Ad-Hoc Review Team was made up of the following: Councilmembers: Skylar Sutton (SS); Karen Heater (KH); Chris Banweg (CB). City Staff: Thomas Sheridan (TS); Jeff Knoblauch (JK); Paul Leedham (PL); & Will Ersing (WE).
The technical presentations were conducted on January 12 and January 24, 2023. All presentations were conducted via Zoom and each meeting was limited to a 45-minute presentation.
The goal of the project is to provide high-speed fiber service to the residents and to reduce our existing debt in Velocity Broadband.
The following are the Company Technical Presentations the Ad-Hoc Team Interviewed:
1. MCM (Municipal Capital Markets)
Ad Hoc Attendees: SS, CB, TS, JK, PL, WE
An investment group from Colorado that specializes in financing and coordinating the creation of municipal broadband projects. They propose a more conventional deployment strategy and revenue-based finance strategy. The City would continue to own and operate VBB which would now include all residential areas. This would require a significant investment from the City in terms of additional staffing, inventory management, system upgrades, etc.
o Suggested financing this project with a revenue bond.
§ This strategy has been successful in other parts of the country such as Colorado, but apparently this strategy has not been used in the state of Ohio yet.
o A multi-phased deployment strategy was suggested allowing small areas of the City to be built-out in chunks verses a project that would require all funding to be raised at the beginning of the project.
o Appeared to dance around the question when asked about risk. The answer mentioned that MCM is taking the risk for providing the financial capital, but if the project would fail and not be a profitable as expected, the burden would be on the City to cover the debt.
o Not a single entity-they bring several difference partners/companies into these types of projects depending on what is required.
§ The MCM component of this proposal has been in business since 1989 (33 years), providing $18.5B in projects-these are not all fiber projects.
§ Telcon Services (TCS) is the fiber management/design/construction component of this proposal. Formed in 2014.
• They have a large engineering group with over 1,000 employees. They also have many of the other components required to build out these types of networks.
o The projects listed in the response and discussion are not like what we are looking to do in Hudson.
o The proposed deployment strategy does not account for how we will reach the outskirts of the City. This is the type of strategy that would be proposed if we were a complete clean-slate or green-field. These are all steps we considered when we started to build VBB 7 years ago.
o The business model section just explains how they will help facilitate securing more financing for the City to build out the remainder of the City.
o Their creative solutions section just touts how they are good at financing these types of municipal fiber projects-nothing too impressive here.
o The Q&A section is weak. They are just providing PC answers.
§ They also request a $25K retainer to begin.
§ Added Development fee of 1.75% (e.g., additional $350,000 on a $20M build).
2. Lit Communities LLC
Ad Hoc Attendees: SS, CB, TS, JK, PL, WE
Lit Communities is based out of Alabama and its leadership has extensive experience building and maintaining fiber networks. Currently building out to communities in Medina County and working with 14 other government entities, Lit Communities provides revenue sharing opportunities, detailed financials, and a clear deployment strategy.
o The projects/examples used are like what we are looking to do in Hudson.
o Lit proposed owning the newly built assets and the City/VBB would continue to own the existing assets. Lit would service the new residential customers and VBB would continue to service business customers and existing residential customers. This will allow VBB to continue to operate as well as provide the cash flow to continue servicing the existing VBB operations and debt service.
o The proposal and presentation had an approach/style that is different than the other proposals. It hinged on more of a “community” perspective. How being connected is a benefit to residents/education/healthcare etc.
o They provided other examples of what else this network can do for you-AMI and other smart city applications.
o They use the same manufacturer (Calix) as VBB uses.
o The deployment plan of a city outskirts focused build-out was addressed well.
§ If this is the deployment approach we prefer, that will work for them.
§ Knowing the intent is to build-out all areas of the City, they are willing to build to the more “needy” areas first.
o Revenue and price sharing sections are encouraging.
§ No city expenses.
§ Suggested a per monthly fee be paid to the City for each customer.
o Big focus on transparency.
o Only company to provide an estimated build-out cost and expected take rates.
o Financial capacity is strong. Stephens Capital and the Pritzker Organization are highly regarded.
o Business model is clean and concise.
o They did discuss Lit team and who the main project contacts will be in Hudson.
§ Intend to set-up a brick-and-mortar location in town.
o The only company to follow-up the next day to ask what else the City needed and did provide a copy of their presentation.
3. Metronet
Ad Hoc Attendees: KH, TS, JK, PL, WE
With their HQ is in Evansville, Indiana, Metronet has a lot of experience providing fiber to communities around the country. With over 250 communities served in 16 states, this company proposes a unique deployment and financing strategy that would require investment from the City. VBB would essentially be dissolved and become part of Metronet.
o Claim to be largest privately held fiber-optic provider in the country.
o Most of their work is in the South and Midwest although they do have 9 cities within Ohio that they have built networks.
o The “Green-light” has not yet been provided by their board of directors.
o 1500+ employees
o Finance - Appears strong uses Oak Hill Capital and KKR.
§ Have committed nearly $1B to projects.
o Been in existence for 17 years.
o Metronet is the largest of the respondents and they have done this type of project many times.
o Didn’t appear very willing to incorporate what we are looking for verses their normal roll-out/deployment strategy.
o Didn’t have a very good understanding of what we have already built with VBB.
§ Concern over funding of existing VBB debt when VBB is dissolved - Metronet seemed unwilling to take on VBB’s existing debt leaving the City with no revenue stream to fund it.
o Their “contours of a potential partnership” are weighted quite heavily in favor of the Metronet.
§ Estimates of $800 per residence is lower than our estimate of $1,200. Although this is their 1st offer. Their initial buildout proposal would result in the City paying out a significant amount of money.
§ Comment made by Metronet that City could apply for federal broadband funding to supplement the project cost to reach the less dense areas of the City. Staff has already explored this option and it’s highly unlikely we would qualify for the funding.
§ Their offer for $1,000 for existing subscribers is also very low.
§ They only want to build-out to the low hanging fruit (low-cost installations)-many of which, we have already completed.
o To summarize the discussion with Metronet, the purpose of this call for them was to assess if we were interested in selling the current system. They had done minimal research and the call felt more like a discovery call for them to determine how bad we needed them.
Legal Authority for Proposed Legislation
Pursuant to Charter Section 6.04:
Competitively bid and advertised for three consecutive weeks.
Joint or Cooperative Purchase Program
Professional Services
Other
Fiscal Impact
Currently Budgeted
Supplemental Appropriation Required
Appropriation Not Required
Does this legislation require use of an emergency clause?
Yes
No
Recommendation
Suggested Action
The City Administration recommends City Council authorize the City Manager to negotiate with LIT Communities LLC. Following negotiations, the City Manager will return to City Council for review and authorization to enter into a final agreement.
Submitted by,
Thomas J. Sheridan, City Manager
Jeff Knoblauch, Asst. City Manager - Finance Director
Paul Leedham, Chief Innovation Officer -- IT Director
Will Ersing, Asst. IT Director