City Council Minutes

Thursday, August 10,2006

AUGUST 10, 2006, 4:00 PM

Mayor Daniel McArthur
Council Member Rod Orton
Council Member Gail Bunker
Council Member Suzanne Allen
Council Member Larry Gardner
City Manager Gary Esplin
City Attorney Shawn Guzman
City Recorder Gay Cragun

Council Member Bob Whatcott

The meeting convened in the City Council Chambers. Mayor McArthur called the meeting to order and welcomed all present. The pledge of allegiance was led by Larry Gardner and the invocation was offered by Alex Wilkie.


BROADWEAVE: Steve Christensen, CEO of Broadweave Networks, advised that Broadweave?s specific focus is on new communities so that they can deploy fiber to home networks and deliver voice video and data over a single connection to a home at 1000 times the speed of cable and DSL. Broadweave was the first carrier to deploy primary line voice-over IP and is recognized as one of the top 100 broadband companies in the country. He then reviewed the background of telecommunications and cable law, and explained that in 1996 the federal Telecommunications Act defined the difference between big companies and smaller companies, setting forth the framework to deal with each of these two classes of carriers. He explained that the build-out requirement impacts the threshold decision of whether competitors can go into the market or not and prohibits smaller competitors from entering the market. He stated that the outdated cable law was not meant to apply to telephone companies. Build-out favors larger companies, and if build-out requirements are placed on smaller companies, they will simply bypass the city. The build-out requirement was originally intended to prevent economic redlining and exclusion of poorer areas from the build-out plans. The intent of the act is contradicted by its implications. He explained that the fallacy of the build-out requirement is that if there is not the requirement, service providers won?t deliver service to some areas of the city. The FCC has stated that municipalities are not supposed to regulate any services delivered by IP and IP service providers are not subject to local franchising authority. He stated the cable act of 1984 is obsolete and was never intended to regulate phone companies and was enacted when there was no viable satellite TV service. Broadweave?s position is that the specific build-out provisions of the cable act would not apply to Broadweave as it conflicts with telecom law, and telecom law expressly prohibits build-out requirements. The cable act gives municipalities local franchising authority and the flexibility to welcome both large and small competitors, however, with a build-out requirement he felt the City would exclude smaller providers and laws are being passed in Congress to enable companies to get a national franchise, without a build-out requirements, as it has been determined that a build-out requirement is bad for competition and not good for customers. He stated he hoped the City Council would rule in favor of welcoming both large and small companies and not apply a build-out requirement to any of the service providers.

TRI-AXIS: Heath Snow, legal counsel for Tri-Axis, stated that competition would bring service to new areas without a build-out requirement, as this is what the country is based on. Tri-Axis was created by private development for the Sun River community by its developers in connection with a private party and its head-end facility is located here. Tri-Axis is currently providing the TV portion of its services through traditional means. The reason the company was created was to meet a need in the market. There is a need to allow for franchises, and Tri-Axis is working under a provisional franchise with the City. A build-out requirement would make it harder for Tri-Axis to compete. Tri-Axis has strong financial backing and can provide internet, phone and TV to residents and is supportive of the idea of allowing issuance of franchises without the build-out requirement.

Ted Crowther, Technical Manager for Tri-Axis, commented that any decision the City Council makes today would be different in two to three years due to the changing nature of technology.

QWEST: Jerry Fenn, President of Qwest, presented a power-point presentation. He requested a City-wide franchise. Qwest?s intention is to have a phased roll-out of services, deploying services as broadly and quickly as it can. As the demand for service grows, Qwest?s investment and deployment will grow. Competition from facilities-based providers will bring residents the benefits of competition. He stated he felt it was unfortunate the cable company would do anything within its power to avoid Qwest interrupting its monopoly in St. George, and any business with an unfettered ability to raise prices 7.5% annually would not want competition. He explained that competition would provide choice, lower prices, tailored packages, and better customer service. One cable provider with a monopoly provides little incentive to invest or innovate, and its past track record is poor in meeting its commitments. There is clear evidence of a 7.5% annual price increase. With regard to a build-out requirement, this position is being used by the cable company to protect its monopoly position. A build-out requirement for a second entry company is not financially viable as there is no assured revenue stream, no customers, and there can never be a level playing field. In response to the argument that without a build-out requirement cherry-picking will be engaged in, this is the same argument AT&T made when it was threatened in its long distance market - and look what happened to long distance rates. Qwest will not discriminate in the provision of cable services, and its track record of DSL service is a testimony. There is no historical evidence to suggest Qwest ever discriminated or would in the future, and it will place in an agreement a prohibition against discrimination. The real issue is the build-out requirement. The cable company suggests that it is only fair for Qwest and other new entrants to construct an identical cable network in a short time to every home in the city. They want to require an overbuild of network. In 1996 the FCC and the courts said this was nonsense and to require build-out is a barrier to entry. As a result, from 1996 to 2006 there has been robust competition in the telecom industry and multiple competitors and prices have dropped. A level playing field does not mean identical terms or conditions. The cable company has 100% of the market share and has a head-start with the network and customers. A level playing field is achieved when competition is encouraged with franchises with no build-out. Qwest currently has franchises without a build-out requirement with Salt Lake City and South Jordan, and is in negotiations with Sandy, West Jordan, Draper, Highland, Roy, and Taylorsville, and other cities in Washington County. The agreement with Salt Lake City says that if Qwest has 51% of the customers, it will agree to build-out. Qwest has invested over $38,000,000 in St. George over the last five years and is on the pathway to spend that much again within the next five years, including a commitment to build fiber redundancy into Southern Utah. To reiterate, from a legal standpoint a level playing field does not require identical agreements or a build-out requirement. A level playing field is best achieved when a government does not impose barriers and gives its citizens a choice. He stated he hoped the free market would determine the outcome. There is a trend moving toward statewide franchises. If a build-out is required, then the cable company can compete for voice and data customers as they offer a triple play, but Qwest could not go after cable customers with a similar product. It would be unfair to force this outcome and would not be in the public interest. He committed that Qwest would not serve just new development and would work with administration to give assurances of that and serve existing communities as well.

Mary LaFaye, representing Qwest, advised that in the mid-90s, the only way Qwest could get into the Phoenix and Denver markets was with a build-out requirement. However, it quickly learned that this was not economically viable and had to negotiate out.

Steve Urquhart, representing Orange Broadband, advised that while the Cable Act of 1984 may be obsolete, it is still the law, and any bills which may be before Congress do not trump the laws on the books. He stated that while he heard what the cherry pickers want to do to serve new growth in high density areas, they did not touch on the issue of upgrading the existing plants. Cable has tons of competition and has lost 25% of its customers over the last five years. Triple providers and Skyview are cutting deep into Charter?s subscribers, and Qwest already has far more customers than the cable company. Charter has fiber all over the city because there is competition, and Qwest does not because there is no competition for them. He stated that cherry picking was a horrible policy and contradicts current policy. The City has to concern itself with the issue of who are the winners and losers. Qwest would not have to abide by the same plan or provide uniform or equal services as they are built out to go to far more homes than Charter. While Charter has not done an excellent job, it has done a good job of putting fiber in the ground. He stated that he has heard if Qwest does not get its way Denver will not send any more money here. Denver

does not have any money to send here because it is $15 billion in debt, and the way it is clearing off its debt is by not making capital investments. Orange will provide service to everyone and has real money and can provide first class telecommunication services to all neighborhoods. Build-out is a healthy policy.

William Schuler, representing Orange Broadband, advised that the City Council will define ?business model? by which telecommunication services are deployed throughout St. George. The choice is a business model or one that allows cherry picking. Orange is under contract to purchase Charter. The policy of the City has been to require build-out. Others are saying that if the City requires build-out, they will not come. That is their choice. Orange is saying that it will come to St. George with committed capital to build out evenly throughout the community. In contrast to new providers who will cherry pick, Orange will commit to what it will deliver and when it will deliver it evenly through the community if the existing policy is continued. There is nothing that can be provided by any other network that Orange cannot provide to every citizen in St. George. Orange will offer video-on-demand by the end of next year, commercial data services, home networking, digital voice services, digital voice options, enhanced 911, and will expand the call center. Orange is willing to make a commitment because it has the money to devote and the technical ability to do.

Steve Urquhart advised that the City has required uniform and equal provision of services, and Charter has a tremendous fiber optic backbone. All citizens will be treated as first-class citizens. He advised that Qwest had a poor record of standing up to its commitments, and is now in litigation with the State of New Mexico.

Council Member Orton inquired what would happen if in two years Congress mandated elimination of the build-out requirement.

Mr. Urquhart replied that Congress might or might not do this, but if they do, this is a risk that investors are willing to take. Orange Broadband is happy to run that risk.

City Manager Gary Esplin advised that the City is waiting for concrete written proposals and specifics, and suggested that any rebuttals to what has been said or positions statements be put in writing and submitted to the City.

Mayor McArthur commented that good points were made by all sides.

City Manager Gary Esplin advised that if the City receives a request for a franchise, it will be scheduled on a City Council agenda.

Mayor McArthur advised that the meeting would continue in the Administration Conference Room.

City Manager Gary Esplin explained that today?s presentation represents a culmination of a lot of work by staff and consultants so that when a development comes in, all can see how it fits in the overall plan.

Leisure Services Director Kent Perkins introduced staff members who were present.

Jan Striefel from Landmark Design presented a power point presentation of the master plan update draft plan. She then recommended holding a public hearing/open house for the public.

City Manager Gary Esplin suggested that one more work meeting be scheduled with the City?s financial consultant, as some of the recommendations are changes from the City?s current philosophy. Currently, developers are not required to pay for neighborhood parks. The impact fee schedule also needs to be changed to pay for community parks.

Mayor McArthur advised that he met with the NRCS who indicated that, without cost to the City, it will finish up along the river the rest of the way by the Doctor?s Free Clinic and go out around the Palms RV Park below the Millcreek Industrial Park.

Mayor McArthur advised that the Boulevard will be finished all the way to River Road.

The meeting then adjourned.

Gay Cragun, City Recorder