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, 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.
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?
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, 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.
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.)
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 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.
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.)
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.)
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.)
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.)
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.)
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.)
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.)
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. 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?
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 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?
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.
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.
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 --
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.
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.
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, 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?
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?
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?
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.
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.
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.
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.
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.
Councilwoman, hold on one second. Are you yielding your time?
Well, Councilwoman, why don't you call a point of order so we can be --
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.
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.
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 --
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.
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.
Can you 73 tell me, are there any key differences in this agreement and the agreement that you had with Comcast?
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.