Committee Hearing, December 3, 2008

COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE ON PUBLIC PROPERTY AND PUBLIC WORKS - - - Room 400, City Hall Philadelphia, Pennsylvania Wednesday, December 3, 2008 4:00 p.m. - - - PRESENT: COUNCILMAN DARRELL L. CLARKE, CHAIR COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN FRANK DiCICCO COUNCILMAN BILL GREEN COUNCILMAN WILLIAM GREENLEE COUNCILMAN JAMES F. KENNEY COUNCILWOMAN JOAN KRAJEWSKI COUNCILWOMAN DONNA REED MILLER COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN FRANK RIZZO COUNCILWOMAN MARIA QUINONES-SANCHEZ COUNCILMAN CURTIS JONES, JR. BILLS 080896, 080319, 080835, 080838, 080876 and 080879 - - - V A R A L L O Incorporated Litigation Support Services Eleven Penn Center 1835 Market Street, Suite 600 Philadelphia, Pennsylvania 19103 215.561.2220 215.567.2670 2

Good afternoon. This is the Committee on Public Property and Public Works. The public hearing will come to order. Will Mr. Carter please read the title of the first bill.

Bill No. 080896, authorizing the Philadelphia Authority for Industrial Development to purchase a certain tract of land with the improvements thereon in the area bounded by 46th Street, Market Street, Haverford Avenue and 48th Street, subject to the terms and conditions of the Philadelphia Industrial and Commercial Development Agreement between the City, PAID and the Philadelphia Industrial Development Corporation, under certain additional terms and conditions. (Witnesses approached witness table.)

Good afternoon.

Good afternoon, 3 Mr. Chairman, members of the Committee. My name is Sam Rhoades and I represent the Philadelphia Industrial Development Corporation, PIDC, and the Philadelphia Authority for Industrial Development, PAID. I am joined here by Duane Bumb, Deputy Director of Commerce, to testify in support of Bill No. 080896. This bill authorizes PAID to acquire approximately acres of land 12 improved with 370,000 square feet in 13 three buildings located at 4601 Market 14 Street in West Philadelphia. The source 15 of funds will be the City's Industrial and Commercial Revolving Fund, also known as the Landbank. The property is currently owned by the Urban Education Development Research and Retreat Center, or Urban Ed, a Pennsylvania non-profit corporation formed to preserve and operate the former Provident Mutual Life Insurance Company headquarters campus. Urban Ed acquired and completed renovations to the property 4 for use as a multi-tenant office facility dating to the mid 1990s largely funded by City-controlled resources provided through PIDC and the Philadelphia Commercial Development Corporation. Urban Ed has consistently experienced high vacancy rates and is currently vacating the property. In 2004, Urban Ed sold five acres to the City of Philadelphia to accommodate relocation of the Youth Detention Center from its prior location on the Benjamin Franklin Parkway, and the City of Philadelphia has now asked PAID to acquire the balance of the site subject to the public debt for master lease and development by the City. I ask that the Committee consider this bill favorably and that the rules of Council be suspended to permit first reading at the next regularly scheduled meeting of Council. Thank you for the opportunity to testify. Duane or I would be happy to 5 answer any questions.

Thank you. Mr. Bumb, are you testifying?

I don't have any prepared remarks.

Any questions for this witness on this particular bill? (No response.)

There being none, thank you very much, gentlemen. Anyone else to testify on this bill?

Mr. Chairman?

Councilwoman, did you want to ask questions of the witnesses that just testified?

No. 22 We only wanted to say that we've been involved in this venture, in this new venture, and that we're happy to support the proposed plans for development on the 6 site.

Thank you.

Thank you.

Thank you, Councilwoman. (Witnesses approached witness table.)

Commissioner, are you testifying on this bill? COMMISSIONER SCHLOTTERBECK: No; next bill.

Oh, the next bill. You're way ahead of us. COMMISSIONER SCHLOTTERBECK: I'm trying to keep things moving.

Mr. Carter, please read the title of the next bill.

Bill No. 080319, an ordinance naming and designating Public Health Center No. 9 located at 131 East Chelten Avenue as the "Mattie L. Humphrey Health Center." 7 COMMISSIONER SCHLOTTERBECK: Good afternoon, Chairman Clarke and members of the Committee on Public Property and Public Works. My name is Joan Schlotterbeck. I am the Commissioner of Public Property. I'm here today to offer testimony on Bill 9 080319, an ordinance naming and designating Public Health Center 9 at 131 East Chelten Avenue as the "Mattie L. Humphrey Health Center." The Department is not opposed to this measure. I am requesting a suspension of the rules so as to allow for the first reading at the next session of Council. Thank you. I'd be happy to answer any questions.

Thank you, Commissioner. Any questions of this witness on this bill? (No response.)

Anyone else 8 to testify on this bill? (No response.)

There being none, thank you for your testimony. Mr. Carter, please read the title of the next bill.

Bill No. 080835, an ordinance authorizing the Commissioner of Public Property, on behalf of the City of Philadelphia, to enter into a second amendment to an existing sublease between the Philadelphia Authority for Industrial Development and the City for the City's use of certain office space located at 1101 Market Street, under certain terms and conditions. COMMISSIONER SCHLOTTERBECK: Good afternoon, Chairman Clarke and members of the Committee on Public Property and Public Works. My name is Joan Schlotterbeck. I am the Commissioner of Public Property. I am here today to testify in support of Bill 25 No. 080835, an ordinance authorizing the 9 Commissioner of Public Property, on behalf of the City of Philadelphia, to enter into a second amendment to an existing sublease between the Philadelphia Authority for Industrial Development and the City for the City's use of certain office space located at 1101 Market Street, under certain terms and conditions. This bill will enable the City to extend the term of the sublease for eight years, as well as make modifications to the existing space configuration. The Water Department, the Health Department, the Department of Behavioral Health and the Philadelphia Bar Association are the current tenants in this leased space. The amended lease will provide an immediate rent savings of $1 million for the City during the current fiscal year. The landlord will also provide over $2 million worth of tenant improvements to the space. 10 The Department of Public Property supports this measure and, accordingly, I respectfully ask Council to approve Bill No. 080835. I am also requesting a suspension of the rules so as to allow for the first reading at the next session of Council. Thank you.

Thank you. Any questions of this witness for this bill? (No response.)

There being none, Mr. Carter, please read the title of the next bill.

Bill No. 080838, an ordinance authorizing the Commissioner of Public Property, on behalf of the City of Philadelphia, to transfer to the Philadelphia Authority for Industrial Development, for nominal consideration, a certain parcel of land, with the buildings and improvements thereon, known 11 as 1433 through 35 Poplar Street, for further conveyance. COMMISSIONER SCHLOTTERBECK: Good afternoon, Chairman Clarke and members of the Committee on Public Property and Public Works. My name is Joan Schlotterbeck. I am the Commissioner for Public Property. I'm here today to testify in support of Bill 11 No. 080838, an ordinance authorizing me as the Commissioner, on behalf of the City of Philadelphia, to transfer to the Philadelphia Authority for Industrial Development, for nominal consideration, a certain parcel of land, with the buildings and improvements thereon, known as 1433 to 35 Poplar Street, for further conveyance. The bill will enable the City to convey this property to the Philadelphia Authority for Industrial Development for further sale to a developer at fair market value, with net proceeds being deposited into the General 12 Fund. Chan Investment, Limited will purchase the property for $450,000 and plans to develop the property into sixteen rental apartments. The Department supports this measure and, accordingly, I respectfully ask Council to approve Bill No. 080838. I am also requesting a suspension of the rules so as to allow for the first reading at the next session of Council. Thank you.

Thank you, Commissioner. Commissioner, with respect to this particular property, it's a property that I'm obviously familiar with because it's in my district. COMMISSIONER SCHLOTTERBECK: Right.

We have some significant development happening in that area and we have a relatively strong 13 community organization. The question is, because this is being conveyed to PAID and traditionally one of the processes that I don't like, that PAID does not come back to Council for final authorization to dispose of, can you stipulate in the agreement between Public Property and PAID that there's some requirement of some public dialogue with the local community about the development itself? Because I'm not sure -- I know that there's -- how many units are going in there?

Sixteen.

Sixteen units. Can you require that PAID have some sort of discussion with the community through the Council. Both Councilman Greenlee and I actually represent that area. I know he does the City at large, but he's kind of like the local guy.

Prior to the agreement of sale being signed? 14

Yeah. I really would like to at least give the community individuals in that area an opportunity to have some discussion with the local community. We're actually building some houses on the next block just west of that. And, as you know, that particular block of Poplar Street has a sorted history, to say the least, and we want to make sure that -- COMMISSIONER SCHLOTTERBECK: My attorney, Henry Schwartz, was just telling me we could require that PAID put that in the agreement of sale. We can do that. It's not a problem.

Thank you. Thank you very much. Any other questions on this bill from members of the Committee? (No response.)

Anyone else to testify on this bill? (No response.)

There being 15 none, Mr. Carter, please read the title of the next bill.

Bill No. 080876, an ordinance authorizing the Commissioner of Public Property, on behalf of the City, to enter into a second amendment to an existing lease between RedGap Limited Partnership and the City for the City's use of certain space located at 4000 North American Street, under certain terms and conditions. COMMISSIONER SCHLOTTERBECK: Good afternoon, Chairman Clarke and members of the Committee on Public Property and Public Works. My name is Joan Schlotterbeck. I am the Commissioner of Public Property. I'm here today to testify in support of Bill 20 No. 080876, an ordinance authorizing me as Commissioner, on behalf of the City, to enter into a second amendment to an existing lease between RedGap Limited Partnership and the City for the City's use of certain space located at 4000 16 North American Street, under certain terms and conditions. This ordinance will enable the City to extend the term of the lease for a four-year period, with a right to renew at the City's option for an additional four-year period. The current tenants of the building are the Department of Licenses and Inspection, the Office of Supportive Housing, the Police Department, the Fire Department, the Department of Public Property, the Managing Director's Office and the Streets Department. The Department of Public Property supports this measure and, accordingly, I respectfully ask that Council approve Bill No. 080876. And I am requesting a suspension of the rules as to allow for the first reading at the next session of Council. Thank you.

Thank you, Commissioner. 17 Any questions of these witnesses for this bill? (No response.)

Anyone else to testify on this bill? (No response.)

There being none, thank you very much. What we're going to do now, we're going to go into the public meeting to pass the bills out that were just read into the record in the public hearing and testified on, and then we're going to go back into the public hearing to hear the Verizon bill, which I think most people are here for. The purpose of that is to allow individuals who had an interest in the earlier bills that were read will not have to sit around until final passage. So right now we will go from the public hearing into the public meeting. Councilman Kenney, can you please give me a motion on Bill No. 18 080896.

Thank you, Mr. Chairman. I move that Bill No. 5 080896 be reported out of this committee favorably and a request made for a rules suspension to allow for first reading at our next Council session. (Duly seconded.)

It's been moved and seconded. Those in favor? (Aye.)

Those opposed? (No response.)

The ayes have it. Bill 080896 is reported out of committee with a favorable recommendation, with a rules suspension as to allow reading at the next session of Council. Councilman Kenney.

Mr. Chairman, I move that Bill No. 080319 19 be reported out of this committee favorably and a request made for a rules suspension to allow first reading at our next Council session. (Duly seconded.)

It's been moved and seconded. Those approved? (Aye.)

Those opposed? (No response.)

The ayes have it. Bill 080319 is reported out of committee with a favorable recommendation, with a rules suspension as to allow reading at the next session of Council. Councilman Kenney.

Thank you, Mr. Chairman. I move that Bill No. 23 080835 be reported out of this committee favorably and a request made for a rules suspension to allow first reading at our 20 next Council session. (Duly seconded.)

It's been moved and seconded. Those approved? (Aye.)

Those opposed? (No response.)

The ayes have it. Bill 080835 is reported out of committee with a favorable recommendation, with a rules suspension as to allow reading at the next session of Council.

Thank you, Mr. Chairman. I move that Bill No. 19 080838 be reported out of this committee favorably and a request made for a rules suspension to allow first reading at our next Council session. (Duly seconded.)

It's been moved and seconded. 21 Those in favor? (Aye.)

Those opposed? (No response.)

The ayes have it. Bill 080838 is reported out of committee with a favorable recommendation, with a rules suspension as to allow reading at the next session of Council. Councilman Kenney.

I move that Bill No. 080876 be reported out of this committee favorably and a request made for a rules suspension to allow for first reading at our next Council session. (Duly seconded.)

It's been moved and seconded. Those in favor? (Aye.)

Those opposed? 22 (No response.)

The ayes have it. Bill 080876 is reported out of committee with a favorable recommendation, with a rules suspension as to allow reading at the next session of Council. This concludes the public meeting. We will now go back into the public hearing. Mr. Carter, can you please read the title of the last bill.

Bill No. 080879, an ordinance authorizing the Department of Public Property to enter into a franchise agreement with Verizon Pennsylvania, Inc., pursuant to which Verizon shall have the right to operate and maintain a cable television service within the City of Philadelphia through its cable television system in and along the public rights-of-way and streets of the City, under certain terms and conditions.

Thank you. 23 Commissioner. COMMISSIONER SCHLOTTERBECK: Good afternoon, Chairman Clarke and members of the Public Works and Public Property Committee. I am Joan Schlotterbeck, Commissioner for the Department of Public Property. It's my pleasure to appear before you. Joining me at the table is Deputy CIO Joseph James. , the terms of which are contained within Exhibit A to Bill 19 080879. I welcome the opportunity this hearing provides to fully review and discuss the opportunities and benefits to the City presented by this proposed franchise. Verizon's plan is to install fiberoptic cable to offer cable service, 24 as well as other telecommunications services to residents throughout the City. The proposed franchise agreement reflects many provisions of the cable franchise agreements between the City and the incumbent cable operator, as well as provisions reflecting the realities of the competitive cable environment the Verizon franchise would bring to the City. The Administration believes the proposed franchise agreement is equitable and reflects parity with the terms of the incumbent operator's franchises. If approved by Council, this franchise will provide for a competitive cable environment, offer consumers choices in service, and the installation of this system would result in many jobs over the duration of the seven-year build-out. I will summarize very briefly the principal terms Verizon has agreed to in this franchise. The proposed agreement grants 25 authority to Verizon to provide cable service throughout the City, in all four of the City's franchise areas. The franchise term is years, 6 the same as the terms of the incumbent 7 operator's franchises, and provides a 8 reasonable time for Verizon to reach its 9 financial goals for the substantial 10 investment to provide the service 11 citywide. 12 Verizon is obligated to make 13 cable service available in all parts of 14 the City and all households within the 15 geographic boundaries of the City within seven years. In addition, Verizon is obligated to make cable service available to 30 percent of the City's households by Year Three of the franchise, and to make service available to 70 percent of the City's households by Year Five of the franchise. This deployment obligation is secured by performance bonds. To ensure that Verizon's service is made available to City residents on an equitable basis, the agreement requires that the estimated median income of households capable of receiving service shall not be greater than the average household income of all households in the City. The agreement also prohibits discrimination among individuals in the availability of the service based on income, in accordance with the federal Cable Act, or based on race or ethnicity. The franchise agreement incorporates detailed customer service standards to take effect by Year Two of the franchise. Verizon will pay an annual franchise fee to the City equal to five percent of its gross revenues from the cable service. Verizon will provide a total of 15 channels, at no cost to the City, to carry public, educational and government access, PEG, programming. 5 million to support government access programming; a total of million to support educational access; and a total of million for a City Technology, Education and Municipal Facilities Grant. In conclusion, this franchise will benefit the City and its residents and I respectfully request approval by the Committee, and further request that the rules of Council be suspended to allow this bill to have first reading at the next stated meeting of Council. Joe James and myself would be happy to answer any questions you may have. Thank you.

Thank you, Commissioner. Mr. James.

I have no opening comments, just to answer questions.

Are you 28 sure, sir?

Yes, sir.

Thank you. Thank you for your testimony. Real briefly, one question with respect to the, as you reference, the incumbent -- actually just for point of reference -- the incumbent franchise. I think three-quarters or two-thirds were based on acquisitions of prior franchise holders.

If I can answer the question. This is Joseph James, Deputy Chief Information Officer, Division of Technology. The original 1980 franchises defined the four franchise areas, of which at the time Comcast was in Area Four, Rollins was in Area Three, Urban Cableworks -- I mean, Wade was in Area Two, and Greater Media was in Area One. And then over a period of time, there was an acquisition on behalf of Comcast of Area Three prior to renewals back in 29 2000, and then shortly after that, Comcast acquired Area One from Greater Media, and then a couple years ago, Wade was acquired by Time Warner, eventually went to Urban Cableworks and then eventually was acquired by Comcast.

Upon the acquisition of the franchises, was there a renewal in the franchise agreement time frame? Because you said this particular franchise agreement is for years, 13 similar to the prior, or as you 14 reference, the incumbent. Was there 15 15 years at the time of the acquisition or did they complete the unexpired term of the prior franchise holders?

In the case of Area Three, I believe --

Can you pull the mike a little closer.

Sure. I'm sorry.

You're uncharacteristically --

I'm so shy. I'm 30 shy. The Area Three, I believe Comcast finished the term of the original 15-year franchise for Area Three. At the time they all started out, they all started out with 15-year franchises, and then like I said, in 1999 to 2000 was the end of the original 15-year terms that started in 1985, and we renewed all of the franchises that were in at that time, which the incumbent was Comcast, Greater Media and Wade.

Okay. During the current negotiations, did you start out at a base level as it related to your conversation with Verizon with essentially the current franchise agreement with the incumbent, or did you structure a new template as you related to the current negotiations with respect to Verizon?

The negotiations started with Verizon's version of a cable franchise, and the City's position was to 31 start with the incumbent agreement as a framework by which we ought to then construct a new franchise agreement that would reflect basically comparable terms to the existing one.

Comparable to?

Comparable to the four franchise agreements we had in place, which were with Comcast.

Any inconsistencies at all of note or is it pretty much very similar or virtually --

Well, there's some similarities. The difference being that in the time that we did the cable franchise agreements, of course, there has been a change in technologies and there's been a change in service offerings that are provided now under cable. So they weren't going to be exactly identical to the original franchise agreements, but we were looking for comparable, to the extent level -- 32 because they use the term "level playing field" -- terms that would reflect the differences that Verizon's technology and service offerings has versus what the traditional cable offering that we had with Comcast.

And I guess it was difficult to have comparables in terms of the build-out because the incumbent had a lot of acquisitions and dealing with existing -- let me ask you the question like this: In terms of the build-out for the original four cable franchise holders, what was the timeline on that build-out?

I don't recall the time.

Was it current?

In the original 1985 franchise agreements, there was a term, I want to say -- I don't want to say. I'd rather look at the record and provide you with the actual term what's 33 in the original, but I don't know offhand. The difference being that at the time that when we first would start cable, the cable operators were building from scratch. They had nothing in place, and they were starting with a traditional cable plant build-out. When we looked at the Verizon franchise, the Verizon franchise is a build on a different technology. And, of course, Verizon has --

Let's take a step back. In terms of the original build-out, when you say that they had nothing, that meant that there were no 18 lines or no highway, as they call it?

There was no 20 highway. They were building the highway from scratch. So they had to build brand new facilities. They had to put in cables where it didn't exist before. And many of the issues back in the early days of cable of actually getting attachments 34 to people's homes and the construction in the right-of-way was completely different as we were looking at this build-out now. And the other difference that's in this build-out term, we're looking at a telephone company who is building in the right-of-way versus another cable company wants to build on top of the existing infrastructure as a brand new cable operator. And Verizon's position is a little different, because they are operating on both sides of the Telecommunications Act, as both the telecom provider and now providing cable service.

Thank you. COUNCILMAN DiCICCO: Point of order.

Councilman DiCicco. COUNCILMAN DiCICCO: If I understand this correctly, and going back to Councilman Clarke's question, my notes indicate that there was either a four- or 35 five-year period that the build had to be complete, once the Commissioner approved the work to start. Does that sound familiar?

In the 1999 renewals when we did the renewals, there was an upgrade, that Comcast agreed to do an upgrade of their facilities in Areas Three and Four, and in that agreement there was a five-year build-out for them to upgrade their facilities, once the Commissioner had certified their plan for build-out. So in 2000, they submitted their proposed upgrade plan. The Commissioner certified it, and then they started their construction. COUNCILMAN DiCICCO: On that same note and that same conversation -- then I'll yield to the other speakers who are ahead of me -- given that Comcast and the other providers started from scratch and literally had to begin a system citywide, wouldn't it be easier for Verizon and more quickly for Verizon to 36 get to the entire build-out, understanding that most of that other work had already been done for them, has already been in place?

Well, I think Verizon can speak to it specifically, but the difference being that they have an existing plant which is already in place, but most of that plant is traditional copper plant, and what they basically have to do is replace a lot of that facility that are out there in the street and homes with real fiberoptic facilities, which doesn't exist, to the extent that they can be able to provide cable TV service directly to people's homes and the FiOS, so forth, as they talk about. So there's a difference. It's similar to the Comcast upgrade, which back in 2000 they were basically upgrading their facilities to fiberoptic facilities, and in that plan, that plan took five years. So you had an existing 37 plant on an upgrade plant for five year for Areas Three and Four, and we have Verizon basically coming in for seven year for the entire City. So I think there's some comparabilities about the length of time, and when you compare that to some other jurisdictions where Comcast has franchise agreements, some of those terms are seven, nine, ten-year terms. COUNCILMAN DiCICCO: I'll wait for my turn on the other questions. Thank you.

All right. Councilman Kenney.

I'm sorry.

Greenlee? Krajewski? Councilwoman.

Thank you, Mr. Chairman. I noticed on your map the entire Sixth District will not be built out until Phase 2. That could be anywhere from six, seven years? 38

I believe in the plan that's been submitted, there's two phases, and the phases were designed --

It looks like the whole Northeast.

Was designed around the wire centers that Verizon has, and there are large parts of the Northeast where they're in part of the later part of the phase. The build-out is up to seven years. Depending on their speed at which they can build -- I believe Verizon can speak to that -- they may be able to successfully do that shorter than seven years, but the agreement in the franchise is for a seven-year build. The idea is that they're going where there's areas where they see that they have the density to build, where there is -- the issues have been raised about parity and the number of households, is what's accomplishing their two phases.

What 39 assurances do we have that we'll ever be built there?

The assurances that we have in the franchise agreement is their performance bond. They have a scaled performance bond that scales up along with their build-out that reaches in the five- to six-year term about $13 million of money that they have at risk to complete that build. The design within the first phase, if you look at the first phase of the build, is that they're securing a large part of the core of the City, and most of the areas that are on the perimeters are part of the second phase. The money is what's the guarantee that the City has that we're holding over them and, of course, our ability to manage their performance.

Well, my understanding is that Verizon has agreed to liquidated damages in other cities. Why won't they agree to that in 40 the City of Philadelphia?

Verizon has agreed to liquidated damages in certain categories. What they have not agreed to is liquidated damages that are comparable to what was in the Comcast agreement that dealt specifically with the upgrade. The difference being that in the upgrades in the original Comcast upgrade, we were talking about a $250,000 performance bond and a $3 million construction bond, which expired at the end of the build-out. So we're comparing the ability to enforce on a $3 million versus a $13 million, and the only other additional value you have is the liquidated damages that we would have to go after them. We believe the liquidated damages covers the City on the provisions that are most important to the City and that their performance bond covers their commitment to do the build-out, and they are putting a significant amount of capital dollars at risk in doing this, 41 and it just seems that would be impractical on their part as they committed to other jurisdictions not to finish the City.

I'm not completely satisfied, but that's all right. I yield to Councilman Greenlee.

Councilman Greenlee.

Thank you, Mr. Chairman. Thank you, Councilwoman. Just to stay on this same subject about the build-out, just so I'm clear, did you have to sort of approve or sign off on this schedule, like who gets done in three years, who gets done in seven? Is that something that -- did you have discussion on it, whatever?

It was part of the negotiation and it was a negotiation on the build-out to make sure -- try to make it as fair and as equitable and, at the same time, to make sure that it covered 42 certain parts of the areas where the argument would be that people are -- that they would -- Verizon would only be building in the high-income levels and not building in the poor levels. Well, if you look at the build-out, there's a diversity across the center of the City and in the middle that appears that from the information about income and households and family structures, there's a great deal of diversity in that. And the counter argument being is that they would only build on the edges and not eventually get to the core.

That's what I was going to ask. And certainly I agree that there should be economic equity. I'm not in any way disputing that. Was there evidence given to that, or were you just kind of going by how it looked? Did they give evidence of how --

We, as part of the 43 City's input on it, did the research to look at census tract information and diversity profiles that we had from 2000 that showed the diversity by race and ethnicity and to show it by household and income levels, and the build-out that we showed here we feel appear to be equitable and fair for a two-phase construction where they would be building in various areas at the same time. And as you look across the top part of the county and then we anchored it with the southern part of the City, which in South Philadelphia, there's a huge diversity as both income and population and property and density.

I would agree generally just looking at it and, again, not having those figures that you were saying, it does look like there was that attempt economically. I will agree -- I guess as Council-at-large, I have to look all over the place. It does stand out that that big top corner of the 44 City, which is mostly considered Northeast Philadelphia, seems to be in the second part of that, and I can understand -- so I guess my general question, was there any thought given to geographic diversity?

We did look at the geographic diversity, and in the build-out plan that's in the franchise agreement, it kind of lists the wire center that you see in the plan, and what is not really noted in -- the upper Northeast section does not have a huge build-out in their first phase, but at the same time, we did not anchor it with Center City, which is the downtown area, which is properties of income equal to the neighborhoods. And, yes, there are parts in the Northeast that are -- have large swaths of land that you won't find in other parts of the central core of the City. It was not designed by councilmanic districts.

That was 45 going to be my next question.

Because there was no logical way -- and I don't think we are adequately prepared to represent you at the Council table to know what's in your best interest and to say whose Council district should be in Phase 1 or Phase 2. We tried to use categories that were fairly objective and kind of represent what we can put real information to and not necessarily the geography.

But it does look like Six and Ten is completely left out.

There's a portion in the Pilgrim Wire Center that reaches into the Northeast and then there's a little part of what they call the Jefferson Wire Center, which cuts across most of the river wards in Kensington and just starts the edges into the Mayfair area. What is not reflected in here 46 is a specific schedule to say, We're going to be here, here, here and here, and it doesn't say once you finish the first phase, which the plan is to be largely built out in the first phase of those three to five years and after you get to those, where do you go next. And I think part of this Council process is to provide the kind of input that you're providing to us now and to Verizon to hear what's most concerning of Council, is where do they go next.

And probably the next set of questions really should be on this issue to Verizon, but I appreciate what you're saying.

Thank you.

Thank you.

Councilman Kenney.

Thank you, Mr. Chairman. In general business principles, 47 would it make sense for Verizon to get this build-out done as quickly as possible and not take the full seven years?

I think that would be correct.

When RCN was first here years ago and there was a belief that they were attempting to kind of cream the more wealthy areas of the City, I think that the result of this map is part a way to address that criticism that RCN received at the time and basically got turned away because of. So it would seem to me that if a company is building out in, say, middle class or poor neighborhoods, they would need to accelerate the other parts of the City in order to continue to make money.

I agree, Councilman. As you may know, I was here during the RCN negotiations and the RCN testimony on the hearing, and when we started the inquiry into the Verizon, one 48 of the things I did pull out was the RCN data and looked at the RCN data, and many of the things that RCN was tagged for and that the City was challenged on was the diversity of their build-out, and using some of that data to look at the build-out of this model, is that if you go into not only lower income but you look at -- on the geography question, if you look at density in property, it's faster to build when they can pull down an entire row of homes by going down one back alley and pulling their facilities as opposed to if they're building out over land. So we did kind of take that into consideration in putting together this plan.

One of the criticisms I've heard of the legislation is that in past similar legislation, there were specific zip codes and penalties, monetary penalties, assigned to dates or deadlines when those zip codes had to be built out. Could you 49 explain why that doesn't appear in a zip code-by-zip code fashion in this legislation?

Well, one of the challenges that we have is that Verizon's infrastructure, as I mentioned, is already in place, their wire centers, and those wire centers are kind of the hubs that provide the facilities out to the homes that they serve. So you have to look at the wire centers as kind of where they start with their construction. It's very similar to New York City. It's very similar to the District of Columbia and to other cities. When they do their build-out, they kind of start where their wire center is, because you got to have those lit first before you can offer the service. You compare that to a traditional cable build-out, you don't have that kind of -- you didn't have that kind of construction back in 1985. So it was important then to make sure that 50 there was a tracking mechanism that looked at the census tract, the zip code, the demographics of the people in those census tracts and zip codes, and to make sure that they were not skipping over zip codes, they were not skipping over census tracts. And it was real detailed, because they built from a hub site that was somewhere within the franchise area, which is a much more larger geography than the wire centers. We have multiple wire centers in each of these franchise areas, and the wire centers do not stay contained in the franchise area. So it was hard for us to say, Well, we want you to build it like you built Area Three and stick within those zip codes, because their wire centers don't follow that pattern. So what we tried to do is to give them also in a competitive environment, they need the flexibility to be able to adapt to responses in the competitive world, and for us to restrict them to follow a 51 linear tract of either zip codes or census tracts would probably be improper and not something that the company would find favorable for, because they have to respond to where their facilities are and where their competition is.

Are there competitive issues relative to the listing of zip codes also or have you found that not to be the case?

I don't -- I'm only speaking from my side. I don't find anything competitive in nature, but in a competitive marketplace -- and certainly I'm not working for Verizon and I can't tell you what's competitive or not competitive. They would have to answer that question.

How about the specific dates of completion and the assignment of specific monetary penalties to those dates?

Well, we have --

It's also 52 one of the other criticisms of the legislation.

Well, we have specific thresholds in there when they have to achieve certain penetration levels, which they have to demonstrate to us as part of the Commissioner's review of their performance. And to the extent that we find that they're not and we find them either in violation of their performance, we can determine whether or not there is a need to take some harsher stance or to do anything. But I think in the way this is constructed and the way this is designed to build is, we're, back to your point, not trying to penalize them. We're trying to incent them to build as fast as possible. And to Councilwoman's position, we need them to get out to areas in the upper Northeast as soon as possible.

In your view, is it unfair -- I know the answer 53 to the question, but I want to put it on the record. Is it unfair vis-a-vis the last rounds of legislation that did have specific dates and specific monetary penalties assigned?

I think it is.

Could you elaborate a little more.

Well, I mean, we're trying to compare apples and oranges here and we're trying to --

Could you maybe explain why they're apples and oranges.

Well, they're two different types of systems. I mean, they're two different types of facilities. When we looked at -- again, going back to traditional cable and we're talking about your traditional build-out, our monitoring capabilities are a lot more adaptable to be able to manage that, and we're talking about a sole builder in a sole area. So we're talking about one 54 company that's got the entire area and they got to build it. It's a lot easier for us to manage it. They have no 5 competition. They cannot find any issues to say, Well, I don't need to be -- because it's a competitive nature, I can't really share that with you or I can't really respond to those concerns. And to be able to establish a traditional cable franchise like they were all designed back in the 1980s, you assign liabilities for non-performance and you could track it down to the specific zip code or census tract. We're talking about a technology that's exploding in the nation -- and they're not the only ones -- that allows them to leapfrog what we saw RCN was about to do. RCN was basically going to try to build over top of the guy who was already here and try to acquire customers at the same time they're trying to build, and try to follow a track that kept them from saying 55 they weren't discrimination and they weren't cherry picking. And for them to be successful, they needed to, because they had no customers. We're having Verizon basically upgrading everything in the City, and trying to do that as fast as we can make them do that, and because of that, we're giving them a lot more latitude than we gave the original cable operators when they built.

Okay. Thank you, Mr. Chairman.

Thank you. Councilman Rizzo.

Commissioner, when we say "competition," Comcast has competition today, don't they? They have satellite television providers that compete with them.

Councilman, you're correct. I mean, today both Direct TV and Dish in the City is a direct competition to Comcast, and they acquire 56 a significant amount of subscribers in the City. The difference for us for competition in the City is that the Direct TV and the Dish satellite customers do not pay us anything. They are not regulated by us. And if you see some of their installations throughout the City, they're not the most aesthetically pleasing, and we have no 11 control over them. The difference is that we have a competition that has a franchise agreement that we can enforce and has terms that we can enforce and also we derive a specific financial benefit.

Well, that's a conversation for another day, the satellite providers that have no presence in our city. The issue that I'd like to ask is, we have a provider with a franchise agreement. When Verizon gets their franchise agreement, having a staggered renewal, is that a good thing, not a 57 problem, not a factor? Having them stagger for renewal at different times, what do you anticipate?

Well, I think in the past, it really hasn't been a problem. The original franchise renewals, Comcast came to the City in 1996 to renew their franchise for Areas Three and Four, four years in advance of Urban Cableworks and -- I mean, Wade and Greater Media, and we entered those negotiations and started those negotiations and pretty much resolved their renewal well before they expired, and that did not inhibit or prohibit our ability to be successful in our renewals with the other two franchise areas. I don't think staggering overly complicates our process. In some cases, it might provide some benefit, because we kind of have the benefit of renewing prior to Verizon's renewal and maybe there's things that we can accomplish in one that we can use in the next. 58

We all know that Verizon presently resells Direct TV presently.

I understand that to be true.

You understand that to be true. How will those customers be treated? Will they be forced to Verizon, or what's the situation with the hundreds and thousands of customers that may be right now, through Verizon, Direct TV customers?

Councilman, I wish that to be the case, but I'm really not in a position to be able to answer that question. That might be a question that Verizon itself --

But I think that has to be considered on how they're going to be treated.

Well, it would be hopefully that those Dish customers and Direct TV customers acquire subscribers with either Comcast or Verizon, because 59 that has a benefit to us, but I don't know if that is a specific strategy or that's something that can be enforced on those customers.

What about the right-of-way agreement? How does the bill provide the City's right-of-way? What are the penalties for damage sustained to the City's facilities, other utilities' facilities and even Mrs. Smith's water pipe or shoreline that may be damaged? What is in the regulation in the bill for that?

Well, the particular cable franchise agreement does not address the specific regulations that already exist in our right-of-way agreements that we already have. We already have a set of regulations that exist on the books that govern right-of-way management, and that applies to all of the users of the right-of-way, which has been applying to both Verizon and Comcast for some time now, and they 60 both are compliant with that. And it deals with the issues about damages to people's property, but also deals about how we regulate them, how we permit them, when they get access, who is approving it and when there's a review.

My last question. What is the rush here? I've never seen such a significant piece of legislation, as long as I've been in Council, two weeks ago be introduced and rushed in a way where it's almost impossible to absorb all of this material. Why did this happen the way it happened? You know how I found out about it? A reporter called me and told me about it. What's the urgency here and why was it handled this way? This was like the, what's it, the F-15 Stealth that flew in here.

F-17.

F-17.

Councilman, again, 61 I really can't answer the question about the stealth by which it was delivered. We negotiated and have been negotiating to get an agreement similar to all of the other agreements that we've done with cable regulations, and it was brought before Council when the deal was ready to be brought. I think there is -- there's not necessarily a concern that we've done anything specifically to compromise Council's ability to have a full hearing and to ask the questions and to discuss the details of it and to be able to get under the covers and understand terms that are in there, that are not in there, and not to accelerate your process beyond what you feel is appropriate.

So am I hearing you say there's no rush?

We would like to see the deal, but --

But there's no rush? 62 COUNCILMAN DiCICCO: Point of order.

I don't know if I can tell you we want to rush the deal. What we're asking is for you to consider --

There's a point of order. Councilman DiCicco. COUNCILMAN DiCICCO: As a follow-up, because I had a similar question, but when the Commissioner read her testimony, she was asking for a suspension, and I want to compare it to Councilman Rizzo's question in a different way. How much time did we take when we were looking to do the first round of franchises? How many public hearings were conducted? Now, I understand it was a new animal on the block. We have something that we can compare it to. But I had the same question. I'm just asking it a 63 different way. We spent a considerable amount of time on the first round of franchises.

I believe there was an exhaustive amount of time spent on the original cable. It took quite a while for cable finally coming to Philadelphia, and there was a lot of discussion, a lot of hearing. COUNCILMAN DiCICCO: And it was a new kid on the block. I appreciate that.

It was a new entry and there was a lot of concerns about how it was going to be delivered and what it was going to look like. I think the difference here is that we feel that the franchise agreements and the way cable is being managed today is a fairly straightforward agreement. And we're not asking you to rush. I think what the Commissioner had in her testimony is not different than we would have in any other testimony, that 64 we would want to get the bill approved. But if you go over the history, there's any point in time where there was a bill 5 that came before Council around cable, that some member of Council felt that the bill was being rushed, whether it was a transfer from Time Warner to Urban Cableworks or it was the assignment at one point in time from Comcast to AT&T. There's always been certain bills based on the timing of what needs to get accomplished because of other factors that appears that it's being rushed before you. COUNCILMAN DiCICCO: Well, I don't want to use the word "rushed," and I do have a lot of respect for you. We've worked in the past together. It's interesting that the bill gets introduced, and but for the two competing entities, Verizon and Comcast and the union that would be impacted by this franchise, the Administration was silent, at least as far as my office is 65 concerned. And I find that unusual, because today the first time we're having a public discussion on it, we're being asked to suspend the rules to have this voted out favorably at our next session of City Council, second and final passage next week, and then we recess for five weeks or four weeks. So, again, not to tie up the time, but I think Councilman Rizzo and I are on the same page. I just have a question for that. And I'm not here carrying anybody's water. I know there are a lot of people in this city who are customers of the current franchisee who have a lot of negative things to say about them. I'm not going to take a position on either side of that. And it's easy for people to say, We need another franchise because we get the competition and we're going to drive those rates down. I'm not sold on that yet, nor am I suggesting that that may not be the case, but this is a big deal. 66 This is a big deal for us, even though it's no longer -- cable franchise is not the new kid on the block, because we've been living with this kind of technology for a while, but it is a big deal in terms of what it means to the City and what it means to the City Administration in terms of revenue and other issues that we need to deal with. So I just find that a little bit unsettling on December the 3rd to have to make a decision over the next six, seven days to finalize a major franchise agreement between a private entity and the City of Philadelphia. Thank you.

I understand, Councilman. We wanted this to be the beginning of the process, and you should feel whatever is appropriate for Council. We certainly can't tell Council what they should do. COUNCILMAN DiCICCO: I guess the only thing I would add is -- and I 67 think Councilman Rizzo was trying to ask -- is this time sensitive? Is there something that says if we do not act, we may lose this window of opportunity to entertain a new franchise? That's a question I'm going to ask now. And if that's the case, maybe you can't answer it. Maybe Verizon needs to answer that.

I think, Councilman, you're right. I think Verizon needs to answer the question. I think the timing issue has to deal with the fact that they are putting a significant amount of capital dollars into a program to build this franchise, and in today's economy and today's market, I'm sure for them a certainty by which they have the ability to act is going to depend upon them having a franchise agreement, and I'm sure for them there is some urgency because of their tying up capital dollars. But that's not --

Councilman 68 Rizzo was on a point of order. He's going to yield to Councilwoman Krajewski.

No. 5 I --

Councilwoman, hold on one second. Are you yielding your time?

Just to finish up, because I have one more statement.

Well, Councilwoman, why don't you call a point of order so we can be --

Point of order.

There you go. Thank you, Councilwoman.

My point of order is that I'm outrageous the Northeast is completely excluded from this. What do I do when I go back to my constituents and tell them that they have no choice? I have to agree with my 69 colleagues, Councilman Rizzo and Councilman DiCicco, this rush is just -- I don't understand what the rush is.

Councilwoman, I hear your concerns and --

I believe they ought to rush back to the table and start looking up the Northeast.

I understand, Councilwoman. I think you ought to give them an opportunity to give their testimony.

According to that map, we're completely excluded. Completely. We get a little bit up here where it says Mayfair. That's just about a tip in the beginning. In fact, I don't even understand the map, because I believe it's from the old telephone numbers or something.

It's based on their wire centers, and that's what their names are, yes.

So, 70 therefore, I'm really not ready to vote on this today, Mr. Chairman. I have to leave. I do have other business.

Councilman Rizzo. Thank you, Councilwoman.

Mr. James, again, I don't see the need for this rush, and what I would appreciate, since you were part of the negotiation to develop this map, if you had some more time, maybe you could do what Councilwoman Krajewski is trying to do here, is trying to serve her constituents with the service. Do you think if you had some more time, this could be refined and we could have the product spread throughout the City in a better way?

Councilman, I think it's best that Verizon speak to the map. I mean, I would say --

But you agreed on the map.

And I think that 71 the map represents, at the time we negotiated it based on the factors that I told you about before, represent what we could best get done and what they could do in such a way that they would be able to build faster as opposed to trying to build this around the councilmanic districts.

I agree with Councilwoman Krajewski. I honestly need more time to understand this issue better and give you more time to come back after you've heard at least these two Councilmembers' concerns because of the design of this map and the build-out.

I understand. COMMISSIONER SCHLOTTERBECK: Well, I'd like to make a suggestion. Would you object to having Verizon come up to the table themselves, have them --

They're scheduled to testify. We have more questions of you. COMMISSIONER SCHLOTTERBECK: 72 Okay.

They'll be up.

Thank you, Mr. Chairman. COMMISSIONER SCHLOTTERBECK: I guess I was concerned that Councilwoman Krajewski was going to leave.

They'll have more than enough time to explain all of this. COMMISSIONER SCHLOTTERBECK: All right.

Thank you. Thank you, Councilman. Councilwoman Miller.

Thank you, Mr. Chairman.

And then Councilman Kenney.

Good afternoon, Joe James.

Good afternoon.

Can you 73 tell me, are there any key differences in this agreement and the agreement that you had with Comcast?

Any key differences?

Yes.

The key differences is in how we compiled the public educational and grants. We constructed them differently than was in the incumbent agreements. As you recall, in the original agreements, there was a PCDC Loan Fund, which is not in this agreement. We didn't feel that it was appropriate to kind of duplicate that effort. So we've established a Technology and Education Grant. There is more dollars for an educational grant than there was before, and there's money for the government access that's more than was in the original agreement. You will find in there there's not the provision that we had in the old 74 agreements for local origination programming. We feel it's, again, not trying to duplicate efforts and not trying to create something that doesn't give Verizon to do something differently. We don't have that obligation in there. As far as the -- the framework is basically the same. It's the 15-year agreement, it's the build-out on all four -- same four areas as defined. It has a specific time frame for build and construction. It has details about customer service, which are much more elaborated in this agreement than was in the existing Comcast agreements. And there is specific language that talks about them meeting all the current laws that we currently have, whether it has to deal with ADA or it has to deal with McBride principles. All the traditional specific laws that we had, you'll find them detailed in this agreement here. Most of the framework was kept intact. The difference is, on the fiber 75 center gross revenue is a lot more detailed in this agreement than you'll find if you read the original agreements. So like any kind of negotiations, there was compromise in areas. There was give and take. So we had to eventually reach an agreement, but we tried to keep, in essence -- the heart of the franchise agreement was to make sure that we had cable for everyone, we had a build-out with certainty, we had performance metrics we thought were appropriate.

On the build-out, so it's my understanding based on your testimony that Public Property and Verizon got together and put the build-out schedule together; is that correct?

We put together a framework by which we said, This is the kind of guiding criteria. They said, We have to go by wire centers. 76 We said, Fine, then here's the things that you ought to take into consideration for that and here are some construct that you ought to consider for your build-out.

I have some other questions about build-out, but I'll ask Verizon. And I guess the only other question I have here, Commissioner, in your testimony on the second page, the last sentence, the second paragraph, last sentence, "The franchise agreement incorporates detailed customer service standards to take effect by Year Two." What exactly does that mean and why would it take effect Year Two? Is that because --

If I can answer that, Councilwoman, on behalf of the Commissioner. The reason why we have the standards that take effect in Year Two is because they have to build out first. I mean, we have detailed what's going to be 77 required, but until they have the ability to have build-out and really have a facility and services in place to be able to offer these customer services, it didn't seem to make a lot of sense to have it Day One, because there's really no customers to have these applied to. And as they ramp up for the build-out, they'd be ramping up to be able to perform these customer service standards.

All right. Thank you. COUNCILMAN DiCICCO: Just if I may, just for the record, I stand corrected. There was a briefing this past Monday morning. I apologize for not mentioning that. My legislative assistant just reminded me. I was not able to attend, got notice late last week. But there was a briefing. So I want to make that certain for the record.

Councilman Kenney.

Thank you, 78 Mr. Chairman. Just for the record too, I am a Comcast subscriber and I am very happy with my service, just so you all know.

It's good to hear that.

For historical context, I was the Chairman of the Public Property Committee back in the RCN debate. What year was that; do you remember?

It would have been -- it was around 2000.

Have we had any significant requests for competition or participation since 2000?

No, we haven't.

Who is Verizon's major competitor besides Comcast in the delivery of cable TV service?

I think they would probably answer it's probably Comcast.

What do you 79 think? In your --

In my opinion, I think it's Comcast. It's Comcast. They're in --

No. I'm saying other than Comcast, is there any other similarly situated company with the economic wherewithal to do this?

I don't think so.

Is Verizon, to your knowledge, looking at any other cities relative to the investment of capital dollars?

I believe so.

So if, hypothetically -- and I'm not saying this is going to happen, but hypothetically, if they walk, the likelihood of real competition any time soon is pretty small?

I think it would just continue to be the satellite providers. If they walk, that investment will go to another city. 80

Thank you.

Thank you. Are both of you going to be around? COMMISSIONER SCHLOTTERBECK: Yes.

Yes.

I'm sorry. Councilman Green.

Thank you very much, Mr. Chairman. I just have a few quick questions. I didn't understand your testimony about the need to -- I understand that you need to go by wire center because that's where the fiber is going to originate before it gets to the end user home. What I don't understand is why you can't look at census tracts and zip codes around wire centers. For example, when we're talking about wiring specific areas in the City, there is fiber in the wire center, but there is not fiber on the street in a 81 certain census tract or in a certain zip code, and what I don't understand is, Comcast is required to build out by those areas from a central location or wherever they were delivering it. I don't understand why those same standards shouldn't apply to somebody that is coming in to provide competition, just to keep the even playing field. So could you explain why we can't measure whether or not a wire is going down a street as whether or not they're fulfilling their obligation?

Part of the difference is that Verizon is building this out under their title to rights as a telephone company, which we do not regulate telecommunications providers, and as you may know, that as a telecommunications provider, they could build this -- as long as they weren't offering cable service, they could build this tomorrow and never have to come before us. 82

But, Mr. James, our point is that they need this franchise agreement to offer cable services. So it's irrelevant that we can't regulate telecommunications. And this is our one opportunity to make sure that they're going to be built out in the areas where we want them to, and we can do that the same way we did it with Comcast by saying, I want a wire down these streets, and that determines whether or not you are complying with the terms of the franchise agreement.

Well, what we're trying to do is to define -- not necessarily define how they build it. It's more about when they will be able to offer the services available to the customers. So when you look at the geography of their wire centers -- and we had this discussion with Verizon when we were back in the negotiation, that they needed to look at census tracts and they needed to look at zip codes and they 83 needed to look at the build, and part of the build-out plan you see here deals with the issue that there's a greater amount of density in certain areas of their build-out based on that wire center. But whether they go down Germantown Avenue or whether they go down Wayne Avenue, is that as materially important to us as how fast they can get penetration and offer services in the Germantown Wire Center, and does the Germantown Wire Center have the right makeup to provide service to their customers to make that 30 percent of the household incomes that we're talking about?

So the requirement is not that they wire the City. The requirement is that they service a certain percentage of people around the City in each of these zones and around each wire center; is that correct?

Right, and to do 84 that, they have to wire the City. They have to provide the fiberoptic cable, which doesn't exist.

Well, with respect, they don't. They have to provide services to a certain percentage of citizens. They have to provide services to a certain percentage of citizens, which is very different than having to provide service to everyone who asks for it. And I want to understand why we wouldn't require people to provide service to everyone who asked for it within the zones that are coming up and with respect to each phase.

Well, I think both franchise agreements talk about providing services to customers that fall within 100 feet, 150 foot of their plant. It talks about the ability to provide service to those customers who ask for service that fall within the range of where their facilities are.

But it's 85 only a certain percentage that's required to be served.

No. It's for them to build out the entire City. They're building out by their wire centers. The percentage that I mentioned to you is a threshold number, that we can be able to measure their performance by that goal, so that we don't have the argument that they're only serving the people in the higher-income block and only the household incomes at the higher levels.

But that's exactly what they can do because we have percentages in there rather than requiring them to actually wire the streets like the incumbents had to do.

I think, Councilman, they have a requirement to build out the entire City. They have a requirement to service those customers that are served out of their wire centers. They have a requirement to offer service to customers who ask for 86 service. They have the same obligations that Comcast has. It's constructed differently in how they build it, but when it comes down to it, there is no 6 benefit for them not to offer service to customers who are served out of their wire center, because once you light that wire center, that means everybody in the wire center, irregardless of where they live, as long as they're part of that wire center, will be able to have the service.

And they're required to deliver service to everybody in that wire center?

Well, I think in any company, they're going to offer service to those customers in the wire centers and they're going to be able to offer service to those customers that request the service.

I'm not asking what any company would do. I'm asking what the franchise would be 87 required.

The franchise agreement requires them to offer service to residential customers that fall within the facilities, where they have facilities at. I think when Verizon comes up here, you can ask them to verify that, but I believe that's how the franchise agreement is written.

Okay.

And that's how we negotiated it.

Well, could we provide that specific information to the Chair in answer to those questions?

Sure.

Because I'm not going to be able to stay around for Verizon.

Sure. We'll identify it in the franchise agreement.

Thank you. Also, have we done an analysis of the -- let me just say this: How does 88 our franchise agreement compare with the franchise agreement in New York; Washington, D.C.; Wilmington, et cetera? Do we have a more favorable or less favorable franchise agreement with Verizon?

Again, none of these are equals that we can measure, but we did look at New York City. We did look at the District of Columbia. We looked at Fairfax County, Alexandria. We looked at Wilmington. We looked at what we could get access to as far as the franchise agreements that were out there, and we believe that what we have is very favorable. And our deal versus the New York deal is very specific on its build-out and its timetable for completion, very different than what's in the District of Columbia's bill.

So do you have like a chart showing each different franchise agreement and how our provisions compare to theirs like -- 89

We can provide something for the Chair.

If you could provide that to the Chair, please.

Yes.

And I think questions like that raise important points, because we want to make sure we've gotten the best deal for the City we can. Everybody wants competition in Philadelphia. Everybody is in favor of Verizon coming in, but I think the point here is that this is a very complicated agreement and we've had it for a very short period of time, and I think if we just stepped back, got some information, saw how we compared to other people, thought about maybe new ways of creating percentages or actual wires on the streets, et cetera, that we might -- it might benefit us all to slow down a couple weeks and get some more data.

I hear you, Councilman. We will provide you the data 90 that you've asked for.

My final question is, how long did it take you to negotiate the franchise agreements?

This particular agreement?

Yes.

I believe we started in June -- July.

When you say "this particular agreement," what do you mean by that?

Well, I was wondering if you were talking about the renewals or the other Comcast agreement. You're only talking about --

The Verizon agreement.

The Verizon agreement we started in July, and I believe we reached final agreement on terms that we submitted to you November.

So about five months? 91

Yes.

Maybe we could have more than three weeks to analyze that and understand what's going on. That's my only statement here. Thank you.

I understand.

Thank you, Councilman. Councilman Jones.

Thank you, Mr. Chairman, and I want to, for the record and particularly for our visitors, acknowledge our Chairperson allowing me and other Councilmembers to speak, because it is not a right because we're not on the Committee. It is a courtesy extended by you, and I want to thank you for allowing us --

I wouldn't have it any other way, sir.

I go back far enough with Joe James and Public Property and the Commissioner to remember 92 when we were negotiating and implementing in particular our original franchise agreement. And I understand your commitment, and that's the only word that applies adequately to you, to make sure that the City benefited from it and the community benefited from it, and the public access stuff that we have today is because of your diligence. And I remember those meetings and you getting beat up a little bit about it. So what I want to ask now -- and it's kind of like when I went over to the family reunion and my two bigger cousins start fighting, Comcast and Verizon. You know, you kind of want to be a fair arbitrator to make sure that the grass doesn't get trampled when elephants fight. But let me ask you a couple of questions particularly germane to the five percent franchise annual fee. In your estimation, because it can only be an estimation, what is the market and 93 what does that five percent mean to the City of Philadelphia in real money, potentially?

Potentially? Well, kind of put it in context of today, we're getting five percent from Comcast for the four franchise areas. It comes out to about $12 to $18 million a year.

Eighteen million dollars, which goes to the General Fund.

Goes to the General Fund. If you have a second provider and assuming that there's a certain amount of take between the two, so it's not all brand new, but there's hopefully a significant amount, there's an impact, of new customers, new subscribers and maybe a reduction from the Dish customers, that we could be seeing another $8 to $10 million after they have achieved the seven-year build on an annual basis, which would -- the Comcast 94 number would probably be adjusted because they would not have as many subs, but you would still see a net gain to the City, a significant amount of new money for the General Fund.

And in this agreement, there is million in 9 immediate revenue, 11.2, I think it is. 10

I think the number 11 is 11.2 in grants to the City.

And specifically where do those grants apply to?

The grants apply in the public educational government access.

So what is that going to actually mean?

So what that will mean is that we will have a comparable amount of dollars going to public access for capital dollars. So in the Comcast agreement, here's the $2.7 million in capital. In Verizon's deal, there's a 2.7 in capital dollars. 95 So there's the $500,000 in operating dollars. There's the $500,000 in operating dollars in the Verizon agreement, the timing of which are both starting at the same time of eight years worth of payments, eight years for Comcast to finish theirs and eight years for Verizon, so that they match. So you have about $6.7 million just for public access. There's a $2 million Technology and Educational and Municipal Grant. There's money, $1.5 million, for our government access facilities, and there's a million dollars for the educational facilities.

So if you were to compare apples to apples comparisons, is the Verizon commitment comparable to the Comcast commitment, in your opinion?

In my opinion, yes.

And so beyond the committed funds, are there any discretionary funds left after the 96 specific grants within that?

No. 4

So it is already allocated?

Right. The categories have been identified. The specific beneficiary has not been identified, except for like public access and for government access. Those are money that are earmarked specifically for those purposes. The technology grant is discretionary.

So how much is the technology grant?

It's $2 million.

And that's for the entire City?

That's for the City.

So anyone can apply?

Well, it's money for the City to decide how that's going to be appropriated. So I think that's a 97 conversation between the Administration and Council.

In the total amount and worth of the construction, what do you estimate that to be over the seven-year period of time?

The capital investment that's been told to us by Verizon, it's about a billion dollars in capital.

Billion dollars in capital. Under the analysis of how they plan to implement that, is there a potential benefit to minority and female businesses, disadvantaged businesses?

There is a plan that provides an economic opportunity for minority and small businesses to get engaged and be part of Verizon's overall contracting process that they currently do through their Diversity Vendor program.

And can you 98 further elaborate on what that actually means?

I think Verizon can speak to it a lot better than I can, but specifically, Verizon has a Diversity Vendor program where they currently subcontract work to minority and small businesses and disadvantaged businesses, and in this particular area, they know specifically what they spend annually with vendors here in the area. They are making a commitment under their Economic Opportunity Plan to reach out to more customers and more businesses through the Chambers and others to engage them in the process so that they can be able to have the opportunity to access in this process.

So in your estimation, through this plan, at some point we will hear how this billion-dollar opportunity will in fact benefit my good friends at the Chamber of Commerce, African-American Chamber of 99 Commerce, and other places like that?

I believe so.

Okay. In the workforce development, they are a union shop.

That is correct.

And I see my good friend Lou Edgar here. So, Lou, I understand the importance of union shop. Have you analyzed at all or should I wait for Verizon to talk about the union diversity, if you would?

I think you ought to talk to Verizon about the workforce.

I'll put a pin in that. Finally, in your estimation -- and I think Councilman Kenney talked about it -- if we don't do this now, what is the impact economics-wise to the City?

Well, the difference between doing it right now and the opportunity is that there may not be another coming along in any near-term 100 future that's going to provide us another opportunity for competition in the marketplace, and that billion-dollar investment is going to get spent in another city and we're going to miss that opportunity.

Point of order.

Councilman Rizzo.

Mr. James, you're telling me that Verizon, with a few weeks' delay on this deal, you really believe deep down inside that they're going to walk from this deal?

That's not what I was answering the question, Councilman.

You said earlier that you thought that there would be a possibility that they could walk on this deal.

Councilman, let me clarify --

Say it again 101 then.

Let me restate it for you. The question came, Well, what will happen if the transaction is not completed, and I took that in the general sense, not meaning this particular moment and point in time. The question is that they're putting up a billion dollars of capital investment. If they do not get a franchise at all, let's say they don't get a franchise, whether it's tonight or six months from now, they will probably make a business decision to invest those dollars in another city, where we will not get that opportunity again.

I'm glad you clarified that. So let's go back and answer the question that I'm going to ask you. If there's a brief delay and it doesn't happen today, do you believe Verizon is going to walk on this deal?

Councilman, in my opinion -- and you're only asking my 102 opinion -- I don't believe so, but I think you should ask them that question.

No. I'm asking you.

I'm giving you my opinion, but they're the company putting up the bucks.

You're the mastermind of this thing, so you're the guy that I'm asking the question to.

I appreciate that.

Thank you. Thank you, Mr. Chairman.

Councilman Jones.

Mr. Chairman, I would only say that what I do appreciate is that all sides of this issue have been very active in educating this body, and I think it's important that they do so, that we walk into this clear about what our decision is. At the end of the day -- and I guess this is -- and I will ask this of Verizon. I don't 103 want this billion-dollar economic benefit to wash over my community in my district without having substantially improved the benefit to young women, young men in barber shops counting on us to make sure that every time we do something, it benefits and trickles down to them. And I just want to make sure that -- I do trust you and the Commissioner. I've known you a long time, but I want to make sure we get the best deal we can always get. And I've said this to Verizon, so this is not -- when I look at Overbrook High School and other places like that, as we start to talk about these cutting-edge technologies that, quite frankly, make my eyes glaze over, I want to know that there will be some linemen created out of Overbrook High School some day that actually join the union, that climb the poles and do the installation, and I want to make sure that that's a part of any agreement, any agreement that we deal with. 104 Thank you, Mr. Chairman.

Thank you, Councilman. Eloquently said. Any other questions for these witnesses? (No response.)

I'm sorry. Councilwoman Quinones-Sanchez.

Thank you, Mr. Chairman. Fortunately, Councilman Jones asked many of my questions. Like minds with kindred spirits. He's the brother I never want to have. But there's one thing. In light of the fact that we can't regulate the rate hikes and going to my colleague, Councilman DiCicco's point, have we sought out a way of getting Verizon to commit to not giving us rate hikes at a massive rate? My concern is, let's say they start building out and it gets too expensive, going back to the issue of 105 competition. Have we had those discussions with them?

Councilwoman, we have not discussed the rate hikes with them, being that rates are not under our purview any longer, out of pretty much everyone's regulation. But I think the difference is that we do have one advantage by having the competition, that the market then dictates that, and where we're seeing in other cases where there is competition, whether it's Dish or otherwise, it's always an adjustment in someone's ability to offer better marketing opportunities for their subscribers. We'll just kind of have to wait and see, but we can certainly have them at the table and beat them up over the head if we're not happy with their rates.

Well, this is the time we can put those questions, at this table, but we'll ask of them also. 106 Thank you.

There you go.

Thank you, Councilwoman. To follow up on the Councilwoman's question, understanding that you are limited in terms of your ability to influence the rates, and I haven't seen this anywhere, at least coming from the Administration, can you provide the members of this Council information on the existing rate structures in the tri-county or the surrounding counties and actually, I guess, in Jersey and in other adjacent states/counties where these services, both the incumbent and the proposed franchisee, what their rates are now, so we'll have a better understanding of where the rates are, and our ability to make a decision will be enhanced by knowing what's happening at other locations.

We can provide 107 something to you on that, yes.

Thank you. Any other questions of these witnesses? (No response.)

Thank you very much. And I understand that one or both of you will be around?

Yes. We'll be around.

I'm sure there will be some follow-up. Thank you. Mr. Carter, please, who is the next witness? We have Verizon. Gentlemen, you know who you are. You can come up. (Witnesses approached witness table.)

Good afternoon -- good evening now.

Good evening.

Please proceed. State your name for the record.

Tabb Bishop is my 108 name, Vice-President of Public Policy over at Verizon Pennsylvania. I'd like to say good evening, Councilman Clarke, or should I say Committee Chairman Clarke, as well as Committee members DiCicco, Miller, Greenlee and Rizzo. It's a pleasure for me to be here today. I'm proud to be joined by several Verizon employees, including our new state President, Gale Given. We thank you for holding this hearing and we welcome the opportunity to speak before the Public Property Committee. I also want to thank Chairman Clarke and the other members of the Committee for holding this public hearing. We are pleased to have reached this important milestone in the franchise approval process that began with discussions with the City nearly six months ago. We are at this point today ready to thank all of the dedicated and experienced negotiating teams for both the City and Verizon. We appreciate 109 their service. Before we discuss the merits of the agreement, I'd like to tell you why this contract is so important to Verizon and to the City of Philadelphia. More than 100 years ago, as Bell of Pennsylvania, we began offering telephone service in Philadelphia. Now we're Verizon, with more than 2,000 employees working in the City. Just recently we relocated 400 existing jobs to Center City from other facilities. We are committed to providing great service in Philadelphia, and we are here to stay. Close to half of our workforce in the City is diverse. We are also proud of the history of being a union company. Almost all of our union employees are represented by the Communication Workers of America. 2 million in the aggregate to 77 110 non-profits in Philadelphia during 2008 from every section of Philadelphia to Verizon Hall in the Kimmel Center on the Avenue of the Arts. Verizon is certainly proud to have a strong track record of great corporate citizenship. But for those of us who work at Verizon, it's about much more than meeting these important obligations. Many of us grew up in Philadelphia. We have vested personal and professional interest in delivering the best telecommunication services to our customers. Because in so many cases, they are our friends, our neighbors and our family. This is one reason why we at Verizon are so eager to bring TV competition to the City. We know our customers want a new alternative for cable TV, and we agree with them that the time is now. More than 20 years is a long wait for the thousands of City residents who want real wireline cable competition and who today have only one 111 provider. With the approval of this franchise, Philadelphia will be one of the first urban areas in the country to benefit from FiOS TV and the FiOS network. Our City residents watch as cable franchises are awarded in towns and municipalities in Bucks, Montgomery, Chester and Delaware Counties and in South Jersey and the State of Delaware. Philadelphia consumers believe it is now their turn. They want and deserve the same kind of cable choice their suburban counterparts enjoy. And the agreement before you is fair. It is the results of hundreds of hours of work by the City and Verizon, and, most importantly, it offers the right means of opening the door to cable TV choice and competition in Philadelphia. Verizon is ready to compete throughout the City, and we are committed to providing video and advanced Broadband 112 services to all neighborhoods in Philadelphia. More importantly, it is simply the right thing to do. It is how we run our business. This is an historic moment for the City, for Verizon and all Philadelphians. The Committee and the Council have an unprecedented opportunity to open the doors to cable competition and to consumer choice for hundreds of thousands of City residents. I ask you to endorse the video franchise agreement today without delay and move to the full Council for a final vote so that our customers can realize the benefits of cable competition starting in 2009. Thank you.

At this time, I would like to introduce to you Paul Trane of Telecom Insight Group, Marie Lasota from Verizon's legal department and Brendon Pinkard of Wiley Rein, members of Verizon's negotiating team who will address the substance of this franchise 113 agreement. Thank you.

Thank you, Tabb. My name is Paul Trane, a principal at the Telecommunications Insight Group representing Verizon Pennsylvania. I want to thank the Committee and the Council for hosting this hearing on Verizon's proposed cable agreement. If passed, the franchise will trigger the largest telecommunications investment ever in Philadelphia. Approximately six months ago, Verizon commenced negotiations with the City of Philadelphia to reach an agreement to provide competitive cable services. It was the goal of both the City and Verizon to negotiate a franchise agreement and present it to Council for consideration by the end of the year. Since meeting that goal and having an ordinance introduced, we've had the chance to meet directly with members and staff. We've put forth detailed 114 explanation about the terms of the franchise and we've provided context about the lengthy process, and on Monday we participated in a well-attended briefing for members and staff. Now with today's hearing, we hope to provide even more information to the Committee and answer any and all questions. Today we also look forward to hearing from beleaguered Philadelphia cable consumers who have found a new certainty to the human existence, to join death and taxes annual cable rate increases. It is these consumers, your constituents, who are at the heart of our efforts to bring competition and choice to the City. Market research indicates that consumers strongly support the introduction of competition. That will only come with the passage of the Verizon franchise. Why is this so? Because for 24 years, Philadelphia consumers have suffered under a monopoly of landline 115 cable service, a monopoly not found in other telecommunications services, such as telephone and Internet services. This monopoly has produced staggering rate increases that have easily outpaced the rate of inflation. In fact, rates have doubled in just the last ten years. In the months covering 10 January 2008 through next month, to 11 January 2009, the incumbent cable 12 operator would have increased rates three times, or 11.7 percent. Consumers ask themselves, if a company improved its income by 38 percent in the last quarter to over $750 million, why do they need to raise my cable rates on November 1st and then raise them again on January 1st? The answer, because they have no choice of landline cable providers. Simply put, competition works for everyone involved: the City government, consumers and the companies that compete. Consumers benefit because, as a Geo study reported, cable rates are lower 116 where there is landline cable competition. Companies and consumers benefit alike because competition and choice improves customer services. Just last month, J.D. Powers reported that Verizon FiOS had the highest ranking in residential television satisfaction in the eastern region. The City benefits by this network by having state-of-the-art infrastructure and new revenue from grants and in expanded gross revenue payments. Since reaching an agreement with City negotiators, there has been a historic economic downturn and a near haul to investments using new capital. Despite these conditions, Verizon is here today to stand by its franchise and the unprecedented investment it brings to Philadelphia. Your approval will demonstrate to consumers and to 2,000 Philadelphia-based employees of Verizon 117 that you continue to have the courage to take a stand and the ability to make that stand count. Now I'll turn it over to my colleague, Brendon Pinkard, to review the details of the agreement. Thank you.

Chairman Clarke, members of the Committee and Councilmembers in attendance, thank you for your time, and good evening. My name is Brendon Pinkard from the law firm Wiley Rein, outside counsel to Verizon. I'd like to echo my colleagues in saying thank you for this opportunity. As Mr. Trane noted, the proposed franchise is the product of nearly six months of thoughtful, deliberate and intense negotiations between Verizon and the City's negotiators. Through this painstaking process, Verizon and the City's team have negotiated a proposed agreement that will, if approved, provide financial 118 benefits to the City and its residents, improve customer service and allow Verizon to compete with Comcast for subscribers on a level playing field. Before getting into the details of some of the material provisions of the agreement, I'd like to briefly focus on an issue of deployment, an area of vital important to the City and its residents and Verizon. Recently there has been a flood of inaccurate and misleading information advanced by the incumbent cable operator suggesting that Verizon will not provide service to the entire City. Let us be absolutely clear. The proposed agreement unequivocally requires Verizon to provide cable service to all residents of the City in all neighborhoods of the City. Not only that, but the proposed agreement requires Verizon to deploy its service in a timely and equitable manner that reflects the diverse nature of the City of Philadelphia. 119 As a general matter, Verizon will deploy cable service by upgrading its existing telecommunications infrastructure, which is comprised in part of Verizon's wire centers or 7 central offices located throughout the 8 City. Under the terms of the agreement, 9 Verizon is required to provide service 10 throughout the entirety of the City no 11 later than seven years. Within that time 12 frame, the schedule contemplates two 13 phases. 14 During the first phase, Verizon 15 is required to provide service to 16 residents served out of ten of the wire 17 centers in the City by Year Three, which 18 must constitute 32 percent of the City. 19 Those Phase wire centers cover a 20 broadly diverse range of communities, 21 including North Philadelphia, South 22 Philadelphia, West Philadelphia, 23 Kensington and Germantown. 24 Verizon will commence 25 deployment to the remaining 12 wire 120 1 centers in Year Four, which will be completed within seven years of the effective date. Additionally, Verizon has agreed to a benchmark that requires Verizon to make cable service available to 70 percent of City residents by Year Five of the franchise. Further, in order to demonstrate Verizon's commitment to equitable deployment, the proposed franchise includes both a clear prohibition on discrimination based on race and income, as well as a provision establishing an objective measurable standard by which the City can confirm that Verizon is living up to its obligations in this regard. Verizon has also agreed to up to two review sessions per year with the Commissioner of Public Property, at which the Commissioner can conduct a detailed review of Verizon's deployment. Finally, as a means of providing the City with security for 121 Verizon's satisfaction of its deployment commitments, Verizon has agreed to post a performance bond of up to $13 million. This performance bond provides the City with a significant tool by which it can enforce the terms of the agreement, including service deployment. 5 million in grants to support government access, and a million dollars in grants to support education access. Verizon will pay five percent of gross revenues to the City in franchise fees. To be noted, however, because Verizon agreed to a definition of gross revenues that is substantially broader than what is included in the 122 incumbent cable agreement, Verizon's franchise could result in increased revenue to the City.

Verizon will set aside 6 channels for public, educational and 7 government access programming. Verizon 8 will provide insurance of $20 million, 9 with an option for the City to increase 10 that amount to 30 million in 2015. 11 Verizon agrees to indemnify the 12 City for any liability arising as a 13 result of the franchise. 14 In addition to the previously 15 mentioned performance bond, Verizon has also agreed to liquidated damages of up to a thousand dollars per day for various violations. And, finally, customer service. While customer service is inherent to a competitive market and despite the fact that the incumbent cable operator's franchise includes minimal customer service standards, Verizon has agreed to an entire appendix devoted to customer 123 service. In addition to exceeding the incumbent's limited customer service standards, Verizon's proposed provisions far exceed the requirements established by the FCC. That covers the main highlights of the franchise, which we look forward to addressing in greater detail during this public hearing, but in closing, Verizon firmly believes that the extensive benefits and protections provided by this agreement will advance the public interest and change the landscape of cable television in the City of Philadelphia. We, therefore, respectfully request your favorable action on this franchise so that we can collectively make this goal a reality. Again, thank you for your time and consideration of our proposal.

Thank you, gentlemen. Actually, I'm going to defer my questions to the Committee members. 124 Councilman DiCicco, I think you were first. COUNCILMAN DiCICCO: Thank you. Good afternoon, gentlemen. I think, Mr. Bishop, you mentioned -- you brought out the number of jobs that are currently or will be --

Those are current positions held in Philadelphia, yes. COUNCILMAN DiCICCO: Will there be any additional jobs, permanent jobs?

No. There will be no additional jobs through this. I guess it's an important point I'd like to make sure I draw on, and, that is, that there is an opportunity that's a little different for us than perhaps other franchisees, in that whereas they did not have an infrastructure; for example, they didn't have a franchise, so there was no 22 purpose for their business to be in Philadelphia. So certainly we've been, certainly as Bell of Pennsylvania, been around for a hundred years. So that 125 gives us numerous facilities throughout the City of Philadelphia. That gives us numerous employees that work in those facilities throughout the City of Philadelphia. So the build will involve those employees, those current employees, as opposed to creating new work opportunities. The only area where there will be some new opportunities, they'll be very small, and that will be in terms of the customer service centers that will be created through this franchise. There will be four in total, one service center per franchise area. So there will be some staff associated with the openings of those centers. COUNCILMAN DiCICCO: Thank you. I appreciate your candor in that. And I understand again when we had no 22 franchises, we didn't have cable, it created an opportunity to create new jobs or jobs. The other question I had -- and 126 as I said earlier in my comments, I met with you folks, I met with Comcast and I met with the union guys as well. Call centers was a question that was asked of me, and I need to ask it of you. Where are they located? Will there be call centers in Philadelphia? And just briefly explain what the call center is and what it means to your operation.

The call center is an operation where I guess -- there are several throughout the country, and what they basically do is, when people have an issue, they call in a request for service. They come into that area, and that ends up being what we call networked, meaning that the calls are shared among the different call centers that are established. The technology allows that to happen, so that the information can get to the people who will respond when an issue arises. COUNCILMAN DiCICCO: I want to 127 stop you for a minute. Is that similar to if I have a question with my credit card, when I make a call, it goes to a center, which may not necessarily be in Philadelphia, in many cases outside the country, from what I understand. It could be India or whatever. Is that similar?

Yes, it's similar, but those centers are inside the United States. There are several throughout the states. COUNCILMAN DiCICCO: That's a start.

The issue with the call center, I guess, in -- it's my understanding that it's a matter that had been discussed during negotiations, I guess. I'm sure most members recall when there were these negotiations between Verizon and the Communication Workers of America back in August. But there was a issue that had come up on the table regarding call centers at that point in 128 time, what we call fiber sourcing centers. The issue is, through the usual back and forth process of negotiations, there was no agreement reached and it looks like it may end up going into arbitration. So there's not a whole lot that we can discuss about that if it ends up going in that direction.

Point of information.

Councilwoman.

Yeah. How many employees do you currently have and how many employees would be created in a call center situation? What's your current workforce and what would it be with the center?

The current workforce is slightly over 2,000 people working in Philadelphia proper. I should add that I guess about 1,300, is my understanding, are union positions to the CWA. But for the call centers, that 129 would be somewhere around 150, if it were all to happen.

The call centers, just to make sure we're talking about -- because I know there was some -- I had some -- I wasn't sure about the terms being thrown around. There's this fiber --

They're one and the same.

Are we talking about that now and not the four, what we would call, customer service centers?

Those are two separate.

I just want to make sure. I'm sorry. Councilman. COUNCILMAN DiCICCO: I will ask the question that I asked the other panel, the Administration. It really was a question for you guys. Is there a drop-dead date that if we don't get this 130 done by next Thursday, the 11th, that you guys will not be -- your company is not interested in pursuing this franchise? And I know it's a tough question because you're in a competitive environment here, but we've had some discussion, I've had some discussion with the other folks. It seems at these public hearings a lot more comes out because a lot more people are thinking, and it lends one question that leads into another, and I think that's a good thing for all of us. So that when we make the final decision, at least we will have made it with an understanding of as many of the issues that are of concern to us. So if we don't get it done on the 11th of this month, which is a week from tomorrow, and we do it sometime within a month or two after we come back from our recess, I mean, is that something that -- and I know you don't want to say yes, but we need to know. Is this a drop-dead situation here? And I 131 appreciate your honesty in that, because I think we're going to get to where you need to get to. I just think that there's an uneasiness about this. Even though we've had some conversations, it's the way this government works sometimes. It's just you get something and then all the sudden, it's the last minute you got to do it and there's been a void from the first initial conversation to the day of where we are now because a lot of other things are going on in our lives.

Understood. And as I noted in my comments, we had the chance to speak with you directly and all the other members. We tried to bring as much information to you as possible. As it relates to Verizon's position whether, as you phrased it, walking away, the way to look at it is that we won't invest any money in Philadelphia until we have an agreement, and right now this is the largest investment ever proposed in the history 132 of the City and there are many competing interests for capital, particularly as the access to capital is shrinking. We want to be here. We want to provide competition. All our market research says that this is a wildly popular idea with your constituents. They've waited years to hang up on 10 Comcast and switch to someone else. So 11 they want to do this. We want to do it. 12 COUNCILMAN DiCICCO: Fair 13 enough. Thank you. 14 No further questions. 15

Thank 16 you, Mr. Chairman. 17 Good evening, gentlemen. 18 Mr. Trane, just to follow up on what you 19 said, I think we all in various ways -- 20 and I certainly speak for myself -- agree 21 that competition is better for the 22 consumer, our constituents, but obviously 23 this is a big deal and we want to make 24 sure we ask the right questions and get it right and don't have people come back 133 later and say, Well, why didn't you do this. So just a couple questions from me. You heard the concerns raised with the Public Property Commissioner and Deputy Commissioner, and as I said in my questioning, it's clear that you certainly made an attempt to be economically diverse in your build-out, although we don't know exactly where these boundaries are. I know these are old-time phone exchanges, but just generally looking at it, it looks like you did. But obviously you heard the concern of the Councilwoman for the Sixth District, and that does kind of stand out, that there's a big section of the Northeast part of the City that is in Phase 2. Could you just address -- I know Public Property addressed it a little bit, but you could probably address it better, the reason for that.

Well, as Public 134 Property noted, Verizon builds out from this hundred-year-old spaces of wire centers. There are of them in the 5 City. And as the Councilwoman, who 6 unfortunately is not here, but half of 7 her area is being built in the first 8 phase. So a significant portion of her 9 area is -- 10

It looks 11 like more of the Tenth is probably not. 12

It's a good size 13 area. 14 What we did when we negotiated 15 with the City, the City provided the 16 median household income for the City, and 17 they were very concerned that this not be 18 a case where the highest income areas get 19 the build first and lower income areas 20 get the build after that. 21 Additionally, Verizon is very 22 concerned about redlining, and their goal is to build out the whole City regardless of where they live or what their income is. 135 What we agreed to with the City, based on their intricate knowledge of the City and their understanding of our wire center, is a build plan that reflects that the vast majority of households served in the early parts of this build have median household incomes between 25,000 below or 25,000 to 45,000 below. That was the information the City provided to us. That was their goal in doing this. And we accepted that based on they know the City a lot better than we do. And they had that goal in mind. Our goal is to serve everybody. I think the one thing that everybody needs to keep in mind is, this is an unprecedented investment. It's never been done. The only way that Verizon gets its money back is to get customers. That means build as quickly as possible and get those customers. That's the only way it's going to happen. We don't need a franchise to incentivize us to go get the customers. It's just 136 the economic reality of spending this kind of money, we need the time to do it over, and that's why the build proposal has been for over seven years. And keep in mind, other cities, like New York City, up to nine years; Washington, D.C., nine years. We would have liked that type of time frame here, but --

Can I interrupt you one second just on that point, if I may, excuse me, but I know in those other cities, was there already a franchise there that had built a certain structure, like in this case with Comcast?

They all have existing cable providers.

They did? Okay.

They all do.

You weren't one of the first ones to come in?

No, not at all. 137

I just wanted that clear.

And keep in mind, Councilman, in the original franchises with the City, each franchise area was given two or three years. That's one area. There's four of them. They had eight or nine years to build the City.

Okay. And just, again, for the record, you certainly -- and I have talked to Mr. Bishop a number of times, and you certainly have been forthcoming in answers to me, so I don't want to make it sound like you have not. But as Councilman DiCicco said, as the questions come in as other people ask questions -- and I think that's one of the things that's coming up. One last thing, Mr. Trane. I know other people have questions. You mentioned rates, which are obviously one of the things that our constituents talk about a lot. Would you be willing to go 138 on record how much in difference -- you talk about Comcast. You say the incumbent, but we're talking Comcast -- Comcast rates are and how they've had to raise them and all? How would you say your rates would compare as you sit here now? I know you can't predict it totally, but as you sit here now, how would you think you would compare?

First of all, as I raise those issues, I also -- Verizon as a whole has a tremendous amount of respect for Comcast and the company they are and the good corporate citizen they are in Philadelphia. The simple reality is, in a monopoly setting, rates are unchecked. Where there is landline competition, rates are generally 10 to 15 percent lower than the incumbent. Generally speaking, that's $12 to $18 per customer per month. So it does have an effect on the rate base.

Okay. 139 Thank you. And one last, if I could. On this map, just so I'm clear, I think at the briefing we had -- and it was a good briefing, a lot of information given out, even though a lot of us were in a hurry to get out because we had another thing to do -- I know you've put in this new map the Council districts, but there's still -- like I'm not real clear on where these breaks are sometimes. Is there a reason why there was not like -- because most of us don't know. I'm old enough to kind of remember when I was CE -- or Center instead of 2-3, but it's -- like talk about either neighborhoods or boundaries of streets. Was there any reason why you can't or didn't?

Well, it's the reality that the infrastructure is based on the wire centers with the funny names, and those wire centers serve across geographic boundaries, political 140 boundaries. There are some of those wire centers, like Chestnut Hill, that serve areas outside of Philadelphia. That's why as these issues of zip code and other things come up, they don't lend themselves to that. They lend themselves to a myriad of things. But keep in mind, as it relates to the build-out, we've agreed, as Comcast did, to meet with the Commissioner and present our progress to her as we go. And what we will do is also, as customers call you, as they will, asking, When am I going to get this service, they're allowed to go on a website, type in a phone number and it will tell them there whether they're eligible for service. So it's just the more modern day of doing what was done earlier when cable franchises first arose.

I guess it would have just been easier -- and I don't know how easy it is for you to do 141 that -- to give a little more boundaries that we kind of understand. And I don't know how easy that is to do, but it would have just made it easy to say, Okay -- I know the constituents can call in, but if they call us and say, Where are we, we could give a little better like breakdown on where that is.

In the map that you're looking at, we clearly heard at the briefing that the members wanted to know based on Council districts, and we appreciate that, and what we could do is darken in the areas that surround the wire center. But in general speaking, the wire centers have a boundary to it as well. They're not political. They're not geographical by any stretch, but they do extend beyond the City of Philadelphia. But we'll make every attempt to maybe put neighborhoods, things that you're more familiar with than a wire center.

Okay. I 142 appreciate that. Thank you. Thank you, Mr. Chairman.

If I may, Mr. Chairman, just to add a quick follow-up point. Certainly we do have the specific addresses related to all of the wire centers or what we call central offices as well. So that can be provided and made available for your convenience, and it might be easier to kind of zero in on a locale based on the exact address and the neighborhood that surrounds it.

Thank you.

Point of information, Mr. Chair.

Certainly, Councilwoman.

Hi. Just to do a follow-up on Councilman Greenlee's question about build-out, I think it helps us -- and it certainly does help me, and I did ask the other day at the briefing -- if we could have more 143 detailed information about the build-out. For example, when you say Germantown, where? Where do you start? Where do you end? If you could just let me know the geographic boundaries of the streets, name of the streets, of where you start and where you're going to start Phase 1 and start Phase 2. And when we talked about North Philadelphia, this map, this colored map, really does help a lot. It really helps a lot better than the one you gave us on Monday, because I can figure out the North Philadelphia versus -- like Darrell's district versus mine. But it's better if you lay it out there. And if you need to, Joe James and Public Property, they know what we're talking about. And it doesn't have to be a political map. It could be a zip code. I mean, it could be anything, but we need to know street, where does it start, where does it end. For example, Marian Tasco's district and I separate at 144 Stenton Avenue. Something simple, but let us know, because right now it's just wide open, and when you say Germantown, it's like what, what does it mean for real.

Keep in mind, Madam Councilwoman, that Verizon, as did Comcast -- Comcast in their renewal did not put where they're building. What they agreed to do was meet with the Commissioner, as Verizon has done, to outline the plan, and the reason for that is, there's competition involved here, and neither company would want the other company to go ahead of them to try to lock up customers. So we provided a tremendous amount of specificity in the agreement itself, but we've also agreed to meet with the Commissioner twice a year to detail our plan to protect our proprietary information, but also to make sure that the City regulators have the information they needed to make sure we 145 were doing what we said we'd do in the agreement.

Okay. I remember years ago when they said -- I vaguely remember when they said cable is coming to Philadelphia after it finally got out of City Council, and somehow I knew that my neighborhood was going to be last, and I think that's because of the information that was given out. And that's all I want to know. I need to know where are you going to start and where are you going to end and when are you going to start Phase 2 or where you're going to start Phase 2, because that's what people are going to ask me, and I want to be able to answer them. We have a lot of questions about build-out. We really do. And, again, I agree with Councilman Greenlee and I think everyone up here agrees that people want to see competition. They want to see competition. And I was here for the renewal. I wasn't here for 146 Comcast's original, but I was here for the renewal and I was here for the RCN. So competition has always been a key point here for the residents and consumers. And we're all consumers. So we're no different than our constituents in this area. Thank you.

Thank you. Councilman, you go ahead. I'll come back.

Can we go back to the map. Let's talk about Phase 1. How many years?

Thirty-six months.

Can't you give us a map where the first three months, the second three months? You indicated that that's because of competition?

Yeah.

Put yourself in our position here. Someone asks a simple question, When am I going to get 147 FiOS, and you're going to say, Well, we can't tell you because we don't want Comcast to know. I don't think that puts us in a very intelligent position here. So what can you do to help us understand this build-out? This build-out is very confusing. That's why the rush. I just don't really understand what your plan is here.

Absolutely. Keep in mind, the wording of the agreement is very similar to what Comcast did in their renewal. They did not tell the City where they were building and when they were building it. They did it behind closed doors with the Commissioner. We've agreed to do the same thing, and we've done more by providing a map that shows the geographic areas where we'll be building. But hold on. I want to address your timeline issue. Additionally, when you look at the timeline that was involved in them 148 getting before your Committee back then and the approvals, it's very similar to Verizon. We've looked at that with the City Clerk. We are not trying to rush this. We want to give you, Councilman, all the time needed to review, to ask questions, and for us to answer them. But in terms of -- I want to just set the record straight. There isn't a rush here. In 1999 and '98, the same time frames we used for the approvals of both the transfer of the agreement to Comcast and their subsequent renewals.

Okay. I want to talk about the negotiations. I think I know who took care of the technical part. I think Mr. James and the people in Communications dealt with the technical part. Could you describe the negotiation process and who negotiated some of the other non-technical parts of the franchise agreement. 149

Sure. There were very rigorous negotiations that lasted about six months. We met in the initial part of the process obviously with the Mayor and the Mayor's Chief of Staff and other folks, but the primary negotiators were Michael Athay from the City Solicitor's Office and Joe James. There were a number of people that played different parts, but they were the primary negotiators. And the primary negotiators on our end was myself, Brendon Pinkard, Marie Lasota and Tabb.

So all of these, Verizon will pay for an educational access channel grant, that was all at the executive level of the government, that was the Mayor and his team?

No. It was Michael Athay and Joe James representing the Administration.

Now, presently in our franchise agreement, we 150 get free service at 1,200 locations; is that right?

Correct.

Now, instead of free service, we are going to accept $2 million?

That's correct.

And that was a technical decision or a --

No. What happens often times, as happened in the vast majority of our negotiations with cities -- it happened in large cities like New York City. Like Philadelphia, there are approximately a thousand locations that Comcast provides free cable service. The Administration, much like every other large city, didn't want to duplicate that service. They didn't want to make sure that a classroom had two TVs, one from Verizon and one from Comcast. It didn't seem to make public policy sense to them, as it doesn't to most cities. So what 151 they did, they looked at the value of those drops, the value of the INET that Comcast provides, and they had some other needs in the technology area, and we agreed to pay them $2 million. That far exceeds the value of those from Comcast. For instance, the INET, we paid the City $700,000. Comcast has said theirs is worth $650,000. We believe the value of the free drops from Comcast to be about $400,000. It costs Comcast or Verizon one-time cost to build the free drops to a school or to City Hall. The service is free. There's no foregone revenue. It was always intended to be free. So to take the value of the service and use it into some equation of the value is crazy. They were free drops. So there was a one-time cost to Comcast, as they would be for us. We offered to build them. We would have been glad to build them, but the City, from its public policy 152 standpoint, decided that the revenue was better than a duplicative service. And, again, that's traditional in most of these instances. Brendon and I have probably done 50 of these agreements around the country. I would say 45 to 48 of those take that option.

Thank you, Mr. Chairman.

Thank you, Councilman. This issue about specific locations -- and I understand, trust me. I mean, you're in a lot different position. When Comcast was doing this initial build-out, frankly speaking, there were not marketing issues, because they essentially in that particular targeted area, they had the entire area, so it was not an issue with respect to marketing. And I understand your concern about tipping your hat, so to speak, as to what direction you're going to be going in very specific terms, but City 153 Council -- and this is no fault of your own. This is the way our government is structured. City Council, we consider ourselves as a co-equal branch of government, although a lot of people don't. Probably the Mayor's Office doesn't. But the reality is, we believe that that's the case, and the way things are structured, agreements are traditionally done -- and that's no -- please, Mayor, if you're listening, no 13 dig at you. All mayors. The way the government is structured, that negotiations get done with administrations, but invariably we in Council are asked to approve those deals that were done, and, unfortunately, we're traditionally not involved during the course of those negotiations. So things are thrust upon us at the last minute. And it's not intentional. It's just the way government is. So when I hear you on a couple of occasions in your responses about 154 locations saying that in prior franchise agreements, there was these back-room private meetings with the former Public Property Commissioner on where we were going and now you say that there's some level of commitment to the existing Public Property Commissioner and Administration about the potential locations, I would like to see, at a minimum, understanding that if you talk to members of Council, it may be like 13 a bad refrigerator, we can't keep 14 anything. I understand that. It might 15 get out there. But the reality is, there 16 has to be something in between sharing it 17 in a public forum and simply having a conversation with the Commissioner to put these Councilpeople in a position where they can intelligently answer questions about when is that service coming to my community, or am I in the first phase. You've got to give us something. So if you have to work out some process that people can -- it sounds like 155 you might have --

Two things. We've tried to do that with a map, and we'll enhance it, as Councilman earlier had suggested, Councilman Greenlee. But I want to make it clear. It wasn't a back-room deal or a discussion with the prior Public Property Commissioner that Comcast relied on. It was in Section 2 of their agreement. There was a contractual obligation that they would provide that information to the Commissioner so that it could remain proprietary. We've agreed to essentially the same idea. However --

If I said back room, I apologize. I probably meant in the conference room. I'm sorry. Bad characterization.

And we've gone farther than that in their contractual obligation with the agreement that you have in front of you. We'll continue to clarify the 156 build-out for you, but I want to make it abundantly clear that we've already done more than the incumbent. We'll continue to do more. And, by the way, from our perspective based on the questions you're asking, you're very equal to the administrative branch of government here, the executive branch. So we're going to continue --

Right answer.

And that's how we view it. So we'll answer any questions you have. But we understand the need for clarity and transparency, and we'll provide that to you and we'll do everything we can to do that for you.

We really would appreciate that, because we need to be in a position to respond. More often than not, Councilpeople tend to be the first line of response. We don't have our 3-1-1 system set up yet, in earnest, 157 but people see us. People have the ability to come to Council, as you see right here. There are probably people here waiting today waiting for this hearing to be over so they can grab us in the corner. I need to know whether I'm going to be wired for FiOS. So we need to be in some position to respond intelligently. That's all we're saying. Thank you.

Point of information.

Councilwoman.

I think it's important for Verizon -- and I would have asked this for Comcast -- the issue of the competition around how much detailed information they give out for mapping, why that's done. Why is that an industry practice that's been done in other cities?

Because -- 158

From the consumer's perspective.

Well, from the company's perspective, from a competitor's -- we're proposing -- Verizon is proposing to spend a lot of money to build this system, the largest ever done in the City's history. What it needs to get a return on that investment is customers. What happens in these situations often times is, if Verizon or anybody else announced where their build plan was going in detail at the granule level of streets, I know you'd be shocked to hear this, but the incumbent then goes to those areas and tries to lock up customers with contracts, or in a multiple dwelling unit, they do creative marketing arrangements that essentially prohibits Verizon from getting those customers. That's why it's very proprietary, and that's why both companies in their agreements have looked 159 to provide information, but the real granule level is done with the Commissioner.

Thank you.

And I hate to belabor the point. Couldn't you reverse that and say that the fact that you're coming to a neighborhood and you're going to have, as you said, possibly -- was it $15, $12 per 13 customer? 14

We'd be lower. 15

Wouldn't that then be what we're all seeking is competition? So if the incumbent said, Oh, here, they're coming over here, we better drop our rates, isn't that what we as customers want?

It's an excellent point, but even the threat of competition will make the incumbent lower their prices. They can get away with it now because there's no competition. 160

But as a customer, isn't that what we want?