Back in February, staff pulled a proposed agreement with Astound Broadband off the agenda. That agreement is now back on the agenda for approval this week and would allow Astound to use existing city-owned conduit to supply high speed network into the city.
According to the staff report, the agreement that was reached with the help of the city attorney “requires Astound to bring fiber-optic cable to supply high-speed network into the city of Davis using existing City-owned conduit. In addition, Astound will build a fiber-optic network to specified City buildings and well/pump sites, Yolo County buildings, and a connection to UC Davis.”
A total of 21 public sites would be connected by Astound under this agreement and provided with six pairs of fiber for the city’s full use.
CCG Consulting notes, “The City gets a 12-fiber network throughout the Wave network. That is a sufficient size to handle all of the City’s broadband needs for the 30-year term.”
According to the staff report: “This new network will be available to the City of Davis free of charge and will connect additional sites that were not part of the I-Net. The estimated cost of this investment by Astound is approximately $1.4 to $1.5 million.”
Astound would then be responsible for maintaining the entire network. In exchange, “the City would allow Astound Broadband LLC to place their fiber in City conduit throughout the area noted on the map for commercial uses.
“The fiber strands used by the City and Astound will be secure and not interconnected, and each party will retain exclusive rights to those fibers for 30 years,” the staff report continues. “Astound will have exclusive access to the other fibers it installs, although the City may lease to other service providers any space that remains for additional fiber in the conduit subject to this agreement, with the potential to generate revenue for the City.
“In addition, the City will continue to retain separate parallel empty conduit along much of the City conduit route provided to Astound.”
Staff then argues: “It is important to note that Astound Broadband LLC, or any other entity, could, through customary measures such as requests for encroachment permits, build out infrastructure that 
would provide similar capacity for commercial uses without any benefit to the City.
“Astound has put their previous plans to enter the Davis market on hold for several months while the City worked through the possibility of this agreement and was able to delay other action until August.”
Staff adds: “The proposal in front of the City Council is time-sensitive; should Council have interest in pursuing the agreement with Astound, Council will need to provide direction to staff by August.”
The City’s Finance Director reviewed the proposed Astound agreement and the CCG Consulting June 2019 letter. He. according to the staff report, “finds it to be fiscally net positive for the City.”
The city writes: “The proposed agreement has no direct cost to the City, and the opportunity cost is difficult to ascertain. However, the proposal offers a continuation of services free of charge and offers new services for which the City would otherwise have to pay.”
The staff report adds: “Staff acknowledges that the addition of Astound as a new provider in the community does change the market landscape, providing for possible competition with the two established major providers, Comcast and AT&T in most homes in Davis, and three major wireless carriers bringing LTE/5G data access across the city.
“And while nothing prevents Astound from building into the residential market in Davis, they have indicated that this is not their target market, preferring instead to focus on commercial clients. Should the City determine a way to finance and implement some form of municipal broadband in the future, there is still city-owned conduit space available for this to occur.”
What the staff report does not include is the considerable community push-back.
Robert Nickerson, the owner of Omsoft Technologies, during public comment on Tuesday cautioned the council against proceeding with the proposed contract for fiber optic services.
“This arrangement is backwards,” he explained. “This is a big giveaway to a company, that according to a statement of its representative that was at the last broadband advisory taskforce, makes 95 cents of profit on every dollar of internet revenue it brings in.
“City IT is going to give them free access to a city-owned conduit for 30 years to build an exchange for connecting city buildings with 12 strands of fiber,” he continued. “This should tell you right away how much unconscionable profit is being drawn by these large investor-owned companies and the opportunity the city has to take some share of this aggregate monthly broadband revenue from citizens in Davis.”
In May there was a closed session item where ten members of the public spoke in advance.
Johannes Troost read a Utility Rate Advisory Committee motion from March 17: “URAC believes that the city council should pause and do its further due diligence in reference to the contract for Astound and the fiber optic network.”
He added: “It was our hope that the council would consider the value of our assets… and consider options including but not limited to a city owned system.”
Doug Walter, president of Davis Community Network, stated that “while meeting the city’s IT needs, would most likely foreclose the kind of content neutral, accessible and secure gigabit broadband network that most of the people that are here tonight support. It would also most likely prevent us from addressing the digital divide and student achievement gap issues. It could ease student development of local economic vitality.”
Matt Williams, Chair of the city’s Finance and Budget Commission, pointed out that “the cost to the city of putting its own fiber in a conduit is very very low.”
The current lease proposal is $0, Mr. Williams pointed out. He noted, “[S]o it’s not something that I as the Chair of the Finance and Budget Committee would consider a great addition to the city’s financial health.”
He told the council: “We need you to look in your due diligence to something more than the offer that’s on the table which is a zero dollar lease. You may be constrained because of the Brown Act to not consider dollar amounts that are greater than zero…”
He argued, “You really haven’t made a policy decision of whether or not lease for zero dollars…”
He added that it was a “mistake” the first discussion happened in closed session.
—David M. Greenwald reporting
For the record, the article should say “former Chair” My appointment to FBC expired on June 30th, and although I applied for reappointment, the Council chose not to appoint me for a second term. So I am the former Chair of the FBC.
With that said, Council and staff clearly heard from a litany of Commission members from at least three Commissions and members of the public that evaluating the value of the deal (including both the value of what is being received and the value of what is being given away) is a necessary pre-requisite to any agreement signing. Has such an analysis been performed? The answer to that question comes from the Staff Report which states:
The fiscal analysis and the Staff Report do a good job of describing the value of what is being received … the costs that the City is going to avoid. However, their answer to the question of the value of what is being given away is “difficult to ascertain.” Let’s put “difficult to ascertain” into context.
At the January 23, 2019 BATF meeting the guest speaker was Mike Puckett the Western Regional Sales Manager for WAVE Business, covering the topic “ISP Market Demand for a Municipal Fiber Ring in Davis” In the course of his presentation Mr. Puckett told the Task Force members and staff that WAVE’s “Margin on retail internet services is 95%” That means Astound/WAVE is making 95 cents on every dollar they collect.
Where in the Staff Report is the analysis of that value that the City is giving Astound by granting Astound a franchise to use the City conduit for free?
To draw a parallel, the City granted Comcast a similar franchise back in 2005, and in that Franchise Agreement not only did the City (and School District and County) get monthly cable/internet services for no charge, the City also got an annual payment from Comcast for the value of the franchise. I have asked the Finance Director for the history of those Comcast payments. I expect to receive an answer soon.
Those annual payments from Comcast were for the value of what is being given away in that agreement. How hard would it be for staff and any consultants to simply include that “comparable” in the Staff Report. That way Council and the public would know “the rest of the story” and be able to better understand the real meaning of “fiscally net positive for the City.”
Putting all the above into personal terms, if you have a mortgage on your house and someone comes to you and says you can avoid having to pay your mortgage payments and your property taxes if you give the house away. Is that an offer that you would pounce on? That is what the City is considering here … avoiding costs, but giving away an asset. If you were personally considering such an offer for your house, wouldn’t the first thing you would do be to determine the value of your house? If you found that your house was worth $400,000 net after the mortgage balance, would you give it away for $0? I don’t think so.
Was there a competitive bidding process?
Interesting question… if City wasn’t actively seeking a provider, not necessarily a need to… but, still, good question…
I’ve been searching the archives for half an hour. Can anyone remind me which city council members voted in favor of this Astound Fiber Optics contract thereby killing DavisGIG?