City Council Agenda Packet 04-21-2008 SpecialSpecial Council Meeting
April 21, 2008
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1. Consideration of adopting Management Services Agreement with Hiawatha
Broadband Communications Inc of Winona, Minnesota. (JO)
A. Reference/Background
City Council is asked to consider adopting the attached agreement that outlines terms associated
with the contract management of FiberNet Monticello telecommunications system. As was
noted at the previous workshop, the City Fiber Optics Committee has been working with
Hiawatha Broadband Communications toward development of arrangements that will result in
the system having access to expert management at a reasonable cost during the first three years
of operation. This agreement has been negotiated by Milda Hedblom, Dain International
Services, Inc., and Doug Dawson, CCG Inc, with input from the Fiber Optics Committee and
City staff.
This agreement, if approved, will be included in the background information provided by our
Oppenheimer Co, Inc to potential investors in conjunction with the bond sale.
B. Alternatives
1. Motion in support of adoption of Telecommunications Management Services agreement
with Hiawatha Broadband Communications.
2. Motion to deny support of adoption of Telecommunications Management Services
agreement with Hiawatha Broadband Communications
3. Motion to table.
C. Recommendation
Staff and Consultants recommend Alternative 1. The terms of the agreement appear acceptable
to all involved in the negotiations.
D. Supporting Data
• Copy of Management Services Agreement
AGREEMENT
This agreement is by and between Hiawatha Broadband Communications, Inc., a corporation under
the laws of the State of Minnesota, with offices at 58 Johnson Street, Winona, MN 55987 ("HBC"),
and City of Monticello, a municipal corporation and political subdivision under the laws of
Minnesota, with offices at 505 Walnut Street, Monticello, MN 55362, acting through its
communications enterprise known as FiberNet Monticello ("FiberNet").
Recitals
A. HBC owns and operates a communications system providing video, voice and data
services to customers in Winona, Minnesota and other communities.
B. FiberNet intends to build and operate a fiber to the premise ("FTTP")
communications system capable of delivering video, voice and data services to
customers in Monticello, Minnesota (the "System").
C. The parties have agreed that HBC will provide certain facilities, equipment and
services, as more particularly described herein and upon the terms and subject to the
conditions stated herein.
The parties therefore agree as follows.
1. This Agreement will commence on the date of its execution, and shall continue in effect for
an initial term ending three (3) years after the System first launches commercial service to
customers. Thereafter this Agreement may be extended for such period and upon such
terms as the parties agree in writing. This Agreement may be terminated as provided in
paragraph 15 hereof.
2. FiberNet shall be responsible for and shall bear the costs of designing, building, maintaining
and operating the System, including the FTTP network, all voice and data switching and
routing equipment, all customer premise equipment and wiring, and all offices and other
facilities. HBC shall be consulted and shall provide advice and assistance with respect to
system design and specifications, mapping, equipment and vendor selection, and other
matters bearing on the successful performance and operation of the System.
3. HBC will provide management services for operation of the System. The management
responsibilities will include:
a. Hiring a general manager for the system.
b. Recommending the hiring of other System personnel, and training and supervising
them.
C. Preparing an annual business plan, including budgets of operating revenues and
expenses and capital expenditures.
d. General management of System operations, in accordance with the annual
business plan and in compliance with Governance Ordinances for FiberNet.
d. Preparing periodic financial and operational reports.
4. The general manager shall be employed and compensated by HBC. Final selection of the
general manager shall be with the assent of FiberNet and FiberNet may request the removal
of the general manager. All other employees of the System shall be employed and
compensated by FiberNet. They shall be selected and recommended for employment by the
general manager, who shall be responsible for their training, supervision, evaluation,
discipline and termination, subject to any legal requirements applicable to public employees
of FiberNet.
5. In addition to general management of the System, HBC shall provide the following services
during the periods indicated:
a. Training and support of customer service personnel and operations, during the three
months following employment of the initial customer service personnel.
b. Training and support of employed installers and general supervision of contract
installers, during System construction.
C. Planning and supervision of marketing and business promotion, during the term of
the Agreement.
These services shall be provided without charge to FiberNet for the periods indicated.
HBC will provide the services described in subparagraphs a. and b. above, after the periods
indicated, if requested by FiberNet, for the charges provided in paragraph 12(b).
6. HBC shall provide video headend equipment (the "Headend") for receiving, processing and
distributing television signals for the System during the term of this Agreement, including
additions or improvements thereto.
a. The description and specifications for the Headend shall be as mutually agreed by
the parties.
b. HBC shall maintain, repair and insure the Headend while this Agreement is in
effect.
C. The Headend shall be located in a facility owned or leased by FiberNet, without
charge to HBC. HBC shall have access to the facility as required.
7. HBC shall acquire and hold during the term of this Agreement any required franchise,
permit, or other authorization, and shall make all required regulatory filings concerning the
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operation of the cable communications system. HBC shall pay any applicable fees or
charges associated with such authorizations and filings.
S. The video content of the System shall be selected by the FiberNet Advisory Board from
available programming. HBC shall manage the video content. This shall consist of
negotiating and administering agreements with content providers authorizing HBC to
receive and retransmit signals to System subscribers. The program signals and content to be
provided hereunder shall be as mutually agreed by the parties, subject to the ability of HBC
to secure necessary agreements or authorization for retransmission to System subscribers.
HBC shall not be responsible to FiberNet or to any subscriber for the refusal of a content
provider to enter into such an agreement or grant such authorization, for the termination or
suspension of any such agreement or authorization by a content provider, nor for any failure
or interruption of the signal of a content provider.
9. Video signals shall be delivered to System subscribers over the FTTP network.
10. HBC shall provide billing services for the System, employing automated billing software
to generate customer bills for video, voice and data services. FiberNet will be responsible
for terminals and connection to the HBC computer system, and for initial setup and
training. Bills shall be printed and mailed by HBC or its mail fulfillment vendor.
Payments shall be directed to FiberNet, and FiberNet shall be responsible for collections.
11. All revenues from operations of the System shall be received by FiberNet and applied by
FiberNet to payment of (a) the HBC charges specified herein, (b) franchise and regulatory
fees, content charges, and other operating expenses, and (c) debt service on bonds issued
for the System. FiberNet shall be entitled to any surplus of revenues over such expenses,
and shall bear the risk of losses not covered by revenues.
12. The fees and charges of HBC for the services to be provided by it hereunder shall consist
of the following:
a. For general management services, a fee of $15,000.00 per month, beginning with
the commencement of construction of the System or, if earlier, employment of the
general manager. Before the occurrence of either event, HBC will provide
consultation by its management team at their customary hourly charges.
b. For training and support services, a fee of $75.00 per hour of HBC staff time plus
reasonable expenses or allowances for travel and subsistence.
C. For NOC services, a fee of $100.00 per hour of HBC staff time.
d. For technical support services, a fee of $1.25 per subscriber per month.
e. For video content management, a monthly fee based on subscriber services and
market penetration, calculated as follows:
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i. Less than 15% market penetration
$3.00 per month for each single -service customer
$4.00 per month for each two -services customer
$5.00 per month for each three -services customer
ii. Greater than 15% but less than 30% market penetration
$2.00 per month for each single -service customer
$3.00 per month for each two -services customer
$4.00 per month for each three -services customer
ii. Greater than 30% market penetration
$1.00 per month for each single -service customer
$2.00 per month for each two -service customer
$3.00 per month for each three -service customer
In calculating market penetration, the market will equal the number of potential
services (three times the total number of customer passings, including MDU
units). Penetration will equal total services in place divided by the market. For
example, if the System passes 1,000 potential customers and three services are
available, the market would equal 3,000. If 500 subscribers took an average of 2
services, total services in place would equal 1,000 and penetration would equal
33'/3 % (3,000 . 1,000).
f. For billing services, a fee equal to $2.50 per customer per month. This fee
includes envelopes, paper and postage and up to three inserts furnished by
FiberNet. The fee is subject to adjustment to reflect changes in the cost to HBC
of such items. Any modifications or additions to HBC's billing software
requested by FiberNet would subject to agreed additional charges.
g. For use of OSS systems, a fee equal to $2.00 per customer per month..
13. The number of subscribers and services shall be determined as of the last day of each
month. On commercial bulk units (hospitals, hotels, motels, etc), the number of
subscribers shall be calculated by dividing the monthly bulk payment by the standard
subscriber rate for the programs and services provided. The fees specified in section 12
hereof shall be paid on or before the 15th day of the next month.
14. Neither HBC nor FiberNet makes any warranty of any kind, expressed or implied, to the
other or to any subscriber or other person, as to the condition or quality of any service to be
provided hereunder, including any implied warranty of fitness of any service for a particular
purpose. In case of any interruption of the service provided by HBC or FiberNet hereunder,
caused solely by its fault or neglect, the sole liability of the responsible party shall be to
credit customers for such interruption with a portion of the monthly charge for the service,
on a prorated basis. Neither HBC nor FiberNet shall have any other responsibility for any
loss or damage suffered by the other or any subscriber or other person, including but not
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limited to property damage, delays or interruptions of service, or loss of business or profits,
whether caused by the negligence or other fault of HBC or FiberNet or any other cause.
15. This Agreement may be terminated as follows:
a. By written agreement of the parties.
b. By either party for cause, consisting of a material default by the other party that is
not remedied within 30 days after written notice specifying the default, or within a
reasonable time if the condition constituting the default is not capable of being
remedied within 30 days, and if the party in default promptly undertakes and
diligently pursues action to remedy the condition.
C. By FiberNet, if HBC fails to secure video programming for the System through the
NCTC or at rates comparable to those available through the NCTC, and such failure
is not remedied within 30 days after written notice given by FiberNet describing
such failure and stating the intention of FiberNet to terminate this Agreement. Such
a failure shall not be deemed a default by HBC and FiberNet's sole remedy for such
failure shall be termination of this Agreement.
C. By either party, without stated cause, by written notice given at least 90 days before
the end of the initial term or any renewal term.
16. Upon termination of this Agreement for any reason, unless otherwise agreed by the parties:
a. Neither party shall, for a period of two years following such termination, employ
any person employed by the other party at the time of termination.
d. The parties will comply with applicable legal requirements concerning customer
information.
e. Neither party will use or disclose to others any confidential or proprietary
information of the other acquired as a result of this Agreement.
17. The parties hereby agree that all disputes arising out of this Agreement shall be submitted
to binding arbitration in accordance with procedures and by an arbitrator mutually
agreeable to the parties or, if no such agreement is reached within 30 days after a demand
for arbitration, in accordance with the Rules for Non -Administered Arbitration of the
CPR Institute for Dispute Resolution then in effect. The location for any arbitration shall,
unless otherwise agreed, be in St. Paul, Minnesota.
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In Witness Whereof, the parties have entered into this agreement, effective this day of
, 2008.
HIAWATHA BROADBAND
COMMUNICATIONS, INC.
By
Its
R
CITY OF MONTICELLO
By
Its