SAN JOSE CAPITAL OF SILICON VALLEY

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1 CITY OF C: *2 SAN JOSE CAPITAL OF SILICON VALLEY TO: HONORABLE MAYOR AND CITY COUNCIL COUNCIL AGENDA: 9/22/15 ITEM: 4.3 Memorandum FROM: Kim Walesh SUBJECT: MASTER AGREEMENT FOR TELECOMMUNICATIONS FACILITIES DATE: August 31,2015 "TPXAOSH>, Date f/yo/zs' RECOMMENDATION Adopt a resolution: a) Approving a Master Agreement for the Non-Exclusive Installation and Property Use of Telecommunications Facilities in the Right-of-Way and on City-Owned Property ("Master Agreement") for a 15-year term; b) Approving a standard Site License Agreement ("SLA") for a five year term with two additional five-year options to extend up to five years each; c) Approving a standard usage fee schedule based on a site's location within the city, equipment space requirements, and effective radiated power (ERP) output of the antenna facility; and d) Authorizing the City Manager to execute the Master Agreements and Site License Agreements and all other documents necessary to complete a transaction. OUTCOME The Master Agreement and Site License Agreement will streamline the process of leasing individual sites to a telecommunications provider. They will align the City's Telecommunications Program with market rates and current technology. Council approval of a Master Agreement will allow the City to enter into an agreement with a telecommunications provider for a 15-year term. Council approval of a standard Site License Agreement will allow the City to lease individual sites to a telecommunications provider that has an executed Master Agreement for a five-year term with two additional five year extension options during the term of the Master Agreement.

2 Page 2 Council approval of a standard usage fee schedule will allow the City to collect market rate fees for the leasing of individual sites to a telecommunications company as provided in a SLA. The usage fee for an individual site is based on its location within the City, the amount of space required for their equipment, and the effective radiated power (ERP) output of the antenna facility. BACKGROUND In 1996, Council approved City Council Policy 7-10 to establish a policy and a set of guidelines for the lease or use of City-owned land, buildings, light poles, street lights or other City facilities for the placement of communication facilities by private telecommunications companies. As the telecommunications industry expanded, and the demand to lease City-owned property increased, Council approved a standardized, single-site Non-Exclusive Property Use Agreement and usage fees in August Between 2001 and 2006, the City executed a separate agreement for each individual site leased by a telecommunications provider. During that time, the industry continued to expand and the demand to lease City-owned property continued to increase. In 2006, to help streamline this process, Council approved a standardized multi-site Non-Exclusive Installation and Property Use Agreement. This allowed the City to lease multiple sites at the same time to a telecommunications provider with a standard agreement. Between 2007 and 2012, Real Estate staff conducted an outreach campaign to attract telecommunications providers to lease City-owned property. Many of the City's approximately 40 existing contracts were initiated during this time period, and nearly all of the major wireless carriers, including AT&T, T-Mobile, Sprint and Metro-PCS, have telecommunications facilities on City-owned property. In 2010, San Jose was listed by Forbes as #11 of "America's Most Wired Cities." Since 2013, staff has worked to develop a Master Agreement and Site License Agreement model. With this model, the City could enter into a fifteen year Master Agreement with a telecommunications provider, and then use a Site License Agreement (SLA) to approve and lease individual sites on an ongoing basis within the terms of the Master Agreement. Each SLA will have a term of five years and a maximum of two five-year options, which will be co-terminus with the expiration of the underlying Master Agreement. The Usage Fee for each site will be determined by the Usage Fee Schedule in the year each particular SLA is initiated, and the Usage Fee will automatically increase by 3% each year. The Master Agreement and SLA model will help to streamline the process of leasing individual sites to a telecommunications provider. The current Multi-Site Property Use Agreement requires the City to enter into a new agreement each time a new City-owned site is leased by a telecommunications provider. Under the Master Agreement and SLA model, the City may execute a fifteen year Master Agreement with a telecommunications provider. Once a Master

3 Page 3 Agreement has been executed, the provider can request to add new sites to its network periodically through the use of a two-page SLA during the term of the Master Agreement. In addition, the Master Agreement reflects and sets guidelines for cellular technology currently demanded and deployed by telecommunications providers. The current Multi-Site Property Use Agreement is specific to macro cell towers, and does not allow for increasingly demanded, smaller antenna facilities, including "small cells" and "micro cells" sites. The Master Agreement allows for a wide range of antenna facilities, including small cell stations which may provide cellular coverage for an area of a few city blocks, micro cell stations which may provide coverage for an area of a square mile, and macro cell stations which may provide coverage for a much larger geographic area. < The proposed standard Usage Fee Schedule also reflects a wide range of antenna facilities, and provides that fees increase as space requirements increase, or as effective radiated power output increases, or if the location of the facility is in a higher density zone within the City. The positive correlation between fees, space, power output and density is based on the logic that the larger and more powerful an antenna facility becomes and the more customers that can be served, there will be more potential revenue for a telecommunications provider. Discounted usage fees for less densely-populated zones provide an economic incentive for telecommunications providers to locate antenna facilities in these areas, which are often underserved with cellular coverage. This economic incentive is aimed to help improve cellular coverage for the businesses, residents, and visitors in these underserved areas. ANALYSIS Over the last two decades, the City of San Jose has established a robust telecommunications facilities leasing program, which has the dual benefit of generating General Fund revenue and supporting the growing cellular communication needs of San Jose businesses, residents, and visitors. Accessibility to cellular coverage plays a vital role in bridging the Digital Divide and fostering equitable growth and access to information in all of our communities. It is in the strong interest of San Jose to continue the tradition of being one of the nation's "Most Wired Cities." The telecommunications industry is ever-evolving, and the adoption of smart phones, mobile web browsing, and streaming video has led to exponential growth in demand for cellular data. According to Cisco Systems, mobile data traffic of 2014 was nearly forty-five times the mobile data traffic of Last year, the number of connected mobile devices in use surpassed the world's entire population. In order to support this enormous demand for cellular data, providers are deploying more compact, localized "small cell" and "micro cell" stations to supplement the shortfalls of traditional larger macro cell stations. The two common characteristics used to describe wireless cellular signals are coverage and capacity. Coverage describes the area of reach, and capacity describes the volume of data traffic. Over flat geography, a macro station may provide coverage for a radius of several miles. In a suburban area, with lower levels of data traffic than an urban

4 Page 4 center, a macro cell station may have sufficient capacity to meet the data traffic needs of the area it serves. By contrast, tall, dense buildings in an urban environment create physical barriers to radio frequencies, limiting the potential coverage area of a cell station. Likewise, densely populated areas with high levels of data traffic require more capacity. Typically, small cell and micro cell stations are designed to provide localized coverage and capacity to supplement the data capacity of macro cell sites. (Refer to Figure A.) Macro Site Figure A. Illustration of small cell stations supplementing the data capacity of a macro cell station to support the cellular data traffic in an urban area. The enormous demand for cellular data necessitates the growth, advancement and diversity of wireless networks. Over the past twelve months, the City has received considerable and persistent interest from telecommunications providers to install and operate small cell and micro cell stations on City-owned property, including in the public right-of-way. In August 2006, the current Multi-Site Property Use Agreement replaced the Single-Site Property Use Agreement in order to allow the City to lease multiple sites to the same provider under one agreement. While this helped to streamline the telecommunications facilities leasing process, the current Agreement set guidelines and rates primarily for macro cell stations, which was the standard cellular network infrastructure used at that time. The current agreement and its coordinating rates do not allow for distinguishing between small cell, micro cell, and macro cell technology. Over the past nine years, the marketplace has drastically changed, and there is a strong market demand for an agreement and fee structure that will account for small cells and micro cells in addition to macro cells. As telecommunication providers approach the City to lease sites for small cells and micro cells, an agreement and fee schedule appropriate to these types of sites are

5 Page 5 critical to efficiently meet the market demand for telecommunications services of San Jose businesses, residents, and visitors. The Proposed Master Agreement The proposed Master Agreement was developed in coordination with the City Manager's Office, the City Attorney's Office and the Information Technology Department, along with multiple telecommunication industry experts, including an independent consultant, representatives from Verizon, AT&T, and additional third party industry participants. The structure of the Master Agreement is designed to further streamline the telecommunications site leasing program. Under the proposed agreement the City can execute a fifteen year Master Agreement with a telecommunications provider, which may request and apply for individual SLAs on an ongoing basis throughout the term of the Master Agreement. An SLA is required to install and operate each individual small, micro, or macro cell site on City-owned property. Each SLA is for one five-year term with up to two five-year options, which are to be coterminous with the underlying Master Agreement. If this Master Agreement is approved by Council, no future Council action will be needed in order for the City to enter into agreements with telecommunications providers or issue SLAs. Telecommunications providers may request to lease space on City-owned property, including vacant land, City-owned buildings, and certain assets within the public right-of-way, including light poles. Providers must submit to the City specific information pertaining to their proposed use and facilities, including drawings, blueprints and equipment specifications for all components to be located at a site. Each SLA application is subject to City approval, and applicants will be required to obtain all necessary permits. Fees are determined by the characteristics of each individual site, using the criteria of location within the City, space requirements of the equipment, and the ERP output. The City reserves all pricing classification rights and may impose additional fees if a site plan falls outside of the parameters of the pricing model. Furthermore, the City reserves the right to deny any SLA application on the basis of aesthetics or location. The Usage Fee Schedule Staff conducted extensive research and outreach both internally and externally to develop the proposed Master Agreement, Site License Agreement, and Usage Fee Schedule. Other municipalities' telecommunications policies, including those from San Francisco, Los Angeles, New York, Phoenix and Scottsdale, were obtained and used to benchmark the proposed Master Agreement and Usage Fee Schedule. While the proposed Usage Fee Schedule contains a similar range of prices as those of other cities, the criteria for determining the fee for a particular site is an innovative approach that is not known to be in use in any other municipality or jurisdiction. The typical criterion used by other cities' telecommunications site leasing fee schedules is equipment size, measured in cubic feet.

6 Page 6 The proposed Usage Fee schedule is based on three criteria: (i) location within the City, (ii) power output, and (iii) equipment size. (Please refer to Exhibit 1: Usage Fee Schedule.) Varying fees for the different zones within the City effectively price sites relative to population density and demand. For example, higher fees for the Downtown area reflect the higher demand for real estate and the higher volume of customers served by a telecommunications provider. Accordingly, lower fees for the Coyote Valley and other areas reflect the lower volume of customers served and provide an economic incentive for telecommunications providers to locate antenna facilities and improve cellular coverage for San Jose businesses, residents, and visitors in those areas. (Please refer to Exhibit 2: Zone Map.) Similarly, as the effective radiated power (ERP) output of an antenna facility increases, it can provide coverage to a greater area or provide more robust data capacity in a local area. Greater coverage and/or more robust capacity allow a telecommunications provider to serve more customers and generate more revenue. The proposed Usage Fee Schedule reflects increased ERP output accordingly. As technology generally becomes smaller yet more powerful, using ERP output as a fee criterion allows the Usage Fee Schedule to stay relevant as new, smaller radio equipment is deployed by telecommunications providers. Finally, the Usage Fee Schedule accounts for the physical space requirements of the equipment, measured in cubic feet, as a basic economic and real estate principle. There is an added benefit, and therefore an added value, to additional space used. This basis provides an economic incentive for telecommunications providers to use the most efficient, smallest and therefore least visually-obtrusive equipment as possible. Usage Fees will automatically increase by 3% each year. If market rates increase or decrease by more than 3%, staff will return to Council with a recommendation to adjust the Usage Fee Schedule accordingly. Outreach Efforts While a significant goal of the proposed Usage Fee Schedule is to appropriately price the use of City-owned assets, another critical factor is to develop a Master Agreement that is market friendly. Staff developed the proposed Master Agreement with the input and support of key players in the industry, including Verizon, AT&T, and third-party operators including Crown Castle. In addition, staff received guidance from David Witkowski, a professional consultant and leader of Joint Venture Silicon Valley's Wireless Communication Initiative. Industry representatives provided commentary and input that helped refine terms that can work with all parties. Staff is confident that the proposed Master Agreement and Usage Fee Schedule will be welcomed by the industry and allow the City to help meet the cellular data needs of San Jose businesses, residents, and visitors. Internally, staff worked across departments and with City senior staff to develop the proposed Master Agreement and Usage Fee Schedule. On June 22, 2015, staff presented the proposed agreement and fees to the Community and Economic Development Committee.

7 Page 7 LED Light Pole Conversions The recent Request for Proposals (RFP) for LED light pole conversions allows the City to consider proposals from telecommunications providers that wish to offer LED conversions in exchange for antenna facility site leases. The proposed telecommunications Usage Fee Schedule will become the basis of value for these proposals. In this case, the City will receive the equivalent value of LED light pole conversions for a specified term of the site lease., At the end of the specified lease term, and if the telecommunications provider wishes to renew its lease, the City will collect the approved usage fees as General Fund revenue. Revenue Implications of the Proposed Master Agreement Currently, the City's telecommunications site leasing program includes approximately forty individual sites. This program generated approximately $1,400,000 in and, prior to City Council approval of the proposed Master Agreement, was assumed at approximately $900,000 for A goal of the Usage Fee Schedule was not only to reflect current technology and market rates, but also to maintain the integrity of the existing telecommunications program leases and to mitigate disruption of the leasing program's current revenue stream. The new proposed Usage Fee Schedule will not impose dramatic shifts in cost for the existing telecommunication tenants to renew under the Master Agreement. Current tenants renewing under the proposed Master Agreement and Usage Fee Schedule will pay similar, and in some cases, lower fees for their existing sites. The inclusion of the new market segments of micro and small cell stations are expected to result in greater revenue for the City. While it is difficult to estimate the actual revenue impact, some telecommunications providers have requested as few as fifty and as many as four hundred small cell sites. The average fee for the lowest ERP and equipment size tier is $3,033 per year, so one hundred of these sites could result in over $300,000 per year of General Fund revenue, and three hundred of these sites could result in over $900,000 per year in additional General Fund revenue or the equivalent value of LED light pole conversions. EVALUATION AND FOLLOW-UP Based on Council direction, staff will negotiate and execute a Master Agreement with various telecommunications providers and implement the agreement, along with the respective individual Site License Agreements and the Usage Fee Schedule.

8 Page 8 POLICY ALTERNATIVES Alternative: Continue to use the current Multi-Site Installation and Property Use Agreement. Pros: Continue to provide General Fund revenue to the City through the telecommunications site leasing program. Cons: Will prevent City from capturing additional revenue by expanding the telecommunications facilities leasing program to include current technology and market rates. It will also prevent improved cellular coverage and capacity that would become available to San Jose businesses, residents and visitors. Reason for not recommending: This alternative will not allow City staff to contract with telecommunications providers who wish to deploy current micro and small cell station technology, resulting in sub-optimal General Fund revenue collection and sub-optimal cellular coverage and capacity throughout the City. PUBLIC OUTREACH This memorandum will be posted on City's website for the September 22, 2015 City Council Agenda. The installation of telecommunication equipment and antennae on City-owned property requires notification of owners within a certain number of feet from the project, depending on the project and location, as part of the permit process and Planning Department approval. Permits are required on all antenna facilities external to City facilities, on City-owned property, and in the public right-of-way. COORDINATION This memorandum has been prepared in coordination with the City Attorney's Office, the City Manager's Budget Office and the Information Technology Department. COST SUMMARY/IMPLICATIONS Adoption of the Master Agreement and Usage Fee Schedule will expand revenue-generating opportunities by allowing for the lease of City-owned property and assets in the public right-ofway for the installation and operation of a range of cellular station types. Currently, the Adopted Budget for the General Fund estimates revenue of $900,000 for Rental of Communications Facilities. With the ability to distinguish between and set rates based on small cell, micro cell, and macro cell technology and their ERP, it is likely that the City will receive additional revenues as leases transition to the proposed Master Agreement and new Usage Fee Schedule. Any additional revenues resulting from this Master Agreement will be monitored and adjustments may be brought forward as part of the budget process. The Master Agreement and Site License Agreement model will streamline the leasing process and minimize staff time and the associated costs.

9 Page 9 CEOA Exempt, File No. PP /s/ KIM WALESH Deputy City Manager Director of Economic Development For questions please contact Nanci Klein, Assistant Director of Economic Development at (408)

10 Exhibit 1: Usage Fee Schedule Zone 1 Effective Radiated Power (ERP) Output Enclosure Size 0-10 Watts Watts Watts 361+ Watts 0-30 Cu. Ft. $ 2,625 $ 5,250 $ 10,875 $ 22, Cu. Ft. $ 5,063 $ 6,938 $ 13,313 $ 24, ,500 Cu. Ft. $ 10,875 $ 12,750 $ 19,125 $ 30,375 Zone 2 Effective Radiated Power (ERP) Output Enclosure Size 0-10 Watts Watts Watts 361+ Watts 0-30 Cu. Ft. $ 2,975 $ 5,950 $ 12,325 $ 25, Cu. Ft. $ 5,738 $ 7,863 $ 15,088 $ 27, ,500 Cu. Ft. $ 12,325 $ 14,450 $ 21,675 $ 34,425 Zone 3 Effective Radiated Power (ERP) Output Enclosure Size 0-10 Watts Watts Watts 361+ Watts 0-30 Cu. Ft. $ 3,500 $ 7,000 $ 14,500 $ 29, Cu. Ft. $ 6,750 $ 9,250 $ 17,750 $ 32, ,500 Cu. Ft. $ 14,500 $ 17,000 $ 25,500 $ 40,500 Additional fees apply for new, non-existing vertical structures, and sites with more than 4 antennas. Additional price adjustments can be made for stealth or concealed site (fee decrease) or for particularly visually-displeasing sites (fee increase).

11 Exhibit 2: Zone Map Zone 3: South of Hwy 237, west of Coyote Creek, north of Hwy 280, and east of Santa Clara. Zone 3 includes the North San Jose corridor, Downtown, San Jose International Airport, the SAP Center and the Santana Row/Valley Fair area. Zone 2: South of Hwy 280, west of Coyote Creek, north of Metcalf Road, and east of Cupertino, Saratoga, and Los Gatos. Zone 2 includes West San Jose, Willow Glen, Cambrian, South San Jose and Almaden. Zone 1: North of Highway 237, east of Coyote Crfeek, and south of Metcalf Rd. Zone 1 includes Alviso, Berryessa, East San Jose and Coyote Valley