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Home My WebLink About9C - Franchise to Integra Telcom for Cable Communication PurposesPRj ~. ~t ~, ~ ~~:x U .~ ~' , nr .' ~INIVES~~P. `' 4646 Dakota Street S.E. Prior Lake, MN 55372-1714 CITY COUNCIL AGENDA REPORT MEETING DATE: June 1, 2009 AGENDA #: 9C PREPARED BY: Frank Boyles, City Manager Suesan Lea Pace, City Attorney AGENDA ITEM: CONSIDER APPROVAL OF A RESOLUTION AUTHORIZING ISSUANCE OF A FRANCHISE TO INTEGRA TELECOM TO PROVIDE CABLE COMMUNICATION SERVICES. DISCUSSION: Introduction The purpose of this agenda item is to request Council approval of an ordinance granting a cable television franchise to Integra. History Federal, State and local laws set forth a process for issuing franchises for cable television services. The process includes the following: • The City publishes a notice of intent to consider applications for franchise for two successive weeks in the official newspaper. • City makes an official application form available to all parties interested in making proposals. • The City receives applications for franchise from interested providers no sooner than 20 days from the date of the first official public notice. • The Council conducts a public hearing to consider applications received and receive public input thereon. • No sooner than seven days from the closing of the public hearing, the Council may adopt an ordinance granting a cable franchise. • The. grantee (Cable Company) has 30 days from the date of Council approval of the franchise to execute, return and provide insurance. Integra has advised the City that they are interested in offering Internet Protocol T.V. (IPTV) services to Prior Lake properties within the service area designated to it by the Public Utility Commission (PUC). Accordingly, they requested that the City initiate the process for considering a franchise. The process was initiated and has proceeded as shown below. At the April 20, 2009 City Council meeting, representatives from Integra described their proposal and application and responded to questions from the City Council. No member of the public asked to address the City Council at the hearing (see minutes).. www. cityofpriorlake. com Phone 952.447..9800 /Fax 952.447.4245 Current Circumstances Since the hearing, correspondence has been shared with the City both by Integra and Mediacom stating their respective cases. In a letter dated April 30, 2009, Mediacom through its attorney Jane Bremer, expressed its opinion that Integra's application failed to comply with laws and regulations relating to cable franchises. We provided Integra with the opportunity to respond and it did so in correspondence dated May 1, 2009 and May 15, 2009. Mediacom provided a supplemental submittal on May 29, 2009 after meeting with me and the City Attorney. Copies of this correspondence are attached. After reading the correspondence from the two parties, we believe that it is very unlikely that a franchise can be crafted that would be mutually supported by the two companies. Given their competitive position, this conclusion should not be surprising to anyone. The City Attorney and I believe that the franchise as written does conform to applicable laws and regulations and should be considered for adoption by the City Council, either as written or with the addition of a provision dealing with future build-out. Suggested language is discussed below. Conclusion The Council should determine if they concur with this conclusion. If the Council concurs that the agreement is not more burdensome or less restrictive, on balance, than that enjoyed by Mediacom, then it should be considered for adoption unless the Council identifies other issues which require attention. ISSUES: The key issue for the City was whether federal law requires a cable provider to serve the entire city or whether the city can properly grant a second entrant into the market a franchise governing a lesser area than the first provider in the market. Mediacom serves the entire city ("franchise area.") Integra proposes to serve only its service area, about two thirds of the city, leaving Mediacom the remaining sole provider (functional monopoly) for about 1,333 properties. A central issue in the regulation of cable companies today appears to be the "build- out" issue. Build-out, in lay terms, mean the construction of delivery facilities to serve the entire geographic area under the authority of the Local Franchising Authority (LFA). Mediacom maintains the position that to grant Integra a franchise to serve an area less than Mediacom's franchise area creates an advantageous competitive position for Integra and puts Mediacom at a disadvantage. This position is inconsistent with an FCC Order (FCC 06-180) that Mediacom itself has relied on in its correspondence to the City objecting to and opining on the deficiencies in Integra's franchise application. The subject of whether the Cable Act requires LFAs to require a new cable provider to build-out the franchise area as a condition of granting a franchise has been argued and debated among cable providers and LFAs and decided by the Federal Communications Commission and Courts. Nothing in the Communications Act requires competitive franchise applicants to agree to build-out their networks in any particular fashion. Nevertheless, incumbent cable operators and LFAs contend that it is both lawful and appropriate, in all circumstances, to impose the same build-out requirements on competitive applicants that may apply to incumbents. We reject these arguments and find that Section 621 (a)(1) prohibits LFAs from refusing to award a new franchise on the ground that the applicant will not agree to unreasonable build-out requirements. FCC 06-180 at P. 83 (emphasis added): "Section 621(a)(3) (of the Cable Act) does not mandate universal build- out." The "intent of [Section 621(a)(3)] was to prevent the exclusion of cable service based on income." Implementing the Provisions of the Cable Communications Policy Act of 1984, Report and Order, MM Docket No. 84-1296, 58 Rad. Reg. 2d (P & F) 1, 62-63 (1985), cited in FCC 06- 180 at 42. This interpretation was upheld in the face of an argument that Section 621(a)(3) required universal build-out. The statute on its face prohibits discrimination on the basis of income; it manifestly does not require universal build-out.... [The provision requires] `wiring of all areas of the franchise' to prevent redlining. However, if no redlining is in evidence it is likewise clear that wiring within the franchise area can be limited. ACLU v. FCC, 823 F.2d 1554, 1580 (D.C. Cir. 1987 (emphasis in original}. Cited also for authority in FCC Order 06-180. The FCC made the following finding (FCC 06-180 at P.91) in reaching the conclusion that a LFA may grant a franchise without imposing universal build-out requirements: In sum, we find, based on the record as a whole, that build-out requirements imposed by LFAs (Local Franchising Authority) can operate as unreasonable barriers to competitive entry. The Commission has broad authority under Section 621(a)(1) to determine whether particular LFA conditions on entry are unreasonable. Exercising that authority, we find that Section 621 (a)(1) prohibits LFAs from refusing to award a competitive franchise because the applicant will no agree to unreasonable build-out requirements. The FCC Order (FCC 06-180, P.89) further states: We note, however, it would seem reasonable for a LFA in establishing build-out requirements to consider the new entrant's market penetration. It would also seem reasonable for an LFA to consider benchmarks requiring the new entrant to increase its build-out after a reasonable period of time had passed after initiating service and taking into account market success. During the time that Mediacom was the sole cable provider to serve Prior Lake it had a monopoly and therefore a previous City Council may have felt it was appropriate for Mediacom to build-out its facilities to serve the entire city. The delivery mechanism Mediacom uses to deliver cable is different that the mechanism that Integra proposes to use. Although Integra must make a capital investment to be able to deliver cable, the actual delivery mechanism will be through the same transmission lines it delivers telephone service. If granted a franchise, Integra will be competing against Mediacom for customers. A competing cable provider that seeks to offer service in a particular community cannot reasonably expect to capture more than a fraction of the total market. (AT&T Comments at 50.) Build-out requirements thus impose significant financial risks on competitive applicants, who must incur substantial construction costs to deploy facilities within the franchise area in exchange for the opportunity to capture a relatively small percentage of the market. In many instances build-out requirements make entry so expensive that the prospective competitive provider withdraws its application and simply declines to serve any portion of the community. Given the entry deterring effect of build-out conditions, our construction of Section 621(a)(1) best serves the Act's purposes of promoting competition and broadband deployment. The Council may want to add a provision in Integra franchise that states: "This franchise does not impose a mandatory build-out requirement within its term. In any application for renewal of this franchise, the City Council may consider or may condition its approval on the extent to which Integra has extended or has a timeline for extending its facilities to cover the remaining portions of the City it is not presently serving." Mediacom has inferred that it may resort to legal action if Integra is granted a franchise without requiring of it a phased build-out. Title 47 U.S.C. § 555a limits relief in "any claim against a franchising authority..." arising out of the grant of a cable franchise to injunctive relief and declaratory relief. Based on the materials we have reviewed Mediacom's assertion that it would be put a competitive disadvantage if Integra was granted a franchise to provide cable service within its telephone service area within its service seems to be without merit. Mediacom and its predecessor have had a competitive advantage in the City for approximately ten (10) years and they will continue to have a competitive advantage in that part of the City that Integra will not serve. We believe Mediacom is incorrect in advising the City that it is required to impose a build-out requirement on Integra as a condition of granting it a franchise. The City has insisted on a strong indemnification provision in the Integra franchise. If Mediacom or some other individual or entity brings an injunctive or declaratory judgment action against the City for granting Integra a franchise, Integra is required to defend and hold the City harmless. In an effort to assure that the terms and conditions of the Integra franchise are substantially the same as those imposed upon Mediacom, the 1999 Mediacom was used as a base document. A minimal number of changes were proposed to the document as we were sensitive to this concern. The term of the Integra franchise is for six (6) years so that the Mediacom franchise and the Integra franchise will expire at the same time. This will make renewal negotiations easier, or at least that is the plan FINANCIAL The only cost the City has invested in this effort is my time and that of the City IMPACT: Attorney. The indemnification agreement protects the City from defense costs in the event Mediacom chooses to take legal action. ALTERNATIVES: There are two alternatives: 1. Adopt the resolution approving the franchise agreement as proposed or with amendments as determined by the Council. 2. Take no action and direct the staff to prepare additional information. RECOMMENDED Alternative #1. MOTION: 4 PRjO ~ . ~ /i ~ '~ ~ ~ ~. v -,~ I x~ rn w~~,:,.; ~I~'NESO`te' 4646 Dakota Street S.E. Prior Lake, MN 55372-1714 RESOLUTION 09-xxx A RESOLUTION AUTHORIZING THE ISSUANCE OF A CABLE COMMUNICATION FRANCHISE TO INTEGRA TELECOM Motion By: Second By: WHEREAS, Federal, state and local laws and regulation set forth the procedures and conditions under which a cable communications franchise can be issued; and WHEREAS, The City has taken steps pursuant to Federal, state and local laws including: • Publication of a notice seeking applicants in two successive issues of the City's official newspaper. • Preparation and issuance of a request for proposal. • Receipt of one proposal. • Conducted a public hearing on the proposal. Negotiated a franchise agreement; and WHEREAS, One proposal was received from Integra Telecom in accordance with the public notice; and WHEREAS, A public hearing was conducted at the time announced in the public notice; and WHEREAS There was no opposition to the proposal presented at the public hearing; and WHEREAS Correspondence from Integra, the proposer, and from Mediacom, the existing cable operator, has been offered and considered by the City; and WHEREAS Discussions have taken place between the City Attorney and staff; and Integra and Mediacom individually with respect to the franchise document; and WHEREAS The staff believes that the franchise proposed for Council action conforms to all Federal, state and local laws and regulations. NOW THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE, MINNESOTA as follows: 1. The recitals set forth above are incorporated herein. 2. The franchise dated June 1, 2009 is hereby approved. 3. The Mayor and City Manager are hereby authorized to execute the agreement on behalf of the City. PASSED AND ADOPTED THIS 1st DAY OF JUNE 2009. YES NO Hau en Hau en Erickson Erickson Hedber Hedber LeMair LeMair Millar Millar Frank Boyles, City Manager unx~w. cityofpriorlake. com Phone 952.447.9800 /Fax 952.447.4245 City Council Meeting Minutes April 20, 2009 ickson: Asked if the City's pumps will be affected. Bi er: Responded that private residents who pump from the lake for irrigation may experience problem but th City does not pull water from the lake. Noted that the Watershed controls the channel and t will have to vigilant; and sometimes City outlets are under water and they will have to be watch o remain clear, Millar: Clarifi that it is unknown what will happen to the ecosystem. Bintner: Affirme adding that the mussels can attach to any surface. Stated t the DNR found one- and two-year growth eve .where they tested. Hedberg: Asked how hd it is to clean mussels off a fouled piece of uipment. Bintner: Replied that they n get inside every crack and crevic nd will grow on top of each other if not cleared away. Hedberg: Asked if mussels migrat stream. Bintner: Replied that happens only thro hum interaction. Haugen: Asked what preys on zebra musse' Bintner: Replied that in their natural e ' onment, fish and perhaps some carp and bass species would be predators, but mussels d of make up a signi ' ant portion of their diet. Haugen: Commented on mu Is cleaning up Lake Erie. ~``~ Bintner: Concurred sta ' that mussels have the opportunity tom water clear in the early part of infes- tation because of w r filtering activity. It is not determined whether tha~`w'II continue. Noted that the Lake Erie situa ' included two invasive species playing off each other. ~-~ Haugen: mmented on infested lakes in St. Paul that have no boat traffic. ~~-,~ Bintn .Replied that St. Paul has aman-made system of filtering water from the Mississip~w diver before it es into their intake system which allowed for infestation, PUBLIC HEARING Public Hearing to Consider an Application for a Franchise for a Cable Communication System. City Manager Boyles explained that a request for proposal was advertised for a cable communication sys- tem and Integra Telecom was the only entity that responded. Commented that cities can enter into multiple franchise agreements, but agreements must provide generally similar situations for all franchisees. The process requires the Council to wait seven days after a public hearing before acting on the proposal. MOTION BY MILLAR, SECONDED BY LEMAIR TO OPEN THE PUBLIC HEARING. VOTE: Ayes by Haugen, Erickson, Hedberg, LeMair and Millar. The motion carried and the public hearing opened at 7:40 p.m. Comments: David Kunde, Senior Vice President of Integra Telecommunications, 4690 Colorado Street, introduced members of the Integra team: Brian Grogan, Mary Korthour, Larry Shephard and Ginny Zeller. Presented an overview of their proposal to provide a cable communication system. Described the plan for providing enhanced video services and stated this service would provide residents a choice of providers for tele- phone, cable and Internet service. Ken Blessenbach, 16638 Franklin Avenue Trail, commented that every time there is a storm, there are many channels on cable that go out and sometimes they lose the cable altogether. Asked if Integra will have this problem also or if a viewer will be able to watch without interruptions. Favors having another franchise. MOTION BY LEMAIR, SECONDED BY ERICKSON TO CLOSE THE PUBLIC HEARING. 6 City Council Meeting Minutes April 20, 2009 VOTE: Ayes by Haugen, Erickson, Hedberg, LeMair and Millar. The motion carried and the public hearing closed at 7;59 p.m. Comments: LeMair: Clarified the areas of Prior Lake that have the option to choose this service. Grogan: Stated that the proposal is to serve the area where Integra has facilities. LeMair: Looks forward to another competitor in the marketplace and asked what the service response time is for failure on current telephone services. Kunde: Replied that response is within one business day. LeMair: Commented that customers want a fast response and expressed hope that Integra can continue to meet a 24-hour response time. Grogan: Commented when two companies compete for customers, issues are service, technology, etc. and Integra has to match a 99.9% reliability standard. The system is engineered for redundancy during a service outage so there is less chance for outage. A storm could take a portion of the services down, but that would receive immediate attention from technicians and managers that live in the community and are equally affected by the outage. Hedberg: Asked if transmission of TV goes over the phone line. Kunde: Replied that the signal will travel over a broadband connection and use the existing phone line going to homes which is capable of carrying high-speed connections to deliver the signal. Hedberg: Asked if multiple shows can be transmitted at the same time to multiple TVs in the household. Kunde: Yes. Hedberg: Asked if Integra will be offering video on demand. Kunde: Not at startup, but Integra will reserve right to offer it later. Added that video on demand is migrat- ing to downloadable services. Millar: Likes having a local service connection. Queried how the Internet integrates with television. Kunde: Replied that one of the channels will look like an Internet browser and some Internet sites will be available such as those relating to weather, traffic, etc. Millar: Asked if there will be an email option. Kunde: No. Millar: Asked if movie packages will be offered through the Internet. Kunde: Stated that is possible, but is not part of the proposed initial offering. Erickson: Asked if it will be possible for a customer to get a cable service without getting the Internet. Kunde: Replied that Integra's intention is to only offer a bundled service for cable, Internet and voice. Erickson: Asked how the service how will integrate with television. Kunde: Replied that the customer will receive a three stream set top box and have a remote at each TV. Erickson: Asked if the signal will travel through the wiring of the house rather than wireless. Kunde: Replied that the signal will follow coaxial cable and can use the existing wires. Added that each house situation will be a unique installation situation, but Integra intends to use existing wiring as much as possible. Erickson: Commented that Mediacom contributed $77,000 for the purchase of video equipment to broad- cast. Asked if Integra would also broadcast public meetings through a public channel. Kunde: Affirmed that Integra would provide public, educational and government (PEG) channels. Erickson: Asked if Integra would be donating money to the City for future equipment. Grogan: Stated that Mediacom paid an initial $77,000 to cover a a 15-year term and also pays $ .65 per subscriber per month (PEG fee) in addition to the franchise fee. Integra will match the franchise fee and subscriber fee and expects to prorate a contribution comparable to the $77,000 Mediacom payment. This City Council Meeting Minutes April 20, 2009 franchise fee would extend only until Mediacom's expires (2014) in order to allow the City to have the op- tion to renew both franchise agreements at the same time. Erickson: Asked City Attorney Pace if that would meet requirements for equal process. Pace: Replied that what Integra is proposing with respect to fees would be calculated and paid differently than Mediacom and, that the details with Intergra have not yet been negotiated, but the goal is for the com- panies to be treated equally. Will want to establish as much parity as possible. Issues would be whether the payment should be spread over afive-year period or paid upfront. Mediacom's $77,000 fee paid to the City represented an upfront payment of what fee was calculated over a 15 year period. Grogan: Replied that Integra's proposal is to pay over time and agreed that those issues are not finalized yet. Erickson: Asked if Integra's lines are underground. Kunde: Confirmed that more than 99% are underground. Erickson: Assumes there is more reliability from weather-related problems with underground lines. Grogan: Noted that the signal from the satellite to the receiver will be affected by weather, but not to the degree of Direct TV. Erickson: Suggested that underground should be more reliable from ice, rodents, etc. Asked the City At- torney if there would be any problem with offering only a bundled service. Pace: Believes that will be a consumer issue rather than a service issue. Asked Integra to clarify com- ments on their presentation about providing 80 or more channels at start-up with additional channels to be added. Grogan: Replied that the reference in the proposal to 80 channels will meet or exceed Mediacom services so Integra cannot fall below that. Stated that Integra expects to offer 200 channels, but that will not be the contractual amount. Pace: Stated that she wants customers to know the contract is for 80 channels even though Integra's ap- plication states it will offer 200 channels. Grogan: Replied that in the event that programmers go out of business or other circumstances drop the number of channels to less than 200, Integra would not want to be in breach of contractual obligations. Haugen: Asked what it means to offer programming decisions based on viewing preferences of customers residing in and around Prior Lake. Grogan: Replied that Prior Lake will be the only system served right now and there will be a focus on pro- gramming specific to this community. Haugen: Asked what the plan is for extending to other cities and townships. Grogan: Replied that the Integra territory extends south and east from here. They will begin this service in Prior Lake and move to the southern region of Integra's footprint and then to the east. After the invest- ment is made at the head end, there is no additional cost to Integra to go further. Haugen: Asked how Prior Lake can be assured that its installation will not move off course because of Integra's involvement with other communities. Grogan: Reiterated that there is nothing to construct but the head end -there is no infrastructure out in the field. The customer service is the only thing that will be brought online as the service expands. Haugen: Asked who defines the service area. Grogan: Provided a short history stating that cable TV was originally franchised by local jurisdiction which was able to determine its franchise area. Telephone companies were granted authority by the State Public Utilities Commission and cities do not have jurisdiction over authority for telephone companies. The certifi- cate of authority was granted in 1998 to Scott Rice and Integra is limited to the service area granted at that time. Authority would have to be granted for a company to compete against another company for telephone customers and that financial model doesn't work. This will be the first community in the seven-county me- City Council Meeting Minutes April 20, 2009 tro area to have wire line competition. Gave the example of Quest partnering with a satellite company to provide triple-play services rather than going with a wire line. MOTION BY MILLAR, SECONDED BY HEDBERG DIRECT STAFF TO WORK WITH INTEGRA ON DEVELOPMENT OF A FRANCHISE AGREEMENT TO BRING BACK TO THE COUNCIL FOR CONSIDERATION. Pace: Clarified that this motion is not to grant a franchise but to direct staff to work on an ordinance to bring back to the Council. Grogan: Asked for clarification about whether the public hearing had been officially closed. Haugen: Affirmed. VOTE: Ayes by Haugen, Erickson, Hedberg, LeMair and Millar. The motion carried. Consi pproval of a Resolution Approving the Joint Powers Agreement Establishing the High= way 169 Co or Coalition. ~;~~ Building and Tr sportation Services Director Kansier explained the purpose of the coalitionis to work on issues related to ffic congestion, transit, freight movement, safety, development, etc. for~eommunities along the Hwy 169 corri .The Joint Powers Agreement adoption is necessary for the C~i~~ to be a voting member. ~; Comments: Millar: Stated that use of the Hwy 16 rridor is important to many resid active participant. Will support. Erickson: Commented that the coalition is co osed issues. Spoke of the Metropolitan Council meeting s 169/494 exchange project for stimulus monies. Believ project and this coalition could be a viable opportunity. LeMair: Agreed it is important to have a voice and tha in addition to the $1,000 dues, staff time will be require that cannot be gained by cities with similar interest. ~e without being a member of the coalition. ~~ the City needs to be an of cities from M~n"kato up to Edina due to economic t Wednesday t~i~iere MnDOT did not support the cities st~lhave options to try to get focus on this 69 is important to the City. Concerned that .e what Prior Lake will gain by having a vote the ' v could communicate its concerns Hedberg: Believes there will be significant Ion range planning for the c idor and Prior Lake should be participating in the effort. Haugen: Stated that transportation is a q lity of life issue. Spoke of increasi demographics driving intersection problems along the corridor.,~t~iat stunt the utilization of it by the Count Believes cities should continue to put the pressure on MnD~f and federal non-elected representatives ma 'ng decisions about the stimulus money. Believes Pri Lake needs to be a voting member of this coalition. LeMair: Reiterated that costs wl I be greater than the $1,000 for membership referring to tatements in the administrative section of the ~reement. Haugen: Agreed and dre,i a parallel to SCALE where there are joint powers that may come a ut to achieve goals. Noted~k~''at the SCALE transportation committee is supportive of this coalition. LeMair: Does not b ieve that this coalition or SCALE will have along-term effect on what happens ith Hwy 169. Believ that to paint the picture that to be involved with Scott County long-term, the City ha to be involved wi this JPA is not correct and that the City can choose where to be involved to have an effeE#. Haugen: R ponded that at the Met Council meeting there were comments that Scott County may be p paying th 'price for non-involvement with the quarter-cent sales tax for transit with the implication being that i oesn't want to work with the rest of the counties. Believes the City cannot pick and choose when 9 -` Bremer Law, P.C. • April 30, 2009 The Honorable Jack G. Haugen and Members of the City Council City of Prior Lake 4646 Dakota Street S.E. ~ VIA EMAIL & US MAIL Prior Lake, MN 55372-1714 Re: Proposed Integra Telecom Cable Franchise Dear Mayor Haugen and Members of the City Council: Thank you for giving Mediacom Minnesota LLC ("Mediacom") the opportunity to comment on the application ("Application") and draft franchise ("Draft Franchise") submitted by Scott Rice Telephone Company dba Integra Telecom ("Integra") to provide cable television service in a limited portion of the City of Prior Lake ("City"). • Mediacom respectfully recommends that the Council reject the legally deficient Draft Franchise and invite Integra to resubmit an application that complies with applicable law which requires service to the entire City and franchise terms that are comparable. Integra has placed the City in the untenable position of seeking approval for a Draft Franchise which violates federal law, Minnesota law, the City Code of the City of Prior Lake ("City Code") and the Franchise agreement between Mediacom and the City ("Mediacom Franchise"). Further, Integra's Application fails to demonstrate the legal, financial and technical qualifications required by Minnesota law and the City Code to obtain a cable franchise. Finally, a partial franchise that ignores almost 1/3 of the City undermines any real opportunity for City-wide competition by sanctioning cherry-picking and undercutting the City's stated public policy of equality. The Staff Report provided to the Council fails to acknowledge that the law requires service to the entire City even if Inte~ra's telephone service area is different and requires comparable franchise terms which do not exist in the Draft Franchise. This letter provides documentation of these facts for your consideration. Mediacom has no objection to fair competition in the City' Mediacom has franchised competition in over thirty (30) Minnesota communities all of which complied with the laws Integra is asking the City to ignore. However, service to only a select part of the City raises serious legal and economic issues and would provide Integra with an unfair competitive advantage. 1100 Riverview Tower ~ 8009.34th Ave S ~ Minneapolis, MN 55425 ~ Phone: 952-851-7291 ~ Fax: 952-851-7261 Page Two . City of Prior Lake Integra Cable Television Franchise Application Apri130, 2009 If the City were to hold Integra to a different standard than other providers in the City, it would confer unwarranted preferential treatment on Integra at the expense of City residents who have come to expect fair and universal access to services in the City. Factual Background The current cable communications system operates in a very competitive environment. It competes with a variety of news, information and entertainment providers, as well as facilities-based competitors, including local telephone companies and satellite program distributors. For example, DirecTV as well as other direct-to-home satellite program distributors that transmit video programming, data and other.information by satellite to customers receiving dishes. Many companies currently provide, directly to subscribers, a wide variety of services that compete with the cable systems' products and services. Mediacom expects that facilities-based competitors will continue to develop in the Prior Lake area and that Mediacom's services will likely face additional competition in the future from other competitors using additional spectrum the FCC has made available for wireless services. i Because substantial existing competition is a fact, Mediacom is not objecting to one or more competitors entering the market. What it would object to, however, is potential preferential treatment that Integra may receive in violation of law and the principle of regulatory parity providing equal protection to all providers of cable services in the City. A. Federal Law Requires the City to Mandate Service in the Entire City and Impose Uniform Franchise Conditions on all Cable Service Providers. Federal law dictates that any franchise granted be on similar terms and conditions that do not grant unreasonable preference to a second or subsequent franchisee. This type of provision is commonly known in the cable business as a "universal service" requirement and is designed generally to preclude "cherry-picking" and serving only wealthy areas of a community. In short, this type of provision prohibits service providers from "redlining" a community; a practice of denying services to lower income areas. Page Three City of Prior Lake Integra Cable Television Franchise Application Apri130, 2009 Sections 621(a) (3) and 621(a) (4) of the Communications Actl establish beyond any doubt that local governments may require universal service by both incumbent and competitive cable service providers. Such provisions serve important public interests in preventing discrimination in the provision of cable service, in controlling the timing and extent of any disruption to local streets during construction, and in promoting the widest possible dissemination of programming from diverse sources. Particularly, Section 621(a)(4) provides that "[in] awarding a franchise, the franchising authority...shall allow the applicant's ...system a reasonable period of time to become capable of providing cable service to all households in the f.°anchise area."2 (Emphasis added.) In the House Report that accompanied passage of the 1984 amendments to the Communications Act (the "1984 Act"), Congress explicitly stated with regard to the non-discrimination provision of Section 621(a) (3) that: [IJn awarding the franchise, the [local government) shall assure that no class of potential residential cable subscribers is denied cable service due to income or economic status. In other words, cable systems will not be permitted to "redline " (the practice of denying service to lower income areas). Under this t~rovision, a franchising authority in the anchise process shall require the wirin~o all areas o the franchise area to avoid this type ofpractice.3 (Emphasis added.) In discussing the 1992 amendments to the Communications Act that were designed to encourage competitive franchising, and Section 621(a)(4) in particular, the Senate Report makes clear that Congress contemplated universal service requirements for competitive providers to be a cornerstone of its policies governing cable service. This provision amends section 621 (a) of the 1984 Act to add a new provision which requires franchising authorities to give a competing cable operator reasonable time to build its system and provide service to the entire Leo rg aphic area. This provision is intended io ensure that the purpose of section [b21(a) (1) (prohibiting an unreasonable refusal to franchise competitors)) is not thwarted. The provision requires local franchising authorities to grant the second or third cable system in a community sufficient time actually to construct its system and provide service. For purposes of this section, a reasonable period of time would include a period of time comparable to that taken for the incumbent cable operator 47 U.S.C. §§ 541(a)(3)-(4). 47 U.S.C. §541(a)(4). s H.R. REp. No. 98-934 at 59, reprinted in 1984 U.S.C.C.A.N. 4655, 4696. Page Four City of Prior Lake Integra Cable Television Franchise Application Apri130, 2009 . to construct its cable system for a comparably sized franchise area.4 (Emphasis added.) Federal law, therefore, requires that cable service providers "provide service to the entire geographic area" but allows a "reasonable time" for system construction. B. Minnesota Law Unequivocally Requires That Additional Franchises Impose Uniform Franchise Conditions R, egardin~ Area Served, PF,G and Franchise Fees on all Cable Service Providers. Minnesota's Cable Acts unambiguously mandates competitive equity in three (3) key areas -area served, public, educational, or government access requirements and franchise fees as follows: No municipality shall grant an additional franchise for cable service for an area included in an existing franchise on terms and conditions more favorable or less burdensome than those in the existing franchise pertaining to: (1) the area served; (2) public, educational, or governmental access requirements; or (3) franchise fees. Minn. Stat. 238.08, Subd. 1(b). These requirements must be strictly applied throughout the franchising process in order for additional franchises to be valid under state law.6 Integra's proposal fora "limited area" franchise is clearly inconsistent with state law. Integra proposes to provide service only where it offers telephone service. However, Integra's proposal excludes over 1,800 Prior Lake homes. With the City's website showing 5,791 households, this means almost a third of Prior Lake homes would not be offered service from Integra. This is clear breach of Minnesota law and unsupportable public policy. Further, Integra proposes significant differences regarding PEG access requirements. We have detailed the differences in Section F. of this letter. `' S. REP. No. 102-92, at 91 (1991). 5 Minnesota Statutes C~iapter 238 et.seq. 6 See, e.g., Triax v. City of Nashwauk, 1998 WL 865736 (Minn. App. 1998) (reversing the • award of a franchise based on the City's failure to strictly adhere to the requirements of the Minnesota Cable Act). Page Five City of Prior Lake Integra Cable Television Franchise Application Apri130, 2009 C. The Intent of Minnesota's Cable Act is to Foster Fair Competition and Minnesota Cities and Competitors are Successfully Complying. Mediacom is not opposed to competing against other providers of cable services. Mediacom has competitors in over 30 Minnesota communities that were lawfully franchised. In each case, the competitor complied with Minnesota law and offers service to the entire community. Minnesota's Cable Act, by its very nature, was enacted to ensure that competition is conducted on fair terms and it has successes throughout the state. Municipalities are given the discretion to impost "additional terms and conditions" on any additional franchise, but they must be comparable in the categories specified in the statute, including "area served." Minn. Stat § 238.08 (1)(b). If all other competitors in Minnesota are able to comply with the Minnesota Cable Act, Integra should be willing and able to do so as well. D. Minnesota Law Requires Telephone Companies to Comply with State Law Requiring Service Throughout The City, Regardless of Their Telephone Service Territory. Integra is not exempt from the Minnesota Cable Act because it is a telephone provider. Minnesota law requires that telephone companies seeking to provide video service are subject to cable franchising under the Minnesota Cable Act. The Minnesota Court of Appeals clarified the law in 2003 when a telephone company sought to introduce video services in a limited area of the City where it was providing telephone service. The Court determined that telephone companies are not exempt from cable franchising and must comply with Minnesota law as it applies to cable systems. Integra is not excused from compliance with the Minnesota Cable Act. E. The City's Code of Ordinances Echoes and Reinforces the Federal and State Commitment to Service Throughout the City. The City Code requires every cable television provider to serve the entire City. The Code states: Grantee shall design, construct and maintain the Cable Television System to have the capability to pass every dwelling unit in the Service Area, subject to any Service Area line extension requirements of the Franchise Agreement. g Any additional Franchise granted by the City to provide Cable Service in the part of the City in which a Franchise has already been granted and where an existing Grantee is ' WH Link v. City of Otsego, 664 N.W.2d 360 (Minn. App. July 1, 2003). s City of Prior Lake Code of Ordinances, Section 306.1201. Page Six - City of Prior Lake Integra Cable Television Franchise Application April 30, 2009 providing service shall require the new Grantee to provide service throughout its Service Area within a reasonable time and in a sequence which does not discriminate against lower income residents.9 Integra's Draft Franchise violates this long held tenet of the City Code and denies service to almost one-third of City residents. Clearly, this is not the intent of the City Code and cannot be supported by the Council. F. The Mediacom Franchise Requires That Additional Franchises Be No More Favorable Nor Less Burdensome. The Draft Franchise proposes significant modifications and differences from that imposed on Mediacom, which would breach the Mediacom Franchise if adopted. The Mediacom Franchise states: The Franchise renewed pursuant to this Agreement shall not be construed as limiting the right of Grantor, through its proper offices, and in accordance with the Ordinance and Applicable Law, to Qrant other Franchises containing terms and conditions that are no more favorable or less burdensome than those imposed on Grantee by this Franchise; provided, however, that such additional grants shall not operate to materially modify, revoke or terminate any rights granted to Grantee herein and shall be in accord with the provisions of the Ordinance, Mediacom Franchise Section 2.5. (Emphasis added.) r The differences between the Mediacom Franchise and the Draft Franchise proposed by Integra are indisputably substantial and material: (1) Service Area. Mediacom is obligated to serve the entire community. Integra is only proposing to serve its telephone service area, which excludes over 1,800 Prior Lake homes or almost a third of current Prior Lake homes. (2) Indemnification. Mediacom is obligated to provide sweeping indemnification for the City. Integra is proposing that it be responsible for indemnifying the City only where Integra has been negligent or has committed intentional misconduct related to cable service - a much narrower protection for the City. Id. at Section 306.1405. Page Seven City of Prior Lake Integra Cable Television Franchise Application April 30, 2009 (3) Security Fund. Mediacom was obligated to provide a $100,000 Performance Bond, to be released upon the completion of the system upgrade. Integra does not propose to provide any performance bond whatsoever. Integra also does not agree that the $10,000 security fund should be established in a local bank -this was an important consideration for the City when Mediacom renewed its franchise. (4) Procedure for Enforcing Franchise Agreement. Mediacom agreed that any liquidated damages assessed from the security fund could be credited to customers as a pro rata subscriber credit. Integra refuses to agree with this provision. (5) System Design. Mediacom committed to construct a system to serve an average of 500 homes per fiber node, enhancing system capability and speed. Integra refused to agree to this provision. (6) Right of First RefusaVInsurance. Mediacom complies with state law by granting the City the right of first refusal t~o purchase its system in the event of a transfer. Integra refuses to • comply with this provision of law and specifically exempts itself from this provision. Integra further grants itself the right to terminate the agreement upon 90 days notice if it concludes "in its reasonable business judgment that the provisions of cable service in the City is no longer technically economically or financially consistent with the Grantee's business objectives." Finally, Integra grants to itself the unilateral ability to modify its insurance obligations in the City. (7) Public, Education and Government (PEG) Access Channels. Mediacom complies with Minnesota law by committing to provide at least one of the PEG channels in the VHF spectrum. Integra refuses to agree to this provision. (8) Service to Public Buildings. Mediacom agreed to provide up to twelve (12) cable modems for use in twelve (12) public buildings listed in Exhibit D-1 to the franchise. Integra refused to agree to this provision. (9) PEG Capital Grant. Mediacom committed to a capital grant of $77,000 to the City. Integra refuses to agree to this provision, proposing a meager ten cents per subscriber per month in lieu thereof. Page Eight City of Prior Lake Integra Cable Television Franchise Application April 30, 2009 ' Further, Mediacom agreed to a CPI adjustment to the Access Operating Fee every two (2) years. Integra refuses to agree to this provision. G. The Content of the Application is Deficient under State and Local Law and Fails to Show the Applicant's Legal, Technical and Financial Qualifications. The City Code and Minnesota law each require specific information regarding the legal, financial and technical qualifications of the applicant. The City Code requires the following in addition to Minnesota law: • a statement as to the proposed Service Area resume of prior history of applicant, including legal, technical and financial expertise of applicant in the cable television field; • a list of the general and limited partners of the applicant if a partnership, or the shareholders if a corporation; . ~ the percentage ownership of the applicant of each of its partners, shareholders or other equity owners; • the officers, directors and managing employees of applicant of its general partner, as applicable, together with a description of the background of each such person; • the names and addresses of any parent or subsidiary of applicant or any other business entity owning or controlling applicant in whole or in part, or owned or controlled in whole or in part by applicant; • a current financial statement of applicant verified by an audit or otherwise certified to be true, complete and correct to the reasonable satisfaction of the City; • proposed construction and service schedule; and • any additional information the City deems applicable. In its Application, Integra concedes that it has no experience in providing cable service. Clearly, the Company cannot claim it is technically qualified in a field where it admits it has no experience. Second, there is no information provided as to Integra's financial qualifications. They have not submitted the financial information required by the Code, any estimate of the cost of the proposed System nor any funding commitment. • Page Ten City of Prior Lake Integra Cable Television Franchise Application Apri130, 2009 ("~nclusinn The City must deny the Application as insufficient and in direct violation of federal, state and local law. Mediacom would be pleased to discuss this matter with you and to provide any additional information you might request. Thank you again for this opportunity to comment. ane E. Bremer, Esq. cc: Frank Boyles, City Manager William Jensen Tom Bordwell Sincerely, ~=~~`}' ~~• ` l ~2 tegY'G~~ TELECOM May 1, 2009 The Honorable Jack G. Haugen and Members of the City Council City of Prior Lake 4646 Dakota Street S.E. Prior Lake, MN 55372-1714 Integra Telecom 6160 Golden Hills Drive Golden Valley, MN 55416 www.integratelecom.com Via E-Mail and U.S. Mail Re: Integra Telecom's application for grant of a cable franchise Dear Mayor Haugen and Members of the City Council: I write in response to the letter filed by counsel for Mediacom yesterday opposing Integra's application for grant of a cable franchise by the City of Prior Lake. ~ While Mediacom quite understandably would prefer to remain the only provider of bundled voice, data, and video to citizens in Integra's service territory, the reasons it offers for the Prior Lake City Council to reject Integra's franchise proposal are without merit. Integra's application and proposed franchise are consistent with federal, state and City laws and ordinances. Integra has demonstrated robust managerial, technical and financial qualifications to offer its video service in Prior Lake. Integra's offering of its bundled voice, data, and video product-contrary to Mediacom's assertions-will not exclude, or cherry pick, among citizens within Integra's service territory. Far from excluding members of the public, it will provide a straightforward additional cable alternative to every Prior Lake citizen within Integra's service territory. Integra's proposal to offer Internet Protocol Television (IPTV) is consistent with federal, state and City laws and ordinances a. Federal Law does not mandate universal service Mediacom asserts that the Federal Cable Act (Cable Act)' mandates that the City must require Integra to build-out the entire geographic area of the City despite the fact that Integra's telephone service area covers only 66% of the City. Mediacom relies upon Section 541 of the Cable Act2 arguing that the reference to "all households" equates to a universal build-out mandate. Mediacom further maintains that anything less then universal build out constitutes "cherry picking" in violation of the Cable Act.3.However, both the FCC and the U.S. Court of Appeals for the District of Columbia Circuit (DC Circuit) have held otherwise. The D.C. Circuit has squarely rejected the notion that Section 541(a)(4)(A) of the Cable Act authorizes municipalities to impose universal build-out requirements on all cable 1 Cable Communications Policy Act of 1984, Pub. L. No. 98-549, 98 Stat. 2779, 47 U.S.C. § 541 (1984) (emphasis added). z 47 U.S.C. § 541(a) 3 47 U.S.C. § 541(a)(3) provides: "In awarding a franchise or franchises, a franchising authority shall assure that access to cable service is not denied to any group of potential residential cable subscribers because of the income of the residents of the local area in which such group resides." providers.4 The DC Circuit has held that Section 541(a)(4)(A) does not require that cable operators extend service "throughout the franchise area," but instead section 541 imposes a limit on municipalities that seek to impose such obligations.s Consistent with the Cable Act, Integra supports build out mandates to ensure that cable service is not denied to residents on the basis of income, race or any other relevant considerations by the Council. In fact, Integra proposes to immediately offer cable service to every home in Integra's telephone service area in the City. Integra does not have authority to offer telephone service in Qwest's service area., As a result, Integra has no facilities over which to provide cable services in the northern portion of the City and can not offer cable services to that portion of the City. The FCC has determined that "the intent of [Section 541 (a)(3)] was to prevent the exclusion of cable service based on income" but "does not mandate that the franchising authority require the complete wiring of the franchise area in those circumstances where such an exclusion is not based ors the income status of the residents of the unwired area."6 This exact issue was reviewed by the DC Circuit which upheld the FCC's interpretation in the face of an argument that universal build-out was required by Section 541(a)(3): The statute on its face prohibits discrimination on the basis of income; it manifestly does not require universal build-out].... The provision requires] "wiring of all areas of the franchise" to prevent redlining. However, if no redlining is in evidence, it is likewise clear that wiring within the franchise area can be limited.' There is no requirement in the Cable Act that mandates universal service throughout a municipality. On the contrary, the FCC, faced with numerous questions about build-out obligations, recently issued an Order which addresses the precise fact situation present in Prior Lake. b. The FCC supports granting a franchise for a telephone service area In the spring of 2007 the FCC issued an Order to address competitive franchising in municipalities.$ In the Order the FCC addresses the exact issue facing the City of Prior Lake. The FCC concluded: ...the boundaries of the areas served by facilities-based providers of telephone and/or broadband services frequently do not coincide with the boundaries of the areas under the jurisdiction of the relevant LFAs Local Franchising Authorities]. In some cases, a potential new entrant's service area comprises only a portion of the area under the LFA's jurisdiction. When LECs (Local Exchange Carriers) are a Americable Intern., Inc. v. Dept of Navy, 129 F.3d 1271, 1274-75 (D.C. Cir. 1997). s Id. 6 Implementing the Provisions of the Cable Communications Policy Act of 1984, Report and Order, MM Docket No. 84-1296, 58 Rad. Reg. 2d (P & F) 1, 62-63 (1985). 'ACLU v. FCC, 823 F.2d 1554, 1580 (D.C. Cir. 1987) s See Implementation of Section 621(a)(1) of the Cable Communications Policy Act of 1984 as amended by the Cable Television Consumer Protection and Competition Act of 1992, 22 FCC Rcd, 5101 (2007) ("Order") 2 required to build out where they have no existing plant, the business case for market entry is significantly weakened because their deployment costs are substantially increased.9 Based on the record as a whole, we find that build-out requirements imposed by LFAs can constitute unreasonable barriers to entry for competitive applicants. Indeed, the record indicates that because potential competitive entrants to the cable market may not be able to economically justify build-out of an entire local franchising area immediately, these requirements can have the effect of granting de facto exclusive franchises, in direct contravention of Section 621(a)(1)'s prohibition of exclusive cable franchises. 10 Besides thwarting potential new entrants' deployment of video services and depriving consumers of reduced prices and increased choice, build-out mandates imposed by LFAs also may directly contravene the goals of Section 706 of the Telecorr-munications Act of 1996, which requires the Commission to "remov(e) barriers to infrastructure investment" to encourage the deployment of broadband services "on a reasonable and timely basis. " " We do not find persuasive incumbent cable operators' claims that build-out should necessarily be required for new entrants into the video market because of certain obligations faced by cable operators in their deployment of voice services.12 As a result of these findings the FCC held that "it is unlawful for LFAs to refuse to grant a competitive franchise on the basis of unreasonable build-out mandates.s13 The FCC went further by establishing a list of unreasonable build-out mandates to impose on competitive providers. Among these mandates the FCC found that it would be unreasonable "to require facilities-based entrants, such as incumbent LECs, to build out beyond the footprint of their existing facilities before they have even begun providing cable service."'a Integra is a facilities based incumbent LEC with a service area covering approximately 66% of the City of Prior Lake. Consistent with the FCC Order, Integra requests that the City avoid unreasonable build-out mandates and permit competition to every single household throughout Integra's telephone service area. c. Neither Minnesota State Law or the City Code mandate universal service. The Minnesota Cable Act15 (MN Cable Act), establishes the required cable television franchising process in Minnesota.16 The MN Cable Act ,along with federal law, requires ' Order at ¶ 38, citations omitted. 10 Order at ¶ 40, citations omitted. 11 Order at ¶ 41, citations omitted. 12 Order at ¶ 42, citations omitted. 13 Order at ¶ 89, citations omitted. is Id. is Minn. Stat. § 238.01 et seq. i6 Minn Stat. § 238.081. 3 that all cable franchises be non-exclusive." In addition, the MN Cable Act specifically addresses franchising of a competitive cable provider within an area where cable service is already provided.'$ The MN Cable Act requires a "level playing field" between cable incumbents and competitors, providing: No municipality shall grant an additional franchise for cable service for an area included in an existing franchise on terms and conditions more favorable or less burdensome than those in the existing franchise pertaining to: (1) the area served; (2) public, educational, or governmental access requirements; or (3) franchise fees.'9 This provision does not require that a City must impose the exact same service area requirement on a competing operator. Rather, when establishing the "area included" in a competing franchise, the City must ensure that the service area for the competing provider is no more favorable or less burdensome then the incumbent's service area. By way of example, the City can not allow a competitor to "cherry pick" only the high value homes in the City or only the multi-unit apartments and condominiums to the exclusion of lower value, single family homes. The City's Cable TV Ordinance at Section 306.1200 requires that operators provide cable service throughout a designated "Service Area" subject to certain minimum density requirements.20 Mediacom's serves the majority of the City although portions of the City remain unserved by Mediacom. Section 306.1200 authorizes the City to specify the Service Area for a franchise. Mediacom's franchise contains no specification and thus by default Mediacom's Service Area is established as the entire geographic area of the City. However, nothing in the City Code prevents the City from establishing a different Service Area for Integra. Within Integra's telephone service area, Integra will meet the exact same obligations and density requirements and will commit to serve every residential customer under the exact terms required of Mediacom. Mediacom has suggested to the City that the City should not grant any competing franchise unless the competitive provider is required to build-out to the exact same service area that was required by the City over 25 years ago when the original cable franchise was granted to Mediacom's predecessor in interest. The theory appears to be that it would not be fair to Mediacom, or its predecessor, because the original operator was forced to build the entire City. Yet even Mediacom's own trade association has contradicts this position. The Minnesota Cable Communications Association (MCCA), of which Mediacom is a long standing member, has submitted testimony to the House of Representatives supporting the concept of providing a cable franchise consistent with the telephone service area of a LEC: "Minn. Stat. § 238.084, Subd. 1(d). is Minn. Stat. § 238.08, Subd. 1(b). 19 Minn. Stat. § 238.08, Subd. 1(b) 20 See. Cable TV Ordinance at Section 306.1203 4 The MCCA also wishes to clarify the issue raised by Representative Beard at the January 11, 2008 working group meeting regarding differences between municipal and wire center boundaries. Representative Beard questioned whether Minnesota law needed to be changed at a minimum to address the problem about which some telephone companies have complained that they should not be forced by build-out requirements to provide services to customers who are outside their wire center. Such a requirement would require telephone companies facing such circumstances to build new plant to areas where their existing plant does not reach. The FCC's section 621 Order resolves this problem, finding "(i]t ...would seem unreasonable to require facilities-based entrants, such as incumbent LECs, to build out beyond the footprint of their existing facilities before they have even begun providing cable service.21 Thus even the MCCA recognizes that a universal service requirement is not mandatory under state and federal law. Nothing is local state or federal law mandate that the City impose a universal service requirement when granting a franchise. In fact the FCC has issued Orders finding it to be unreasonable for a City to require a telephone company to serve beyond its authorized telephone service territory. If the City were to accept Mediacom's position it would result in neither Qwest nor Integra being able to offer competing cable services, a result that would obviously favor Mediacom's current monopoly position. Integra's proposal to offer Internet Protocol Television (IPTV) is consistent with public policy underlving federal, state and Citv laws and ordinances Integra's IPTV offering is also consistent with the public policy underlying laws and ordinances requiring equitable treatment of alternative cable providers. Such requirements are meant to put alternative providers on a roughly level playing field as they come before public bodies seeking approval of their franchise proposals. By requiring equitable treatment of providers, local authorities encourage competitive offerings and prevent entrenched monopolists from blocking entry by new and innovative purveyors. Contrary to Mediacom's assertions, the provisions of the Integra franchise proposal will be no more favorable or less burdensome than those required of Mediacom. Integra answers the charges made by Mediacom in turn. Indemnification. Mediacom asserts that its scope of indemnification is wider than Integra's. In fact, Integra remains obligated to indemnify the City at any time that a third party brings a claim against the City because Integra has been negligent or committed an intentional act associated with the franchise or its operations; or breached its obligations under the franchise or the relevant section of the City Code; or acted in a manner contrary to the interests of its own employees, such as failing to comply with Social Security or withholding obligations. Mediacom does not point to anything that is lacking in this broad indemnification obligation. Z' Comments submitted on January 25, 2008 by Michael Martin, Executive Director of the Minnesota Cable Communications Association, Regarding January 11, 2008 Working Group Meeting; submitted to Hon. Sheldon Johnson, Chair Telecommunications Regulation and Infrastructure Division; citing the Order at¶89. 5 Security Fund. Mediacom protests that the City should require Integra to post a $100,000 performance bond, because Mediacom posted such a bond during its system installation. What Mediacom fails to mention is that its system required Mediacom to tear up public right-of-way to lay cable throughout the City. As Mediacom is aware, Integra's cabling is already in place to each of its subscribers' residences. A requirement for Integra to post a performance bond to guarantee repair of the right-of-way would be irrelevant and even punitive. System Design. Mediacom accuses Integra of "refusing" to agree to construct a system serving an average of 500 homes per fiber node. Such an accusation is absurd. As Mediacom is well aware, Integra's IPTV is carried from Integra's head-end over the subscribers' existing cable lines to each residence. No fiber node is necessary to carry the system to subscribers. Nothing in any statute or ordinance requires a new provider to provide an alternative service over the same technology as the incumbent. Such a requirement, if it existed, would be counter to competition, blocking new technologies and innovation from reaching subscribers. Right of First Refusal/Insurance. Mediacom gathers a number of accusations against Integra's offering under this heading. None of them has merit. First, as already mentioned, Integra's video offering will be provided over the same cable lines that are currently providing voice and data to its Prior Lake Subscribers. In the event of an expiration or termination of the cable franchise, Integra will continue using the telecommunications infrastructure it long ago laid throughout the City to provide its voice and data service. The City therefore cannot logically require Integra to remove or relocate the system upon which it depends because it stops offering one of its products. The City can require Integra to remove any cable system from City property, and Integra has agreed to do so. Second, the Integra franchise includes a right of termination of the service by Integra, should it find that the cable offering is no longer technically, economically, or financially consistent with its business plan, which is at its core the provision of local telephone service. At the same time, the franchise adds a right to the City to terminate the franchise, should the City find Integra in violation of a material term of the agreement or applicable laws, and a number of protections for the City if Integra lost its public liability coverage. Integra has certainly gained no advantage over Mediacom by the inclusion of these two provisions. Third, Integra's insurance provision, like the rest of its franchise, is nearly identical to Mediacom's. It is unclear what Mediacom refers to when it charges that Integra has the "unilateral ability to modify its insurance obligations in the City." Integra has no such ability. It has the same obligations as Mediacom to maintain sufficient public liability insurance covering itself and the City from outside claims. • Public, Education and Government (PEG) Access Channels. Mediacom operates one channel within the VHF range (i.e., channels 2-12) and accuses Integra of "refusing" to do so. Integra can if requested offer a channel between 2-12, but is aware of no advantage to the consumer in doing so. Integra's digital offering will provide the most up-to-date technology currently available. 6 • Service to Public Building. Mediacom accuses Integra of wrongdoing because its list of public buildings in Exhibit D-1 did not match the list attached to Mediacom's 1999 franchise. The City itself provided an update of the list in Integra's franchise to reflect the current status of the buildings. PEG Capital Grant. Mediacom asserts that Integra refuses to provide a capital grant to the City, as Mediacom did in the past. In fact, Integra has agreed to provide a similar amount of capital funding, as it gradually offers its IPTV service to subscribers. While Mediacom already had a wide base of customers upon which it could draw to provide the capital it pledged in 1999, Integra hasn't at the moment a single customer for its cable offering. By providing to the City a monthly fee of $0.10 per cable customer it is able to win, Integra will gradually, over the space of the 15 years that Mediacom held its last franchise, provide the City with a capital investment approximating the $77,000 that Mediacom provided. • CPI Adjustment. Although Mediacom complains regarding the lack of a CPI adjustment to the Access Operating Fee every two years, Mediacom in fact has never adjusted this fee in the fifteen years of its cable franchise. In sum, Mediacom's objections to Integra's franchise proposal are without merit. To the extent that any of the points raised reflect any difference at all, the differences are easily explained by the disparity in the companies' systems and circumstances. Any approach that would require a new entrant to mirror the technology and business plan of the incumbent would in effect stifle most competition and perpetuate the current monopoly. This cannot be what the legislature and City ordinance-drafters meant when they required equity in treatment of different providers. Integra has demonstrated robust managerial technical and financial qualifications to offer its video service in Prior Lake. Mediacom recommends that the City Council reject Integra's application because Integra has no prior experience in providing cable service. By that reasoning, all of the Minnesota cities and townships that currently sustain IPTV offerings by their local provider should have rejected their proposals. Mediacom does not explain Integra's alleged technical deficiency; indeed, it could not. As Integra has explained to the City Council, it backs its IPTV offering with years of proven telecommunications experience, and has furthermore retained a cable consultant to assist. Mediacom raises a straw man when it questions Integra's ability to provide its cable offering. Mediacom states that Integra has provided no information regarding its financial qualifications. In fact, Integra informed the City Council, at the public hearing on this proposal on April 20, that Integra's Scott Rice operation is financially robust and capable of undertaking the investment necessary to initiate and maintain its IPTV system from its own positive cash flow. Due to the characteristics of IPTV technology, particularly the fact that it is provided over the local telephone company's already existing copper lines, Integra is well able to financially support the one-time investment of less than $1,000,000 at its central office through its annual cash flow. 7 Integra's bundled voice, data, and video product will provide an additional cable alternative to every Prior Lake citizen within Inteara's service territory. Throughout its letter, Mediacom sounds a theme that Prior Lake citizens will be disadvantaged by Integra's provision of an alternative cable system in its service territory. Mediacom further accuses Integra of cherry-picking by its provision of service throughout its service territory within the City. These statements are fundamentally wrong. The Prior Lake citizens who reside within the section of the City served by Qwest already have a "triple play" option of voice, data, and video (through Qwest's partnering with a satellite provider). In the portion of the City within Integra's service territory, no such unified offering of voice, data and video has been available to residents. Integra's new product will enhance choice for those citizens. Integra will offer video to every subscriber in its service territory, so no possibility of "cherry-picking" exists. The effect of the City's granting a franchise will be the increase of competitive choice for all its citizens. Mediacom cannot spin the basic fact: Integra's new IPTV offering will offer all the citizens of Prior Lake the same opportunity to choose among competitive "triple play" offerings. Conclusion Mediacom has attempted to paint Integra's franchise proposal as anti-competitive because it reflects a new technology. In fact, the alternative provided to Prior Lake citizens within Integra's service territory will foster healthy video competition within the City. The City Council should grant Integra's proposal. Sincerely, --~ / i ~~ Ginny Zeller Associate General Counsel Integra Telecom, Inc. 763-745-8469 (Direct) 763-745-8459 (Dept. Fax) ~azeller rx_integratelecom.com 8 ~~ " ~. • _. TELECOM May 15, 2009 ~a a-lnai6 Suesan Lea Pace Halleland Lewis fVilan & Johnson 600 tJS Bank Plaza South 220 South Sixth Street Minneapolis, MN 55402-4501 !n#egra Telecom 61ec e~ieen ~~~~s n~~~e G~ idenV~alley, MN 55416 l ~~~.inregratefecorii.coai Re: Integra Telecom, Int.'s application for cable franchise, City of Prior Lake Dear Suesan: This letter is in response to your e-mail of May 4, 2009, in which you requested confirmation of several issues regarding Integra's application far a cable franchise to provide IPTV service within its Prior Lake service territory. 1 will respond to the items in the May 4 e-mail in turn. 1. You requested confirmation Pram Integra that, if the City moves forward with Integra's application .arid iVlediacom brings any form of action in law or equity challenging the City's grant of a franchise to Integra, Integra wiU defend and hold the City harmless in said Jitigation. Title 47 U.S.C. § 555a (a) significantly limits a franchising authority's potential liability if it is challenged regarding its decision to grant a franchise. The subsection reads in fuq as follows: 555a. Limitation ®f franchising authority liability (a) Suits for damages prohibited in .any court proceeding pending on or initiated after October 5, 1992, involving any claim against a franchising authority or other governmental entity, ar any official, member, employee, or agent of such authority or entity, arising from the regulation of cable sen~ice or from a decision of approval or disapproval with respect to a grant, renewal, transfer, or amendment of a franchise, any relief, to the extent such relief is required by any other provision of Federal, State, or local law, steal( be limited to injunctive relief and declaratory relief. The federal provision thus removes the possibility of the City's grant of a franchise to Integra. resulting in the City's being required to pay damages to a disgruntled competitor. The City's monetary exposure could extend only to the costs of defense, should such an action be brought. To address the City's remaining liability, Integra proposes the insertion of the indemnity provision below as a new subsection (b) to Section 3.6 Indemnification of the proposed franchise. The added indemnity provision will protect the City from potential costs of litigation stemming from a grant of Integra's franchise; the litigation will be undertaken by Jntegra on the City's behalf. Suesan Lea Pace May 15, 2Q09 Page 2 (b) In addition ta, and without in any way limiting the foregoing, Grantee shall indemnify, defend and hold the Indemnified Parties harmless from any and .all proximate damages, judgments, settlements, or casts of defense arising from an action brought in law ar equity by Mediacom challenging Grantor's grant of a franchise to Grantee, to the extent of the limits of Grantor's liabifty itt 47 U.S.G. § 555a. Grantee shall provide the defense of any such claims brought against. Grantor by selecting counsel of Grantee's choice to defend the claim, subject to the consent of Grantor, which shall not unreasonably be withheld. Nothing herein shall be deemed to prevent the Gran#or from cooperating with the Grantee and participating in the defense of any litigation by its own. counsel at its own cast and expense. Section 3.6 Indemnification, with the added subsection, is enclosed. 2. You requested a letter from Brian Grogan, as outside counsel to Integra, regarding his opinion that lntegra's application is consistent with relevant federal, state and local cable Paws. Mr. Grogan's opinion letter is enclosed. 3. You requested confirmation that Integra will offer its services bundled and' unbundled. Integra. will offer voice, Internet, and video as both bundled and unbundled services. The pricing of Lntegra's unbundled video offering wil! reflect market factors. 4. You requested an explanation of the capifal cosf payment. A chart sh©wing the calculation of Iptegra's and Mediacom's capital commitment for PEG equipment is enclosed. l `hope #hat these materials clarify Integra's franchise proposal to your satisfaction. Should you have any further questions, or wish to discuss these issues, please feel free to contact me. Sincerely, cc Frank Soyles, Prior Lake City Manager David Kunde, General Manager, Integra Telecom, Inc. U tinny Zeller Associate General Counsel Integra Telecom, Inc. 763-745-8469 (Direct) 763-745-8569 (Direct Fax) 3.6 Ir~cfemraificati®r~ {a} Grantee shall indemnify and defend and hold Grantor, its officers, boards, commissions, agents, and employees {collectively the "Indemnified Parties"} harmless from and against any and all lawsuits, claims, causes of action, actions, liabilities, demands, damages, ~udgrrnents, settlements, disability; losses, expenses {including attorney's fees and disbursements of counsel) and posts of any nature that any of the Indemnified Parties may at any time suffer, sustain or incur arising out of, based upon or in any way connected with the Grantee's negligent acts or omissions or intentional misconduct related to Cable Service operations or the exercise of this Franchise, the breach by G rantee Of its ablgations under this Agreement or Section 306 of the City Code andlot the activities of Grantee, its subcontractor, employees and agents harmsunder. Grantee shall be solely responsible for and shall indemnify, defend and.. hold the lne4emnified Parties harmless from and againsf any and all matters relative to payment of Grantee's employees, including compliance with Social Security .and withholdings. gyp) In addition fo, and wir'houf in antic way limifing the fcregoinq, Grantee shall indemnify and defend the Indemnified Parties from an y and all .proximate damages. judc~mants, settlements, or cosfs of defense arising from an action br©ughf in law or equity b y IVlzdiacom challenc~in~ Granfor's grant of a franchise to Grantee to the exfent of the limits of Grantor's liability ir, ~7 U.S.C. 555a. Grantee shall provide the defense of any such claims brought apainsf' Grantorby selecting counsel of Grantee's choice fo defend the claim, s~rbiect to the consent of Grantor which shall not unreasonably be withheld. 1~1o>`hint,~hereira shall be deemed to ,prevent the Grantor from cooosratina with fhe Grantee and the own counsel at its own expense. (c} The indemnification obligations of Grantee set forth in this Agreement are. not limited in any way by the amount of damages or type of damages or compensation payable by or for Grantee under Workers' compensation, disability or other employee benefit acts, acceptance of insurance certificates required under this Agreement, or the terms, applicability or lirryitafions of any insurance h:~id by Grantee. {d) Grantor does not, and shall not, waive any rights against Grantee which it may have by reason of the indemnification provided for in this Agreement, because of the acceptance by Grantor, or the deposit with Grantar by Grantee, of any of the insurance policies described in this Agreement. (e) The indemnification of Grantor by Grantee provided for in this Agreement shall apply to all damages and claims for damages of any kind suffered by reason of any of the Grantee's oper~!tions referred to in this Agreement, regardless of whether or not such insurance policies shall have been determined to be applicable to any such damages or claims for damages. ~fl Grantee shall not be required to indemnify Grantor for the negligence or misconduct of Grantor, its officials, boards, commissions, agents, yr employees. Grantor shall hold Grantee harmless, subject to the limitatians in Minnesota Statutes Chapter 466, for any damage resulting from the negligence ar misconduct of the Grantor ar its officials, boards, commissions, agents, or employees in utilizing any l'~G access channels, equipment, or facilities and for any such negligence or misconduct by Grantor in connection with worts performed by Grantor and permitted by this Agreement, on or adjacent'to the Cable System. ~~g~ a~ ~ ilj ~,. ..,~`, May 14, 2009 Ms. tinny Zeller Integra'Telecam, Inc, blti~ Golden Hills Drive Golden Valley, MN 55416-1020 Re: Gable Television Franchise -Prior Lake, Minnesota Dear Ms. Zeller: You have regunster! my opinion i~~'.C~ atdi lq c4:~l~~ir7 aspects of the cable television franchise proceeding involving the City cif ~ ;~ir,i lake, r~innesota {"City"` and Integra Telecom ('`Irlte~ra'~. This letter ~:~is forth my opinion based upon my revie~~~ of trr~ fc'lo~t~~ir~c~ dc,~uments utilized and/or u~.der consideration by the Ciiy an<a Intec~rt,: i. .Notice of Intent to Franchise ("Nctice'~; 2, Applie~tion for a cable communications franchise {°Application"); 3. Proposal submit`eci by In'~ngr<n ("Propasa!„} in respcns2 to the Ap^lcation 4. Drab Integra Fr~~nchise ~1!iti! tl~c Ciro ("Integra Franchise'; and 5. Franchi~~ granted by City ,~n or about C~ober a5, i999 to Triax Niid~a~est Associates, L.P,, now held by Mediacom 1_LC f"kiedia,com Frar~;chise"} ~~-c?~~~f~y-€ ,~llr~~ted tn~~ ~r~~e~t-~ end t4ie Citg~ The City of Prior Lake published the Notice seeking applicatio~~s to provide cz~ble television services in the City. Based upon this notice Integra obtained a copy of the City's Appiic~tt~n and Integra subm~tt~~d its Prvr~osal to the City requesting a cable television franchise. The City's 1lrocess of iss~~~ng t:,e No:icc and A~pi`c.?tian r,s t~~~ell as the contents of'noi" the Notice and lxpplica~tion were cor~,sisi:e.;rt v~itii tl~c~ requirements of t~9innesota Statutes Section ~38.4£~1 ("section 238.081"). Integra's Proposal to the City address:°d each require~~~cnt of the Application and to the fJZ at of my knowledge ~;~y <and all ree~~ests ley the City far supplemental information were provided by Integra as re~~l~red by ~ ection~~~~c3.C)F~1. Section 238.081 further requires that t1~e City bald a public hearing regarding all proposals submitted in response to the Applic:~tion. Integra's Proposal was the only one received. by the City and the City conducted a public hearing on April 20, 2009 at which interested parties were offered a reasonable opportunit~~ to be heard with respect to Tntegra's Proposa{, vVhile I have nt?t reviev~red the City`s official ,minutes of the public h+~ar-incl, I personally ati:Pnded :the hearing .and m~~ n;-~tes reflect there were no com~nenis ire op,~~~5ii~ior+ to h~tegra's Proposal. Ms. Cnriy Zeller ~.`' ~ ~ '~~ May 14, 2009 Page 2 Based upon my review of the documa ntr,,tion in this prod°ding, all of the procedr.~r~i requirements of Section 238.081 have been met by the City and Integra. in addition to the State mandated procedural rtipuiremnnts to obtain a franchise, :Minnesota Statutes Section 238.084 ("Section 2~5.r~84"} regz~ires that r-crtain provisionsmustbecontained in acable franchise granted by t1 ~e Cit?; . i he Gty's Cody: at S~:ction 306 also sets fnr<h certain obligations which muse: iae met: Icy r::rly operator se~~! i~~c tct i:~rovide r_t,ble services in the City, The Integra Franchise meets ail reci ~-~ r~~r7ts of ~;<< ir;~, 238.08~t and the C,t~, Coda intact; the Integra Franchise is based largely on the existing Meg!{~:coE-n Frar~~chise which has been in place. in tl~e City since 1999, The Integra Franchise and Mediacom Franchise are substantially the same in all material respects and impose the same material burdens on each operator taking into consid.ration the applicable franchise terns and existing subsr,riber counts. Mediacom has argued to the City thatthe `service area" specified in ter? Ir~t~gra Frar~ohise at Section 1.1 is inappropriate andthe City should mandate that ?ni_~~ra serve the entire City. Mediacom ~~sse'fis that to dt~ otherwise theCity would be in vialatio~ ~ c~~ locai~ s"ate and federal IG><~~. E?asad on my review of Sectien 306 of he City Code, Minnes~~ta Si~at.u~,cs Chapter Z38, th Federal Caf~le Communicatie~ns Rolicy Act of 19$4, as amended and a;?plic~~ble FCC r~ci~.rl'3tra~s, there is nothing prohibiting the pity fror~ngranting the Integra Franci~~ise and esiablishing a service area which matches Integra's authorized telephone service area specified by the Minnesota Public Utilities Commission. The legal analysis support irg the "service area" specified a': Section 1.1 of the Integra Franchise inset forth in your May 1, 2009 letter to the Hanorabit~ ?aci< G. Haugen and members of~the City Cor_rnril for thrv City of Prior t.ai:e regarding Integra's Application. I concur with the legal analysis set forth in your May 1, 2009 ci~rrrzs;:~o~~d~ i~-e vlith res{~ec` to both build out mandates anri universt~' see-ice requiren~~::nts appli~~ai,ie unrier local, state rind f^d:~ral law. If you should h~:ve ary questit?~s a; if i can provide an~yt additional inforr~r~~tion or assistance ~~ please feeE ~ r-~~_ n carrt~~c` me. Very truly yours, r ~ri;a~-~ ~". ~~oa~~r AttQrnev At Law (~1~)377-5340 Grc~ganBC~moss-ba rnelt.com ~TGJrec ec: Su son Lei-Pace, Prior Lake City,~ttorney 1386208x1 a s ..~ :. .a • ~ U r N m '-. ', r, .L~ ..~ U U ~-' ~ ~ r ~ ~ !cY ~ ; -, /, a3 .~ V~ ~ ^ p ~ ~ O c3 C G ti y C 'G '~ ~ ~ ~ -~ cd-1 v 'd N • ~ W o'~o c o~ c ~ ~, ~ c c ~~ c <~ Gj ri o o O ~"" ~' 4--+ bE3 .r.., di O +~ ~ -~.~ c~ LL ~ ~ ~ ,~ i ' ~. .-. v ~ ~ ~ ~ ;~ ~ ~ 0. W ~ ~ ~ f z ¢ ~ ~ ~ w ~ °` ~ zs ~~~ ~ v ~ ~~U f ~, - ~, ~, ~, a ~ ~~~ ~ ~~ ~ ~ °~ ~ =• y~ r J~~ m U ,.r ~ .~ ~ G C O v U U G ~ ~'' ~1. G~ u C! W ~ ~~ ~ -c a. ~ a. .... ~ ~ a, ~ ~ ~ w vw~ vU~~ ~ ~ J ~v ~~ z ~ ~ ov ooo ~' ' ~~ ' c~ ~ ~c ~ ~ ~ ~ b ~ ~ o ~O;~W ~z~ ~ ~ ~~ ~ ~ ~: 4 PRIO O ~ H fy3, u ;__ f x ~: ~IN1VESO~P . 4646 Dakota Street S.E. Prior Lake, MN 55372-1714 The May 29, 2009, letter from Mediacom has not yet been received. It will be distributed as soon as we get it. www. cityofpriorlake. com Phone 952.447.9800 /Fax 952.447.4245 THE CITY OF PRIOR LAKE, MINNESOTA CABLE TELEVISION FRANCHISE AGREEMENT Prepared By: SCOTT RICE TELEPHONE COMPANY DBA INTEGRA TELECOM JUNE 1, 2009 TABLE OF CONTENTS 1. GENERAL PROVISIONS ..........................................................................................................1 1.1)Definitions .................................................................................................................. ..1 1.2) Written Notice ............................................................................................................ ..1 2. RENEWAL OF FRANCHISE ................................................................................................... ..2 2.1)Grant ........................................................................................................................... ..2 2.2) Right of Grantor to Issue and Renew Franchise ......................................................... ..2 2.3) Effective Date of Renewal .......................................................................................... ..2 2.4) Term ............................................................................................................................ ..3 2.5) Franchise Not Exclusive ............................................................................................. ..3 2.6) Ownership of Grantee ................................................................................................. ..3 3. GENERAL REQUIREMENTS ................................................................................................. ..3 3.1) Governing Requirements ............................................................................................ ..3 3.2) Franchise Fee .............................................................................................................. ..3 3.3) Not Franchise Fees ..................................................................................................... ..4 3.4) Recovery of Processing Costs .................................................................................... ..4 3.5) Liability Insurance ...................................................................................................... ..5 3.6) Indemnification ........................................................................................................... ..6 3.7) Grantee's Insurance .................................................................................................... ..7 3.8) Workers' Compensation Insurance ............................................................................ ..7 3.9) Security Fund .............................................................................................................. ..7 3.10) Procedure for Enforcing Franchise Agreement ........................................................ ..8 3.11) Reservation of Rights ............................................................................................... ..8 4. DESIGN PROVISION ............................................................................................................... ..8 4.1) Minimum Channel Capacity ....................................................................................... ..8 4.2) System Design ............................................................................................................ ..9 4.3) Operation and Maintenance of System ....................................................................... ..9 4.4) Special Testing ........................................................................................................... ..9 4.5) FCC Reports ............................................................................................................... 10 4.6) Emergency Alert Capability ....................................................................................... 10 4.7) Parental Control Lock ................................................................................................. 10 4.8) Technical Standards .................................................................................................... 10 4.9) Right of Inspection ..................................................................................................... 10 4.10) Periodic Evaluation, Review and Modification ........................................................ 10 5. SERVICES AND PROGRAMMING ........................................................................................ 12 5.1) Services and Programming ......................................................................................... 12 5.2) Leased Channel Service .............................................................................................. 12 5.3) Periodic Subscriber Survey ........................................................................................ 12 6. PUBLIC ACCESS PROVISIONS ............................................................................................. 12 6.1) Public, Educational and Government Access ............................................................. 12 6.2) Grantee Support for PEG Usage ................................................................................. 12 7. REGULATION .......................................................................................................................... 13 7.1) Amendment of Franchise Agreement ......................................................................... 13 ii 7.2) Conflict Between Section 306 of the City Code and Agreement ...............................13 7.3) Force Majeure .............................................................................................................13 7.4) Rate Regulation ..........................................................................................................14 7.5) Telecommunications Network Transfer Prohibition ..................................................14 7.6) Termination by Grantee ..............................................................................................14 iii FRANCHISE AGREEMENT THIS FRANCHISE AGREEMENT (hereinafter the "Agreement"), made and entered into this day of 2009, by and between the City of Prior Lake, a municipal corporation of the State of Minnesota (hereinafter the "City" or "Grantor"), and Scott Rice Telephone Company dba Integra Telecom (hereinafter the "Grantee"). WITNESSETH WHEREAS, pursuant to Section 306 of the Prior Lake City Code, the City is authorized to grant and renew one or more nonexclusive revocable Franchises to operate, construct, maintain and reconstruct a cable television system within the City; WHEREAS, Grantee proposes to construct, operate and maintain the Cable Television System described at Exhibit E (the System) to provide Cable Services if granted a Franchise by the City; WHEREAS, the City, after due evaluation of the Grantee's technical ability, financial condition and legal qualifications, and after public hearing, has determined that it is in the best interest of the City and its residents to grant a Franchise to be held by the Grantee; WHEREAS, in consideration of Grantee's provision of Cable Services as required by this Agreement, the City has agreed to grant a Franchise to be held by the Grantee; and NOW, THEREFORE, in consideration of the foregoing promises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. GENERAL PROVISIONS 1.1) Definitions. Capitalized terms used in this Agreement shall be defined as set forth in Section 306 of the City Code unless (i) otherwise defined herein, or (ii) the context otherwise requires. Service Area or Franchise Area. For purposes of this Franchise Agreement these terms shall mean the authorized telephone service area for Scott Rice Telephone Company dba Integra Telecom as prescribed in the Certificate of Need issued by the Minnesota Public Utilities Commission and dated August 12, 1998, in Docket No. P- 5643/NA-98-660. (Scott Rice Telecommunications, Inc. was initially registered with the Minnesota Secretary of State as a domestic corporation on February 13, 1945). 1.2) Written Notice. All notices, reports or demands required or permitted to be given under this Agreement and/or Section 306 of the City Code shall be in writing and shall be deemed to be given when delivered personally to the party designated below, or when five (5) days have elapsed after it has been deposited in the United States mail in a sealed envelope, with registered or certified mail, postage prepaid thereon, or on the next business day if sent by express mail or nationally recognized overnight air courier addressed to the party to which notice, report or demand is being given, as follows: If to City: City Manager 4646 Dakota Street S.E. Prior Lake, MN 55372-1714 If to Grantee: General Manager Integra Telecom 4690 Colorado Street SE PO Box 299 Prior Lake, MN 55372 Such addresses may be changed by either party upon notice to the other party given as provided in this Section. 1.3) Recitals Part of Agreement. The parties to this Agreement agree that the facts set forth in the Recitals above are a part of this Agreement as if they were restated in it. SECTION 2. GRANT OF FRANCHISE 2.1) Grant. This Franchise hereby grants Grantee the authority, right and privilege to construct, reconstruct, operate and maintain a Cable Television System described at Exhibit E (the System) to provide Cable Services within the Franchise Area. 2.2) Right of Grantor to Issue and Renew Franchise. Grantee acknowledges and accepts the right of Grantor to issue and/or renew the Franchise under federal or state law and Section 306 of the City Code as it existed on the Effective Date hereof. Any future renewals granted by Grantor will be governed by the applicable federal or state law and Section 306 of the City Code at the time of renewal. 2.3) Effective Date of Franchise. The grant of the Franchise provided for in this Agreement shall be effective on the date that both parties have executed this Agreement (the "Effective Date"), provided that said date is no later than thirty (30) days after the date the City Council, by Resolution, approves this Agreement (the "Approval Date"). The grant of the Franchise provided for in this Agreement is further contingent upon the Grantee filing with the Prior Lake City Clerk a fully executed copy of this Agreement together with the security fund and insurance certificates provided for in this Agreement and Section 306 of the City Code. If such filing does .not occur within thirty (30) days after the Approval Date, the Grantor may, in its sole discretion, declare the grant of the Franchise provided for herein to be null and void. 2.4) Term. The term of the Franchise granted pursuant to this Agreement shall be from the date this Agreement was executed by both parties to November 30, 2014, at which time the Franchise shall expire and be of no force or effect unless the Franchise is then renewed in accordance with the City Code and Applicable Laws. Notwithstanding the foregoing, the City may extend the term of this Franchise for a period of not more than 180 days should additional time be required by the City to process an application or request for renewal of this Franchise. 2.5) Franchise Not Exclusive. The Franchise granted pursuant to this Agreement shall not be construed as limiting the right of Grantor, through its proper offices, and in accordance with the City Code and Applicable Law, to grant other Franchises containing terms and conditions that are no more favorable or less burdensome than those imposed on Grantee by this Franchise ;provided, however, that such additional grants shall not operate to materially modify, revoke or terminate any rights granted to Grantee herein and shall be in accord with the provisions of Section 306 of the City Code. 2.6) Ownership of Grantee. Grantee is a wholly-owned subsidiary of Integra Telecom Holdings, Inc. Integra Telecom Holdings, Inc. is a wholly-owned subsidiary of Integra Telecom, Inc., an Oregon corporation. Integra Telecom, Inc. is a privately-held corporation. Three private equity investors each own more than a 5% equity interest in Grantee through their investment in Integra Telecom, Inc. SECTION 3. GENERAL REQUIREMENTS 3.1) Governing Requirements. Grantee shall comply with all lawful requirements of this Agreement, Section 306 of the Prior Lake City Code and applicable City, State and Federal Laws. 3.2) Franchise Fee. In consideration of the grant of the Franchise provided for herein, the Grantee shall, at all times during the term of this Agreement, pay to Grantor a Franchise Fee of five percent (5%) of Grantee's Gross Revenues as defined in Section 306.200 but excluding any Access Operating Support funds collected (e.g., the Access Operating Fee and PEG Fee required by Exhibit D, Paragraph 5, shall not be included as part of Grantee's Gross Revenues). The Franchise Fee shall be payable quarterly within thirty (30) days of the expiration of the preceding calendar quarter. Each payment shall be certified by Grantee's local management and shall be accompanied by a report in such form as the City may reasonably request showing the computation of the Franchise Fee as it relates specifically to the Franchise Area for the preceding calendar quarter and such other relevant facts as may be required by the City, including the completion of a Franchise Fee Payment Worksheet in the form attached hereto as Exhibit B. 3.3) Not Franchise Fees. (a) Grantee acknowledges and agrees that the Franchise Fees payable by Grantee to the City pursuant to Section 3.2 hereof shall take precedence over all other payments, contributions, Services, equipment, facilities, support, resources or other activities to be provided or performed by the Grantee pursuant to this Agreement and/or Section 306 of the City Code and that the Franchise Fees provided for in Section 3.2 of this Agreement shall not be deemed to be in the nature of a tax, and shall be in addition to any and all taxes of general applicability and other fees and charges which the Grantee shall be required to pay to the City and/or to any other governmental authority, all of which shall be separate and distinct obligations of Grantee. (b) Grantee shall not apply or seek to apply or make any claim that all or any part of the Franchise Fees or other payments or contributions to be made by Grantee to Grantor pursuant to this Agreement and/or Section 306 of the City Code shall be deducted from or credited or offset against any taxes, fees or assessments of general applicability levied or imposed by the City or any other governmental authority, including any such tax, fee or assessment imposed on both utilities and cable operators or their services. (c) Grantee shall not apply or seek to apply all or any part of any taxes, fees or assessments of general applicability levied or imposed by the City or any other governmental authority (including any such tax, fee or assessment imposed on both utilities and cable operators for their services) as a deduction or other credit from or against any of the Franchise Fees or other payments or contributions to be paid or made by Grantee to Grantor pursuant to this Agreement and/or Section 306 of the City Code, each of which shall be deemed to be separate and distinct obligations of the Grantee. 3.4) Recovery of Processing Costs; Cost Sharing. (a) During the term of this Agreement, if the Grantee initiates a request for approval regarding the transfer of this Franchise or a change in control of the Grantee (which approval the City shall not unreasonably deny or delay), the Grantee shall, to the extent permitted by Applicable Laws, reimburse the Grantor for all reasonable out-of- pocket costs, including attorneys' and consultants' fees and costs, incurred by the Grantor in connection with Grantor's review and processing of Grantee's request up to a mutually agreed upon reasonable cap. (b) To aid in the analysis and resolution of any future disputed matters relative to this Agreement, the Grantor and Grantee may, by mutual written agreement (both as to whether to hire and whom to hire), employ the services of technical, financial and/or legal consultants, as mediators. All reasonable fees of the consultants incurred by the Grantor and/or the Grantee in this regard shall, unless the parties otherwise agree, be borne equally by Grantor and Grantee. 3.5) Liability Insurance. (a) Upon the Effective Date, the Grantee shall, at its sole expense and in addition to all other required insurance under Section 306.2700 of the City Code, take out and maintain during the term of this Agreement public liability insurance with a company licensed to do business in the State of Minnesota with a rating by A.M. Best & Co. or an equivalent rating service of not less than "A." The public liability insurance shall protect the Grantee, the Grantor, their officials, officers, directors, employees and agents from claims which may arise from operations under this Agreement, whether such operations be by the Grantee, its officials, officers, directors, employees, agents or any subcontractors of Grantee. The public Liability insurance shall include, but shall not be limited to, protection against claims arising from bodily and personal injury and damage to property, resulting from Grantee's vehicles, products and operations. The amount of insurance for single limit coverage applying to bodily and personal injury and property damage shall not be less than Two Million Dollars ($2,000,000.00). The following endorsements shall be attached to the liability policy: (1) The policy shall provide coverage on an "occurrence" basis. (2) The policy shall cover both personal. injury and bodily injury. (3) The policy shall cover blanket contractual liability subject to the standard universal exclusions of contractual liability included in the carrier's standard endorsement as to bodily injuries, personal Injuries and property damage. (4) Property damage liability. (5) The Grantor shall be named as an additional insured on the policy. (6) An endorsement shall be provided which states that the coverage is primary insurance with respect to claims arising from Grantee's operations under this Agreement and that no other insurance maintained by the Grantor will be called upon to contribute to a loss under this coverage. (7) Standard form of cross-liability shall be afforded. (b) Grantor reserves the right to adjust the insurance limit coverage requirements of this Agreement no more often than once every three (3) years. Any such adjustment by the Grantor will be no greater than the increase in the State of Minnesota Consumer Price Index (all consumers) over the preceding such three (3) year period. (c) Grantee shall submit to Grantor a certificate of insurance signed by the insurance agent showing proof of the required insurance. The certificate shall state that the policies shall not be cancelled without providing thirty (30) days written notice in advance to Grantor. Consistent with Section 7.7 of this Agreement, upon receipt of any such cancellation notice, Grantee shall obtain an alternative to the required insurance prior to the cancellation date. Failure to do shall be considered a material breach of this Agreement for which Grantee shall be subject to revocation by the City of its right to operate a Cable System in City pursuant to Section 7.7 of this Agreement. 3.6) Indemnification. (a) Grantee shall indemnify, defend and hold Grantor, its officers, boards, commissions, agents, and employees (collectively the "Indemnified Parties") harmless from and against any and all lawsuits, claims, causes of action, actions, liabilities, demands, damages, judgments, settlements, disability, losses, expenses (including attorney's fees and disbursements of counsel) and costs of any nature that any of the Indemnified Parties may at any time suffer, sustain or incur arising out of, based upon or in any way connected with the Grantee's negligent acts or omissions or intentional misconduct related to Cable Service operations or the exercise of this Franchise, the breach by Grantee of its obligations under this Agreement or Section 306 of the City Code and/or the activities of Grantee, its subcontractor, employees and agents hereunder. Grantee shall be solely responsible for and shall indemnify, defend and hold the Indemnified Parties harmless from and against any and all matters relative to payment of Grantee's employees, including compliance with Social Security and withholdings. (b) In addition to, and without in any way limiting the foregoing, Grantee shall indemnify and defend the Indemnified Parties from any and all proximate damages, judgments, settlements, or costs of defense arising from an action brought in law or equity by Mediacom challenging Grantor's grant of a franchise to Grantee, to the extent of the limits of Grantor's liability in 47 U.S.C. § 555a. Grantee shall provide the defense of any such claims brought against Grantor by selecting counsel of Grantee's choice to defend the claim, subject to the consent of Grantor, which shall not unreasonably be withheld. Nothing herein shall be deemed to prevent the Grantor from cooperating with the Grantee and participating in the defense of any litigation by its own counsel at its own cost and expense. (c) The indemnification obligations of Grantee set forth in this Agreement are not limited in any way by the amount of damages or type of damages or compensation payable by or for Grantee under Workers' Compensation, disability or other employee benefit acts, acceptance of insurance certificates required under this Agreement, or the terms, applicability or limitations of any insurance held by Grantee. (d) Grantor does not, and shall not, waive any rights against Grantee which it may have by reason of the indemnification provided for in this Agreement, because of the acceptance by Grantor, or the deposit with Grantor by Grantee, of any of the insurance policies described in this Agreement. (e) The indemnification of Grantor by Grantee provided for in this Agreement shall apply to all damages and claims for damages of any kind suffered by reason of any of the Grantee's operations referred to in this Agreement, regardless of whether or not such insurance policies shall have been determined to be applicable to any such damages or claims for damages. (f) Grantee shall not be required to indemnify Grantor for the negligence or misconduct of Grantor, its officials, boards, commissions, agents, or employees. Grantor shall hold Grantee harmless, subject to the limitations in Minnesota Statutes Chapter 466, for any damage resulting from the negligence or misconduct of the Grantor or its officials, boards, commissions, agents, or employees in utilizing any PEG access channels, equipment, or facilities and for any such negligence or misconduct by Grantor in connection with work performed by Grantor and permitted by this Agreement, on or adjacent to the Cable System. 3.7) Grantee's Insurance. Grantee shall not commence any Cable System reconstruction work or permit any subcontractor to commence work until all insurance required under this Agreement and Section 306 of the City Code has been obtained and the certificate of insurance required in Section 3.5(c) is provided to Grantor. Said insurance shall be maintained in full force and effect until the expiration of this Agreement. 3.8) Workers' Compensation Insurance. Grantee shall obtain and maintain Workers' Compensation Insurance for all of Grantee's employees, and in case any work is sublet, Grantee shall require any subcontractor similarly to provide Workers' Compensation Insurance for all of their employees, all in compliance with State laws, and to fully indemnify the Grantor from and against any and all claims arising out of occurrences on the work performed by Grantee and/or its subcontractors. Grantee hereby indemnities Grantor for any and all costs, expenses (including attorneys' fees and disbursements of counsel), damages and liabilities incurred by Grantor as a result of any failure of either Grantee or any subcontractor to take out and maintain such insurance. Grantee shall provide the Grantor with a certificate of insurance indicating Workers' Compensation coverage on the Effective Date. 3.9) Security Fund. (a) Within sixty (60) days of the Approval Date, Grantee shall establish and provide to Grantor a security fund, as security for the full and timely payment and performance by Grantee of all of its obligations under this Agreement and Section 306 of the City Code. The security fund shall be in the amount of at least Ten Thousand Dollars ($10,000) and shall be in the form of an irrevocable letter of credit reasonably acceptable to the City Attorney. (b) The security fund shall be maintained at the Ten Thousand Dollar ($10,000) level throughout the term of this Franchise Agreement. If, at any time during the term of this Franchise, Grantee seeks consent to a transfer or assignment of its rights hereunder, Grantor may unilaterally increase the security fund up to Twenty Thousand Dollars ($20,000) if it so chooses. (c) The security fund may be drawn upon by Grantor for those purposes specified in Section 3.10 hereof, in accordance with the procedures of Section 3.10 and Section 306 of the City Code. Grantee's recourse, in the event Grantee believes that Grantor's actions in taking any security funds is improper, shall be through legal action after the security has been drawn upon. Actions brought by Grantee hereunder may be subject to 47 U.S.C. §555A -Limitations of Franchising Authority Liability -which is hereby incorporated by reference as if fully set forth herein. (d) Nothing herein shall be deemed a waiver of the normal permit requirements made of all contractors working within the City's rights-of-way. 3.10) Procedure for Enforcing Franchise Agreement. (a) The procedures for enforcing violations or breaches of this Franchise Agreement and/or Section 306 of the City Code shall be consistent with the procedures set forth in Section 306.3000 of the City Code in effect on the date of enactment of the Franchise. (b) In the event the Council finds that a material violation or breach exists and that Grantee has not cured the same in a satisfactory manner, has not diligently commenced correction of such violation or breach or has not diligently proceeded to fully remedy such violation or breach, the Council may impose liquidated damages, assessable from the security fund, of Three Hundred Dollars ($300) per day or per incident for unexcused violations or breaches regarding Section 306.1200 of the City Code and up to One Hundred Fifty Dollars ($150) per day or per incident for all other violations or breaches of this Agreement and/or Section 306 of the City Code, provided that all violations or breaches of a similar nature occurring at the same time shall be considered one (1) incident. However, City reserves the right to impose separate penalties for each day said violation continues. 3.11) Reservation of Rights. Grantor and Grantee reserve all rights that they may possess under Applicable Laws unless expressly waived herein. SECTION 4. DESIGN PROVISION 4.1) Minimum Channel Capacity. (a) Grantee currently operates and maintains a communications system which provides telecommunications and information services to residents and businesses ("Telecommunications Network") within the City pursuant to authority prescribed in the Certificate of Need issued by the Minnesota Public Utilities Commission. Utilizing its Telecommunications Network, Grantee shall maintain and operate within the City a System which shall be capable of delivering a minimum of one hundred twenty (120) video program channels and which shall at System turn-up deliver to all subscribers capable of receiving said channels a minimum of one hundred twenty (120) video program channels. (b) All programming decisions remain the sole discretion of Grantee provided that Grantee complies with federal law regarding notice to City and Subscribers prior to any channel additions, deletions, or realignments, and further subject to Grantee's signal carriage obligations pursuant to 47 U.S.C. §§ 531-536, and subject to City's rights pursuant to 47 U.S.C. § 545. . 4.2) System Design. (a) The System required herein will be engineered and built to provide a minimum of one hundred twenty (120) channels. Grantee shall, upon request, meet with City to explain its System operations prior to the commencement of Cable Services in the City and shall, at the request of City, participate in public meetings designed to inform residents of City of said operation. The System shall at all times meet the technical standards established by the FCC as they may be amended from time to time and shall be operated so as to minimize disruption of signal to Subscribers. The general System description is outlined in Exhibit E, which is incorporated herein by reference. (b) When System has been turned up and service commenced, upon a request for service from a prospective Subscriber, Grantee shall generate a service order and service order will contain an installation date. Grantee shall advise prospective Subscriber that if installation is not accomplished within the time frame specified by the service order, installation shall be free to the Subscriber or, at the election of the Subscriber, Grantee shall provide the Subscriber with a Twenty Dollar ($20) credit, provided that no such free installation or credit shall apply if delay in installation is caused by prospective Subscriber or by events pursuant to Section 7.3 herein. 4.3) Operation and Maintenance of System. The Grantee shall render effective service, make repairs promptly, and interrupt service only for good cause and for the shortest period of time possible. Such interruption, to the extent feasible, shall be preceded by notice in accordance with Section 1.2 herein and all applicable provisions of the Section 306 of the City Code, and shall occur, to the extent feasible, during periods of minimum use of the System. 4.4) Special Testing. City may require special testing of a location or locations within the System if there is a particular matter of controversy or unresolved complaints pertaining to such location(s). Demand for such special tests may be made on the basis of complaints received or other evidence indicating an unresolved controversy or noncompliance. Such tests shall be limited to the particular matter in controversy or to unresolved complaints. The City shall endeavor to so arrange its request for such special testing so as to minimize to the extent reasonably feasible hardship or inconvenience to Grantee or to the Subscribers caused by such testing. Before ordering such tests, Grantee shall be afforded thirty (30) days to correct problems or complaints upon which tests were ordered. The City shall meet with Grantee prior to requiring special tests to discuss the need for such and, if possible, visually inspect those locations which are the focus of concern. If, after such meetings and inspections, City wishes to commence special tests and the thirty (30) days have elapsed without correction of the matter in controversy or unresolved complaints, the tests shall be conducted by a qualified engineer selected by City. In the event that special testing is required by City to determine the source of technical difficulties, the cost of said testing shall be borne by the Grantee if the testing reveals the source of the technical difficulty to be within Grantee's reasonable control. If the testing reveals the difficulties to be caused by factors which are beyond Grantee's reasonable control then the cost of said test shall be borne by City. 4.5) FCC Reports. Upon request, the results of tests required to be filed by Grantee with the FCC shall also be copied to City. 4.6) Emergency Alert Capability. Grantee shall at all times comply with all Applicable Laws regarding the provision of emergency alert services. At a minimum, Grantee shall at all times have the capability for an emergency override alert. The emergency override by City shall emanate from Prior Lake City Hall, 4646 Dakota Street S.E., Prior Lake, MN. 4.7) Parental Control Lock. Grantee shall provide, for sale or lease, to Subscribers, upon request, a parental control locking device or digital code that permits inhibiting the video and audio portions of any Channels offered by Grantee. 4.8) Technical Standards. Grantee shall, at a minimum, comply at all times with all applicable Federal Communications Commission (FCC) Rules and Regulations, including but not limited to, Part 76, Subpart K (Technical Standards), as may be amended from time to time. 4.9) Right of Inspection. Grantor shall have the right to inspect all construction, reconstruction or Installation work performed by Grantee under the provisions of this Agreement and Applicable Laws, to ensure Grantee's compliance and to protect the health, safety and welfare of Grantor's citizens. 4.10) Periodic Evaluation, Review and Modification. Grantor and Grantee acknowledge and agree that the field of cable television is a relatively new and rapidly changing one which may see many regulatory, technical, financial, marketing and legal changes during the term of this Agreement. Therefore, in order to provide for the maximum degree of flexibility in this Agreement, and to help achieve a continued, advanced and modern Cable System, the following evaluation provisions will apply: (a) The City reserves the right to adopt rules and regulations controlling the procedures as set forth below and the subjects for evaluation sessions. (Evaluation sessions are public meetings in which the City enquires regarding topics concerning Cable service, such as those found in subsection (c) below, and Grantee provides such information and documents as reasonably requested by City.) In the absence of any City action taken to exercise these rights, Grantee shall be subject to the procedures and the subjects described in this Section 4.10. (b) The City may require, in its sole discretion, that the Grantee participate in evaluation sessions with the City at any time and from time to time during the term of this Agreement; provided, however, there shall not be more than one (1) evaluation session during any calendar year. (c) Topics which may be discussed at any evaluation session include, but are not limited to, rates, channel capacity, the System performance, programming, PEG access, municipal uses of the System, Subscriber complaints, judicial rulings, FCC rulings and any other topics the City or Grantee may deem relevant. (d) During an evaluation session, Grantee shall fully cooperate with the City and shall provide without cost and in a timely manner such information and documents as the City may reasonably request to perform the evaluation and the disclosure of which would not violate federal law or reveal confidential proprietary information. (e) As a result of an evaluation session, the City or Grantee may determine that an amendment in the terms of this Agreement may be required, that the requirements of the System or this Agreement should be updated, changed or revised, and/or that additional services should be provided by Grantee (collectively a "Proposed Modification"). If the Proposed Modification is consistent with the terms of this Agreement, Section 306 of the City Code, the needs of the City and existing state-of- the-art technology, including what is provided by Grantee in other Systems owned, operated or managed by it, its parent company or any affiliated company, Grantee and the City will, in good faith, review the terms of the Proposed Modification and consider amending this Agreement accordingly. All franchise modifications, however, must be mutually acceptable to both the City and Grantee. SECTION 5 SERVICES AND PROGRAMMING 5.1) Services and Programming. Grantee shall provide Grantor with a list of programming services and other services offered, which list shall be attached hereto as Exhibit C (the `Channel Line-up'). The Channel Line-up shall include all applicable charges and pricing schedules. The Channel Line-up shall be updated each time a change is made by Grantee. Grantee shall not alter the number of program services or other services without thirty (30) days prior written notification to the Grantor and System Subscribers. Notwithstanding the foregoing, Grantee may not reduce the number of channels or services below the minimum number of 120 as provided for in Section 4.1. 5.2) Leased Channel Service. Grantee shall offer leased channel service on reasonable terms and conditions and in accordance with Applicable Laws. 5.3) Periodic Subscriber Survey. (a) To the extent Grantee conducts customer surveys with respect to all or a portion of the system serving the City, upon request, it shall provide the City with all information and findings from such surveys, subject to the privacy rights of subscribers and the right of Grantee to withhold confidential proprietary material. (b) Grantee shall provide the City with the results of any survey conducted and shall report in writing or orally before the City Council what steps Grantee is taking, if any, to implement the findings of the survey, such as correcting problems and expanding services. SECTION 6. PUBLIC ACCESS PROVISIONS 6.1) Public, Educational and Government Access. (a) City or its designee is hereby designated to operate, administer, promote, and manage access (public, education, and government programming) (hereinafter "PEG access") to the cable system established pursuant to this Section 6. Grantee shall have no responsibility whatsoever for PEG access except as expressly stated in this Section 6. 6.2) Grantee Support for PEG Usage. In accordance with the provisions of the Cable Act and Minn. Stat. § 238.084, Grantee shall provide and make available for public, educational and governmental (PEG) access usage within the Service Area the following: (a) Provision and use of the grant funds and Channels designated in Exhibit D of this Agreement for local educational and governmental programming and access use at no charge in accordance with the requirements of Exhibit D. (b) Maintenance of the Access Facilities and Channels, and support of educational and governmental programming to the extent specified in Exhibit D of this Agreement. (c) Provision of free public building Installation and cable service as more clearly specified in Exhibit D1, and provision of cablecasting capability to the locations specified in Exhibit D2. (d) Access Facilities shall be operated by the City. SECTION 7 REGULATION 7.1) Amendment of Franchise Agreement. Grantee and City may agree, from time to time, to amend this Franchise. Such written amendments may be made subsequent to a review session pursuant to Section 4.1 0 or at any other time if City and Grantee agree that such an amendment will be in the public interest or if such an amendment is required due to changes in federal, state or local laws. City shall act pursuant to local law pertaining to the amendment of Section 306 of the City Code. 7.2) Conflict Between Section 306 of the City Code and Agreement. In the event of any conflict between the terms and conditions of this Franchise Agreement and the provisions of the Section 306 of the City Code, the provisions of this Franchise Agreement shall control. Grantee expressly acknowledges and agrees that the City hereby retains all of its police powers and the City may unilaterally amend Section 306 of the City Code in the exercise of its police powers and Grantee shall comply with Section 306 of the City Code as may be amended; provided, however that City hereby agrees to use reasonable efforts to address public health, welfare and safety needs without resorting to amending Section 306 of the City Code. 7.3) Force Majeure. In accordance with Section 306.3100 of the City Code, in the event Grantee's performance of any of the terms, conditions, obligations or requirements of this Agreement or Section 306 of the City Code is prevented or impaired due to strike, riot, war, earthquake, flood, unusually severe rain or snow storm, tornado or other catastrophic act of nature, labor disputes, failure of utility service necessary to operate the Cable System, governmental administrative or judicial order or regulation, unavailability of materials or qualified labor to perform the work necessary or other event that is reasonably beyond the events beyond the reasonable control of the Grantee's ability to anticipate or control, such inability to perform shall be deemed to be excused for the period of such inability and no penalties or sanctions shall be imposed as a result thereof. 7.4) Rate Regulation. Nothing in this Agreement shall in any way prevent Grantor from regulating any rates charged by Grantee. If Grantor elects to so regulate, Grantor shall follow the procedures outlined in Section 306.1900 of the City Code or Applicable Laws. 7.5) Telecommunications Network Transfer Prohibition Under no circumstance including, without limitation, upon expiration, revocation, termination, denial of renewal of the Franchise or any other action to forbid or disallow Grantee from providing Cable Services, shall Grantee or its assignees be required to sell any right, title, interest, use or control of any portion of Grantee's Telecommunications Network to the City or any third party. Grantee shall not be required to remove its Telecommunications Network or to relocate the Telecommunications Network or any portion thereof as a result of revocation, expiration, termination, denial of renewal or any other action to forbid or disallow Grantee from providing Cable Services. This provision is not intended to contravene PEG requirements set out in this Agreement. Upon expiration of franchise, Grantee will remove any Cable system equipment from City property and restore property to its original condition. 7.6) Termination by Grantee Grantee shall have the right to terminate this Agreement and all obligations hereunder upon ninety (90) days' notice to the City if Grantee concludes in its reasonable business judgment that the provision of Cable Service in the City is no longer technically, economically or financially consistent with Grantee's business objectives. 7.7) Termination by Grantor. In accordance with Section 306.3000 of the City Code, Grantor may revoke Grantee's right to operate a Cable System in City if Grantee violates any material term of this Agreement, Section 306 of the City Code, or Applicable Laws, including, but not limited to, state and federal laws and regulations relating to Cable Services. Notwithstanding the foregoing, should Grantee's insurer provide thirty days written notice pursuant to Section 3.5(c) above of insurer's intent to cancel Grantee's public liability insurance policy, Grantee, on or before the thirtieth day of the thirty day notice, shall produce satisfactory evidence to Grantor of one of the following: 1) an alternative public liability insurance policy in force, consistent with the requirements of Section 3.5; or 2) self-insurance capable of providing coverage consistent with the requirements of Section 3.5; or 3) a letter of credit in the amount equal to the coverage required under Section 3.5. If Grantee fails to produce any of the above alternatives by the termination of the 30 days notice, Grantor may immediately suspend Grantee's right to provide service pursuant to the franchise, and will provide Grantee fourteen (14) days notice of a public hearing to be held before the Council, pursuant to Section 306.3000 of the City Code, to address a franchise violation, and proceed thereafter pursuant to Section 306.3000. At any time in the City's process under Section 306.3000 of the City Code, through termination of Grantee's right to appeal an adverse decision, or the issuance of a final decision upon appeal, Grantee may produce to the Grantor satisfactory evidence of one of the three alternatives listed above and Grantor will immediately lift the suspension of Grantee's right to provide service pursuant to its franchise. In the event that Grantee does not receive 30 days notice from its insurer of intent to cancel its public liability insurance, upon Grantee's learning that said insurance was cancelled or will be cancelled in less than 30 days, Grantee shall notify the Grantor of the cancellation, and Grantee shall have fourteen 14 days from learning of the cancellation, or the remainder of the notice period of an impending cancellation if longer than 14 days, to produce one of the three alternatives above. If Grantee fails to produce any of the above alternatives by the expiration of the 14 days or remaining notice period, Grantor may immediately suspend Grantee's right to provide service pursuant to the franchise, and will provide Grantee 14 days notice of a public hearing to be held before the Council, proceeding thereafter as provided above. 8) Severability If any section, subsection, paragraph, phrase or sentence is held invalid by a court of competent jurisdiction, the remaining provisions shall continue in full force and effect and the invalidated provision shall be treated as if it never existed. IN WITNESS WHEREOF, Grantor and Grantee have executed this Agreement the day, month and year first above written. CITY OF PRIOR LAKE, MINNESOTA Dated: By: Its: Mayor ATTEST: By: Its: City Manager (SEAL) SCOTT RICE TELEPHONE COMPANY DBA INTEGRA TELECOM Dated: By: Its: (CORPORATE SEAL) STATE OF MINNESOTA ) ss. COUNTY OF ) The foregoing instrument was acknowledged before me on , 2009, by ,the Mayor of the City of Prior Lake, on behalf of the City. Notary Public STATE OF MINNESOTA ) ss. COUNTY OF ) The foregoing instrument. was acknowledged before me on , 2009, by ,the of Scott Rice Telephone Company dba Integra Telecom, on behalf of the Company. Notary Public EXHIBIT A OWNERSHIP SCOTT RICE TELEPHONE COMPANY DBA INTEGRA TELECOM IS A WHOLLY OWNED SUBSIDIARY OF INTEGRA TELECOM HOLDINGS, INC., AN OREGON CORPORATION. INTEGRA TELECOM HOLDINGS, INC., IS A WHOLLY OWNED SUBSIDIARY OF INTEGRA TELECOM, INC., AN OREGON CORPORATION. INTEGRA TELECOM, INC. IS A PRIVATELY HELD CORPORATION. THREE PRIVATE EQUITY INVESTORS EACH OWN MORE THAN A 5% EQUITY INTEREST IN GRANTEE THROUGH THEIR INVESTMENT IN INTEGRA TELECOM, INC. EXHIBIT B FRANCHISE FEE PAYMENT WORKSHEET Scott Rice Telephone Company dba Integra Telecom (Prior Lake) Subs Franchise Fee: 5% Gross Date , 20_ Revenue Source Basic Pay Tier Advertising and Pay-Per-View Other Total $ EXHIBIT C CHANNEL LINE-UP C-1 EXHIBIT D GRANTEE COMMITMENT TO PEG ACCESS FACILITIES AND EQUIPMENT PUBLIC, EDUCATIONAL AND GOVERNMENT (PEG) ACCESS CHANNELS Grantee shall provide to each of its subscribers who receive some or all of the services offered on the Cable System, reception on at least one (1) specially designated noncommercial public access channel available for use by the general public on a first come, first-served nondiscriminatory basis; at least one (1) specially designated access channel for use by local educational authorities; at least one (1) specially designated access channel available for government use (hereinafter collectively referred to as the `PEG Channels'); and at least one (1) specially designated access channel available for lease on a first-come, first-served, nondiscriminatory basis by commercial and noncommercial users. No charges may be made for channel time or playback of prerecorded programming on the specially designated noncommercial access channels. Personnel, equipment and production costs may be assessed, however, for live studio presentations exceeding five (5) minutes in length. Charges for those production costs and fees for use of other public access channels must be consistent with the goal of affording the public aloes-cost means of television access. Whenever the PEG Channels are in use during eighty percent (80%) of the weekdays, Monday to Friday, for eighty percent (80%) of the time for any consecutive three (3) hour period for six (6) weeks running, and there is demand for use of an additional channel for the same purpose, the Grantee shall then have six (6) months in which to provide a new PEG Channel for the same purpose, provided that provision of the additional channel or channels must not require the Cable System to install converters. The PEG Channels shall be dedicated for PEG use for the term of the Franchise Agreement, provided that Grantee may, utilize any portions of the PEG Channels not scheduled for PEG use. Grantor shall establish rules and procedures for such scheduling in accordance with Section 611 of the Cable Act (47 U.S.C. § 531). Grantee shall also designate the standard VHF channel 6, or its digital equivalent, for uniform regional channel usage currently provided by `Metro Channel 6' as required by Minn. Stat. § 238.43. Programming on this regional channel shall include a broad range of informational, educational, and public service programs and materials to cable television subscribers throughout the Twin Cities metropolitan area. 2. PEG OPERATIONS Grantor may in its sole discretion, negotiate agreements with neighboring jurisdictions served by the same Cable System, educational institutions or others to share the operating expenses of the PEG Channels. Grantor and Grantee may negotiate an agreement for management of PEG facilities, if so desired by both parties. D-1 3. PROMOTION OF PEG ACCESS Grantee shall allow the Grantor to place bill stuffers in Grantee's Subscriber statements at a cost to the Grantor not to exceed Grantee's cost, no more than twice per year upon the written request of the Grantor if the placement of such materials would not materially and adversely affect Grantee's cost for the production and mailing of such statements. The Grantor agrees to pay Grantee in advance for the actual cost of such bill stuffers. Upon request, Grantee shall also make available access information provided by Grantor in Subscriber packets at the time of Installation and at the counter in the System's business office within the Service Area. To the extent Grantee utilizes local advertising insertion equipment and has the requisite capability, Grantee shall also distribute, at no charge to Grantor, through advertising insertion equipment, 28 weekly promotional and awareness commercial spots at randomly selected times in unpurchased advertising space on a `run of schedule basis' produced at the Grantor's cost and submitted by the Grantor in a format compatible with such advertising insertion equipment once Grantee has acquired and activated such capability. 4. SERVICE TO PUBLIC BUILDINGS (a) One (1) cable drop connection and the highest level of cable service excluding pay-per-view and pay-per-channel programming shall be provided free of charge to each public building listed in Exhibit D-1 with no Installation charges or monthly service charges. Said drop connection and service provision shall be provided no later than eighteen (18) months from the Effective Date of this Agreement. Grantee shall, in any public building hereinafter built within Grantee's Franchise Area, provide all materials, design specifications and technical advice for any one cable outlet to be installed during the construction of such building, without cost to the Grantor and Grantee shall provide the same service to such new public building as required in this paragraph (a). (b) No later than eighteen (18) months from the Effective Date of this Agreement, Grantee shall provide atwo-way connection to the public buildings listed in Exhibit D 2 to facilitate cablecast programming from those buildings. (c) Grantee shall at all times cooperate with City in providing technical assistance required by City regarding PEG access programming. Within a reasonable time period following City's request, but no later than five (5) business days, Grantee shall provide technical assistance necessary to improve signal quality on the PEG access Channels. 5. PEG ACCESS OPERATING SUPPORT. Grantee, on behalf of City, shall provide the following financial support for PEG programming: (a) Grantee shall collect on behalf of City a per Subscriber fee of sixty-five cents ($0.65) per month, which may be increased to a maximum of one dollar twenty cents D-2 ($1.20) per month in City's sole discretion, solely to fund public, educational and governmental access -related expenditures (hereinafter "Access Operating Fee"). The Access Operating Fee may be adjusted by the City, upon ninety (90) days advanced written notice to Grantee, no more frequently than every two (2) years during the term of this Franchise. The City agrees that any increase in the Access Operating Fee will be applied equally to all franchised cable operators in the City. (b) Throughout the Franchise term, Grantee shall collect on behalf of City a per Subscriber fee of ten cents ($.10) per month solely to fund public, educational and governmental access capital expenditures (hereinafter "PEG Surcharge Fee"). The PEG Surcharge Fee is provided by Grantee to City in lieu of any upfront capital grant and is intended to approximate the per subscriber contribution made by the City's existing incumbent cable operator over the term of such operator's franchise in the City. Any and all payments by Grantee to City in support of PEG access programming shall not be deemed `franchise fees' within the meaning of Section 622 of the Cable Act (47 USC Section 542). D-3 EXHIBIT D1 SERVICE TO PUBLIC FACILITIES PUBLIC BUILDINGS CITY OF PRIOR LAKE, MINNESOTA BUILDINGS: City Hall Police Station Fire Station 1 Public Works Maintenance Library Club Prior Water Treatment Facility Other: Any city building hereafter built within the Franchise Area or existing city building hereafter encompassed within the Franchise Area. SCHOOLS IN PRIOR LAKE: District Services Center Alternate Learning Center Edgewood Five Hawks Grainwood Hidden Oaks Twin Oaks Westwood Jeffers Pond Elementary Other: Any school district building hereafter built within the Franchise Area or existing school building hereafter encompassed within the Franchise Area. D1-1 EXHIBIT D2 PUBLIC BUILDINGS TO BE PROVIDED WITH CABLECASTING CAPABILITY City Hall Police Station Prior Lake Senior High facility) District Service Center (to the extent Grantee has legal authority to serve this D2-1 EXHIBIT E DESCRIPTION OF SYSTEM INTEGRA TELECOM Prior Lake (This exhibit is intended to provide City with a general description of the System and Grantee reserves the right to substitute comparable technology or design parameters to provide or enhance the described System.) Grantee will use IPTV (Internet Protocol Television) to provide Cable service to residents, businesses and facilities in Prior Lake. IPTV will deliver television content to the viewer via Grantee's Telecommunications Network facilities that currently provide broadband Internet access as well as voice telephony to subscribers. The International Telecommunication Union focus group on IPTV (ITU-T FG IPTV) defines IPTV as follows: "IPTV is defined as multimedia services such as television/video/audio/text/graphics/data delivered over IP based networks managed to provide the required level of quality of service and experience, security, interactivity and reliability. " A general definition of IPTV is television content that, instead of being delivered through traditional broadcast and cable formats, is received by the viewer through the technologies used for computer networks. IPTV allows the transmission of single or multiple program transport streams by the same network operator that owns or directly controls the telecommunications "Last Mile," or copper loop, to the consumer's premises. This control over delivery enables a guaranteed quality of service, and also allows the service provider to offer an enhanced user experience such as programming guides, interactive services etc. Telecommunications providers' IPTV service can be contrasted with "Internet TV," such as "You-Tube," which offers transport streams sent over public IP networks (normally the Internet) from outside the network that connects to the user's premises. An Internet TV provider has no control over the final delivery and so broadcasts on a "best effort" basis. IPTV, on the other hand, is usually delivered over a telecommunications provider's complex and investment-heavy network, which is carefully engineered to ensure bandwidth efficient delivery of vast amounts of multicast video traffic. E-1 In order to provide its IPTV service, Grantee will construct a commercial satellite antenna and broadcast antenna receiving station at its central office at 5786 Credit River Road SE, Prior Lake, MN to capture video and network broadcast programming signals. The signals are obtained through contractual relationships with video content networks and companies. Grantee will convert those signals into a format that allows them to be carried out over its broadband Internet connection to subscribers. Grantee will use a "dedicated," or non-public, data network infrastructure to manage and control video quality. As previously noted, a dedicated data network infrastructure design is distinctly different from "Internet Video" obtained over the public Internet network, which offers no end-to-end service management or quality of service capabilities. With the addition of its IPTV offering, Grantee will be able to offer its Prior Lake subscribers "Triple Play"--the commercial bundling of IPTV, Voice and Internet access into a unified service offering. Grantee's Telecommunications Network is expandable and may increase capacity and bandwidth to respond to consumer demand for new service offerings and programming. E-2