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BusHsgDev Highlights 2011 0908
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BusHsgDev Highlights 2011 0908
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Last modified
11/2/2011 1:01:55 PM
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9/27/2011 4:38:23 PM
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CM City Clerk-City Council
CM City Clerk-City Council - Document Type
Committee Highlights
Document Date (6)
9/8/2011
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_CC Agenda 2011 1003
(Reference)
Path:
\City Clerk\City Council\Agenda Packets\2011\Packet 2011 1003
MO 2011-087
(Reference)
Path:
\City Clerk\City Council\Minute Orders\2011
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Lit San Leandro - License Agreement Deal Points <br />The City of San Leandro has received a proposal from OSlsoft, a local software company, to license an <br />11 -mile loop of City conduit for the purpose of installing fiber optic cable. The loop will provide <br />extremely high -speed data communications for OSlsoft as well as other businesses that opt to tie in to <br />the system. Thus, the system has the potential to serve as a business development tool, positioning San <br />Leandro to attract and retain companies that rely on high -speed internet connectivity. <br />The Lit San Leandro License Agreement is an agreement between SL Dark Fiber LLC (OSlsoft) and the City <br />of San Leandro for the use of City conduit to install a fiber optic loop. Although most terms have been <br />agreed upon, the Agreement has not been executed and future changes and revisions are still possible. <br />Deal Points <br />Term —The initial term is for twenty years, and SL Dark Fiber has the right to renew for four additional <br />five -year terms. Each extension can be exercised as early as 15 years, and no later than 180 days, prior <br />to its commencement. <br />Analysis: A long -term agreement is crucial to the success of the fiber system because users will need to <br />make substantial capital investments to make use of the loop. <br />License Fee — For the first ten years, the fee will be $1.00 annually. For years 11 -20, the fee will be set at <br />market rate unless SL Dark Fiber can demonstrate that it has not yet achieved profitability. Beginning in <br />year 20, the fee will be set a market rate. Market rate is to be determined by mutual consent based on a <br />review of recently negotiated commercial conduit license agreements. The Agreement has a provision <br />for arbitration should the parties be unable to agree on a market rate. Once established, the market rate <br />will be adjusted annually for inflation. <br />Analysis: Given the substantial upfront investment by SL Dark Fiber needed to install the loop and <br />initiate the system, the project is unlikely to generate substantial profits in the near -term. Staff review <br />of other fiber loops in northern California also suggests that the system does not have a large profit <br />potential in the foreseeable future, although the use of a "market rate" license fee means that the City <br />will be able to recoup more substantial lease revenue if conditions change. <br />City Approval of Sale, Right of First Refusal, and Abandonment — If SL Dark Fiber wishes to sell the <br />system, the City will have right of first refusal to purchase it. If the City does not exercise its right of first <br />refusal, the system can be sold to another party with the City's written consent, which cannot be <br />unreasonably withheld. If SL Dark Fiber abandons the system, the City will take ownership at no cost. <br />Analysis: These conditions give the City the opportunity to maintain control of the system should SL Dark <br />Fiber wish to sell or become insolvent. Although the City might not necessarily have the resources to <br />acquire and manage the system, it would have the opportunity to line up a partner of its choosing for <br />continued operation. If SL Dark Fiber abandons the system, the City will take ownership. <br />
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