And as part of this agreement, in 120 days from the day that they are going to provide video service, they are going to move out of that document and apply before you for traditional cable franchise for Area 3 and 4. They will not be able to stand under the OVS agreement and offer video services.
In the ten years? In the ten years after 2? 138 10/31/00 PUBLIC PROPERTY, BILL 000452
At all, at all. It's specific in the document that the moment they offer video services to a customer and to a particular franchise area, they have to apply for a traditional cable franchise.
Within 120 days from the day they offer video service, so if they offered video service --
If people are going to be under their timetable, people in the first year of Area 3, I guess, is that the Northeast? To 3 or 4?
The first year of Area 4 build-out, six months into that, people will be receiving video, high-speed Internet, and other services. AND every year following that, more people will be hooked up to the video and other services. I understood from their testimony and Councilman Nutter's line of questioning that, in fact, if there's no agreement between the City and RCN at the end of two years, that the OVS 139 10/31/00 PUBLIC PROPERTY, BILL 000452 agreement, including video, could be extended over ten years through agreement between the Department and them.
The OVS agreement (unintelligible) is for two years and extends automatically every six months and can continue up to a ten-year period. All the interim OVS agreement does is allows them to be in the right-of-way. It specifically states that if they decide that in any area of the City that they want to offer video service, that they agree and the City agrees that they have to apply for a traditional cable franchise.
Let me ask you it another way. If after two years of the OVS agreement, there's not an agreement on a franchise, Areas -- I'm sorry, the areas that are completed in will now be unplugged from video services?
If Council does not give its approval for them to have a cable franchise, they cannot offer cable services in that area.
After the time that they 140 10/31/00 PUBLIC PROPERTY, BILL 000452 apply for an application to offer -- to apply for a traditional cable franchise.
We have an agreement with -- we're being asked to approve an agreement with them for two years to provide a bundle of services, including video. When -- I guess the --
The bill -- the bill is an interim agreement to allow RCN in the right-of-way.
It's a two-year agreement for them to be into the right-of-way and to be able to offer a bundle of services and to recognize their status. That's the basic of the document. The document then goes into specific terms about what provisions or concessions the City would like to receive in exchange for its authorization. And it is also lays this out in a very clear, constructive manner. When the RCN decides it wants to offer video anywhere in the City and they fall into a traditional boundary of a cable franchise, you have to come back and apply 141 10/31/00 PUBLIC PROPERTY, BILL 000452 for a cable franchise.
-- service being -- the video service being delivered to the first residents covered in Area 4.
No, in Area 4, we'd be talking about -- (Unintelligible, parties talking over each other.)
Or they could come back after this bill is approved and apply the next day for a traditional cable franchise for Areas 3 and 4.
What if we don't agree to grant that franchise after two years, what happens?
And the video 142 10/31/00 PUBLIC PROPERTY, BILL 000452 continues.
The video is not offered because they don't have a cable franchise. You got to have a cable franchise to offer the video service. The OVS agreement does not give you the right on itself to give you the right to offer video service.
Okay. I know you're sure of it; I don't know if I'm sure of it.
Because I can't imagine a situation where if RCN was trying and applying for a video franchise, that they have all of this money invested over a two-year period, that they are serving customers with video and other services, and for some reason or another, the Department or Council has not given approval, that they are just going to shut off the TVs.
Well, I don't think they would do that either. I think that we would be in a position where we have to work out either some sort of agreement or, you know, they would not have the right to continue to offer the video service without that cable franchise. 143 10/31/00 PUBLIC PROPERTY, BILL 000452
So we're in some ways restricting our ability -- let me change it. In some ways, boxing ourselves into having to do a deal for a franchise with RCN in the next two years.
Commissioner, I'd like to talk about the effect of the OVS versus the franchise agreement has on the customer. The franchise agreement, if it becomes a franchise, then there are certain fees that would be passed on back to the customer. I think our -- the citizens of Philadelphia need to know that the price that they sign up with RCN will immediately change. Their monthly service will become more expensive because there will be a franchise fee, which is required, that then applies -- then is sent to the customer. So what are we doing to make sure that 144 10/31/00 PUBLIC PROPERTY, BILL 000452 citizens that aren't familiar with this elaborate arrangements and traditional cable franchises or what they've been exposed to? I think it's important that people know that the price that they get today is going to change. And could you give me a feel for how much additional money would be charged the customer the minute it becomes a cable franchise?
Okay. If we were to put aside the discussion regarding whether it's an OVS or a cable franchise just for a second, but if we were to look at -- if they were offering video services in Philadelphia, we would require them to pay the City the same 5 percent gross revenue that the incumbents currently pay us today. And if you look at the traditional way that that cable franchise fee is passed on, it is passed on directly to the subscribers, every subscriber. On their bill, it says franchise fee, and it's 5 percent of whatever bill is.
So if RCN solicited me and said, Here, we're going to save you eight 145 10/31/00 PUBLIC PROPERTY, BILL 000452 bucks a month, that within a short period of time, another fee is coming my way, which will put me right back where I was before I switched.
Well, again, I don't want to put myself in that position of answering for RCN, but I would say that they would have to -- it would make sense to me that any discussion where they're offering pricing to their consumers to attract them to come to them would have to be -- the total package would include whatever gross revenue fees that would be incurred to the consumer. I think because it would be immediately apparent to you as soon as got that first bill 15 that if they told you the bill was $32 and it came in and it was $35, that you would see that the difference would probably be that franchise fee, and you would feel that you had not been given the full disclosure of the price.
Is there any way we can require RCN to let the customer base know that they intend to seek a franchise agreement and that, in fact, that means a bigger bill? Is there anything we can do legislatively or the Department of Public Property can do the make sure that that 146 10/31/00 PUBLIC PROPERTY, BILL 000452 is a disclosure?
Well, if I answer your question, it's that in the disclosure of this bill 5 that you have before you, it specifically lays out the fact that the City, under the traditional cable model, would want to know what rates RCN is charging its customer, would want to be able to answer those questions about customer's complaints about being disclosed proper information, and also, we would ask them to provide us all of the rates that they are eventually going to charge their subscribers. The bill spells out specifically the gross revenue formula which mirrors exactly what the incumbents currently use. I think it would be probably a disservice to RCN if they were trying to enter into the market and not fully disclose all of the details of their rates to their potential consumers.
I agree, but if there's a charge that doesn't exist for a period of 120 days after they turn on the first video, I doubt they'll be waving -- and I'm not speaking for them, I'm just -- this is me. They're waving 147 10/31/00 PUBLIC PROPERTY, BILL 000452 the flat that says, In 120 days, guess what, there's going to be another fee associated with the bill. So what I'm asking you -- and not too many of their customers, potential customers or the incumbent customers are going to read the bill, this bill, to learn the facts of the way this will be transitioning from one arrangement to another. So, again, what can we do or require?
Well, I think what we're going to require from them is a disclosure of how they plan to price and market the service to the subscriber so that we would have some idea of what and how they plan to display the information to a consumer that they try to sign you up. So if they try to sign you up today and said, Councilman Rizzo, we can offer you telephone services that will cost you $25 a month, and in 120 days, there will also be a bill for your cable service and it's going to be $12 more, and they did not include in that $12 what the gross revenue fee calculation was going to be, then if they disclose that information to us, it would give us the opportunity to maybe coach them and that this 148 10/31/00 PUBLIC PROPERTY, BILL 000452 information is not distilled in such a manner that a consumer would know that when they get their bill, it's going to be $12 hours, not $15.
It's part of the process because it's how we treat the traditional cable franchises.
Mr. Steel, do you have anything more to add other than what Mr. James has added?
I'm sorry. Commissioner, could you move your chair a little bit. Thanks.
Thanks. Sorry to interrupt. The 5 percent franchise fee is required under the OVS and will be itemized and passed through to the customer, just as it would under a franchise. So the move for our company to a franchise would be seamless, and the customer would see no difference in their bill. 149 10/31/00 PUBLIC PROPERTY, BILL 000452
Mr. James, do you have any other testimony? Okay, I want to get into some questions. If a large company cable company video provider with an economic wherewithal and solid business footing decided in the next two years to offer or to approach the City for a cable franchise for Area 3 and 4, would we be permitted to negotiate with them for a franchise?
So there's no 16 prohibition or exclusivity on the OVS agreement --
-- That would preclude any other additional competition --
-- in that area, okay. What are the financial penalties if construction is not completed throughout Areas and on the schedule that's been outlined for 150 10/31/00 PUBLIC PROPERTY, BILL 000452 us?
In the agreement that we would have, very similar to the incumbent -- and sorry to keep referring to them in the same manner -- we would ask them, as part of -- before they start their construction, to provide us with both a performance bond and a construction bond so that we would have some protection if there is some failure on their part to meet their obligations of their other build-out. We also have provisions under the -- liability provisions to go against them should there be defects or failures in their ability to perform under their construction. Part of our role in Public Property is to monitor very closely their build-out, and do that in a number of interactions with the company to make sure that we have the (unintelligible), the drawings, we have information relative to where and what streets they're going into. And we also ask them to set up a very detailed customer service plan that allows us to get feedback and provide detailed information to consumers that they're coming into that area so that we know how to handle the phone calls so that when we go back 151 10/31/00 PUBLIC PROPERTY, BILL 000452 and hopefully, through a much more engaged relationship with RCN, have the ability to have either biweekly or biweekly or monthly meetings, depending on the necessity to make sure that they're conforming to the plan before we get to the point where we would actually have to go against bonds.
What provisions are in the agreement that you could highlight for us that would adequately compensate the City for the use of public right-of-ways and the requirement to restore them to their original condition through the course of construction and build-out?
Well, the compensation is under the gross revenue, under that provision specifically. If I can find the other section.
If you don't have it at your fingerprints, then you can provide it to us. I guess the question is, if a subcontractor is hired by RCN to dig up a street to do something, and that contractor did not put the street back in the condition that he or she found it in, what would be our recourse, what's our compensation? You know, what do we do? 152 10/31/00 PUBLIC PROPERTY, BILL 000452
Yeah. If it's okay, if I can take some time, I could probably provide that back to you in writing.
Sure. Absolutely. It seems that RCN's construction timetable that are proposed in the agreement are much longer than those of previous franchise agreements, installations and system upgrades. Am I wrong in that it's a longer period of time? And if so, why are they getting more time than some of the incumbents?
Okay. To answer your question, it's not in the overall aspect, if you look at combined Areas 3 and 4, they're going to construction over seven years. If you compare that to the original cable franchises that took four years, that would be a total time of eight years for the two areas. So, seven years, it's pretty on a par if you combine it with the construction of two areas. If you look at the fact that they're going to have to over-build on top of an existing cable plan over an incumbent operator, that trying to hold them to the traditional time frame for 153 10/31/00 PUBLIC PROPERTY, BILL 000452 completion of a shorter time period will probably not be necessarily correct and probably not really feasibly accurate since they're going to have a lot more challenges before them coming into the market where there's existing wires and cables provided --
Because I think that the amount of time that it's going to require other people that move facilities and make ready conditions so that they can construct, it's going to take some involvement, it's going to take more than just when you come into the area and the only ones on the pole is PECO and Verizon; now you have Peco, Verizon, and the cable operator, and God knows who else could be up on that pole, and there are going to have to be clearance issues worked out and that takes time. So I think the time frame is reasonable.
Did Public Property hire a consultant of any kind or consultants to review RCN's business plan? And if so, what were the conclusions, and can we have a copy of that 154 10/31/00 PUBLIC PROPERTY, BILL 000452 report?
The Department of Public Property used 2CS International, Ed Rudder (ph.), who is our traditional consultant, who has consulted us on every other cable matter that we've had before you. He has prepared some findings; we can certainly make that available to you. Basically what we are able to kind of articulate to you is that they have the financial wherewithal to do what they say they can do, they show that they have the experienced people and the operation to do it, and it appears that they have a sound business plan to do that.
Could you make it available, please to us and members of the committee?
Were you aware of -- I mean, we've had some discussion about issues 155 10/31/00 PUBLIC PROPERTY, BILL 000452 raised by various segments of labor. Were you aware, during the course of the discussion, negotiating the OVS agreement, that there were existing problems, potential problems, or complaints relative to RCN's alleged business practices as it relates to organized labor and their employee workforce?
All I can say is that that never came up in any of the discussions that we had.
Okay. Talk a little bit about some of the possible consequences if Council delays or even just refuses to authorize this OVS agreement. What in your mind is -- what could happen?
I want to try to 156 10/31/00 PUBLIC PROPERTY, BILL 000452 get an overall picture of what all the possibilities are.
Sure. I mean, I think there's a number of possibilities that can occur. Assuming that if Council decided that this vehicle was not the vehicle that they thought was appropriate for RCN to do business in Philadelphia, there's a number of things you can do. We can go back to the traditional franchise application and tell RCN that we want you to apply specifically for Areas and for cable franchise and basically work out terms similar to what you have before you. What they can also do is, they can apply for a right-of-way agreement to be into the right-of-way and to be able to offer telephone service and run fiber and do whatever they need to do for their telephone service. I think the long and short of it is, if the opinion of Council and the Administration is that we just didn't feel RCN was an appropriate company to be in the Philadelphia market at all, I think RCN would then take some challenge before 157 10/31/00 PUBLIC PROPERTY, BILL 000452 the Federal Communications to exercise their right under the OVS certification to be in the marketplace, and either through some federal mandate or other work-out terms that may not necessarily be agreeable to the City for them to be in the market and to be able to enter and offer services.
It's my understanding just from, I guess, anecdotal information about the strength of RCN financially, that it is a large company, that it has a great number of assets, and that one thing -- again, I'm not a devotee myself of the stock market. Recently I understand that there's been a bit of a tumble in the price of stock for RCN. And I'm wondering whether or not we have any way to evaluate, from our perspective, what that means to their ability to continue to provide what they say they can provide in the agreement, and does it give us any cause for concern?
Well, again, I'm not necessarily a stock expert, either. But I would say that from my understanding of what I've seen over the last couple of months is that there's 158 10/31/00 PUBLIC PROPERTY, BILL 000452 been a downturn in the marketplace for telecommunications in general and that all the telecommunications companies are being affected by a kind of downturn on the dot-com companies that have been around and had a lot of venture capital but have yet to produce any revenues. I think that has affected the general marketplace. I think the marketplace in itself is fairly strong. It's not that RCN is any different than some of the other companies, that Verizon stock is down since they merged and, you know, Oracle stock goes up and down. I mean, there's a number of very large companies that have been around and have a very large embedded base to have all been affected by the stock market. I don't think it should give us a lot of concern.
Does our consultant have an expertise in that area that could lend us some information or enlighten us as to that it's okay, it's not a problem? I mean -- or do we need to seek information from some other source?
We did discuss that whole issue and, you know, it was his opinion, and I 159 10/31/00 PUBLIC PROPERTY, BILL 000452 could let him speak for himself, but it's his opinion that it was, you know, consistent with what's happening in the marketplace in general.
Would you consider our relatively expert in that particular area?
Okay, all right. Well, maybe we'll have to seek some information elsewhere. Councilman Clarke.
Thank you, Mr. Chairman. How are you doing, Mr. Perez, Mr. James? I was told to ask you this question: Do you have a sense of how many subscribers there are in every franchise in the City of Philadelphia? Would you say that for the record?
We do have a report. I can -- I'd rather give you the most accurate information that we have today, and I don't have it with me, but I can provide it as part of my response to the Chair.
Okay. It was -- in 160 10/31/00 PUBLIC PROPERTY, BILL 000452 earlier testimony, there was a discussion about the selection process for Areas and versus the other areas in the City. The initial response was that Public Property told us to do it, then we talked about the ability to have access to fiber optics from Princeton and a number of different things. Can you kind of run through the scenario in terms of how this area was selected, your recollection?
My recollection from my memory of what was discussed, the selection was RCN's selection; it was not by the Department of Public Property. We had a lot of dialogue and discussion over an extended period of time for the very same question that members of Council have asked today: How can we get to you build out the entire city, how can we get you to commit to an obligation to provide cable franchising? There's wonderful opportunities and competition throughout the City. It turned into a very long and tough set of discussions that did not get us to the point where we could give you a bill that says, 161 10/31/00 PUBLIC PROPERTY, BILL 000452 Here's franchises in all four areas. RCN made a decision that there was two areas that they wanted to seek. We did not want to do any jerrymandering of lines or -- we had a lot of discussions about that, Well how can we move this and move that and capture different parts of it? And what it came down to is that we stuck to the original four franchise areas. These were the four franchise areas, and they were not going to move from that. And there was a selection based upon where they thought that the density was and where there was opportunity for them to make a profit in the marketplace.
So you feel that they probably made the selection based on the most lucrative franchise areas.
No. I think they -- again, I don't want to put words in their mouth. I think they made their decision based upon the density and the speed to market based upon where their facilities are located. (Unintelligible) in the market, there are certainly challenges in Area 162 1 10/31/00 PUBLIC PROPERTY, BILL 000452 if you're trying to serve the Center City area 'cause that's a very congested and very tightly underground network. So I think anyone would have a bit of a challenge trying to go after Area 1. If they were looking to get in going in the market quickly and turn a profit quickly, that's not the area what where you want to be.
Maybe "lucrative" wasn't the appropriate term. More profitable -- (Unintelligible, parties talking over each other.)
Opportunities for them to get a fast return on their investment.
Okay. My understanding, and correct me if I'm wrong, is if in fact RCN locates in 3 and 4, they'd bring the rates down to be more competitive with the existing cable franchise in that area. If the cable franchise provided in that area meets the numbers on RCN's, will they also be required to reduce the numbers throughout the entire City or throughout their entire network?
From my 163 10/31/00 PUBLIC PROPERTY, BILL 000452 understanding, you can't have different rates for different sections of your franchise areas?
I don't think there's any restriction in the regulations for a cable provider to offer different rates in different parts of the market.
So if RCN is Cable A and another franchise is Cable B, Area B, and RCN comes in with lower rates, all right? In those areas where RCN has a franchise, the other cable company decides to meet those numbers so they reduce their numbers. But potentially, they can keep the numbers high in the other areas where they also have --
Sure. The one thing that's extremely important about it is that the rates are determined by the marketplace and it's market conditions so that you could all be within the same franchise areas and, you know, conceivably have different rates. Depending on where you have competition at, you could be in one section of the same franchise area.
That was not the testimony that was given earlier, because the 164 10/31/00 PUBLIC PROPERTY, BILL 000452 question I had asked earlier in the same regard was that theoretically, if there were stiff competition in and and the cable rates stabilized or went down, and Comcast, the incumbent, were serving, and is serving, Area 1, could we experience a rise -- a theoretical rise in price, based on the competitive nature of 3 and 4, there's no competition in 1; so, therefore, the number one area of the subscribers start paying for the fight that's going up in 3 and 4. (Unintelligible, parties talking over each other.)
That was -- my position would be that theoretically, yes, you could have that.
Did you hear that testimony? They said it was against the law for them -- for Comcast, theoretically, or any other single incumbent service provider to raise rates on some customers while they were competitively pricing other areas.
I think that under the cable regulations that rates are not really regulated in this marketplace when there's 165 10/31/00 PUBLIC PROPERTY, BILL 000452 competition. So you could -- theoretically, you could charge whatever you want. (Unintelligible, parties talking over each other.)
You could have differences (unintelligible) if you wanted, or you could have a consistency. I think the thing that's going to drive it is, there's market conditions where you're either trying to retain your customer base or expand your customer base. And maybe what RCN -- and, again, I'm speaking out of turn for them -- is that in Area 1, they may not have competition and that would be a disincentive to keep competition from going into that market by raising those rates because you do have an incumbent who is not just geographically limited to Philadelphia. I mean, if you looked at the incumbent in Area 3 and 4, that's not their only franchise; they are nationwide. So the nationwide capabilities allows them to offset some expenses to deal with competition, and then they can probably speak to that, but they wouldn't necessarily have -- I couldn't see them just 166 10/31/00 PUBLIC PROPERTY, BILL 000452 raising rates in Area because they have competition in Areas and 4.
There is no prohibition when it comes to rates. It's the market conditions.
They may decide to maintain the rates where they are now, not lower the prices, and because RCN does not -- is not required to provide video services in those other areas, although they have Internet and telephone service, then they can go on for two, three, four, years, and these people would be at the higher rate than the other --
Right. And I would say that if follow what RCN's market plan is, that if that was to occur and the rates went up in Area 1 or Area 2, RCN would probably see that as a business opportunity to move into that area because now that they have affected the marketplace and have changed the conditions in that marketplace to make their rates even higher, they can come in at the rate that they're 167 10/31/00 PUBLIC PROPERTY, BILL 000452 currently servicing in and 4. 3
I'm not saying making them higher; I'm saying that if they stay the same, all right, and you've already said that there was a business decision to locate in 3 and 4, and it was based on the profitability of those two areas, all right, and they decided not to go in the other areas at this point, and that in terms of dollars and cents, it may not make sense three, four, five years out to go in that area if those rates stay the same, right? Because there's --
It may not make sense to go into those areas because of market conditions or because cost; it could be a number of reasons why they may never enter those marketplaces or they could enter those marketplaces tomorrow because some dynamics have changed. It is not a clear road map for you to say that they'll never go in and 2, but it's at the same time saying that if the opportunity exists and the structure exists -- the other thing too that we wanted to ensure was that there was an opportunity for them to create a track record so 168 10/31/00 PUBLIC PROPERTY, BILL 000452 that before they leaped into a larger area and maybe stretched themselves out trying to encompass all four areas at one time and actually end up not being successful and leaving the City with four dispirited, disjointed networks, it would make more sense for the -- at least from the City's standpoint, unless they are sure that they can be successful, let's just get a traffic record, let's see if the market plan works, let's see if their ability to attract customers, let's see whether or not rates stabilize or rates -- let's see if it really happens before we --
But you've already said that and is probably the most profitable area.
No, I said -- I said they probably made a decision, based upon the opportunities for them to get a faster return on investment, not necessarily profitability is not the only driver. The thing that drives, from what I understand from them, is density. And if look at the areas where there's a greater density, there's a lower construction cost, there's the ability to 169 10/31/00 PUBLIC PROPERTY, BILL 000452 get more customers a lot faster. There's areas in or that are very dense. There's areas in 1 and 2 that are very dense. I think it's just a business decision.
All right. Can you get me the information on all of the franchises and the subscribers in all of the franchises?
All right. Because I'm -- for some reason, I seem to I think that and probably has more subscribers.
We've asked RCN for demographic information on income, race in and and in 1 and 2 if they have access to it from their market information. And if, Joe, you could maybe do it for 1 and 2 also.
Yeah. I will give you what we have as a current subscriber (unintelligible). And the one thing that we have also said to them is that, you know, there's a lot of perception about what the economics may be in the different areas, and the only way to really validate it is to look at the information. Now, if they have to build it according 170 10/31/00 PUBLIC PROPERTY, BILL 000452 to census tracts, the census tracts are going to be based on the most statistical data that exists today. So that there is not a disparity between them skipping around to different census tracts that they don't want to do because it's not financially viable; they have to build according to census tract. And we get that information, we monitor that information, and we hold them accountable for that. And if the other incumbents are available to be successful in those census tracts, you should be able to be successful, but there will be an opportunity for all different levels of economics of citizens to be able to participate at some level, even if you stay just in Areas 3 and 4, because there is definitely a diversity in all areas of the City.
Just to go back a second so I understand, and this is the thing, real concern about -- while I recognize it from a philosophical standpoint, the competition issue, I think, is accurate. If we have more than one competitor in an area in any service, the price is 171 10/31/00 PUBLIC PROPERTY, BILL 000452 going to be competitive, it's going to be as low as possible, or one side or the other will lose. But in Area 1, for example, if RCN jumps into and -- jumps into 4 first, I would suspect their business plan would call for a pretty tough pricing policy, which would make -- Comcast would have to respond in kind by reducing their rates to be competitive in the early stages of 4's build-out. I can't imagine that Area 1's monthly cable bill's going to go down, while that battle's going on. So that's going to stay the same. So for a period of one, two, three, maybe four years, Area 1 theoretically could be subsidizing the price war in Area 4. And that's, I guess, why I understand, on one hand, it's unfair to ask a company to come in and build out the whole city because it's a huge economic investment; on the other hand, as a Cable subscriber, I don't want to be stuck in limbo while waiting to see what shakes out in 4 and then shakes out in 3. It could be seven years before myself and people who live in Cable franchise area experience will any benefit from this. 172 10/31/00 PUBLIC PROPERTY, BILL 000452 And then it was testified too by RCN that, Well, you know, other companies -- there's 40 other companies out there that provide cable service, they could jump into this market too. But over a four-year period, when they've had the ability to do so, has anybody made a request to compete with Wade or to compete with Comcast and 1? I mean, there may be 30 or 40 companies out there, but it doesn't seem like there's very many people interested, with the exception of RCN.
Yeah. I would say that if we would go back over the last couple years from the time we've been doing the cable renewals to where we are today, one of the most consistent lessons that came out of all those renewal discussions when the public testified was the price and the lack of competition. Consumers said that they didn't like the prices, the prices were too high, and there wasn't choice. I think from that time going forward, if RCN doesn't enter the market, this bill would not go forward and said, RCN, we're not going to have you here, there is no guarantee that we will ever see any price stability or price reduction 173 10/31/00 PUBLIC PROPERTY, BILL 000452 without any competition. And I would --
But competition could come in the form of a franchisee or potential franchisee who says, I want to come in and compete as a cable company.
And that's what they're going to do. They're going get a cable franchise, compete as a cable company, go head to head. But if a cable company came in today -- if Joe James decided to go into the cable business, I could come before Council and say, I want a cable franchise for only one section of the City, and that's all I would be asked to and would -- (Unintelligible, parties talking over each other.)
And you don't have to grant that, but there is no provision under the franchising rules that says anyone coming in and applying for cable has to apply for every franchise area. They could come in and only apply for one, and you have the right to say yes or no 174 10/31/00 PUBLIC PROPERTY, BILL 000452 because they're going to pick the one where they think there's profitability and --
What you're saying -- what I think you think the feds are saying, and maybe they are saying it, I don't know, is that this OVS carve-out gets potential franchisees who want to come in as an OVS into the game earlier, faster, and cheaper than it would for a potential franchisee to come into the game. If I agree with you that competition brings lower prices, why won't all of the citizens of this city over a seven-year period experience potentially those lower prices, when, in the end, we may be in an Area or Area 1, basically subsidizing a price war in Area or 4. And I'm not saying that we should do it and that there's no other way -- it's the only way for this to happen, but think of the potentiality of the decision we have to make people in that over a three-, four-, five-year period, people in and in 2, their rates stay right where they are because there's no place else to go. And then for and 3, which may have higher income levels and more, you know affluent people, wind up with the 175 10/31/00 PUBLIC PROPERTY, BILL 000452 lowest rates, the best service, and the highest Internet access and lower telephone bills. I mean, in some ways the competition's good, but in other ways, it's unfair to people who don't live in lucrative neighborhoods or in more profitable neighborhoods. And we're going to have a delay of potentially seven years, probably less, but potentially seven years of stable, high rates in 1 and 2 and a tremendous price war in 3 and 4 that's going to be subsidized in part by the rest of those customers.
Well, I mean you argue a position that we argued when we first sat down with RCN, and it was so difficult for us to move for a long period of time because we raised the same concerns you have, we have the same issue. I mean, we're not trying to articulate the federal position that competition is necessarily good because if you look over a lot of the different industries, competition doesn't necessarily reduce price, and competition doesn't always ensure greater or better service. So what we were -- what we've got to this point is that we were in a position where we 176 10/31/00 PUBLIC PROPERTY, BILL 000452 had to come to some decision with them to let them into the marketplace, let them decide where they want to enter; that's really their call 'cause it's their business and they're putting up the dollars. But let's make sure that the way they come in is level with the incumbent, so let's make sure that it's fair. Now, there's going to be a price war; there's a price war now with DirecTV and cable operators. I mean, it's just part of technology's going to drive some sort of competition and some sort of price war. And who says the prices are going to go down? Who says the prices are going to provide better service? But I think we're at a position where we would be paralyzed to do nothing because there is so much uncertainty and we don't have a track record. We looked at other cities, we looked at Boston, we looked at D.C., we looked at other cities and found out, Well, what are they doing and how are they handling it? And what we've came up with is that we've to follow some sort of consistent manner and design a document and a bill 25 and a structure that is fairly consistent, that 177 10/31/00 PUBLIC PROPERTY, BILL 000452 provides protection for both parties, that lets them in the marketplace, and let the marketplace decide what the rates should be. And, yeah, there's going to be some sections that may not see competition at all and may not see it ten years, but to really not allow competition to occur at all --
I know you struggle with this, but I sense -- and I'm glad you're being forthright with us, as you always are, to tell us your concerns about this. Even though you're operating in constraints that you are and some of the requirements that you are to move this thing forward, I sense that you share some of the potential concerns into the future that we have.
Yeah. It's a struggle, it's something that we've impacted and I think we've talked to members of Council before about the things that have come out of the Telecommunications Act that we didn't necessarily ask for, that we have to deal with, and we have to deal with it in such a way that we don't put ourselves at risk. At the same time, we have to let competition occur 'cause the federal 178 10/31/00 PUBLIC PROPERTY, BILL 000452 government says it should occur. But I think if you look in Areas and and their build-out, it doesn't stick in just one profitable; it does move out and traverses the whole area. And I think if you look at -- if the perception is that the Chestnut Hill area is the most, you know, affluent area, well, they're the last ones on the list, but does that mean that they're the ones who are going to buy the most service? Maybe not. So it's all across the board there but, you know --
But you would -- by looking at the map and making generalities, you would suspect that there's maybe one or two marginally profitable areas due to density and income. But the bulk of the numbers probably from our just general experience with those communities have a higher income or a medium income, higher income and have more density. So I don't think there's any magic to why they picked that area and why there would happen to be thrown in there some marginally or poorer areas to kind of take some of the pressure off, we would -- 179 10/31/00 PUBLIC PROPERTY, BILL 000452
They're all a part of the franchise. I mean, you get the good and the bad, you get everything mixed in, and no one area is carved out specifically for, you know, your income level. The one thing that you will see --
I'm not talking about the carve-out for the areas; I'm talking about the construction schedules in 1, 2 and 3. So on the third year, you're hitting perhaps a marginally profitable area with less income. But you're still -- you know, I understand --
We're trying to supply some equity and trying to mix some fairness in there and, you know, that's kind of what we --
I'd like to go back to the OVS versus the franchise agreement and expand on what the Chairman said. Does -- and I would assume the answer to this question. Does coming through the door with the OVS agreement put more than their foot in the door, puts their leg in the door? Will it be 180 10/31/00 PUBLIC PROPERTY, BILL 000452 more difficult for you to negotiate, or whatever you do, for a franchise agreement if they already have the OVS agreement and they're beginning to build out?
I think it's much more challenging if they come in through the door with the OVS, just purely as an OVS operator, because the first right of review has occurred at the federal level; it has not occurred at our level. So by the time they get to us, they've already come in with this mandate that allows them into our marketplace. So it does give them not only a leg but a foot. But it doesn't mean if they want to be a good corporate citizen and they want to be successful in the marketplace that they not adjust their position, and they have done since our discussions, to adjust their position to be more open to the concerns and the issues that members of Council have raised here today.
As a person that will be a part of the negotiations when the 110 days expire, will it be more difficult for you to negotiate for a franchise agreement than if, in 181 10/31/00 PUBLIC PROPERTY, BILL 000452 fact, they would come through the door asking for? Because basically what I heard earlier, and I think I understood, was that it really didn't matter; they would be just as happy to have a franchise agreement. Did you hear that?
That's true. I mean, they would -- it doesn't matter to them which way the come into the door, as long as they come in the door. I think what we've done as far as our bargaining position is that in the bill that you have before you, we've already worked out the provisions of the cable franchise bill, we've already discussed all of the hard issues. So before you grant the approval today, we've already negotiated the terms that would appear in the cable franchise agreement and make sure that those terms are equal.
Actually, it was better for 182 10/31/00 PUBLIC PROPERTY, BILL 000452 us to take the time to work those issues out prior to coming before you so that everyone knew with some certainty what would be the provisions of the -- that we got into the cable franchise. We just turned the document around since it's a fairly simple process.
Are there any more questions for Mr. James or Mr. Perez? (No further questions.)
Thank you very much for your testimony. It was very helpful.
Mr. Jarrett? Good evening, sir. Thank you for your patience. When you're ready, could you please identify yourself for the record and proceed.
Yeah, my name is Lawrence Jarrett, and I'm the Vice President of Urban Cable Works in Philadelphia, which is a partnership of 183 10/31/00 PUBLIC PROPERTY, BILL 000452 Time Warner Cable and Urban Cable Works, Inc. I came here with a prepared statement basically that presents our position on the proposed ordinance to grant RCN and OVS a franchise for the City of Philadelphia. And rather than read that statement, I'm just going to submit it for the record. (Copy of Mr. Jarrett's written testimony not submitted to stenographer for attachment hereto.)
I do appreciate, and we as a company do appreciate, the City's efforts to foster competition, and we believe it's in the best interest of the residents of the City. However, we just want to express our desire to see that all of the video programmers compete on a level playing field. Competition should be encouraged, but not to the disadvantage of Urban Cable Works or Comcast or RCN or any other company by providing different terms in their respective franchises. It is the City's appropriate role to encourage fair competition and not to favor any competitor. And this, too -- I'll lay some of the 184 10/31/00 PUBLIC PROPERTY, BILL 000452 concerns particularly with Councilpeople that -- Councilwoman Blackwell, Councilman Nutter, those whose Councilmatic District covers ours, I would just like to make them aware of some of the things that we're doing in our franchise so that they won't feel like they are getting a second-class cable system. Over the last year, we have spent over $80 million to upgrade our plant, we have developed hybrid fiber coaxial architecture that gives the capability of providing various data and video programming over our system. We are presently deploying digital technology in our cable system, with the intention of a full-scale' roll-out to our customers on a node-by-node basis. This will provide over 200 channels of digital programming, music, and state-of-the-art interactive program guide. We continue to meet our customer service standards established both by the FCC and the NCTA, and we continue to meet technical standards that we've established that are much more stringent than the FCC. Our community-to- community-based organizations are stronger than 185 10/31/00 PUBLIC PROPERTY, BILL 000452 ever. We continue to sponsor and support efforts within our franchise by local groups. We have major holiday campaigns to collect clothing, food, and toys for the less fortune. And if you compare our -- the article 7 in the Philadelphia Inquirer a few weeks ago, they talked about rates in the City of Philadelphia. If you compare that, which we do, on a channel-by- channel basis, then you will see that the rates that are charged in our franchises are significantly less, and then they fall into the second tier, somewhere between and of the 14 highest rates in the country. 15 So those are the kinds of things that 16 we are doing, and we're going those things not 17 because of RCN, but we are doing things because it 18 makes good business. 19 Now -- 20
Yes, Franchise Area 2. 186 10/31/00 PUBLIC PROPERTY, BILL 000452 Now -- and certainly, in talking to several people, based on what RCN has proposed, they have basically said that Area doesn't have anything to be concerned about because they're trying to competing in Areas and with Comcast. In looking at the document that is being presented to Council, there are some differences that I would like to point out that I don't necessarily agree with the explanation that was presented here by the Deputy Commissioner. First of all, my understanding is it's always an OVS system, which means an open video system, means that the federal government in essence gives them the right to provide video programming for the entire city. That means that the Public Property is negotiating just the right-of-ways, how they will do it. Prior to the U.S. Court of Appeals and the Fifth Circuit, the City didn't have the -- it didn't even have the right to determine where they were going to market that service. And if you look at New York, they're all over the place. They go basically wherever they want to. Once they have the right-of-way, 187 10/31/00 PUBLIC PROPERTY, BILL 000452 they can provide service in any part of the city that they choose. Now, in Philadelphia, they have chosen to provide service in Areas 3 and 4. However, when that OVS franchise is granted, that does not preclude them from running fiber into Areas 1 and Areas 2 and cream out the lucrative areas and provide cable service to them. Yes, we understand that they have 120 days, that once they decide to provide programming, video programming, they have 120 days to apply for the cable franchise. If I --
I'm sorry, I didn't mean to interrupt. I want Mr. James available to either rebut or --.
If I read that correctly, it says that the City has 36 months in which to negotiate that cable franchise. And if they can't come to an agreement, then that franchise automatically reverts to a ten-year OVS franchise. So my concern is that, in essence, if they have an OVS license and they are servicing Area and and, say, they're into Year and 25 and the projections and their penetration levels 188 1 10/31/00 PUBLIC PROPERTY, BILL 000452 2 aren't being met, what is to prevent them from running a fiber into Area 1, maybe one of the more lucrative MDUs in Area 1 or Area 2 and creaming those areas and then apply for a cable franchise, which, I understand, they have 120 days to do it, but the City has 36 months in which to approve it. Now, I understand that there has been some negotiations to eliminate those negotiations, that they have in essence agreed to the language, and that may or may not be true, I haven't seen anything to that effect. But in essence, though, those are the kind of things that concern me with the Council's discussion here with granting RCN an OVS.
Thank you very much. Are there any questions for Mr. Jarrett? (No questions.)
Thank you very much. Mr. James, did you hear some of the concern that this gentleman has expressed, and 189 10/31/00 PUBLIC PROPERTY, BILL 000452 could you kind of speak to those issues.
Yes. If I understand it, the concern is that the opportunity exists for the City to delay in actually reaching a settlement for granting a franchise agreement up to a period of 36 months, even though there's a 120-day requirement for them to apply. And that -- I mean, the reading of the document, yeah, that's correct, we could actually go on to an extended period of time before we reach agreement. But what we've tried, and I think we've been very successful in doing is, is attaching in the bill 14 and in the ordinance the specific terms and conditions. So that the one thing that he's correct about is that the terms and conditions are already worked out. So there is really nothing left for us to delay and there's really no feasible reason why we would take 36 months.
Would an OVS licensee in Philadelphia in the first two years of this agreement be able to raid any lucrative areas of or with cable TV service?
I don't believe that to be 190 10/31/00 PUBLIC PROPERTY, BILL 000452 accurate. I think that if you follow the plans that have been submitted and the drawings that we had, it's going to take them a good time for them to even construct their facilities to be in a position to even offer service in the first two years in any parts of Area 1 and 2. And I think (unintelligible) wouldn't be correct. If they decide to offer it -- again, assuming we are doing our job and that we're at the helm, we would not allow them to provide the video programming services in those areas unless they were willing to meet the obligations in the agreement.
Theoretically, and I'm not casting any aspersions on any particular company, but theoretically, if RCN, with an OVS-approved agreement, were to purchase Area 2, the company, what would be the dynamic of that? Is it prohibited, is it allowed?
No, it is certainly not prohibitive. If RCN wanted to acquire any of the full franchise areas that exist from any of the incumbents, they would go through the same process that Urban Cable Works went through when they acquired the Wade Time Warner franchise. 191 10/31/00 PUBLIC PROPERTY, BILL 000452
But, I mean, they could make an offer theoretically to purchase -- RCN could make an offer to purchase Wade if they wanted to?
There's no prohibitions at all for them to acquire any of the four franchise areas.
Okay, thank you. Thank you, Mr. Jarrett. Mr. Pardini and Dr. Hutchinson, please. The stenographer needs a short break. (Break taken.) - - - (Proceedings resume.)
All Councilmembers on the committee, please return. And could we cease all other conversations in the room, please. (Witnesses come forward.) 192 10/31/00 PUBLIC PROPERTY, BILL 000452
Could you please identify yourself for the record and proceed with your testimony.
Sure. My name is Ed Pardini, and I am the Regional Vice President for Comcast Cablevision. With me is Stanley Wang, Executive Vice President of Comcast Corporation, and Dr. Wes Hutchinson, Professor of Marketing, from the Wharton School of Business.
Good afternoon, Chairman Kenney and members of the Public Property Committee. I am pleased to have the opportunity to address issues raised by RCN's proposed open video, or OVS licensing agreement, with the City of Philadelphia. Our position on RCN's application is that Comcast welcomes additional competition in Philadelphia. Competition improves customer choice and encourages innovation. But competition must be fair, so we ask that RCN's agreement with the City contain the same burden and obligations on RCN as the City's agreement with Comcast and Wade Time Warner, as they imposed on the 193 10/31/00 PUBLIC PROPERTY, BILL 000452 Philadelphia's incumbent cable providers. We think RCN's proposal will leave you with at least two serious questions to which you need satisfactory answers before you move forward. First, will this new competitor really bring competition that benefits all of your constituents, and when will they see those benefits? And, second, will this new competitor really show its commitment to the City the way Comcast has? We all know firsthand about Comcast's commitment to the City of Philadelphia. When the City awarded Comcast a cable television franchise for Area 4 in 1986, we moved our entire corporate headquarters into Center City. 5 million a year in City wage taxes. In fact, our company's collective tax remittance to the City from all sources easily exceeds $20 million every year. And three of our top corporate officers and 194 10/31/00 PUBLIC PROPERTY, BILL 000452 hundreds of other officials and staff Comcast are residents of the City of Philadelphia. We are major benefactors of City charities and activities, from playing a leading role in bringing the Republican National Convention to Philadelphia this summer, to donating significant sums of money to local charities as diverse as the United Way, Philadelphia Cares, the Police Athletic League, the Urban League, White Williams Scholars, and hundreds of others. In fact, Comcast this year alone will contribute over $2 million in cash and services to deserving City charities. And of course, we put a wide range of in-kind resources to work for our community partners, ranging from hundreds of free hours of free TV to tickets to sporting events and entertainment events. And the list goes on. Competition for cable customers is nothing new to us. We face direct competition from RCN and companies like it in hundreds of communities around the country. We also face direct competition from two major satellite companies, one of whom, Direct TV, has more 195 10/31/00 PUBLIC PROPERTY, BILL 000452 customers nationally than Comcast does. So we're very accustomed to competition, we thrive on it. It makes us a better company. But when a company like RCN seeks the right from the City to be a cable operator like Comcast, then we believe the company should have the same responsibilities to the local community that Comcast does. Unfortunately, the terms that RCN seeks here in Philadelphia do not reflect this type of fair-play approach. For example, under the proposed agreement, RCN agrees to apply for a cable television franchise only in Areas and of the City within 120 days, in exchange for the City's approval to let RCN begin constructing and operating its system in selected areas of the City at RCN's sole discretion. But if RCN and the City cannot come to terms on a final agreement within three years, the interim OVS agreement would become a permanent OVS agreement, and the City is powerless to negotiate additional terms. In contrast to this puzzling blank check, when the City first granted cable franchises to Comcast and others 1986, it worked 196 10/31/00 PUBLIC PROPERTY, BILL 000452 tirelessly to ensure that all areas of the City would begin to receive cable service simultaneously. No one franchise was awarded until suitable franchisees were found for all areas. The City also required construct of the entire service area within two to four years.
When the City renewed Comcast in 1998, it required a complete system upgrade within five years, regardless of demographic or socioeconomic factors. Of course, Comcast complied with the initial franchise requirements, and we are proud to report that we are a year ahead of schedule on the system upgrades. We are also well ahead of schedule in rolling out our Comcast at-home high-speed cable Internet service in all wards of the City. RCN is seeking a seven year build-out term. This will permit RCN to pursue it's avowed business strategy, and I quote from RCN's marketing materials: Quote, to wire middle and upper-income neighborhoods whose density and low construction costs provide the maximum profit. If the City endorses that strategy, I submit to you 197 10/31/00 PUBLIC PROPERTY, BILL 000452 that the residents of South Philadelphia, West Philadelphia, Roxborough, Manayunk Center City, and portions of North Philadelphia will be denied the benefits of competition for many years to come, if not forever. To demonstrate our point, we have asked Dr. Wes Hutchinson, a professor of the Wharton School of Business, to analyze RCN's build-out proposal. What Professor Hutchinson has found is that using RCN's own build-out plan, if you are a low-income person in the City of Philadelphia, you will be significantly less likely to receive the benefits of any competition from RCN than if you lived in a wealthier neighborhood. We've asked Dr. Hutchinson to summarize his findings for you at the end of my testimony. A complete copy of his report will be submitted for the record. The lack of penetration into low-income communities is especially profound in the early years of RCN's build-out. This makes Dr. Hutchinson's findings particularly significant because RCN has not committed to any legally binding construction schedule. If the City really intends to bring the benefits of more competition 198 10/31/00 PUBLIC PROPERTY, BILL 000452 to all of its citizens, this Council must not permit RCN to cherry-pick its way to big profits. An agreement between the City and RCN should: 1. Require RCN to build out the entire City to serve all citizens of Philadelphia; 2. To establish specific two to four-year timetables for RCN to complete its entire build-out; and 3. Require the public rights-of-way be restored to their original condition; and. 4. Establish appropriate penalties for failing to meet construction standards or timelines. These are all terms that we and Wade Time Warner live under. We don't believe that it would be fair for a new competitor to live under more stringent standards, but there's no reason why RCN cannot meet these standards if it truly wants to provide competition to benefit all citizens. In addition, there are numerous other commitments that the City has required of Comcast and Time Warner as a condition of our cable 199 10/31/00 PUBLIC PROPERTY, BILL 000452 franchises. RCN has negotiated strenuously to avoid these obligations. For example, Comcast currently contributes $750,000 to the School District of Philadelphia as the provider in Areas 1, 3 and 4. Time Warner pays $250,000 as the provider in Area 2. RCN proposes to pay only $250,000 in total to serve areas in 3 and 4, half of the commitment of Comcast and Wade Time Warner. Similarly, Comcast has committed to $250,000 per franchise area to PCDC's Comcast Loan Fund, for a total of $750,000. Unless RCN agrees otherwise in future cable television franchise agreements, its obligation is capped at only $250,000 for any and all areas it selects to serve. Of course, Comcast's voluntary commitments to this community go well beyond these formal pledges. In the past three years, we've partnered with VH-1's Save the Music Foundation to contribute over $200,000 to promote music education in Philadelphia's public schools.
As noted earlier, the Comcast family of companies this year alone will make over $2 million worth of 200 10/31/00 PUBLIC PROPERTY, BILL 000452 contributions to community organizations. In addition, Comcast has agreed to substantial spending goals with local businesses and with minority and women-owned enterprises and has bound itself to these commitments for the next years. RCN, by contrast, says it will agree to 8 goals that are only one half to one fifth of what 9 Comcast has agreed to, and they have only agreed 10 to be bound for the initial two-year term. 11 Mr. Chairman and members of the 12 committee, I think the facts of RCN's proposal 13 speak for themselves. The low level of commitment 14 they represent stands in stark contrast to 15 Comcast's substantial commitments to this city. We believe that competition is a good thing, and Comcast is ready and eating to compete. But if you accept RCN's proposal as written, the benefits of full and fair competition will be denied to tens of thousands of your constituents and to our City's schools and community organizations. I thank you for your time and attention, and we'd be happy to answer any questions you may have upon conclusion of Dr. Hutchinson's findings. 201 10/31/00 PUBLIC PROPERTY, BILL 000452
Let me -- what I want to do is ask the professor to give his presentation and then we'll have questions for -- were you prepare to testify?
Please identify yourself for the record and speak closely into the microphone. Thank you.
Closely into the microphone. My name is Wes Hutchinson and I'm a professor of marketing at the Wharton School at the University of Pennsylvania, and I conducted an analysis of the demographic implications of the RCN market development plan. I'm going to read the summary of that analysis into the record now.
The City of Philadelphia is reviewing a proposal from RCN Corporation to construct a' wire-line cable television system into portions of the City. The purpose of my report is to examine the demographic implications of RCN's market development plan. Assuming that the City were to conclude 202 10/31/00 PUBLIC PROPERTY, BILL 000452 that additional wire-line cable competition could bring potential social and economic benefits to the City of Philadelphia, it is important to understand who is likely to see the benefits of this competition and who is not. My report analyzes the implications of RCN's Philadelphia plan for specific demographic groups and finds dramatic variations among those communities that would benefit in the foreseeable future. In a demographically balanced plan, the population having access to RCN services would have the same demographic characteristics as the total population in each year of the plan. However, in the RCN plan, as presented, there's a strong trend for the first areas to be high in income and predominantly white, as compared to the general population. This imbalance will not be redressed for at least five years, if ever, for a large percentage of the City's African-American households and low-income households. For example, by the end of the first four years, approximately 58 percent of Philadelphia whites will have access to RCN 203 10/31/00 PUBLIC PROPERTY, BILL 000452 services; however, only percent of African-Americans and 29 percent of Hispanics will have access. The degree of demographic imbalance in the Philadelphia plan is much more extreme than what is observed in RCN's build-out plans for Delaware County, Pennsylvania and Montgomery County, Maryland, which are also analyzed in the report for comparison purposes. While my report no offers no opinion on RCN's motivations in putting forward this plan, the imbalance in the current plan, which would serve primarily mid- to upper-income and predominantly white households in the first several years, appears to deny benefits of the new competition to those who would in theory stand to gain the most. Here are reports and these are handouts, in case you can't see the charts. I'll quickly run through them. So, quickly, the method of analysis was that came from Comcast for every census tract in the three areas studied, a classification of level of RCN activity, in particular, which year of the 204 10/31/00 PUBLIC PROPERTY, BILL 000452 build-out plan for Philadelphia, so the categories of Philadelphia were Year 1 through Year 7 and then not at all. I then merged those categories of the census tract level with the 1990 census data, and then also acquired from our research firm projections forward to the current year, which is 2000. And so the high points, if you will, of the results, we you looked at income -- this is getting tricky -- income and racial composition. And the concept is in this upper left-hand panel, that is the composition by median household income for the total City of Philadelphia and kind of racially balanced -- I mean, demographically- balanced plans would have that same composition throughout all years of the build-out. Over here, it's kind of aggregated over the first four years. In the report, it details it year by year, as you can see. And so the highlight of what we observed for the first four years with respect to income is higher-income households, say, from 45,000 on up. The percentages of the plan are higher than those observed in the City as a whole. And in 205 10/31/00 PUBLIC PROPERTY, BILL 000452 particular, the lowest income level, 15,000 a year and below, at the end of four years, percent of 4 those with access will fall in that group versus 25 percent. It's particularly extreme, say, in the first years where it's 11 percent rather than 25 percent. So kind of roughly in the first year, it would be less than half.
I'm sorry, 11 Professor, this is just in the proposed Areas 3 12 and 4, correct? Do the statistics come -- 13
This is for the first 14 four years, and I believe that is just Area 4 15 primarily, the build-out plan by the end of the 16 fourth year, is that -- 17
It tracks their construction plan through Years through 7, so Years 1 through 4 are primarily Area 4.