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HomeMy WebLinkAbout2005-10-10 AFN Options Committee Draft Minutes and PacketAFN OPTIONS COMMITTEE MEETING OCTOBER 10, 2005 - PAGE 1 OF 6 CITY OF , L AFN Options Committee Meeting Draft Minutes October 10, 2005, 7:30am Siskiyou room, CDES Building, 51 Winburn Way CALL TO ORDER Michael Donovan called the AFN Options Committee meeting to order at 7:35am on October 10, 2005 in the Siskiyou Room of the CDES Building, 51 Winburn Way Ashland, Oregon. ROLL CALL Committee members Barth, Collins, Donovan, Mace, Mackin, and Shultz were present. Councilor Russ Silbiger was absent. STAFF PRESENT: GINO GRIMALDI, CITY ADMINISTRATOR RICHARD HOLBO, TELECOMMUNICATIONS ENGINEER MICHAEL AINSWORTH, CABLE TV MANAGER C I N DY HANKS, PROJECT MANAGER BRYN MORRISON, ADMINISTRATIVE ASSISTANT REVIEW COMMITTEE MINUTES Approval of minutes dated September 26 and October 3, 2005 Paul Collins, Committee member amended the September 26 minutes to add on page 2 paragraph 2, to show the focus has been lost since AFN started. Added that AFN TV could not be competitive without HDTV or DVR and Richard Ryan on page 3 paragraph 1, there has been no business marketing done by AFN. Barth/Mackin m/s to approve minutes as amended. All Ayes DISCUSSION WITH SPANISH FORKS The Committee had a video conference with John Bowcutt, Director of Information Systems from Spanish Fork, Utah. The Committee pointed to the responses of the questions that were asked of Kent Clark, the Finance Director from Spanish Fork. See attached. The Committee discussed with Mr. Bowcutt the Council 's involvement with initiatives that his department proposes and the City of Ashland's concern with how taking items to Council here slows down progress. Mr. Bowcutt responded that the City Council has AFN OPTIONS COMMITTEE MEETING OCTOBER 10, 2005 - PAGE 2 OF 6 been involved since the beginning and sometimes things are slowed down, but most of the decisions are made departmentally and only higher level contracts and capital outlay has to be approved by Council. Most of the time the Council is only informed of what the department is doing, they are not asked. He added that sometimes adding items to the agendas slows the process, but it has not been too big of a timing hassle. The Committee discussed the differences of doing business in a public environment rather than private and having the competition know what they are going to do before they do it. Mr. Bowcutt responded that the competition has not been a big issue, they beat them badly. The staff coordinates the marketing plans and has some latitude that all things do not have to go before the City Council. The Committee asked about the differences between Oregon and Utah and if they had to take all of their contracts through an open bid process. Mr. Bowcutt responded that most of the contracts go through Council except for programming contracts. The Council allows the Mayor to sign the programming contracts. He added if they add major channels to the line up or change the line up, they go before Council for approval. The Committee asked if Spanish Fork had a citizen committee for programming. Mr. Bowcutt responded that was one thing that they learned from Ashland, that they didn't want a citizen committee deciding what channels they would carry and they wanted it to be more like a business and staff should make those decisions. He added that they have a strong alliance with NCTC and follow what they recommend. The Committee asked how Spanish Fork beat the competition and to what extent. Mr. Bowcutt responded that the competition subscribers dropped to nearly zero. When Spanish Fork first started system, the competition dropped the price to $14 for expanded cable. They had little success with that and only did it for a month and then went back to their standard price. This was during the time when AT&T was preparing for merger with Comcast and Comcast seemed otherwise focused than to compete with Spanish Fork. Mr. Bowcutt mentioned that Comcast has recently dropped their pricing for digital service and had a huge marketing plan for June through August, but it did not draw as many customers away from Spanish Fork as they had hoped. The Committee asked what the competitive edge was, if their prices are better or their product, and how much is due to community support. Mr. Bowcutt explained that there is tremendous support in Spanish Fork and they run the community network, not just the internet and cable. He added that the community is involved and they understand that they own the system and it is part of the community. When Spanish Fork entered this business, AT&T and TCI were neglecting Spanish Fork. Spanish Fork brought in a better product and better pricing. Mr. Bowcutt explained the importance of the local channels to the community and that is a major factor on how they keep their customers, along with ease of billing and it is difficult to pull customers away from their service. Channel 17 broadcasts concerts, plays, business spotlights, and spotlights on community members, and high school sports 12-15 hours per week. Channel 16 is the local school district channel. Spanish Fork went to the school district and gave them this channel, they invited them into their studio and the school district proposed to build onto their building and head end. Now they have tv production classes, computer science classes and a studio themselves. AFN OPTIONS COMMITTEE MEETING OCTOBER 10, 2005 - PAGE 3 OF 6 The Committee discussed if the Spanish Fork system brought in jobs and businesses and how much they use the savings to the community in pricing as justification to have the city owned system over Comcast. Mr. Bowcutt responded that it saves approximately $1.2 million per year to the community in pricing. He added that it is difficult to measure quantitatively what Economic Development it has brought in, but it does help with the Council understanding how it benefits the city. There was no high speed internet in the city before they started and businesses were going to leave if it wasn't available. He spoke to a manufacturing plant that they have connected to their office in Provo as a success story. They have had people move in to the city because of the community network. The Committee questioned if Spanish Fork offered VOIP. Mr. Bowcutt responded that they do not. They would have to compete with Qwest and his product would have to be better to compete. The Committee pointed to the Spanish Fork financial statement and asked what other services represented. See attached. Mr. Bowcutt responded that it was for programming and high speed internet. The programming costs they try to keep down to 40% of cable TV revenue, but programming fees continue to go up. He added that cable TV fees are about $875,000, internet connection fee is $128,000, and the rest is in maintenance contracts. The Committee questioned if TCI or Comcast requested the ability to carry channel 16 or 17 from the City Council or the school board. Mr. Bowcutt responded that Comcast requested to carry channel 16 from the school board in April or May this year, but they have resisted the request so far. Comcast has not requested to carry channel 17. The Committee stated that it seems unusual that since channel 17 is funded publicly, they can carry it exclusively. Mr. Bowcutt responded that it does not use tax dollars to run that channel. The Committee discussed Spanish Fork being the only ISP. Mr. Bowcutt mentioned that the system was set up in the beginning to be own ISP because they could not find a success story for a wholesale model for ISP. They had the skills to be their own and did not have any competitors in the city. He added that the business model works better if they collect all of the revenue. He added that customer service is important as well and they already had excellent customer service in the electric department and wanted to maintain that level. They didn't feel that they could leave that up to someone else. The Committee asked if their local channel 17 is broadcast in high definition. Mr. Bowcutt responded that they are not broadcasting yet in HD but will be soon. Michael Ainsworth, Cable TV Manager asked what the operation budget was for the local channel. Mr. Bowcutt responded that they try to keep it at $120,000. Mr. Ainsworth asked what the expense was to build the control room and studio. Mr. Bowcutt responded it was included in the building costs and he was not sure of actual cost. Mr. Ainsworth asked how the community compares to Ashland as far as electric utility accounts. Mr. Bowcutt responded that they are not a college town like Ashland so they have less turn over at certain times of the year. Mr. Ainsworth asked if it was easy to AFN OPTIONS COMMITTEE MEETING OCTOBER 10, 2005 - PAGE 4 OF 6 establish a them versus us against Comcast. Mr. Bowcutt responded that it was a natural choice for the community and they did not need to do direct marketing against Comcast. Mr. Ainsworth asked how they converted the customer service staff to be sales people. Mr. Bowcutt responded that the main sales person was hired on new for the project and was trained by him. The other customer service people were also trained by him. He felt that it starts at the top and everyone has a stake in the system, he meets with the customer service people regularly, and nurtures relationships. The Committee asked if they provide all telecommunications services for Spanish Fork or if there is a separate information technology department that maintains the equipment. Mr. Bowcutt responded that the department is integrated. He explained that he was the IT director when the system was started and the system became part of his department. The Committee asked if most of the employees that work for Spanish Fork live in the city. Mr. Bowcutt responded that a little more than 50% live in Spanish Fork. The Committee asked if services were done internally and what were externally charged. Mr. Bowcutt responded that they are handled internally and the only time that they bring in outside help is when they are 2 or more weeks out on installs. The Committee asked what percentage of internal services represents the overall budget. Mr. Bowcutt responded of the $2.3 million budget, $41 000 is in indirect services that go back to the general fund, but that does not include motor pool of $25,000, utilities $38,000, and legal budget $5,000. The Committee asked if the city charges any franchise fees to the department like they would charge Comcast. Mr. Bowcutt responded that they do pay the same tax and fees that Comcast does and it is a small amount. The Committee asked how many HD channels they had in HD. Mr. Bowcutt responded ABC, NBC, CBS, and two PBS channels, and Fox channel and are free and included in basic service. There is a HD tier that is $10 per month and includes Discovery HD, ESPN HD, HD net and HD net movies. They added HD HBO, Cinemax, Showti me, and Starz. Mr. Mackin commented on their report to council, they indicated a 4 year pay back on the boxes. Mr. Bowcutt responded that was correct and the next thing they are looking into is full digital simulcast. Video on Demand has been postponed because they don't have enough people asking for it yet. They have DVR's. Mr. Mace asked what DVR's they have. Mr. Bowcutt responded they have the dual channel Motorola now. Mr. Collins asked if they have more demand for DVR than HD. Mr. Bowcutt responded that they do, but not too much. COMMITTEE DISCUSSION A. Update on assignments Paul Mace and Rick Barth spoke to the interviews on public and private partnerships they completed with Jim Watson, Brian Almquist, Ken Mickelson, Don Robertson, and Cathy Shaw. They will present a matrix comparison. Mr. Mace stated that the hospital is the closest comparison. They will look at the payment of debt, and revenue AFN OPTIONS COMMITTEE MEETING OCTOBER 10, 2005 - PAGE 5 OF 6 opportunities to cover the debt. They feel the Committee should offer suggestions on revenue opportunities, taxes, or fees that have a strong nexus to services and benefits to the community. He mentioned that the City owns all of OSF's assets except for the theater, and the hospital assets except the capital assets built since 1996. Those investments have never have been paid back in dollars, hospital or OSF have not paid back the City for facilities. Mr. Donovan clarified that OSF gave the Bowmer Theater to the City. Mr. Mace added that the City did not invest in OSF. The hospital was funded and built by the City. Kevin Shultz and Don Mackin have met with Gino Grimaldi and will meet again to discuss determination of valuation. Mr. Shultz presented estimated theoretical figures that he obtained. He gave a range that AFN's value could be somewhere between $5 and $9 million. In a competitive process, they could get more if bid one party against another. Mr. Shultz will provide more figures to the Committee by the next meeting. The Committee discussed what they will present to Council. They will unify the assignments that they have been working on. They discussed presenting a document to Council that is 5 pages or less. Mr. Mace commented that there are really only the two options: sell it under certain terms or restructure it under certain terms. They discussed the need to present what to do with the debt. Mr. Collins stated that they need to identify a vision and purpose for AFN. The Committee discussed the need for a mission for AFN. Mr. Mackin cautioned the group on comparing OSF and the hospital directly to AFN and they should not compare organizations that are in success to AFN that is still in its infancy. He suggested looking at the $1.4 million annual debt obligation and how it is related to the physical facility that exists and what the system is worth. He gave an example of the $8 million that was for the construction, and the allocation between the $8 and $7.5 million might create the right ratio on how they satisfy the $1.4 million debt obligation. They could say that the system is worth $800,000 per year and either lease to a private entity or lease to a 501 C3 as an alternative to a purchase. He hopes that Council will see what it is worth per year and make the determination from that. Mr. Mace suggested looking at options for the surcharge: everyone could be charged $10 per month, but would receive basic cable for free. The Committee questioned if AFN did not have to pay Central Service fees, if it would break even. Mr. Shultz asked if the hospital had any issues with competition. Michael Donovan, Chairman responded that the hospital is challenged and not what it was five years ago. Mr. Mackin added that is not exclusive to Ashland, Providence is having the same challenges and Medicare reimbursements are part of the issue. Members of the Committee will combine the assignments completed and present to the Committee at the next meeting. Staff was asked to prepare financing options for the debt. NEXT MEETING(S) Next scheduled meeting October 17, 2005 at 7:30 AM AFN OPTIONS COMMITTEE MEETING OCTOBER 10, 2005 - PAGE 6 OF 6 The Committee would like the Agenda for next week to reflect that the meeting will be a work session with no public input. PUBLIC INPUT Allen Douma, 83 Granite St. - Mr. Douma felt it would be helpful in presenting options to have a high level business plan for each option. He added that they should compare the benefits to the community of each option. He would like to see valuation of the subscribers in detail of TV subscribers, high speed subscribers, and cross over subscribers. Mr. Shultz responded that the range would be $5-$10 million. Mr. Douma added that the City should consider a percentage charge on electric bills rather than a flat surcharge. ADJOURNMENT The meeting was adjourned at 9:12 am. Respectfully Submitted, Bryn Morrison Administrative Assistant Administrative Services Department Accounting and Financial Questions for Spanish Fork: Options Committee: Please note that these are questions that could be addressed by finance directors getting together rather than consuming a significant portion of the teleconference time. Financing &Debt: 1. Describe your financing of the system. $7 million Electric Revenue Bond. It was combined with a $2 million bond that went for the electric substation. 2. Did you finance all construction? Financed $7 million and borrowed $1 million from electric fund and are paying back with interest from broadband. 3. Is it tax exempt? All are tax exempt. 4. How were operating losses (if any) funded until revenue was sufficient to cover expenses? Borrowed from the Electric department, it took 4 years and had to borrow an additional $1-$2 million to cover Capital costs. Capital: 1. Do you have an approved capital improvement plan? Yes 2. Approved by whom? City Council 3. How and when is it updated? Yearly, have a 5 year Capital Facilities budget 4. Do you have a sinking fund for capital refresh needs? Capital Facilities budget Overhead: 1. How are the following activities performed and paid for? Externally — AT Internally — internal Charges* Accounting & auditing auditing accounting Budgeting x Legal x Secretarial support x Billing & collections x Computer system maintenance x FCC compliance Exempt Purchasing x Contract negotiations x Payroll x Programming x Fleet maintenance x Facility maintenance x *Share building with school district and share costs Insurances/risk management x • Are internal costs charged on an actual, shared or incremental basis? Shared, internal service charges. Operations: 1. Does your telecommunication activity share any operations with other departments? (examples — maintenance & repair of poles, tree trimming, trenching for under ground, inventory or inventory management, billing software, auditing & financial reporting) Only personnel during construction. They have similar internal service charges. 2. If so, how are the costs split? They moved the employees to a new account for the construction work and split internal service charges. Accounting: 1. Do you manage your products as cost centers? (CATV, internet access, high speed, bulk, etc.) Group all together, could split out if needed. 2. Are there any subsidies between product lines or from another department or agency: None 3. Do you bill your monthly customers in advance of service being provided or after the fact? After the fact. Bf """'A yooll PD176FZE I F Yl'20'C,)5R'FE2­­j ............................................ n" 1M,, 08' iND" I AC,7TY03_1 A(",TF7,, J_ F I Iv,i,3,,,,J .......... '9"1 MR)"11i 91, Mt)) . . ... . ... . ... . ... . . " 7 4,,, 8 2, 111 $2,1 3, 54 ii yIVY F))J' wY.YYuNYY, 7=77 . .... . 3,6), 114,T)")" . ... . ...... ..... ..... ............. 4, 2 2 7 17 2 0 3, 7 '19 40,8149, J i" IaOes anc. J'i:,aft� t, . .... . I I ... . ... . .. ...... ...... ........... .................................................. .. . ....... .......................... . . ...... Jlin . .. . .. 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