3. Authorize budget changes as outlined in the Financial Impacts and Budget Actions section of this report.

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1 City Council Report To: From: Mayor and City Council City Council Meeting: March 1, 2016 Agenda Item: 3.B Jory Wolf, Chief Information Officer, Information Systems Department, Broadband Subject: Digital Inclusion Broadband Pilot Program Subscription Rates Recommended Action Staff recommends that the City Council: 1. Adopt the attached Resolution to establish monthly subscription rates for the City s Digital Inclusion Broadband Pilot Program. 2. Authorize the City Manager to waive proposed installation and subscription rates to Affordable Housing Providers, for the sole purpose of the City to deliver public broadband service to Community Rooms, located within affordable Multi-Housing developments with no less than 25% of its total units qualified as affordable units onsite, whereby Community Rooms are designated as common area rooms utilized for tenant child development services, educational purposes, career development, and other activities as specified by the City s Public Housing Agency. 3. Authorize budget changes as outlined in the Financial Impacts and Budget Actions section of this report. Executive Summary The City of Santa Monica adopted a Telecommunications Master Plan in 1998 to enhance quality of life, economic vitality, and delivery of government services through the strategic use of telecommunications technologies and infrastructure. In accordance with the Master Plan, the City has built a Municipal Fiber Network, CityNet. CityNet delivers voice, video, and data communications to City facilities; offers dark and lit fiber services to businesses; and provides free public Wi-Fi in over 36 City Wi-Fi hot zones located in public open spaces throughout the City. In October 2015, Council approved $175,000 in construction funding for a proof of concept Digital Inclusion Broadband Pilot Program (Broadband Pilot) to provide fiber optic services to 10 Santa Monica affordable housing properties to address the digital divide for low income housing residents. City staff has conducted research on network equipment, residential fiber optic installation techniques, and operational management to design and propose a citywide Gigabit broadband offering to residents of Multi-Dwelling buildings. Currently, staff is conducting a feasibility analysis and must obtain subscriber testing data for feedback on service performance, to establish rates to attain cost recovery, and to develop a budget 1 of 9

2 for resource planning purposes. City staff proposes to establish subscription rates for delivery of services to residential buildings in order to recover the costs of providing the service, and to obtain service data for individual housing units to be used for the feasibility analysis. The proposed subscription rates are as follows: General Rates Discounted Rates for Utility Public Assistance Program Participants Services Monthly One-time Services Monthly One-time Subscription Installation Fee Subscription Installation Fee 1 Gigabit $69.00 $ Gigabit $48.00 $ Gigabit $ $ Gigabit $ $ Staff also proposes that subscription and installation services be offered at no cost to Affordable Housing Providers, for the sole purpose of the City to deliver public broadband service to Community Rooms, located within affordable Multi-Housing developments with no less than 25% of its total units qualified as affordable units onsite, whereby Community Rooms are designated as common area rooms utilized for tenant child development services, educational purposes, career development, and other activities as specified by the City s Public Housing Agency. Staff estimates that the Broadband Pilot subscriptions to individual housing units will generate $15,000 in revenues for fiscal year The revenue estimate is based upon the completion of 24 service installations to individual housing units in FY with existing staff and budget. Background The City of Santa Monica adopted a Telecommunications Master Plan in 1998 to enhance quality of life, economic vitality, and delivery of government services through the strategic use of telecommunications technologies and infrastructure. In accordance with the Master Plan, the City has built a Municipal Fiber Network, CityNet, to enhance delivery of government services, improve performance and lower costs of telecommunications services for City facilities and businesses, and to spur economic growth. On April 25, 2006 (Attachment A), Council authorized the City Manager to negotiate and execute dark fiber lease agreements with Google Inc. and other interested parties should those opportunities exist. The City s dark fiber lease offering continues to experience a steady demand from large corporations in the technology, health and entertainment industries. 2 of 9

3 On June 22, 2010 (Attachment B), Council authorized the City Manager to negotiate and execute a Lit Fiber agreement with Ocean Ave LLC and other interested parties requesting lit fiber service. The City introduced Lit Fiber service to businesses during an economic period marked by an influx of tech startups launching and expanding in Santa Monica. With dedicated broadband speeds ranging from 100 Megabits per second to 100 Gigabits per second, new tech ventures obtained affordable and globally competitive broadband speeds from their early startup stage to their Initial Public Offering (IPO). With the prior success of the City s broadband initiative, the Broadband Pilot was identified among a list of shovel-ready projects initiated to support the Strategic Priorities established by Council on August 23, 2015 (Attachment C). The lack of broadband access, adoption, and affordability have contributed to the digital divide affecting low-income families. With the goals of offering affordable 1 Gigabit broadband access to over 400 affordable housing units, the Broadband Pilot supports the City Council strategic initiatives for maintaining an inclusive and diverse community, and enabling a life-long learning community. Council approved funding for these shovelready projects on October 27, 2015 (Attachment D). The Broadband Pilot was appropriated $175,000 in funding for construction costs to extend the fiber optic network into 10 affordable housing buildings and network equipment costs to enable broadband service delivery from the telecommunication room of each building. With the primary goal of closing the Digital Divide, the Broadband Pilot will be used to conduct analysis on the operational resources required to scale broadband service delivery to all affordable housing developments. The Broadband Pilot will also assess the feasibility of introducing a citywide residential Gigabit broadband service by testing service performance under a variety of service and installation conditions. The affordable housing buildings included in the Broadband Pilot vary in their existing telecommunications infrastructure, building age and architecture, offering an opportunity for staff to test several interior infrastructure and cabling installations that could be applied to additional affordable housing buildings and multi-dwelling buildings citywide. 3 of 9

4 The feasibility analysis requires subscriber testing data to be used for feedback on service performance, to establish rates to attain cost recovery, and to develop a budget for resource planning purposes. Staff proposes to establish subscriber rates for residents requesting the City s Gigabit Broadband offering in their individual housing units. Discussion CityNet has served as an effective economic development tool to support the local business community with globally competitive broadband speeds at an affordable cost. The broadband initiative has continued to innovate and adopt the latest technologies to ensure broadband services are considered globally competitive by capacity, speed, and customer service. CityNet currently offers Gigabit broadband only to businesses located in commercial buildings. Residents have requested the City provide Gigabit broadband services to their homes since the City s Incumbent Local Exchange Carrier (ILEC) or local phone company, and cable carrier do not offer such residential services. Globally, the Organization for Economic Co-operation and Development (OECD) compares broadband statistics for more economically developed countries. The OECD ranked the United States 30 th out of 34 in affordability, for fixed-broadband prices per megabit per second (Mbps) of advertised speed. The U.S. rate of $0.59 (USD) per Mbps is far more costly than Japan, ranked 1 st in affordability with a rate of $0.02 (USD) per Mbps, Korea ranked 11 th with a rate of $0.22 (USD) per Mbps, and Canada ranked 18 th with a rate of $0.30 (USD) per Mbps. The United States also ranked low in terms of broadband speed, sharing the bottom ranking of 24th with ten other countries for 0% of their populations subscribing to broadband speeds faster than 100Mbps. Korea ranked 1 st in speed tier comparisons, with over 34% of their inhabitants subscribing to broadband speeds greater than 100Mbps, while Japan has over 19% of their population subscribing to broadband speeds greater than 100Mbps. In 2010, Google launched their Google Fiber competition to offer one U.S. city, Gigabit broadband to highlight the consumer demand for globally competitive broadband, and the benefits of Gigabit broadband to a community. More than 1,100 cities across the 4 of 9

5 U.S., including Santa Monica, applied to be the first recipient of Google s fiber optic broadband services. Since the launch of Google s Fiber competition, a number of U.S. cities, municipalities such as Chattanooga, Tennessee and Lafayette, Louisiana have launched Gigabit initiatives and adopted rates similar to Google Fiber. The Digital Divide in the U.S. highlights economic disparities prevalent in broadband access and adoption. The Pew Research Center estimates that 40% of U.S. households with school age children and incomes below $25,000 do not have high speed broadband at home. The 2014 Field Poll by Field Research Corporation reported in California, 47% of households earning annual incomes less than $20,000 do not have access to the internet at home. The Field Poll also found that in households with broadband access other than a smartphone, parents were 84% likely to use the internet to help their children learn and 75% likely to obtain information on their children s homework and grades. Lack of broadband at home can create disadvantages to residents requiring broadband for education, job application searches, health information, news, communicating online and through social media. Santa Monica s Digital Inclusion Pilot Program was established with the goals of both eliminating the digital divide between low income and higher income wage earners, and eliminating the gap in broadband affordability and speed between the United States and the other more economically developed countries, as measured by the OECD. The proposed broadband pilot subscription services of 1,000 Mbps and 10,000 Mbps, would globally rank among the highest speed tier (>100 Mbps), and proposed broadband general rates would rank 2 nd in affordability by megabits per second at $0.07 per Mbps for 1,000Mbps and $0.04 per Mbps at 10,000Mbps. Broadband Pilot Subscription General Rates Staff proposes to establish subscription rates for Broadband Pilot services, to recover the costs of providing the service, test service performance, and obtain operational data related to individual housing unit service delivery. The proposed general subscription rates are as follows: 5 of 9

6 General Rates Services Monthly Subscription One-time Installation Fee 1 Gigabit Broadband $69.00 $ Gigabit Broadband $ $ The proposed general rates are competitive with U.S. Gigabit broadband market rates. The unbundled rates for early adopters of residential Gigabit broadband service include Google Fiber ($70.00/month), City of Chattanooga, Tennessee ($69.95/month), and City of Lafayette, Louisiana ($109.95/month). Rates for residential broadband service greater than 1 Gigabit speeds are varied, and are currently not offered by Google Fiber. Lafayette offers 2 Gigabit service for $ per month with a 4 year contract term, and Chattanooga recently offered 10 Gigabit service for $ per month. In Santa Monica, the local phone company and cable company do not offer 1 Gigabit residential service at this time. Proposed rates account for variances in cost of living, Santa Monica s Living Wage and Minimum Wage Ordinances, among the comparison cities. In addition, the proposed rates will capture cost recovery for subscriber s temporary use of customer dedicated network equipment, broadband, and fiber asset during testing. The general rates would apply to households requesting subscription to the Broadband Pilot, yet do not qualify for the California Utility Public Assistance Programs required to obtain discounted rates. Broadband Pilot Subscription - Discounted Rates To effectively support broadband adoption among communities that are historically underserved in terms of high speed broadband access, staff has identified existing California utility rate reductions for households meeting specific income thresholds. The utility public assistance programs and discounts are as follows: California Utility Public Assistance Programs Utility Program Discount Southern California Edison (electric) CARE 20% Southern California Edison (electric) FERA 30% Southern California Gas (gas) CARE 20% Santa Monica Water Department (water) CARE 20% 6 of 9

7 Staff proposes discounting the broadband subscription rate by 30% for residents currently participating in any California Utility Public Assistance Program, including the California Alternate Rates for Energy (CARE) program offered by Southern California Edison, Southern California Gas, or the Santa Monica Water Department; and the Family Electric Rate Assistance (FERA) programs offered by Southern California Edison. To qualify for the discounted rate, subscribers would be required to provide documentation verifying active status in either the CARE or FERA programs. The proposed discounted subscription rates are as follows: Discounted Rates for California Utility Public Assistance Program Participants Services Discounted Monthly Subscription 1 Gigabit Broadband $48.00 $ Gigabit Broadband $ $ Discounted Onetime Installation Fee Waiver of Installation and Subscription Rates With the goal of closing the digital divide, staff proposes that subscription and installation services be offered at no cost to Affordable Housing Providers, for the sole purpose of the City to deliver public broadband service to Community Rooms, located within affordable Multi-Housing developments with no less than 25% of its total units qualified as affordable units onsite, whereby Community Rooms are designated as common area rooms utilized for tenant child development services, educational purposes, career development, and other activities specified by the City s Public Housing Agency. Currently, Community Rooms in Broadband Pilot buildings have internet speeds of 3 Mbps or less, and service has proved inadequate to support webbased basic computer training to a classroom of adult tenants, afterschool homework assistance for K-12 students, and more advanced digital literacy programs. The City will provide the network equipment, hardware, and software to deliver a fixed-wired Gigabit Broadband connection, and install at least one computer desktop per Community Room. The City will enable Wi-Fi service within the Community Room, for use by tenants participating in Community Room activities approved by the City s Public Housing Agency, within the Community Room. 7 of 9

8 Terms of Use As a residential Broadband Pilot, the existing cost expenditures to provide CityNet s business-class, 24/7 network support offered to business customers, would increase service costs beyond a marketable consumer rate. During the Broadband Pilot, the City will not provide any service warranty, express or implied, and customers may opt out of the pilot services by not renewing their monthly subscription and returning City equipment. Furthermore, available broadband speeds indicate the maximum data transfer rate offered by the network device, but does not guarantee broadband speeds will be equivalent to maximum broadband speeds. Network support and response times will be offered at best effort, and customer support will not be available outside of normal business hours at City Hall. At the conclusion of the pilot, staff will evaluate the additional resources and staff required to offer any service level assurances (SLAs) for broadband subscriptions to residential customers. Staff estimates that the Broadband Pilot subscriptions to individual housing units will generate $15,000 in revenues for fiscal year The revenue estimate is based upon the completion of 24 service installations to individual housing units in FY with existing staff and budget. Financial Impacts and Budget Actions The Digital Inclusion Broadband Pilot is anticipated to generate revenues of $15,000 for FY A revenue budget will be established at account to reflect the implementation of this program. Funds for the Digital Inclusion Pilot Program construction in the amount of $175,000 are available in the FY Strategic Projects account number SC Prepared By: Gary Carter, Community Broadband Manager 8 of 9

9 Approved Forwarded to Council Attachments: A. April 25, 2006 Staff Report (web link) B. June 22, 2010 Staff Report (web link) C. August 23, 2015 Staff Report (web link) D. October 27,2015 Staff Report (web link) E. Digital Inclusion Broadband Resolution F. Written comments 9 of 9