COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING COMMITTEE ON PUBLIC PROPERTY AND PUBLIC WORKS - - - Room 401, City Hall Philadelphia, Pennsylvania Thursday, February 1, 2001 2:20 p.m. - - - BILL NO. 000452 - an ordinance granting permission to RCN Telecom Services of Philadelphia, Inc., to construct, own, operation, maintain, replace and remove a telecommunication system in, over, and under the public rights of way and streets of the City of Philadelphia and operate and maintain a video programing service over such telecommunication system, pursuant to provisions governing open video systems in the Telecommunications Act of 1996, under certain terms and conditions. - - - PRESENT: COUNCILMAN JAMES F. KENNEY, Chairman COUNCILWOMAN JANNIE BLACKWELL COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN DARRELL L. CLARKE COUNCILMAN DAVID COHEN COUNCILMAN FRANK DI CICCO COUNCILWOMAN DONNA REED MILLER COUNCILMAN MICHAEL A. NUTTER COUNCILMAN ANGEL L. ORTIZ COUNCILMAN FRANK RIZZO - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center 1835 Market Street, Suite 600 Philadelphia, Pennsylvania 19103 (215) 561-2220 I N D E X BILL NO. 000452 JOSEPH JAMES, Deputy Commissioner Dept. of Public Property ........................ JOHN PITTS, Area Vice President, RCN ........ 36 SCOTT BURNSIDE, Senior Vice President, RCN .. 40 THOMAS STEELE, Vice President, RCN .......... 48 EDWARD MOONEY, Local 1300, CWA .............. 67 CARL SINGLEY, Council to RCN ................ 105 DOROTHY BRUNSON, President, Channel 48 ...... 126 3 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452
The hearing on Resolution 000773 that was scheduled immediately following this hearing will be recessed until next Thursday, February at 1 p.m. 6 Ladies and gentlemen, can I have your 7 attention, please. We have a quorum. Would you 8 please refrain from conversation. I apologize for the delay. As I mentioned earlier, Resolution No. 10 000773 dealing with the Philadelphia Gas Works will be heard on Thursday, February 8 at 1:00 p.m. Council Committee on Public Property and Public Works is now in session with a quorum represented by Councilmembers Blackwell, Nutter, Councilmember Clark, Reynolds-Brown and I am chairman James Kenney. We are now going to conduct or hear testimony on Bill No. 000452, which is an ordinance granting permission to RCN Telecom Services of Philadelphia, Inc., to construct, own, operation, maintain, replace and remove a telecommunication system in, over, and under the public rights of way and streets of the City of Philadelphia and operate and maintain a video programing service over such telecommunication system, pursuant to provisions governing open video 4 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 systems in the Telecommunications Act of 1996, under certain terms and conditions. The Chair would call Mr. Joe James from the Department of Public Property. Councilmember Rizzo is also in attendance. Good afternoon, Mr. James. Could you identify yourself for the record and proceed. I believe for the purposes of offering an amendment that the City and Public Property and Law Department is suggesting and also for the purposes of kindly reading into the record the amendments that I myself have requested that have been discussed with the Law Department and agreed to by the Law Department and I believe by the RCN Telecom Services of Philadelphia. So for those purposes, please identify yourself for the record and proceed. DEPUTY COMMISSIONER JAMES: Good afternoon. My name Joseph James, Deputy Commission for the Department of Public Property. Good afternoon. Good afternoon members of the committee. The department has at the first hearing presented an amendment which was a clarification of the construction schedule after coordination with 5 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 the Department of Streets, and that was submitted at the first hearing sometime ago. I don't recall the date at this particular time. At this point in time, the Department is prepared to present a set of amendments that are before members of the committee that have been reached through a successful discussion with representatives from RCN Corporation, Members of Council, and the Law Department. I will try to be as concise as possible on those amendments. Hopefully, you have them before you.
Before you begin, does every member of the committee have copies of the amendments? There should be two sections. One is about four pages, five pages long, and the other is a -- that's the other one. Please proceed. DEPUTY COMMISSIONER JAMES: These are proposed amendments to Bill No. 000452. The first amendment deals with Section 1, Subsection D of the final OES agreement of Article 1, Section 5, the Cable Television Franchise. This amendment is to limit the proposed term to seven years given the proposed seven-year construction with an extension of additional eight years upon certification of 6 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 completion of construction. The purpose of this is to ensure that the construction is completed, is certified by the Department of Public Property through the Commissioner before the extension of the additional time. Under this agreement, if RCN is only -- has an OVS agreement which is initially proposed, then they would be extended from a seven-year initial term for three additional years for a total of a ten-year agreement. If they are successful in obtaining a cable franchise which has a 15-year term in it, they basically have a seven-year initial term for them to them to complete the construction schedule and upon certification obtain automatically the additional eight years for the full 15-year term. The next amendment is under Section 3, Subsection A, Franchise Application of Article 1, Section 5 for the cable television franchise. This allows the City to negotiate additional terms and conditions in the subsequent cable franchise agreement as deemed necessary for the safety and welfare of the public and ensure that the construction will be completed and terms will be renegotiated if the franchise is transferred. 7 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 Next is under Section 4, Subsection A-1 of Article 2, Section 2, System Construction. This requires submission of plans from RCN with construction multiple sections of each franchise area at a time certifying that is done without regard to any social, economic, or demographic factors. Section 5. This is under Article 2, Section 2, System Construction. And it requires an annual construction progress report as well as financial statements regarding the construction project's financing and this will be submitted to the Department of Public Property as well as to Members of City Council. Under Section 6, there's an amendment requires a separate construction bond, insurance coverage, and local offices for each franchise area. And what this particularly says is RCN shall also maintain a local office with a local Philadelphia telephone number in areas where they would apply for a cable franchise for the purposes of providing customer service and bill payment and billing inquiries as well as customer complaints. The next amendment is under Section 7, 8 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 Article 2, Section 13, Fiscal Reports. This requires annual construction progress reports as well as financial statements regarding the funding as we just talked about. It requires RCN to maintain records and make available to Public Property and Members of City Council and the public all requests for service and their disposition. That is the extent of the amendment.
Mr. James, Deputy Commission James, did you review the amendment, the Department's amendment in conjunction with the Street Department's? Has that been read into the record? DEPUTY COMMISSIONER JAMES: The first amendment which deals with the construction schedule were read into the minutes at the first hearing.
Fine, okay. Thank you. Is there anything else you want to add relative to this particular issue while you're sitting there? DEPUTY COMMISSIONER JAMES: No. I think there's been a lot of discussion about the negotiations to date, and I think in these further 9 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 amendments. What we've been able to do is fairly well amplified. The understandings between the City and RCN on how they would handle their construction and the insurances that the City would want to obtain to make sure in fact they do complete it, they do provide it in such a way that all the customers are served within the particular franchise areas that they apply for. And in supplemental testimony there was some additional corrections or modifications in some statements that I made initially in the first hearing and, hopefully, Members of Council had a chance look at. But basically it was, again, correcting the misnomer that they would have to -- RCN as part of this agreement would have to apply for and obtain the authorization from cable franchises in areas that they would like to apply for. And into that, they would have to build out the entire franchise area as part of their obligations, very similar to the incumbent operators. Thank you.
Thank you. Councilman Nutter, you have questions for Deputy Commissioner James.
Yes, I have a few, 10 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 yes. I was going to ask you later about this particular issue, but why don't we kind of pick up where you just left off and I'll go back to some of the other questions that I have because I thought what I just heard you say was somewhat different than what I recalled or from what I understood back in the first hearing in October. I thought my understanding at that time was the applicant would be able to provide certain services for a certain amount of time, and if they did not have a cable franchise by another certain time or they hadn't been awarded one or hadn't applied for one, I thought there was something about some two-year issue that they would then not provide cable television services. Is that what was discussed back at the October hearing? DEPUTY COMMISSIONER JAMES: I believe that's how it was discussed at the original hearing. And there was a reason for my supplemental testimony, and hopefully a correction of that.
Well, I'm sure I did not explain it too articulately just now. So why don't you tell me what the testimony was back then 11 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 and then tell me what the testimony is today. DEPUTY COMMISSIONER JAMES: I think the most distinguishable difference between my original testimony was that RCN under this authorization under this bill as an OVS interim agreement would not be able to provide video programing in any area of the City unless they had a cable franchise.
Can you hold on for one second? DEPUTY COMMISSIONER JAMES: Sure.
For some reason, we're have a little bit of trouble hearing you up here.
You know what I would suggest? I recognized this the last hearing we had yesterday. Would you mind going to the other Chair. I think that maybe a little clearer microphone. Glad we got this new system. DEPUTY COMMISSIONER JAMES: Hopefully if I can try to explain this. At the first hearing, we had a discussion regarding RCN's ability to offer video programing services in parts of Philadelphia if they needed a cable franchise to do that or could they do that under OVS agreement that we're 12 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 proposing. We propose that under the bill RCN would have authorization to become an OVS operator in Philadelphia and to provide telephone and video services as they're right under their OVS certification from the Federal Communication Commission. RCN in both the City --
I thought certain obligations kicked in as soon as you started video programing, or at least certain rights by the City kicked in as soon as anyone started providing video services. DEPUTY COMMISSIONER JAMES: Right. In the bill, there is a number are provisions for RCN to provide us services similar to a cable franchise, certain obligations like public education on government access, 5 percent gross revenue, and other stipulations very similar to a traditional cable franchise. And the reason for that is that if that RCN under this authorization never obtained a cable franchise for any particular area under the traditional cable franchise, they would still be able to provide video programing services. They would still be under obligations very similar to a cable franchise. It's just that the OVS agreement 13 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 would become a permanent OVS agreement, but there were provisions in the agreement that said after this authorization would occur, 120 days after it, they have the ability to apply for a traditional cable franchise. And so far, they have expressed an interest to do just that and have identified the two specific areas that they have identified as part of their build-out schedule for Areas 3 and 4. If the City decided not to grant them those cable franchises, they could still provide video programing services, they would still be able to meet there obligations as far as the company is concerned and being in this particular business, and the City would still be available to those rights that are identified as far as the gross revenues, the pay, and other obligations that they've already committed to. I believe in my testimony in the past, I suggested that they would not be able to provide video services if they didn't have a traditional cable franchise; and that is not correct.
Why is that not correct? DEPUTY COMMISSIONER JAMES: Because 14 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 their OVS certification from the Federal Communications Commission gives them the right to be a video programing, that's what it's intended for. And they have a right under that to provide video services as well as telephony services to customers in the areas that they're certified.
Why did you say what you said back in October? DEPUTY COMMISSIONER JAMES: I think I was excited. I think I spoke too soon and did not think it out.
You get excited. DEPUTY COMMISSIONER JAMES: Yes, I get exited occasionally.
In front the Public Property Committee you were excited? DEPUTY COMMISSIONER JAMES: You know, I have those days. (Laughter.)
There are more exciting committees around. All due respect to the chairman of the committee. Well, this was a little while ago, so what is the difference materially between an OVS 15 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 agreement and a cable franchise? What are the benefits to the City? What are the benefits to the applicant? And what are the liabilities or risks to either under either scenario? DEPUTY COMMISSIONER JAMES: Well, the benefits for a company to become an open video service provider was established as part of the Telecommunications Act of 1996 to allow basically telephone companies to get into the video business so that we would have competition between the traditional phone companies and the cable providers. And to allow companies to do that, there was, well, not a lot of regulations for them to do that. It didn't require them to go through similar process to get a cable franchise. It basically gave them a very simpler manner of becoming certified at the federal through the federal Communications Committee on those issues that we traditionally also review as a cable provider as far as their technical ability or their financial ability and their ability to operate a particular franchise. So for a company that's -- a newly formed company, in particular --
A company that's a 16 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 what? DEPUTY COMMISSIONER JAMES: A newly formed company like a competitive local exchange provider. It gives them the ability to offer a bundle of services, and that is particularly what RCN is attempting to do. So from an RCN standpoint, I would think it would be to their benefit, and so that's the course they've taken, to become that OVS and get that OVS certification. With that, they still have to come to a local municipality where they want to and obtain an agreement. They don't have to obtain a traditional cable franchise agreement. They can obtain an OVS agreement. And there's not a lot of structure to that to say that basically they have to perform everything that they would have to a cable franchise except an institutional network is the normal provision that they're not required FCC that they have to give to a local municipality to operate. And it also gives them the cover of the federal mandate in case a municipality is inclined not to give them an agreement, that they have this authorization they're entitled to be here, they're entitled --
The municipality is 17 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 not inclined to give them what kind of agreement, an OVS agreement? DEPUTY COMMISSIONER JAMES: An OVS agreement or a cable franchise agreement to keep them from entering the market. The federal government wants them in the market; they want them to operate; they want them to provide competition. So a company coming in, they might select, of course an OVS. For a City, the cable franchises provides us the traditional model that we're most accustomed to and it provides us and to a certain extent to a cable provider, even an OVS provider, a certain amount of certainty. The regulations have been established over time, they're clearly spelled out, they talks about terms and conditions and guidelines and what things you can ask for and what you can't ask for. So a company, and even in the case of RCN, would want to eventually to have cable franchise because there's a lot more certainty there. And the OVS, there's not a long history, there's not a lot of established record of rights and responsibilities that you would find more certainty under the cable franchise. 18 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 So for the City standpoint, as other cities have done, in this particular case, RCN, they've gone into the model of offering an interim agreement to get them started so the City does not delay them and does not stop them in the market and does not fall under any kind of federal mandate, and allows them the opportunity to migrate into the traditional cable franchise.
Why not start out getting a cable franchise? DEPUTY COMMISSIONER JAMES: I believe it's something that has to be looked at by both parties depending on that municipality, what works for that municipality and what works for RCN in that particular market. In some cases, going right to a cable franchise would probably be the best outcome. Some cases, maybe we want to see them prove themselves and let them establish themselves under the interim agreement and then let them migrate into the cable franchise once we've had an opportunity to better understand what they're doing to do and the services they're going to provide. So for a City, it's kind of we get the best of both worlds. We have an interim agreement. 19 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 They've guaranteed to build out construction in the interim agreement, they're guaranteed to provide us provisions very similar to a cable franchise under that agreement, and they still have the right to opt out and get a traditional cable franchise.
Have you done any -- other than your, I guess, two times now before the committee, you're not excited today, are you? DEPUTY COMMISSIONER JAMES: No, I'm much calmer today.
What's been the department of information that's been shared with regard to the whole OVS versus cable franchise arrangement. OVS came out of the '96 cable act? DEPUTY COMMISSIONER JAMES: Telecommunications Act.
The Telecommunications Act. DEPUTY COMMISSIONER JAMES: Yes.
And this was the first of its kind here; is that correct. DEPUTY COMMISSIONER JAMES: This is the first in this market, yes.
And other than the 20 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 two hearings that we've now had, has there been any discussion about OVS to the broader Council body here? Has there been any briefing about this concept and how it came to be and what it's all about? DEPUTY COMMISSIONER JAMES: I don't believe we provided the Council any direct briefing on the subject.
What are the downsides for either party? DEPUTY COMMISSIONER JAMES: Well, I think downsides are the same whether it's an OVS or it's a cable franchise. There's the risk of any kind of business venture in the magnitude of the construction that's going to occur, whether or not they're going to be successful, whether or not they're going to be profitable. And the risk to the City is the disruption and, you know, the uncertainty they may not be successful and how that would impact the City if they're not.
How would that potentially impact the City. DEPUTY COMMISSIONER JAMES: Well, 21 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 potentially, we could have construction occur, we could have a lot of disruption and a lot of wires placed above ground and below ground and never have an operator who would complete it. So there would be some certainly detriment to the infrastructure and the City to be disrupted and not have the services delivered. The similar risk that occurred, you know, basically in 1984 when we first started cable that there was a risk that all four of those providers would not have been successful and the risk was basically somewhat the same. Today, the only difference is the economics associated with the companies that are trying to do it as an overbuilder.
What's an overbuilder. DEPUTY COMMISSIONER JAMES: An overbuilder is someone who builds on top of an existing, in this case, operator within the same market, within the same area.
Let's talk a little bit about your testimony. The first page of testimony I have which has both the Commissioner's name and your name on it, I was kind of struck -- I 22 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 mean, I read a few testimonies from time to time, but yours has kind of trifecta of words that draws a little bit of attention. It says on the first page, "This testimony is submitted to clarify, supplement and amend the testimony of Commissioner Andres Perez and Deputy Commissioner Joe James in response to questions presented by committee members during the committee's public hearing on the bill on October 31, 2,000." What all needs to be clarified, supplement and amended, and what happened since that time to cause those three things to come into play? DEPUTY COMMISSIONER JAMES: I think in the area of clarification, the testimony went back to, once again, to redress if it had not been clear the first time in the testimony that was given before about what are the things the City's going to obtained from this agreement. What are the benefits to the City that were going to arise by providing RCN this opportunity. There was clarifications to questions like, as I mentioned before, answers I gave in the previous testimony that were not quite correct. And hopefully, we've corrected them by giving the question and the appropriate response 23 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 that should have been made at the time.
On , the testimony reads, "RCN has agreed to terms that are in material respects equivalent to the terms and conditions of the City's four cable franchises." If you say they're in material respects equivalent, does that mean that there are any material differences or are there any differences? DEPUTY COMMISSIONER JAMES: There are some differences in the timing of certain payments under certain obligations, very similar to what we did with the Urban Cable franchise where all of the payments for, let's say, meeting their obligation to the School District doesn't occur all at the first payment, that we allow them to split them over payments. The same thing as obligations we made to PCDC or government access, and even in areas of the public access obligation that the timings for their payments would probably not occur at the same time as the payments from the other operators, thereby extending the money that would be available for the construction and providing of the service. So those are kind of material changes -- and basically, the agreements are equal in that they have the same 24 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 scope of services that are being -- and provisions that are being derived from, whether they're 4 percent gross revenue, the ability to obtain revenue 5 from cable modems, the ability for us to obtain money for the School District, the ability for money from government access channels, the government access channel allocations, to School District allocations channels, and the college and universities in there. There's even a commitment for the institutional network that are, again, it's not equal to the same obligation, but none of the agreements are actually identical. They're equivalent based upon what we've termed to be the best value that they could provide to us under this agreement.
On , there's a statement that says "None of the original franchisees was required to construct more than one franchise area of the City, let alone the entire City or to do so within these completion times." This is at the end of a paragraph talking about some completion dates. My recollection back at the time maybe, though, that I don't know if anyone was asked to or 25 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 would have been allowed to. Is that correct? DEPUTY COMMISSIONER JAMES: In the original four franchise when they were awarded, there were proposed timetables by the applicants when they would have their system completely constructed. Those were the schedules that we were basing, basing upon our monitoring of their completion. They then came back and asked for extended times because they could not complete it in the time frames that they asked for, and the City provided those extensions. So what we were trying to say in the statement is there was no requirement by any one of those four to build the entire City or to have their construction completed within a four-year period of time. They proposed times and we accepted those times. But when they needed extensions, we gave them extensions.
Has there been any suggestion or requirement that RCN build the entire City? DEPUTY COMMISSIONER JAMES: Well, there has been discussion about the build-out schedule that they have proposed. There may be some inequities in it because it doesn't encompass the 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 entire City or it only starts in a certain cable franchise area and not in all four franchise areas at the same time. And, you know, that's their opportunity to propose where they would like to start and where would they like to build. And what we tried to provide in the testimony is that it's not that similar from what occurred in the past. Business is asked to start where they wanted to start, and we basically allowed them to start where they wanted start.
Well, I understand that. What I didn't understand about the statement or what the point was, again, was that I don't recall any of the four franchisees being required to do anything City-wide. I thought that there primary, if not only, obligation was to build in their area. DEPUTY COMMISSIONER JAMES: That's correct. And what the testimony is trying to indicate is that now we have -- that did occur in the past. Now we have a new entry who wants to come into the market and he wants to select where he wants to start. There has been statements made in the press about them not accomplishing the entire 27 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 City and there may have been some concerns, I don't recall all the comments made by the committee members at the time of the hearing in October, but suggestions that why aren't they building the entire City, why don't we have an obligation for four franchises from them all at the same time. We merely tried to amplify what had occurred and what we think materially the significance of those two construction schedules that were permitted.
Okay. The Chairman's been most gracious with leeway. I ask one question and then yield back. On , it's a statement here that says, "Therefore if RCN offers video programing over the Center City network or anywhere else in franchise Areas and multiple dwelling units to select neighborhoods or areas to individual customers or anyone else it is obligated to apply for a cable franchise for the entire area within 120 days after offering video programing in the area." Does that mean that they are not required to apply for a cable franchise if they're offering the video services in Areas or 4? DEPUTY COMMISSIONER JAMES: No, I 28 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 believe the statement is written as such to indicate that we already have a commitment from them that they are going to do Areas 3 and 4 and are going to apply for cable franchise in those particular areas. So what the intent of the comment was --
Just 120-day? DEPUTY COMMISSIONER JAMES: Right, with 120-day. And we were trying to address the other two areas that were not committed to initially.
Thank you, Mr. Chairman. Councilman Nutter actually asked some of my questions.
Councilman, I apologize. I did not look at your papers this time, but I apologize to you.
I know it wasn't intentional. 29 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 One of the latter questions with respect to the remainder of the City, as you will recall in the hearings being a councilperson who does not represent either Area 3 or 4, I obviously had some concerns. During that discussion, there was actually information came out kind of on both sides as it related to the rates. I think there was some conflicting testimony, one that indicated that the rates had to be set rates across the board, and I understand, and please correct me if I'm wrong, there is no requirement that has a set rate across the board, not only between franchisers but within the one franchise there apparently could be different rates in different areas. Is that my understanding? DEPUTY COMMISSIONER JAMES: Councilman, that is the my understanding, that the flexibility in the rates are determined by the provider and they have the latitude to set the rates as they deem appropriate based upon their cost in a particular area. So it could be higher cost within the same franchise area. They possibly could charge different rights. Would not seem to be likely, but it's possible. But certainly across all four 30 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 franchise areas, the rates are not necessarily uniform.
With respect to Areas and as it relates to RCN's ability to ultimately get to that, assuming best case scenario that they're able to make it more competitive in and would obviously be to the advantage of or probably would be required of other franchise in that area to lower their rates to become competitive with RCN if in fact what they say is true. My concern as it relates to 1 and 2, how do we achieve what best case scenario will happen in 3 and 4 in terms of get being able to get competitive rates? How in terms of a time frame, how do we get there? I just don't think it's appropriate for people in 1 and 2 to not have these enhanced services at a lower rate in those two areas.
Before you answer, let me just piggyback on that a moment, and I know there's no real answer to this question. But one of the things I've had discussion with other councilmembers, Councilman DiCicco included is what effect does the rates in the monopolized areas of and 2 have from an upward standpoint relative to the 31 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 price war that apparently will go on in and 4? I 3 mean, I know Comcast won't answer that. RCN can't answer that, and we don't really have a crystal ball, but at some point in time if the competitive pricing in and create a problem in 1 and 2 where Comcast or whoever the provider is needs to absorb that cost somehow. I'm worried about cable rates in those areas going up, frankly. So that was just an addendum to Councilmember Clarke's question. DEPUTY COMMISSIONER JAMES: Councilman, there is no real answer to that question because we don't have the opportunity to be able to make that -- to control the ability for them to move into the other areas. I would think, this is just my view, that making them successful in Areas 3 and 4 further creates the opportunity for them to move across to Areas 1 and 2. Very similar to what Comcast started out in Area 4 and became very successful. When there was opportunities and the economics were there they move and acquired the other areas of the City to their benefit. And that doesn't necessarily mean that the rates have lowered in Areas and which they acquired after they had 4 initially. I think it's a business decision and the real driver behind 32 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 all this, yeah, it's enhanced services, but when it comes down to it, it's just entertainment. And it's the cost of providing that entertainment which is driving their cost.
I hear what you're saying, but I recall, again, in earlier testimony this there was this whole issue about why and were selected. First we were told essentially that the plug was a little closer to the Princeton office. And then we got a little beyond that. We started talking about 3 and 4 possibly being more lucrative early on in the process than 1 and 2. When you talk about that being the case, I'm not sure that they would fill the need to go to 1 and 2 if 3 and 4 is in fact as lucrative as they indicated in earlier testimony. And I'm just saying as a person who represents those areas, I don't think that it's fair for us not to be on a level playing field as it relates to cable serves and enhanced services. And I think the City should take a more proactive approach as opposed to just kind of waiting and seeing what happens with the RCN if they ever decide to come down to and based on the economics. I don't know there's the wherewithal 33 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 within the City to do that. Or do we go out and solicit individuals? I mean, what are we going to do about that? If this happens, I'm going to start getting some calls. DEPUTY COMMISSIONER JAMES: I can only say that is probably one of the main reasons that it's taken us so long to get this point at the table because we in the Administration who were in negotiations with RCN had this as a major concern for us is how do we draw RCN into making a larger commitment and providing services across the board for the entire City. And that took a lot of negotiations even to the point where they're going to start in 3 and 4. We by no means at all took that issue lightly. We were very concerned that you would have the same concerns that you're expressing right now, and certainly in the concerns that we have as people who live in the city is that if there's going to be an opportunity for competition and lower rates, everyone should have that benefit. This is the best deal that we could create at the time that we were able to bring to the table. Hopefully we will continue to encourage them into 34 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 move in those areas. But I don't know if we have the administrative or regulatory authority to force them into areas where they're not willing to go.
I guess because of the Telecommunications Act and we essentially have know wherewithal to say that you can't just select this very lucrative area without -- DEPUTY COMMISSIONER JAMES: I thank if you look at the businesses in general, look at all the different telephone companies that there are. There's over 33 competitive local exchange companies that have identified Philadelphia in a marketplace and I can tell you they're all in Center City. There's on competition for your home service right now. Nobody's offering it and I don't see anybody stepping up to it, but there's 33 companies that have identified Philadelphia as the place to do business and they're all in the core of Center City. So either the Telecommunications Act doesn't have, you know, everything in it, it certainly provides competition. But companies, just like dot com companies, like everybody, they're going to have to generate a profit first before they can expand. The ones who expand without generating a profit and 35 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 don't have the customer base don't last very long. Even though they're starting in Areas and 4, those areas 3 and 4 have always existed and have always been lucrative to whoever had them. That doesn't make them a safe haven and only restricted to the incumbents. Everybody has to have an opportunity and they have, as a business, have a right to make a selection where they want to go.
Thank you very much. I understand there was an appeal filed in March of 2000 with NLRB; is that true and what is the status? DEPUTY COMMISSIONER JAMES: I'm sorry, Councilwoman, I'm not familiar with.
The National Labor Relations Board. DEPUTY COMMISSIONER JAMES: Well, I'm not familiar with any of the labor relations issues RCN is involved in. 36 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452
Councilmember, I'm not sure whether we're going to have testimony -- no, we're not going to have testimony.
Councilwoman Blackwell has a request that a representative from RCN approach the table, whoever you believe is appropriate to answer this particular question.
Good afternoon, Councilwoman. I believe you're referring to the -- I'm sorry. I am John Pitts, P-I-T-T-S.
Thank you. Identify yourself for the record and proceed. Thank you.
My name is John Pitts, P-I-T-T-S, I'm the area vice president for RCN. Councilwoman, I believe you're referring to the 37 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 matter concerning RCN and the CWA in the Lehigh valley system?
It is correct that we did appeal a ruling from the NLRB. The current status of that -- and the particulars are in my testimony from October 31st. The current status of that is that we have sent a letter to the CWA requesting that we both drop litigation and move to a fair and open election in the Lehigh Valley. And we have just recently received a response from the CWA agreeing in part to our recommendation.
That's a very important issue to us, and I understand Councilman Cohen has a lot of issues with regard to this whole issue concern. As you know, there's been a lot of talk in the past about racial disparity in your building plan, and certainly we want to make sure that you're a young company that RCN is and that all people certainly in Philadelphia are protected. Let me ask. It's been said that because of financial problems RCN has decided not to go into have other markets. What is preventing you or 38 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 encouraging you to stay committed to Philadelphia?
Councilmember Reynolds-Brown has follow-up to Councilmember's Blackwell question.
You indicated in your response that you sent a letter to CWA requesting that both of you drop your cases, correct?
And that they -- did you use the word "comply" or "support" your recommendation? Which was it?
The letter requests that we both -- suggests that we both drop litigation and move to a fair and open election. And the letter that we received from them just a few days ago, it agreed to generally that statement with some stipulations, and we're formulating a response to their letter.
You faded on the tail end of your response. 39 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452
They're letter -- we received a letter from them a few days ago agreeing to the concept of dropping litigation and moving to an election.
Thank you very much. I was unclear on what you were referring to when you say recommendation. Thank you. Thank you, Mr. Chairman.
Can I add something? Of course, we have to work on the hows and the wheres and so on.
Thank you. We had followed up asking due to financial issues just the status of where they are in terms of preventing or encouraging a stay in the City. Where is RCN now? We have a lot of concerns in this Council and there are people on both sides of the issue because we're really not sure that we're clear. It's a union town. We want to expect our unions. We still hear all the rumors about RCN not really being committed to the whole City but only 40 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 being committed to certain people in certain areas. And those are legitimate issues for us. So we want to know exactly what your plans are and what your commitment is to Philadelphia, to certain areas and to all of it.
I'm Scott Burnside, Senior Vice President for Regulatory and Government Affairs for RCN. Let me start with the macro and move to the micro answer to that question.
I will. I will do that. From a macro prospective, I want to talk about the general economic conditions and how they have changed over the last couple of months and even over the last year with respect to investment capital and new business interests. And from that perspective, I'm talking from macro perspective. As you probably are aware, RCN and other companies in its so-called sector economically, we're very fortunate, those of us who had a business plan that was of some interest to Wall Street and 41 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 we're able to collect or attract a substantial investment to start this business. It's a business with a very high barrier of entry. After all, what we're doing, essentially, is competing with two or three of the most entrenched monopolies that this country's ever seen, that being the local exchange telephone companies and the entrenched unregulated cable monopolies. And to do that, we need to have a substantial amount of capital to build a network. We were able to raise and continue to raise that capital, but without any do doubt, there has been -- whether we use, as I hear on television, the R word or not, we're in a economic downturn. And obviously, that means from a business perspective, there is much less investment capital available. And so what we have done, as any prudent business would be do, is adjust its business plan and its trajectory of growth accordingly; and we've done that. We have pulled back in markets or new markets that we had been seriously exploring, places like Denver, Colorado, and Houston, Texas, and so on, and concentrated simply on the markets where we have already committed to. And certainly -- Now I'm moving, I guess, from the macro 42 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 to the, micro. With respect to this market, clearly RCN, taking the Greater Philadelphia market as a whole, has already made a substantial commitment. We have something in the neighborhood of 6 different agreements or licenses to operate in 7 suburban communities and want very much to have the 8 same opportunity to operate here in the City itself. 9 So I think with respect to any references about RCN 10 so I think with respect to any references about RCN 11 slowing down its growth, that I hope explains the 12 rationale and exactly what has gone on as we've 13 adjusted to this economic condition we find 14 ourselves in. And we're very hopeful, as I think 15 most people are, that once the economy turns to some 16 degree, the investment bankers in Wall Street will 17 again reinvest or additional investments in 18 companies who have survived this downturn; and we 19 fully intend to be one of those companies. So I 20 think from the perspective of the overall business 21 plan, that addresses our current environment and 22 situation. 23 Now, with respect to of the City itself, 24 I think that Mr. James's explanation to Councilman 25 Nutter about what our plans are and how we plan to 43 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 go about it and the protections and safeguards in the license that has been negotiated over some long period of time gives both the company and the City a reasonable, if you will, win-win agreement because it has to be that way. And I would only have added to his -- and perhaps this is to some degree addressing your question, that if RCN is successful in doing what we are prepared to sign for here in the City, the opportunity to go on beyond that, obviously, becomes much easier because we will have then achieved some economic base. We're building a very brand-new high technology network, one that doesn't exist today. That's the good news. The bad news is we don't have any customers yet in Philadelphia.
And to establish a customer base with the investment necessary and the infrastructure, the head end, the telephone switch and all of those things in place, the opportunity and ability to go into the other parts of the City became very attractive to us. But we simply can't digest the whole thing all at once. And I think that is pretty much what Mr. James was saying and I think that's what I would say. I'm not sure if I've answered all of 44 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 your questions, but if I haven't, I'm not sure I remember exactly what else I need to tell you.
In light of your recent -- and the statements you just made concerning your financial concerns, do you foresee a problem in obtaining construction and performance bonds in order to ensure competition in the initial phases of the project?
None whatsoever. This company is very well capitalized and, in fact, is prepared to weather a much, much longer storm with respect to a downturn in the economic conditions than any of us believe is reasonable. We're fully funded out through a five-year business plan and with the ability to attract, hopefully, new investment over the next couple years, we'll be back on the growth projectory that we were on. But if not, we have a commitment and we we're not making any commitments that we can't fully honor. So I'm very confident that what we're doing here in Philadelphia can be accomplished with all of the safeguards that have been built into the agreement.
Thank you. Thank you, Mr. Chairman. 45 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452
I'd like to follow-up for Commissioner James on the amendments to the OVS agreement. And it follows the financial condition of RCN. Here, obviously, you must have had a concern because it says here, "Given RCN's recent financial problems, we wanted to increase their financial commitment to ensure the project would be completed and make this arrangement more equitable to the commitment of the other franchise-holders." The construction and performance bonds, could you tell us the value of those construction and performance bonds, and are they adequate in the event that -- DEPUTY COMMISSIONER JAMES: Councilman, you have to excuse me on the actual numbers. I don't have the actual numbers for what the bonds are. I would say just off my memory, the construction bonds are based on the total amount of money that's required for them to build out. It's like a percentage like most bonds. It's based on the amount of dollars that are going to be expended along with the insurance. We would obtain a 46 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 sufficient amount to cover the construction that they're planing to do as well as a performance bond to make sure that we have sufficient capital through a bond. If RCN would not be able to complete it, we would have money to be able to go out and hire someone to complete the construction or be able to sell off the assets that are already in place.
Wouldn't it be -- isn't it important for a decision-making process to know exactly those numbers before we make a decision? DEPUTY COMMISSIONER JAMES: I'm not saying I don't. I just don't have them in front of me and I don't recall them off the top of my head.
Could you please comment on the fact -- in your opinion, the performance bonds and construction bonds would be established to sufficiently cover the completion of the construction and bring the system's construction to completion, if they walked, who would operate a system we just built? DEPUTY COMMISSIONER JAMES: We had this discussion with one of the previous franchise or along the same lines and their ability when Urban 47 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 Cable took over from Time-Warner and the Wade franchise. We asked for additional construction bonds and there were discussions that if they were unable to fulfill their obligations for the build-out, the City would have to take over that and operate it either by finding an operator through a bid process or looking for a company that would want to acquire that particular franchise and then operate it.
Because this isn't the typical technology that you say to a cable company, hey, we need you to jump in and operate. This is a different animal, from what I understand. It's just not -- there's not a lot of people walking around to do this. DEPUTY COMMISSIONER JAMES: Basically, the technology operates very similar to what's out there today, either from the incumbent cable operator or from the telephone company. It's a fiber network and it's a matter of technology as far as the switches that operate it.
Before we lose track of the questions, could you comment on how and amounts of the performance the construction bonds? 48 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452
I don't recall the exact amount. But I know that in reading through the franchise and what was required, it was in the range of the performance bonds that we were required when I was a cable operator here in the City, so we didn't have any concerns about the amount.
I mean, really, I can't imagine we could sit here and you're planing a project and know that you're going to need construction and performance bonds and you don't have a clue what those numbers are.
Well, then tell me. Tell me how much these performance and construction bonds are going to be.
My name is Thomas Steele, Vice President with RCN. I've had the advantage of being able to check the agreement while the gentlemen were talking at the table. The 49 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 construction bond is $3 million, and there's also a Section in the agreement which gives the City's risk manager the ability to a require the limits on insurance and/or the limits on the bonds required by the agreement to be increased by RCN from time to time to reflect the increased potential liability. The only restriction there is it has to be consistent with standards that are at work in the cable industry.
Excuse me now. You're talking about a construction bond of $3 million. That sounds to me very, very lean. How much are you planing to spend -- let's talk about Area 1. What is your investment in Area 1? Any of the areas, just give me an example. It's $3 million it's tough to build an anything today for -- I just can't imagine $3 million being enough to finish a project that could be how many millions, how many millions of one of the projects going to be?
So we're halfway through the project, $125 million project, and you expect the City of Philadelphia to finish it for $3 million. 50 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452
It was president my expectation that that's what the bond was designed to do. DEPUTY COMMISSIONER JAMES: The bond provides us insurance in case there's a default. It's set at a number that's very similar to what the other operators had when they obtained the cable franchise. It's not really our expectations that we will have to acquire this and operate it. $3 million is enough for us to find a company to complete it. $3 million may be enough for us to sell off the customer base that they have already built to date, but it's certainly not intended to recoup the $125 million if that's what they're planning to spend on the construction. Bonds are just not designed to be the full face value of the construction. It's a percentage of whatever that capital is. Again, it has insurance, it has a performance bond, and it has a construction bond. So we have at least three vehicles to use if we're ever put into that position to have to take it over.
And the amendment would b3e that requirement for each of the franchise areas? 51 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 DEPUTY COMMISSIONER JAMES: Each franchise area, that's correct.
Thank you, Mr. Chair. I have a question for Mr. James and also a couple questions for RCN. Under the Federal Cable Act, does that mean now that Philadelphia is open or will be open to all different types of companies coming in to do cable? DEPUTY COMMISSIONER JAMES: Under the Telecommunications Act in '96, it allows any parts of the country for a company to get started as an OVS operator and to go into that market if they meet the requirements of the FCC.
So is in the only OVS company that has approached Philadelphia to want to provide cable services1? DEPUTY COMMISSIONER JAMES: Yes.
Do you have an idea of how many more companies are out there? 52 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 DEPUTY COMMISSIONER JAMES: When we first had the opportunity to meet with RCN, we had the similar question, and I think from our research there was only about three or four companies nationwide that were in different markets that were trying to do the same type of effort. There was companies in, I believe, Georgia, might have been in Florida, in the midwest area and the California. I can't recall the specific jurisdictions. But there were not a lot of companies that were taking this model and was trying to become an overbuilder.
This question is for RCN. Since part of Area and are in my councilmatic district, I have questions that pertain to programing and service. What is the difference between you, a OVS and let's just say Pop Vision? Are you familiar with Pop Vision?
Yes. Pop Vision came into town and it's the only company I know other than Comcast and then part of Wade is also in my area. And Pop Vision came into town and people jumped at it purchased Pop Vision, and it was awful. 53 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 My concern is that people get quality service for their money. So I really want to know about your track record and the type of programing and service that you provide.
Well, we're operating in 7 towns in Delaware County right now, offering a high 8 how quality of service, full range of video 9 programing, telephone and high speed internet. What 10 we are proposing is to bring that same level of service into Philadelphia. It's a much more robust offering than Pop Vision. It's everything that people are used to in the area of programing. Any channels that are being offered now, virtually all of them are on our lineup as well. There's some limitations with Pop Vision that with us delivering our product fiberoptic and some co-ax cable. We don't have those limitations.
So when it rains, your service is still there, it doesn't go in and out?
When you set your cable system up in Chicago and Boston and New York and Washington, D.C., are you doing the entire 54 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 cities? And how long have you been in existence? Or are you only doing certain areas slowly the way you're doing here in Philadelphia, moving into the entire city slowly?
I'll try to answer that. In the markets that you identified, I think the first one was Chicago, Chicago is somewhat similar to Philadelphia in that it is divided into multiple franchise areas. We actually started in Chicago with one area and have just recently, just in the past couple of months signed a deal with Chicago, after having had a couple of years start in that first area, to do three other areas. So I think there is something of a similarity. The only thing I would point out to you that with respect to Chicago, RCN acquired a small company that was doing exactly what we're doing, but only doing it in Chicago. With respect to Boston, Boston is different in that it only has one franchise area. The footprint of Boston, the physical footprint of boston is not nearly as big as the City of Philadelphia. And for that and I guess other reasons, they chose in the City only to have one franchise. So obviously when we did an agreement in 55 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 the city of Boston, it covers the whole City. We have also -- we also started out there with an interim OVS agreement very similar what we're doing here.
So you're providing cable to the entire city of Boston at this time?
Well, not yet. That goes to sort of the second part of your question. We've been in business since 1997 and we're in the middle of a seven-year build-out schedule for the franchise in Boston. Now, I also wanted to point out one other distinction you raised. In the City of New York where there are five boroughs and I think, I'm not sure, but I think nine franchises all tolled, we are operating there strictly under an OVS agreement. There is no transition to franchise and we, therefore, we have no commitment to build out the whole City. And the reason that's germane is that the City itself, the Department of Information, Telephone and Technology, the acronym's DOITT, felt that it would have been virtually impossible to hold a company to a build-out schedule for, let's say, 56 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 all of Manhattan where there are two franchise areas in any time comparable to what was in the existing franchise agreement and they decided that some competition in some areas was better than none. And I don't want to put words or thoughts in their head, but I think if you ask Mr. James's counterparts in the City of New York that that was the thought process behind granting an OVS agreement to RCN. And by the way, just as a footnote, we are now in some very preliminary analysis of whether or not it makes sense to change that OVS to a franchise. That will take some time and negotiations, but gives you, I think, as best I can sort of a walk-through the major RCN markets. We're also operating in San Francisco -- and what else didn't I touch on? And Washington, D.C. as well.
So you've been in business since '97 and you're providing services. Have you provided us with information around customer satisfaction surveys and all those kind of things?
So you know what 57 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 happens. As Councilpeople we get all the calls. If you're good, we'll get calls; but if you're bad, we'll get a whole bunch of calls.
I fully understand that, Councilwoman. I'm not sure if that was asked.
While John is going through that. If you would permit me one observation along those lines, because I think if I've had the experience of dealing and doing business in all the cities we just talked about, that question has come up in one form or another virtually in every community, big or small. And it's a very good question, but part of the answer, part of the answer is that will help relieve and does relieve -- we have prove of that. Helps relieve those calls that you get because in markets, although there are not many today, in markets that in fact have competition where there is cable choice, customers -- and we have most of that experience, by the way. Where that happens, customers don't call you as frequently with bad service or complaints; they simply call the competitive alternative. And that's ultimately the underlying desire of the 1996 Telecommunications Act 58 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 that promoted local service telephone competition and direct competition with the incumbent cable operators.
I think Councilman Clarke asked this question. I'm not really sure. How much is your basic service? How much would it be? Is there some rough estimate?
And that includes just basic, no HBO or anything like that?
No premium channels, but I guess what would be considered basic and expanded basic here, the ESPNs, the CNNs, and 3, 6, and 10, 17, 29, so on.
Thank you, Councilwoman. Councilmember Cohen, did you have some questions regarding the labor issues?
Not just on labor. 59 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452
And I don't mean to diminish the significance of labor issues. I'm a Councilman-at-large, and therefore, I'm very unhappy when I hear you say -- that means, not only that I am free from being prosecuted, I'm at large in the other sense, politically representing the entire City as there are a number of other councilmembers. (Laughter.)
I'm looking around, I'm not alone in that. So I assume the other Councilmembers-at-large, and if not, I certainly am unhappy that you only contemplate, as I understand it in the first seven years dealing with dealing with only maybe half the City. However, since I'm a democratic ward leader in the Northwest and my home is there, I'm at least pleased that my home area is part of Councilwoman Miller's district councilship. She's my District Councilwoman. So I'm please that that's included, but there at least I want to know is service going to be made available to the entire 60 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 district at one time or will it be piecemeal? Will I get complaints from members of my ward who cover a portion of the district that Councilwoman Miller represents as a District Councilwoman? Will they get service at the same time that everybody else in that district of Councilwoman Miller, or will there be different parts of the district that get service under your program at different points of time?
Our plan is to construct starting from the north, east, and proceeding west. We have a schedule and a map that we submitted at the hearing and with the application. After an areas has been completed the construction process, then we would start selling and the installation process while we're proceeding to construct in the next area. So we come on in phases throughout the whole period of the seven years of construction.
Well, except I don't know what you mean by area. Does area cover the whole district?
No, it's not tied to councilmatic districts. It's more of what is a manageable area of construction.
In the Northeast an 61 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 Northwest, how many areas will there be?
We can -- let us refer to the maps. We've submitted maps in a number of submissions.
Are there 10 different areas, for example? I'm just speculating. 11 I'd just like to have an estimate. 12
If each area comes on 14 time separately and there are 20 areas, then there 15 will be 20 different times when service will be made 16 available in the larger territory that you expect to 17 cover during the seven years. 18
We would probably activate 19 areas when construction is underway, a different 20 area every three or four weeks. So we would be in one neighborhood or one section of a neighborhood which might only be maybe 300 homes or 400 homes and they would be told that there area would be available for service within a few weeks. And then within a few weeks after that, there could be 62 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 another or 400 homes on adjacent streets. So the 3 process is continual where we're continually activating nodes, doing construction, offering service, and then moving on to the rest of the paper. So it's sort of a fluid process.
But within that seven-year program, there may be many different times when service will first become available to a segment?
One of the District Councilmembers don't appreciate that, that they think those of us that cover the City never get these complaints, but we do, and the major complaint is "That street three blocks away got paved yesterday. Why isn't our street included?" Or they went down around the corner instead of proceeding straight down the avenue to cover the area. How do we explain -- am I right, Councilman DiCicco?
It was much quieter before anybody got any improvements. But as soon as the improvements begin, everybody wants them and that's a understandable human reaction. How are we 63 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 going to be in any way able to say that what's happening is happening fairly?
I think that, you know, my answer to that, being a long-term operator in the City of Philadelphia, I understand the realities of construction and causes of concern, information is the best way for us to address that. And what we've been doing in the other areas that we operate in is we have town meetings and we would go out and talk to the community to help with their expectations about our progress. We use the newspaper. Small newspapers will put streets maps and show streets and say, in three weeks' we'll be in this area. Or by six months these areas will be covered. And we found that that helps a lot. It reduces the number of calls to offices like yours and helps us so that when we're on the street doing construction, people know that we're coming and it also helps us in the sales effort, to be quite frank.
Let me ask you this question, which will no link my questions with labor questions. Will you be what appear to be, to me at lease, more reasonable if we call you and say, "We see the schedule, but frankly we think there's a 64 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 better schedule or fairer schedule," will be prepared at least to listen and then explain why your system is better? Or may be even say, "Well, yeah, you know you got a point there. Let's look at it and maybe we're going to change it."
Because in the labor area, I don't know whether I can take from your statement today that you're considering a reply to that CWA letter offering another election and let's put an end to lawsuits. Does that fairly what the letter said?
Their letter was in response to our letter asking to drop the lawsuit.
They did? 65 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452
I think that we need to respond to the details of their response. I think that we're in a good place, and you may want to ask them if they think the same thing.
Well, if they testify, we probably will. We are interested, to whatever extent we can have an influence, to promote a friendly amicable relationship between business and labor. Many of us happen to believe that an economic climate is strengthened by a strong labor movement, you know, putting for the vigorously the feelings of working people. To me that's self-obvious when I hear Greenspan talk about he worries about purchasing power, and I've never understood a company that thinks it helps the purchasing power of the community by bringing about layoffs or by insisting on low wages. It seems that policy seems to me to be self-defeating if purchasing power of the consumer is an important aspect of the economy. From what I hear from Mr. Greenspan and everybody else that discusses it, the 66 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 single most important factor is consumer purchasing power and even the belief, of the perception by consumer that their income is going to be steady, reliable, and sufficient to enable them to purchase. So I'm really very confused by business organizations that are hostile to labor groups. Seems to me in the interest of economic development, they ought to be favorable. But in any event, we are concerned about the climate in Philadelphia. Some people think it's a parochial interest. We don't think so. We think we're promoting healthy economic climate when we bring about good relations between labor and business. And so we encourage you to do whatever your company can do, and we say the same to the union, to bring about that kind of understanding. And, frankly, I've been to your previous material. I did not understand why you seem to be placing so many obstacles in the way of union representation. Sooner or later it's going to happen, and I think everybody is helped the sooner it happens and in the more friendly background. What is your sense? Does it seem as if you're on the road to settlement of that problem? 67 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 I know it's not in Philadelphia, but it affects the same top people of your company are concerned and labor operations, whether it's in Philadelphia or outside. Does it seem to you that from your point of view the climate for the friendly amicable labor relationship is developing in the proper direction?
I can only state my view. In my opinion, we've asked for a fair and open election to have the employees determine whether they want to be represented by the CWA. They have choices: The CWA or no union or at union or maybe even the union that they had up there for years. What we want to do is set the rules for a fair and open election and then abide whatever the outcome of that is. And if the CWA wants to do that, then we're in agreement and then we'll move forward.
Why has it taken so long able to get an agreement? Technic a who is qualified to work.
In the interest of dialog, can we have representatives from the CWA here at the table, please?
I think that's a very fair approach. 68 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452
My name is Edward Mooney, I'm the vice president of Local 1300 of the CWA.
Thank you. To clear this up, and as Mr. Pitts just stated, what the company wants is they want to know if the employees in this area want to be represented either by no union at all, their former union, the Twin County Operating Employees Committee or their current union, the CWA. As we have contested all along, the Twin County Operating Committee, as Mr. Pitts just acknowledged, existed in the Lehigh Valley prior to the CWA ever being contacted. There was a union there, an established union with a contract in place. What happened was they contacted the CWA. They wanted help in --
They were the stewards of that organization, the Twin County Operating Employees Committee. Said they wanted help in administering their contract to better know how to 69 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 bargain with the company. We agreed. We sat down, met with them, discussed the possibilities and what we need to do, which is called in the union an affiliation. I myself as a member of the CWA, formerly my union was called the Federation Telephone Workers of Pennsylvania. When we decided as the FTWP to become the CWA, the employer under the law has no place in that process. Union members themselves voted from the FTWP to go into CWA. This process was the same. The Twin County Operating Employees Committee, the members who are covered under that existing contract, they have the vote to come into the CWA. They exercise that vote. It was affirmed by the majority of the members there. And was the vote unanimous? No, it was not. But I can't tell you the small percentage of union votes in the country today that are unanimous. Now, what happened after that is the company took up the torch on the side of the minority, the group that lost that said they didn't want to be in the CWA and decided to file all these lawsuits and all these charges and then ignore the 70 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 contract. In their letters they say they're abiding by everything in the contract except the grievance procedure and acknowledging the stewards that are elected. Without that, they have basically no 6 contract because if the company does something which we believe is a violation, we have no way to enforce it other than labor board charges. The company sends us a letter, which we re-voted internally twice already and notified the company of that, so they're aware of that. They want us to withdraw all the litigation, withdraw all charges. The company has the ability to have all that go away if they just sit down, acknowledge the bargaining agent and bargain a new contract. We don't have to withdraw anything. The other problem is if we go to the National Labor Relations Board, had they followed the process that we put in place, which was affiliation, and these employees were not happy with the CWA, between 90 and 60 days before the expiration of the current contract, they could have filed for decertification of the CWA. Because of all the violations and the NLRB charges, that thing could never be entertained by the board; it would 71 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 have been tossed out. That's why it never happened. So if in fact they did not want the CWA as thier bargaining agent, that has nothing to do with the employer and everything to do with the members. We're finding hard to believe why an employer is involved in this. That's our problem. And in response to the letter the sent us, we did say again we will agree to a vote of the membership. The company has to stay neutral because the company would have been neutral in the original affiliation, as they should have been. And they have to be neutral in this. These employees, these members in that area already chose to be a part of a union. If they didn't want to be part of a union, they would have decertified the Twin County Operating Employees Committee prior to the contract being in place. That's all we're asking for. We want them to have their right. Their right was the CWA. Now we ask the employer to sit down and bargain a collective bargaining agreement. That's it.
Obviously, I disagree with Mr. Mooney on the events that led us to where we are 72 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 today. But it does appear that we at least agree as to where we are today. I think that suffice it to say if we're able to come to an agreement on the terms of an election, there will be an election fairly soon and we will let the employees decide going forward how they want to be represented.
I'm not sure I'm clear. Let me boldly put forth what I think the conclusions both sides are. Seems to me the communication workers is saying it wants an election in which it is you vote either for the communication workers or for no union. The company seems to be saying if the union is accurate that they want to ballot that list communication workers, the independent union or no union. Is that an accurate picture or am I wrong on that?
No, Councilman. In our opinion, the option of no union is not even available because if they wanted no union, they would have decertified the Twin County Operating Employees Committee. Then, what the question comes back to is, CWA or Twin County Operating Employees Committee, in which case the company has no part in 73 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 that process. As Mr. Pitts stated, we're close to where we want to be. This is where we tried to be sitting at the same table to work out an agreement. This is the closest we've ever gotten, by the way, and I want to thank you for it.
Let me ask you the same question I asked the company representative. In your opinion, are you moving toward a settlement of this problem so that you can move forward to determine what the employees have a right to do, and that's to make a decision?
From our point of view, at least after the two years or so, they've actually responded to a letter or have initiated a letter, so we're pleased with that. We just hope that in their letter it's phrased in the way, and the company can speak for themselves what their own intentions are, it seems to us that the company wants to have anything washed away as if this did happen, as if none of these problems existed. In order to do that, what it does, it leaves ourselves open. If all the charges are gone, everything's washed away, and then they begin this process all over again, I'm 74 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 looking at another two-year process to get these issues rectified. Where right now I have a case that's already been decided in our favor sitting in front of the National Labor Relations Board in Washington waiting to be affirmed. And in spite of all of that, to get to an end to this, we still agree, we will still forward and have that bargaining unit vote again on their commitment to union membership and the commitment to the CWA.
How long will it take the company to answer the letter that the union sent in reply to the company's letter?
Can I make a request, Chairman, that I answer this question on this matter. And it appears that we're straying into an area that I would ask the Chairman if --
If in your opinion, this is sensitive legal issue or proprietary information, certainly we can't you force to answer. And use your own judgment as to whether you think that's appropriate or not.
I would just ask it it's appropriate for us to go very deep into the granularity of this issue here? 75 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452
Well, I can't limit Councilmembers' questions. But I also can't force you to answer in an area that you believe is sensitive or to a disadvantage to your company.
I don't want to seem like I'm evasive or I don't want to be forthcoming, because I do want to be open and honest about it. We feel that we're at a place now where maybe we can reach an agreement. What I don't want to do is I don't think it's fair for us to play it out here. I think the proper place for us to negotiate this would be --
I don't disagree. The only concern that I have as Chair of the committee is allowing Councilmembers on the committee and Councilmembers in general to ask whatever questions they want, but also -- and the reason I brought Mr. Mooney up here was to make sure the record is clear. I always feel it's easier when you're reading the record to read people's discourse at the same time as opposed to waiting until you're through and have him come up. It's hard to mesh the record, in my opinion, from reading the record in the past. So I'd rather have an answer, question, 76 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 rebuttal, you know, that kind of stuff. But anything that you feel that is inappropriate to answer or sensitive, please just make that claim and we'll move on.
Okay. Let me answer then. Our goal is to come to a resolution as quickly as possible, and I think that probably at this point we may agree on more things than we disagree on which, I think, is a good place to be at this point.
On that optimistic, I'm prepared to end this line of questioning. I would hope that that optimistic note is acted on by both sides so that we really get a sound conclusion quickly. Thank you. I think it's in everybody interest.
Thank you, Mr. Chairman. Gentlemen, to follow-up on Councilman Cohen's line of questioning around labor, at the last public hearing, Councilwoman Tasco, myself, and 77 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 a number of members here raised questions, not necessarily concerns, but questions regarding women and people of color at all ranks within the company. So as a follow-up to that, has there been a second look at how you will do business along those lines here in the City of Philadelphia? Two questions: What's your track record with regard to those issues in other communities? And what will be your plan of action with regard to recruitment of women and people of color at all lines of that ladder?
Yes, Councilwoman, we did include our track record in the other major markets, which I believe is a good track record. It's in the handout that we submitted just following the October 31st hearing. And our goal is to -- we have a newly formed office of diversity compliance at our corporate office, and the main focus of that department is to look at our hiring practices and promotion practices across the whole company to make sure that we are reflecting the communities that we serve and that we are getting as diverse as possible. And being the area vice president, I can tell you personally that I am very much committed to 78 2/1/01 - PUBLIC PROPERTY PUBLIC WORKS - BILL 000452 diversity at all levels and I will see to it that we follow that model.