A11 ADMINISTRATIVE REPORT Date: February 27, 1997 CC File No. 5806-1 TO: Vancouver City Council FROM: General Managers of Corporate and Engineering Services SUBJECT: Broadband RFI - Selection of a Business Partner RECOMMENDATION A. THAT Rogers Communications be invited to develop a public/private partnership model in conjunction with City and School Board staff as the next step in the process of selecting a Broadband Network partner, along the lines discussed in this report, and should that process fail for whatever reason, that BC Telephone be invited to participate on the same basis immediately thereafter; FURTHER THAT the other firms who submitted proposals in response to the City's RFI be immediately notified of this decision through an appropriate de-briefing letter from the City; and FURTHER THAT staff be instructed to report back to Council at the conclusion of a Memorandum of Understanding (MOU) for approval of that agreement, along with appropriate recommendations and estimated costs to proceed into the Partnership Trial. Similar approvals will be sought from the School Board as well. B. THAT Teleconsult be engaged as the City's consultant to assist staff with the development of a public/private partnership model at an estimated cost of $100,000 inclusive of out-of-pocket expenses and GST, with funds provided from the Strategic Initiatives account in the Operating Budget, noting that this cost will be shareable between the participating parties under a sharing arrangement documented in the MOU. C. THAT the City Manager be authorized to approve additional staff costs associated with the development of a Memorandum of Understanding at a total estimated cost of $15,000, with funds provided from the Information Technology Replacement account in the Operating Budget. - 2 - CITY MANAGER'S COMMENTS The City Manager RECOMMENDS approval of A, B and C. COUNCIL POLICY Council is the appropriate body to establish corporate policy in the telecommunications area. Council is the approving body for contract awards of over $300,000. The decisions made this day will likely lead to a partnership agreement having a value well over the $300,000 approval threshold. PURPOSE The purpose of this report is to bring Council up-to-date on the results of the City's Broadband Network Partnership RFI process and to recommend proceeding to the next stage of implementation around selecting a business partner. This step will involve prototyping the business relationship and formalizing that relationship in a partnership agreement for subsequent review and approval by Council. Additionally, we note that the Vancouver School Board, having immediate needs to connect its schools and administrative facilities with a broadband telecommunications network and the appropriate funding in place, has indicated a strong desire to participate with the City in the development of a public/private partnership model, and would like to establish a communications link to a number of its schools as one of the pilot projects for the partnership trial. Moreover, the School Board has committed to have all of its schools connected to the network by June, 1998. BACKGROUND On July 30, 1996, Council recognized the increasingly important role that telecommunications plays in the economy of the city of Vancouver and adopted a leadership policy for the corporate City around the following telecommunication policy goals: - facilitate rapid deployment of advanced telecommunications services, not only to support City operations, but to facilitate communications between the City and its citizens and its businesses; - 3 - - encourage the development and use of advanced telecommunications services to stimulate broader and deeper participation in local government; - work towards making access to advanced telecommunications services equitable and affordable to all citizens and businesses; - develop, use and promote advanced telecommunications services to allow for more efficient delivery of City services; - ensure that the City maintains its authority to regulate equitable access to rights-of-way, secure valuable compensation for their use, minimize negative impacts associated with their use, and utilize them in a manner that furthers other telecommunications policy objectives; and, - influence the regulation of telecommunications in Canada to the benefit of municipal government and its constituents. In approving the above-noted policy goals, Council instructed staff to explore alternative business models for creating a broadband telecommunications network by issuing a RFI (request for information) to potential partners in the telecommunications sector, and to report back the results. Staff, with the assistance of the City's consultant for this project (Teleconsult), prepared a RFI document based on the principles embodied in Teleconsult's Broadband Network Feasibility Study (on file with the City Clerk's Office) and the City's telecommunications policy goals, and issued the RFI on October 31, 1996 with a closing date of November 29, 1996. Teleconsult was given conduct of the RFI process and dealt directly with questions from the proponent community up to the closing date. In total, five responses were received to the City's RFI on a Broadband Network Partnership from the following proponents. - Rogers - BC Telephone Company - BSC Broadband Solutions Corp. - MetroNet - CellularVision Canada Ltd. Four of the submissions were of good to excellent quality and responded appropriately to the questions posed in the City's RFI document. - 4 - The submission from CellularVision Canada, however, was put aside in the first round of evaluation as being incomplete. The firm cited business reasons for its brief (one page) response. The four remaining proponents were advanced to the second round of evaluation, as discussed below. DISCUSSION The quality of the responses the City received to its Broadband Network Partnership RFI essentially led staff and Teleconsult to believe that neither the lease nor the build/own/operate business models were appropriate for the City. Moreover, in terms of the RFI itself, we pointed out to potential proponents that the City could, instead of taking a more normal route of issuing an RFP, short-cut the process and negotiate directly with a preferred candidate(s), leading to a partnership agreement for Council review and approval, if a proposal had considerable merit. With the foregoing in mind, City staff (the City Manager, the General Managers of Corporate and Engineering Services, and the Utilities Management Engineer) and Teleconsult met with each of the four proponents during the month of December in the second round of evaluation. These meetings afforded the opportunity for each proponent to "showcase its wares" and for staff to ask questions on the proponent's responses to the RFI to clarify comments and/or direction. As well, the proponents asked questions of the City. In terms of these discussions, each of the proponents suggested that it would be advantageous to the City and themselves to have the School Board involved in the roll-out of a comprehensive broadband communications network, recognizing that the City and the School Board are logical public sector partners having a commonality of interest and a significant combined purchasing power. In the third and final round of evaluation, staff and Teleconsult met in early January/97 to make a decision around a preferred/favoured proponent to recommend to Council. We immediately established that the four proponents fell into two categories - the larger, mature firms represented by Rogers and BC Telephone with more or less ubiquitous installed networks, and the smaller, fledgling firms represented by BSC and MetroNet. Given the City's evaluation criteria and scoring process, the smaller firms were set aside at this time on the basis that the larger firms could provide almost immediate connectivity to a city-wide communications network. We note, however, that should the partnership trials prove unsuccessful with the two larger firms, the City could entertain a similar partnership trial with either or both of these smaller firms. - 5 - In terms of the larger firms, Rogers and BC Telephone, a seven point rating system was used to rank each firm. Staff felt that the Rogers bid won out on the basis of its superior broadband service depth and its perceived ability to meet the City's policy objectives in a shorter time period, although the two larger firms were very close in ranking and the decision was difficult. The Rogers' bid was innovative and seemed to provide a better basis for the development of an ongoing relationship with the City, and that view was shared by the consultant as well. In the final analysis, the joint venture business model with a private partner was selected as the preferred option. Staff then approached the School Board inviting them to partner with the City in the development of a public/private sector partnership model. The School Board indicated a strong desire to participate supported, in part, by its plans to implement a broadband telecommunications network in the immediate future to connect all of its schools and administrative facilities, for which funding is in place. The role of the City and School Board in a joint venture business model would be one of ROW providers and anchor tenants, with a view to encourage deployment of competitive and enhanced network services to citizens, students and businesses. Additionally, a joint venture relationship would reduce the public partners' capital investment requirements, and alongside that, the business risk of implementing a leadership policy in broadband telecommunication services. Conversely, we also recognize that a public/private partnership must be managed, and managed well, if the deemed benefits to the public partners flowing from the relationship are to materialize. There may, as well, be opportunities and problems associated with the public interest to influence the regulation of telecommunications in Canada (at the CRTC table) in order to facilitate the widest and most rapid deployment of advanced telecommunications services at competitive prices. All of this suggests that an appropriate partnership agreement must be negotiated before implementation in order to clearly spell out the obligations of the parties (the City, School Board and their private partner), compensation/contributions of each of the parties to the agreement, performance criteria and measurements, and an acceptable dispute resolution process. We are therefore recommending that Rogers be invited to participate in the next step of the selection process as discussed below, and should that prove unsuccessful for whatever reason, that BC Telephone be given the same opportunity to participate. We did consider and discuss whether the City/School Board should attempt to move further down the road with two firms concurrently, instead of one, but neither we nor they believed that the resource allocation commitment to proceed on that basis could be justified. - 6 - NEXT STEP The next step of the selection process for a Broadband Network partner involves the development of a public/private partnership model, jointly with the School Board, that will reflect the essential elements of a working partnership agreement. The results will be reported back to Council/School Board for consideration and approval at appropriate points in the process. In terms of getting the work plan on a strict time line and with stated deliverables that all parties (the City, School Board and Rogers) may evaluate along the way, the model would incorporate the following items. 1. Memorandum of Understanding The City, School Board and Rogers (the "Partner") will develop and execute a Memorandum of Understanding (MOU) within sixty days of a mutually agreed start date. If this timing is not met, the City will invite BC Telephone to participate on the same basis. The MOU would embody these guidelines: - the City's objective to negotiate a partnership agreement jointly with the School Board and a private partner who is able to satisfy the terms and conditions of the Partnership Trial (discussed below) within a stated time frame; - the nature of the relationship to be created as a result of the partnership agreement, especially regarding the purchasing intentions of the City and the School Board in regards to network facilities and telecommunications equipment; - the milestones and deliverables each party is to achieve in the Partnership Trial; and, - the resources that the parties will contribute to achieving the objectives of the Partnership Trial, any ongoing benefit the Partner may derive from completion of the Partnership Trial, and the circumstances under which the parties may exit the process and the notification required. 2. The Partnership Trial The timing for completion of the Partnership Trial activities may be from six to nine months in duration, after a mutually agreed start date. - 7 - The Partner will be required to deliver the following items to the City and the School Board over the term of the Partnership Trial, with appropriate assistance provided by the City and the School Board as documented in the MOU. a) Pilot Projects - the choice of pilots would be agreed on by the City, School Board and the Partner. These pilots are intended to allow the Partner to demonstrate its ability to deliver new and innovative services that the City and/or School Board could use in its operations. The areas of City and School Board interest for pilot projects include: - basic telecommunications facilities - e.g., connecting two or more facilities and/or buildings with a high capacity communications pipe for the trans-mission of voice, data, graphic images and video. - telephony - e.g., advanced land line and/or cellular communications. - telemetry - e.g., monitoring pumping stations, water flows, and traffic signals. - public service - e.g., a community channel application. - physical plant - e.g., an application using the City's underground network in conjunction with broadband technology. - policy objectives - e.g., an application using two-way coaxial technology to test the benefits of telecommuting as a means to turn down traffic volumes. - operations support - e.g., a number of pilots around kiosk technology for paying parking fines or applying for a parking permit; hand-held wireless devices to communicate directly with City data files to issue parking tickets, tow away scoff-law offenders, enter field inspection data and others. - education - e.g., an application that involves the School Board and a City department. The School Board has also indicated a strong desire to pilot the connection of a number of schools in a city neighbourhood with a high capacity, broadband telecommunications network as a top priority, and to complete the network by June, 1998. b) Service Delivery Plan - the Partner will develop a vision and a plan for service delivery that will form the basis of the partnership, incorporating feedback from extensive discussions with the City, School Board and community representatives. - 8 - c) Technical Design - the Partner will develop a conceptual network design to support the service delivery plan. d) Organizational Model - the Partner will develop an organizational model that identifies how the partnership will be structured and maintained, including a corresponding structure for the City and the School Board. e) Measurement/Performance - the City, School Board and the Partner will determine what will be measured and the measurement criteria that will be used. f) Access/Rights of Way - the City and the Partner will develop a suitable Municipal Access Agreement for the use of the City's streets, lanes, bridges, land and buildings, and other facilities, including appropriate compensation arrangements. The School Board will negotiate a similar arrangement for its facilities (buildings and property). 3. The Partnership Agreement The partnership agreement is the product of a successful completion of the Partnership Trial and will outline the services to be provided by each of the parties over the term of the agreement, which is nominally set at five years at this point. The agreement will spell out the obligation of all parties, compensation/contributions of each of the parties, performance expectations and measurement criteria, a dispute resolution process, and other normal terms and conditions. CONCLUSION On July 30, 1996, Council adopted a leadership policy in the area of broadband telecommunications and approved six policy goals to further implementation. As a first step down that road, staff issued a Request for Information document to potential business partners in the telecommunications sector and received five responses to evaluate. Based on the quality of the proponents' submissions generally, staff are recommending that the City advance directly to the negotiation stage of the process with Rogers communications and, should that fail, a subsequent negotiation with BC Telephone, instead of the more traditional RFP (request for proposal) method. This would involve prototyping the business relationship jointly with the School Board that likely will exist in the form of a partnership agreement should the prototype prove successful. The recommendations of this report support taking the next step in that direction. * * * * *