Terman Library in the Terman Community Center, 661 Arastradero Road, Palo Alto, CA
Cutler names the decision making process as the Systems Process and it has 12 steps. The first 3 relate to identifying and involving stakeholders in the total process. Stakeholders are anyone who is or thinks themselves as interested parties. It is important to involve the stakeholders early so that they don't become objectors later, plus they offer useful information. Failure to do so can result in unexpected and unnecessary conflicts. Bill gave an example of how a group of Cupertino residents stopped creation of a landfill in their area when they were not consulted or considered important to the process.
Functionality must be determined before instrumentality of an information utility to make sure the result will function as intended and include all needed features. That means to define the goals and mission first and get general agreement. It also avoids getting into too many details before deciding what the objectives should be. It prevents biasing the selection process towards someone's special interest. Criteria should be established along with methods of evaluation before options are selected. Then a wide range of options should be evaluated to assure that no options are missed. The whole system should be examined and evaluated before the final decisions are made. This process makes the results more sound and defensible. Latecomers have fewer reasons to object. This is a well established method for defining systems performance and requirements. It has been used successfully in the defense and aerospace industries for many years.
Brad Anderson, CEO and General Manager of Cable Co-op discussed the status of Cable Co-ops' efforts to establish a new organization to operate the cable system in partnership with Sun Country Cable. A letter of intent was signed late in December to enter into an agreement with Sun Country Cable. The reason this reorganization was needed was the high level of debt and low relative cash flow which no longer is sustainable. In the past year cash flow was a little over $5 million. Normally debt should be about 5 or 6 times cash flow, or $25 to $30 million. Actual bank debt is about $34.5 million, and total debt is almost $38 million. The high ratio is mainly because a co-operative has a hard time raising large amounts of equity from the members. The deal will allow the debt to be paid down and allow local control of access and local programming by Cable Co-op. This is of interest to PA-COMNET because it will allow upgrading of the infrastructure to offer data services. This will be done by using the City's fiber ring plus upgrading the B cable which appears to be the cheapest way to double the bandwidth available. Sun Country estimates the B cable upgrade will cost from $7 to $20 million. They committed over $7 million for the upgrade already. The intent is to have the upgrades complete within 3 years after closure of the agreement. This seems long, but it requires extensive engineering and construction of over 500 miles of plant. There will be fiber installed in the other Joint Powers cities outside of Palo Alto, but it will be tree and branch, not a ring as in Palo Alto. Cable Co-op has right of way access into other cities as part of the franchise agreement. For example, the signals could go out on the City fiber to a point near East Palo Alto, then go on either coax or fiber to a fiber trunk into East Palo Alto and beyond. Fiber outside of Palo Alto would be installed by the new company over time. Cable Co-op is testing a virtual node and a hybrid coax-fiber system to transfer data to prove feasibility. Even if it works there isn't enough capital to do the full upgrade now.
A question was asked about how preferred Cable Co-op stockholders will be paid as part of the deal. The agreement will pay full present value as of the time of sale. Members other than preferred stockholders or B share holders are assumed to be all subscribers unless they state they don't want to be members. The Co-op will be part owner of the new company.
Marvin Lee wanted to know what the existing community will lose. Brad said the community in general may not lose anything, but members of the co-op will lose day to day operating control of the system, including selection of programming and selection of rates. Cable penetration for the franchise area is less than 50%, so a majority of the community are not Cable Co-op members or subscribers.
Louis Bookbinder wanted to know what Sun Country gets from the deal. Brad answered they expect a profit plus experience with a cutting edge community and improved skill sets that can be used elsewhere. The new company will not be combined with the Los Alto Hills operation since they have a different owner.
Imsong Lee wanted to know how the new company can make a profit. Brad replied they will put in lots of equity so there is less debt service and increased cash flow and profit, they believe advanced technology will be profitable, especially in this market. The 2 cables (A and B) plus demographics of the area are unusual, as is the amount of data traffic that already exists make the area very attractive and likely to be profitable. Bob Moss noted they also can sell in a few years and hope for a significant capital gain. Brad said the new company can look for a buyer after 2 years, and after 3 years Cable Co-op can buy back the system.
The new structure of the organization has not been established, but it will be some kind of for-profit organization. Brad described the structure of the new organization which is somewhat complex. There will be partners from Sun Country, partners and financing from The Carlyle Group, plus Cable Co-op and representation on the new company board.
The B cable probably will be high split when it is activated, meaning more data capacity upstream. Probably only those wanting data will get the B cable drop to cut costs. It will cost about $70 to put in a drop to a residence, so by waiting until service is requested there can be a big cost savings.
Brad said that at this time the value of cable systems is depressed and cable stocks are down mainly because of the well-publicized problems at TCI. Because TCI is so big it has a significant impact on the industry. When TCI has a cold the rest of the industry is seriously ill.
Bob Moss suggested that PA-COMNET ask the City Council to place the entire issue of a telecommunications utility on its agenda soon, hopefully early in February, so that when the formal request is made to transfer the franchise agreement the city can consider it in the broader context of a sound telecommunications strategy. Putting it on the agenda really means getting the questions referred to the Utility Advisory Commission and Policy and Services Committee for review and recommendations. The City has the option of matching any offer for Cable Co-op within 90 days, or buying 49% at any time.
We would not be taking an advocacy position at this time, just asking for a full study of the issues and options. Imsong wanted to know who would write the letter and who it would be addressed to. Bob suggested Imsong should write it as head of PA-COMNET, and address it to the City Council and City Manager.
Next meeting of PA-COMNET will be Wed. Feb. 5, 1997 7:30 AM at the Terman Library.
The recording secretary had to leave at 8:25 AM.
Submitted by Bob Moss, 1/8/97
Addendum:
After Bob and Brad left John Kelley, president of Cable Co-op arrived and spoke to the group. He gave a detailed description of the existing debt, who holds it and when it matures. He also stressed that while Cable Co-op could refinance the existing debt it would not be able to finance the added amount needed to upgrade the system. The meeting finally adjourned a little after 9 AM.