10A Action 2011 1017 - Laserfiche WebLink

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File Number: 11 -243 • Minimize the regulatory burden on SL Dark Fiber, to the extent possible, to maximize the likelihood of the fiber enterprise being successful; • Secure some additional dark fiber for City use; and • Establish fair procedures for the long -term maintenance of the system. Staff has been working cooperatively with OSlsoft to date to leverage the system's potential as a business development tool. Specifically, staff has provided information regarding current businesses that might benefit from a connection to the loop and made introductions as requested. Additionally, staff has identified potential opportunity sites and will work with OSlsoft in the future to market these sites. Analysis The terms of the proposed license agreement were negotiated with the goals of protecting City interests while also laying the groundwork for a successful fiber enterprise. The system itself is not expected to be a substantial revenue generator for the City, but may be an economic engine that will benefit the city from increased development and employment. The following provides an overview and assessment of some of the key terms in the Agreement. Term - The initial term is for twenty years, and SL Dark Fiber has the right to renew for four additional five -year terms. Each extension can be exercised as early as 15 years, and no later than 180 days, prior to its commencement. Analysis: A long -term agreement is crucial to the success of the fiber system because users will need to make a substantial capital investment to connect to the loop. License Fee - For the first ten years, the fee will be $1.00 annually. For years 11 -20, the fee will be set at market rate unless SL Dark Fiber can demonstrate that it has not yet achieved profitability. Beginning in year 20, the fee will be set a market rate. Market rate is to be determined by mutual consent based on a review of recently negotiated commercial conduit license agreements. The Agreement has a provision for arbitration should the parties be unable to agree on a market rate. Once established, the market rate will be adjusted annually for inflation. Analysis: Given the substantial upfront investment required by SL Dark Fiber to install the loop and initiate the system, the project is unlikely to generate substantial profits in the near -term. The use of a "market rate" license fee will enable the City to collect license fee revenue should the system become profitable. City Approval of Sale, Right of First Refusal, and Abandonment - If SL Dark Fiber wishes to sell the system, the City will have right of first refusal to purchase it. If the City does not exercise its right of first refusal, the system can be sold to another party with the City's written consent, which cannot be unreasonably withheld. If SL Dark Fiber abandons the system, the City will take ownership at no cost. Analysis: These conditions give the City the opportunity to maintain control of the system should SL Dark Fiber become insolvent or decide to sell. Although the City might not necessarily have the resources to acquire and manage the system, the City would have the City of San Leandro Page 2 Printed on 10/11/2011