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HomeMy WebLinkAbout2005-09-15 AFN Options Committee Agenda PacketOF S� H L A NI:�Wr� AFN Options Committee Meeting Agenda September 15, 2005, 7:30am Siskiyou room, CDES Building, 51 Winburn Way I. CALL TO ORDER II. ROLL CALL III. REVIEW COMMITTEE MINUTES Approval of minutes dated September 8, 2005 IV. REVIEW CHARGE A. Council Communication: Options regarding the Ashland Fiber Network B. Strategies for Strengthening AFN from Councilor Cate Hartzell C. AFN "T Point Plan from Councilor Russ Silbiger V. COMMITTEE DISCUSSION A. Options identified by Council B. Identify information to evaluate C. Schedule specific discussions D. Continue reviewing presented documents VI. NEXT MEETING(S) Next scheduled meeting September 26, 2005 at 7:30 AM A. Future meeting with ISP's B. Future meeting with Programming Committee VII. PUBLIC INPUT Vill. ADJOURNMENT In compliance with the Americans with Disabilities Act, if you need special assistance to participate in this meeting, please contact the City Administrator's office at (541) 488-6002 (TTY phone number 1-800-735-2900). Notification 72 hours prior to the meeting will enable the City to make reasonable arrangements to ensure accessibility to the meeting (28 CFR 35.102-35.104 ADA Title I). AFN Options Committee Documents Supplied September 15, 2005: A. AFN Bond Sale B. Budgeted Staffing Levels, excluding temps C. Comparison of Central Service Fees, detail and summary D. Cable Television Franchise, Split 70% General Fund and 30% Street Fund September 8, 2005: A. Internal AFN Development Opportunities (Wanderscheid Memo) B. Navigant Report, Marketing Development Opportunities Results Update (Wanderscheid Memo) C.AFN ISP Analysis Memo and Spreadsheet D. Cost Benefit of VOI P on AFN's Network Memo and Spreadsheet E. Cost Benefit of Settop Replacement on AFN's Network Memo and Spreadsheet F. Video on Demand Memo G. Competitive Analysis Cable TV Memo H. Broadband Internet Comparison Memo I. CATV Channel Lineup Comps Spreadsheet J. AFN Revenue Contracts Spreadsheet K. Bulk Cable TV Contracts Spreadsheet L. Open Purchase Orders as of August 26, 2005 Spreadsheet M. Cash Flow/ Business Plan N. Council Communication, AFN Quarterly Report O. Council Communication, Resolutions Authorizing a Cable Television Rate Increase in the Telecommunications Fund and Surcharge on Electric Accounts August 15, 2005: A. 30,000 Overview of AFN Technical Operations B. Overview of AFN Programming C. Broad Brush at Broadband D. Overview of AFN Marketing E. AFN Financial Overview Memo F. Financial Statements G. AFN Rate Model H. AFN 3rd Quarter 2005 Report I. AFN Cable TV Rate Increase Memo J. Official Bond Statement and supporting documents K. AFN Business 2004 Business Plan, Navigant Consulting L. AFN Key Findings Summary, Mindwave Research M. AFN Business Plan Evaluation, Market Development Opportunities: Descriptions, Navigant Consulting N. AFN Business Plan Evaluation, Internal AFN Development Opportunities, Navigant Consulting August 2, 2005: A. Options Regarding the Ashland Fiber Network B. Strategies for Strengthening AFN, Councilor Cate Hartzell ------ -- - ------ C1 T Y U F ASHLAND Options regarding the Ashland Fiber Network Meeting Date: June 7, 2005 Primary Staff Contact., Gino Grimaldi Department: Administration E-mail: gnmaldg@ashland.or.us Contributing Departments: Secondary Staff Contact: Approval: E-mail: s -tatome nt: At the City -Council meeting of May 10, 2005 the City Council indicated an interest in discussing options regarding the future operation of the Ashland Fiber Network (AFN) and the possibility of the creation of a committee to evaluate those options. Background: AFN has been in operation approximately nine years. Initial construction costs were estimated to be $6 nufflion an-d actual construction costs- were $9 million. Funding for the construction of AFT was accomplished through a combination of internal borrowing and two bank loans. operating losses since the start of the operation of AFN are $7.5 million and were fimded through internal borrowing. Due to the lack of available cash for internal borrowing, the City Council authorized the issuance of bonds in the amount of $15.5 million and eliminated the internal borrowing. At this time, AFN is unable to generate sufficient revenue to pay both operating costs and annual debt service. In the spring of 20049 Navigant Consulting was hired to develop new revenue opportunities, review operating procedures and staffing, and develop new marketing ideas and initiatives. At that time, it was anticipated that AFN would have a positive net 'income beginning.in 2007-08 based on the successful implementation of a number of initiatives -and recommendations that were presented to the City Council in. March, 2004. AFN staff has implemented most of the initiatives and m i . a disappointing d- achieving "tiv recom- mendations. The results of the *t' 1i been disappo g an evmg a �posi e net ave income in 2007708 "is not realistic. Updated financial. projections do -not anticipate achievIng a positive not -income in the near future. The.2005-2006 Budget Committee approved budget includes a 500,000 subsidy from the Electric Fund in order to meet debt service requirements. This subsidy is anticipated to grow in the following years. Several Councilors have suggested the creation of an AFN Options Committee. - The purpose of the committee would be to evaluate four options reizarding the future of AFN. It has been suggested that None.Related City POliGles: Council options: Committee Creation e Create a committee as proposed: as authorize the Mayor to appoint are.. ad hoc con.mitteeg b. Use the appointment process used for boards and con n fissions 20 Do not create a committee. 3. Other. Selection of ODtions for Evaluation l ® Use the two step process proposed assumes the creation of a -committee . 20 City Council selects options to be evaluated prior to. the creation of a committee if a committee is not created, the options would be evaluated by staff and presented to the City Council). Staff Recommenaation, Committee Creation It is recommended that the City Council authorize the Mayor to appoint a five pp e member ad hoc conunittee. This will allow the committee to be created quickly and will allow for the recruitment of members with business, technical, cable Indus and financial expertise. �p p Selection. of o bons for evaluation It is reconunended that the City Council select options to be evaluated ri a p p or to the creation of a corrunittee. This will provide -a clear focus for the con�xnittee that will use eorr iittee and staff time most efficiently. It is recommended that the committee evaluate the fo ur optlonst�d.;��.:�_ above® Potential- Motions: A motion to implement the options noted above is appropriate. Attachments: Strategies for Strengthening AFN by Councilor Hartzell. MEMO From Cate Hartzell June 2, 2005 RE.- Strategies for Strengthening AFN In the process of meeting with Russ Siibiger and John Morrison, I created a list of actions that we discussed as potentially useful for addressing issues related to .AWN. Please include there in your consideration of the Juno 7, 2005 AFN agenda item. 1. IDENTIFY THE RANGE OF OPTIONS and have the City Council indicate which it wants cost/benefit information back on. options include: a) Ma itaiin AFN as a city -op gated enterprise with investment in new serVcCslroducts, including expanded use by city departments .) t ' AFN as a utility with no significant change in services c) Establish aH or part of AFN under a not -for -profit entity d) Sell only the cable services component of AFN e) Sell all AFN services. 2a FORM OPTIONS COMMITTEE Members will be selected to ensure that there is .the following expertise: business, technical, industry, and financial. Task: a) Identify the economic and social benefits and costs of the options that are identified for study by the City Council. b) Explore and communicate with the Council about other opportunities that arise from their work. C) Explore and present options for providing benefit to customers who will pay AFN fee when they aren't able to access AFN. a) Present the results of the committee work without making a recommendation; 30 RUSS.-VISITS PANISH FO.R'K to research and deepen our _understanding of how we. can mprove and the public image 4. CREATE AN ASHLAND CHANNEL isquss idea with RVTV; secure permission to repackage the City content to another charnel; identify where in the upcoming contract renewal we would include this changel Engage local people interested in participating Devise plan to enhance channel 20 0l1 Page 1 of 6. ENHANCE PUBLIC IMAGE OF AFN Council increases level. of engagement, coordinates a paper on FAQ and Myths; Informs public through available media 7. INCREASE THE EFFECTIVENESS OF THE UTILITY BILLING OFFICE in addressing AFN services * Provide improved promotional materials and tools * Resolve issues related to point of contact pro -motion 8. RENEGOTIATE THE ISP CONTRACTS Ensure that ISPS � charge businesses at business rates Arrange forsharing addresses of ISP subscribers; 9. INCREASE INTEGRITY OF AFN LEGAL AND FISCAL PROCEDURES Complete independent audit of AFN dept. Implement recommendations of Finance Director and audit 10. INVESTIGATE POSSIBILITY OF FUNDING THROUGH OECDD OR OREGON ECONOMIC PLAN I I o ESTABLISH A COUNCIL -BASED OVERSIGHT COMMITTEE for this transition 06/01/05 Page 2 of.2 --- ` solution m Alternative AFN rates o n Af n o too .;;;::.. �.� «.�.._�}���::�..�_ _ .�. ��_� Morrison ....-------- ---- - - -- From: "Russ .Silbiger" <russ a@mind.net> TO: "'City Councill" <council@ashland.or.us> Date: 9/3/2005 11:32:44 AM Subject: [Afn—options] Alternative AFN rates resolution Mayor and Council, I found the multiple proposals by staff in regards to AFN TV rates to be confusing. They do not easily relate to the City Budget targets we need to achieve. This year's approved budget shows a 10 percent projected revenue gain for AFN, which amounts to $205,000. In addition, we have the $500,000 subsidy in the budget, for a total of $705,000. From what I can tell, staff now anticipates a shortfall of $738,000 for this fiscal year. Instead of trying to adjust the staff suggested numbers, I have taken a simpler approach. My approach was to come up with a price increase that will account for the budgeted projected revenue increase and the budgeted revenue subsidy. I also tried to tweak the tier rates rather than do a simple across the board rate increase for a number of reasons. Note - These are total customer prices - See table below for base pricing. Tier 1 m $9. 95 Tier 1 is our "lifeline service" with no true programming costs. (A discussion of the $12,000 in yearly fees to Hunter to deliver over the air signals to us via our fiber is needed.) This is a 10% increase. "Tier 2 - $17.95 currently our revenue for tier 2 over tier 1 basically covers the programming costs for the tier. In addition we have had to put tier 3 channels on tier 2 due to lack of customers penetration in higher tiers. This 24% increase attempts to recoup some of those costs, and helps bring the tier closer to a market rate. Tier 3 ® $41.95 This 20% increase still does not bring us to market rates, coming in a few dollars cheaper than Charter's valley rates ($45.99 according to the Tidings 3103 article) , and $1.00 cheaper than our two satellite competitors. Tier 4 - $51.95 This is only a 10% increase, but our "digital" tier lags far behind our competitors in number of channels. do not suggest price increase for our Premium Channels because we already have higher prices compared to our competitors for HBO and Showtime; and our prem ium offerings are poor relative to the competition. For a full year, these increases average out to be 20%, excluding Premium and PPV. Bulk rates and Commercial rates will also need to be looked at. In addition we need to institute a $7.50 a month AFN surcharge to all City utility bills to meet our budgeted debt payment obligations, as well as the additional $33, 000 shortfall identified by staff If we had instituted these prices on July 1, as suggested in the 9 point plan presented in May, and not counting any net gains or losses in customers, we would shove a projected revenue gain (excluding PECK and franchise fees) of $200,000. This would have been essentially what we needed to meet the budgeted Pa �>:•>:•--;mow -:::: ,:::: A\... ..,::.---•2YJ,--,.::..... ..............�t .......... ................. N rat resolution rvn Morrison m� �toq] Altern,ative number of $205,000. if we implement these increases in 30 days, we can project $ 1 40,000, leaving us 65 000 short of budget goals. A $7.50 a month surcharge will bring in $600,000 for the ' 8 months left this year, with $500, 000 covering the budgeted subsidy level for this fiscal year with an additional $100,00 to make up the $100,000 $65,000 budget plus the new $33,000) total revenue shortfall for the year. l believe these price increases move us towards the goal of not subsidizing television, while at the same time minimizing sticker shock as best as we can. it will also help normalize rates, which up to this point have been simple percentage increases and not reflective of actual costs or the market. Obviously, we may lose customers under th's, or any of the staff proposed plans. p have attached the Excel spreadsheet in case any one wants to tweak the numbers l further. appreciate staff preparing the resolutions for these for the Council I would appre p p g meeting. CURRENT PRICING Customers by tier End of Year Monthly Ease Base Rate PEG Total inc.tax Revenue Tier 1 7.86 0.75 $9.04 284 $2, 232.24 Tier 2 12.96 0.75 $14.40 748 $9,694.08 Tier 32.42 0.75 $34.83 1762 $57,124.04 Tier 4 43.96 0.75 $46.95 376 $161528.96 $85,579.32 1 year $1,026,951.84 PROPOSED PRICING Increase Tier 1 8.73 0.75 $9.95 284 $2,479.32 10% Tier 2 16.35 0.75 $17.96 748 $12,229.80 24. 50% Tier 3 39.2 0.75 $41.95 1762 $69,070.40 20.50% Tier 4 48.73 0.75 $51.95 376 $181322.48 10.50% $102,102.00 1 year $1,225,224.00 Budget Revenue Increase: $1983272.16 .$205, 000 8.5 Month Increase $140,442,78 Shortfall $571829.38 $647557.22 This year Next Year 8 months Surcharge $7.50 $60,0000 $900,000 --� •� �-_•-"""'"'•--- ` •---:--�,�:-,: -__.� � _--_""-s'` t--===`•:%`i:<-'-=�;:,:2;"i>��i`-"�`:-S�:f•:��\-i�;•::::'•:,isi:-•S�\-s:=;i"'•>�-...;�.ra.:c-�:_""':::i?si:i}:S::s:�i�:.............. ...... ......rn ...i .-- ison[Afn o bons Altrn e rates resolution e ati�AF iVra :: nM1}='=: ":.'�::._:'•ii :.'-::.:'•:..... "" \ "" ... .ems."""" P a e 3 Y " For reference, the City proposals can be found here: h.tp://www.ashland.or.us/Page.asp?Navl D=8793 AFN 11 9 POINT PLAN„ **information updated I Resolution for � 700r 000 subsidy for 2005-�2006. Funding source to be }Council identified. **(council decision made to subsidize AN through next fiscal year through electric fund - 5/10/05) 2} Strategy for hiring new AFN Manager. 5/31/05 ** (Council decision made to hire a temporary manager. AFN reorganized as a department under Admin - 05/10/05) 3 A realistic assessment of business plan and options - be presented to Council } by 09/30/05 ** AFN options Committee started 03/01 /05 with a 10/31 /05 completion) 4} A core resources group be created to work with Lee (new manager) on issues not within his area of expertise. 05/15/05 ' (Not implemented) 6} Price increase on Tv to be implemented 07/01 /0.5 (Council Resolution 5/19/05) (Suggested price $9.95, $19.95, $42.95, $49.95). Review pricing on bulk contracts and commercial Tv. Consider options to offset subsidy, such as giving Tier 1 for free/half price to citizens. ** (Price increase will be presented to Council 09/06/05 for October?? implementation } 5) g Existin contracts reviewed by Lee and city Attorney. Report to Council by 07/30/05. New (large) contracts to be reviewed by Council. **(Outside auditor reviewing contracts. Report/Review to Council not yet scheduled) 7} Request audit committee/ auditors look at AFN financials more closely. 03/05 * Staff will engage our outside auditors to review AFN financials) 3} If we are to continue, a technology assessment be done. Options. presented to Council by 01 /06. (Steering Committee. Business Plan, Marketing Plan) 9} Long tern strategy to be approved by Council (Budget Committee, voters) by 05/06 Russ Siibiger Ashland City Councilor 541-432-6907 russcitymind.net AFN Bond Sale Uses: US Bank Construction Loan $ 4,286,091.70 Key Bank Construction Loan 215313905.06 Internal Borrowing to 6/30/04 619253000.00 13, 742, 996.76 Issue costs 246,483.79 Internal Borrowing to 8/31 /04 7187182.40 Reserved future interest 7923337.05 $ 15,5009000.00 Compared to estimated costs to June 30, 2004: Personnel $ 4,402,137.00 Advertising/PR 7023423.00 Contract services 448,802.00 Repair & Maint 578772.00 Communications 9847311.00 Supplies 4417287.00 Programming 117383261.00 Franchises paid 2433044.00 Other 2523568.00 Internal charges 1,566,993.00 Interest 2,034,187.00 Capital Outlay 1413172.00 Construction 7,613,074.00 $ 215147,031.00 revenue $ 699527842.00 net $ 1411949189.00 Capitalizable PS Costs $ 195757000.00 Construction 7,613,074.00 Equipment 1417172.00 $ 91329,246.00 LO L1) O O In Lid O M co O co CO 00 O f 1 1- LO N O � OI O O Ltd O O O O O CO co In 00 ti O 1-1M co M O � O O Ln Ln O Ln O Ln ti N 00 M � O It � It rl M CO CO O � M O O O Ln Lf) O O Lt) O N Lid co N M CO M O � N O cl- CD O O O O O O co - Lf') I` N m M It ti O N CO M O � T O O o 0 0 0 0 � f` N Ln N m M 14 N CDTI MMIct O � OI O O O O LO L1) O co N 0 0 0 0 0) M It Ln (0 O O CO N CO O � O O O LO L1) Q ) Ln O O f` N m O O M m O d� co N co O O LOLnOoOCD f` N Ln O O Ln O O O O co U), O co O N co Gq ti ti rl— CO N N In O K} Ln L6 N ti M co O CO Ln N O M ti H} -0 N co N � CO O > co Z co co co 00 N Ln Ln O N CO CO C� N - N co a) c� z > cu z LL Q L as E U- o U o Q E E L Q L (6 O 4-0(n p C6 U D >, ++ O N }, L tf W Z � U Hm co Q E Q w U U Q� LL Q n O Ln O O N Ict O O O co4-1 m ti O� L O N 2 O m 4-0 E E O U O 4-0 z LL O 4- m 4-0 Q U 00 N 00 0 0 1- 00 O o o O= ::t o 0 00 "zi- O o 0 ,::t O cy') 00 CM LO ' ' ' M O Liz M ' 00 00 Cy') LO ' CO N = LO N � I- 00 00 I` ti M N O 00 N 00 CO O7 O7 O7 N L6 N U5 I� CO 00 Izi- = I` ti N 'Cl- M O LO I` O LO ,:I- O M CO CO cV I- 07 N� H M CN N ti ff V- CNN M 1- 00 0 o Il_ LO O o o O= 07 0 o O O LO o 0 O) O7 � N LO 04 O O I` N 00 LO LO LO c0 1- CO = N LO 00 0') N LO CO � 1` LO O 00 P- CV O Lri L(5 � -c:i M CO Or O LO I` O ti 00 t4 = N LO CO 00 I� O7 00 O LO O N = 00 07 ,:I- LO O N -q Cfl �� CO N N N M LO 1- O o o O O O o o O O o o CN 0 1- 1- O7 1` CO N N c`M 00 O LO M M CV O O7 LO 1` M 1` I` LO m 1` � O m co LO O O M M O O7 00 Lr 1` N O 00 00 Cfl 00 MZI- LO ti N LO M LO LO M M 'cl- cn 00 O-) 1` 00 � O O N -q M �-q N 1- N N O LO o 0 o O rn o 0 o O I-- o 0 0 0 0 0 0 0 O I� O O O O LO � O� O I` O M O M d7 O 1` 00 00 O d7 O O O O cn 4� O O -C:f Ni N CO Lid 00 LC - Lf5 O O N O O = cM M 00 LO CO I� M 00 NI- O O N cfl cYi O = 00 N O CN cYi M LL .V CD O O 00 O o O 0 o N m O O O O o O o a O O 1- O CO LO N o o O7 O7 O"::r O M Nt o 0 LO (n O7 LO O M LO O Il- cY) O M 'L M Nt O 00 O CO O7 LO CO Lf) N I` Q O M O r- ti co O N ti 00 U3 LO LC) O 07 LO 00 = CO = 00 O M L O N L M Lj Lj O O N N � L � Ir- Q LLJ O O M O o o O� CD o o O LO O o 8-0 CO r-_ O o 0 O O M O M I` m O O O O O M O N O O O M O O CO 1` � cy') 1` 00 O O I` NO 00 -�4 00 CO O7 00 0(5 CO O7 P% CV • •� I` 'Cl- ti� M O L) LO O O CO N I` CO O CO I- r- 00 N M O O (V M C`M -1:1 N O 1 N L � M 0 CD CD O o o O CD CZ)o o O O CZ) o o CDCO CD o 0 O O O 00 O O O co I- O O O 00 00 O CO O I-- I,-- 0 M CD CD CD CD Lf) CD CD (=) CD CDr- O W r P- -I:i N r- O xi M O M CO O O O LO (n O r- Lfl r- (n LO � I-- LO 'cl- Lf) LO M 00 CO 'Cl- O I-- LO O M N � C- � c� C6 C - 11:47 O O o 0 o O O o 0 o O O o 0 0 0 0 0 0 0 O O O O O O LO 00 O O O O O O cn CO N O O O O O O I-- 00 O O O O O O Li') 00 O O C\ O O -:1 00 u cV 00 O O 00 N I` 'cl- O CN � N M M O M 00 LO m O Lid I� cV CO Lf) N N cmM N cY) 00 00 N O N N N N L L- N N L.L N N L.L N N L.L L.L_ L.L_ L.L_ L.L_ C` U) U L U U U U) U U- +� U- U- U L O co a--& a) m O C �--� v �i O N �--� a) O cn N � N N N � }. V N a) L.L N � LL LL LL LL U C.O.) 0= C W U = 0= V = !✓ > > > > Q > > > > Q toCD � W cn Of W to �0 W to Of W N O N CO N O O > Q O O > � O O > Q O O> CD x of W a) U m m of of O x of W Cll U co m cr- 0� Cll x orf W CD U m m �orf CD x Of W Cll U m m 0� Of City of Ashland Comparison of Central Service Fees Budgeted in the Enterprise Funds 2000 2001 2002 2003 2004 2005 2006 Water 522,000 572,000 638,300 718,000 604,000 543,260 6821258 Wastewater 5041000 575,000 601,000 586,000 586,300 539,130 6811450 Electric 622,000 683,000 696,000 856,125 888,700 835,370 11054,529 AFN 230,000 300,000 312,000 307,144 395,000 435,015 549,575 All Other Funds 1,409,000 11512,460 11527,850 11602,731 11639,600 11555,636 11911,030 $ 3,287,000 $ 3,642,460 $ 31775;150 $ 41070,000 $ 41113,600 $ 31908,411 $ 41878,842 Water 16% 16% 17% 18% 15% 14% 14% Wastewater 15% 16% 16% 14% 14% 14% 14% Electric 19% 19% 18% 21% 22% 21% 22% AFN 7% 8% 8% 8% 10% 11% 11% All Other Funds 43% 42% 40% 39% 40% 40% 39% 100% 100% 100% 100% 100% 100% 100% In 2004 All departments were only charges 92% of budgeted C/S Fee In 2006 all departments received an additional 26% increase in Central Service fees G:\finance\Administration\AFN\Options Committee\History of Central service charge 9/14/2005, 1:47 PM City of Ashland Cable Television Franchise Split 70% General Fund & 30% Street Fund Vendor: 2000 2001 2002 2003 2004 2005 Total Charter $ 111,270 $ 112,265 $ 113,015 $ 771426 $ 80,215 $ 80,894 $ 575,085 AFN $ 2,156 $ 13,799 $ 124,741 $ 45,805 $ 53,543 $ 61,121 $ 3011165 Total $ 113,426 $ 126,064 $ 237,756 $ 123,231 $ 133,758 $ 142,015 $ 876,250 G:\finance\Administration\AFN\Options Committee\History of Cable TV Franchise 9/14/2005, 1:48 PM