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.
For historical context, I was the Chairman of the Public Property Committee back in the RCN debate. What year was that; do you remember?
Have we had any significant requests for competition or participation since 2000?
Who is Verizon's major competitor besides Comcast in the delivery of cable TV service?
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?
Is Verizon, to your knowledge, looking at any other cities relative to the investment of capital dollars?
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. Are both of you going to be around? COMMISSIONER SCHLOTTERBECK: Yes.
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.
Well, could we provide that specific information to the Chair in answer to those questions?
Because I'm not going to be able to stay around for Verizon.
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
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?
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 we started in July, and I believe we reached final agreement on terms that we submitted to you November.
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.
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 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
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?
And so beyond the committed funds, are there any discretionary funds left after the 96 specific grants within that?
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.
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?
Okay. In the workforce development, they are a union shop.
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'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.
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?
You said earlier that you thought that there would be a possibility that they could walk on this deal.
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.
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.
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.)
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.
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.
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?
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.)
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.
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 --
Are we talking about that now and not the four, what we would call, customer service centers?
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?
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.
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.
Can we go back to the map. Let's talk about Phase 1. How many years?
Can't you give us a map where the first three months, the second three months? You indicated that that's because of competition?
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?
Now, instead of free service, we are going to accept $2 million?
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, 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 --