AGENDA MEMORANDUM

 

 

Meeting Date:           August 23, 2010

 

From:                          Jim Lemberg, Communications Utility Manager

 

Subject:                      Resolution authorizing changes to existing rates and adding rates for leased Ethernet circuits, for leased dark fiber pairs, for retail Internet service, and for wholesale Internet service to the existing telecommunications rate schedule

 

 

Staff Recommendation:

Staff recommends approval of a resolution authorizing changes to the existing Communications Utility price schedule that will bring prices closer to market levels.

 

Analysis

The Communications Utility is proposing adjustments to its price schedule that will bring its products closer to “going rates” at which competitors offer similar products.  The broad direction of each proposed price change is:

 

      ♦   Dedicated Internet bandwidth................................... DOWN

      ♦   Dark fiber................................................................... UP

      ♦   Point-to-point Ethernet circuits................................. UP

 

Pricing on existing services provided to existing customers will not change.

 

The new price schedule will consider new for-profit customers as the baseline level, or “list” pricing.  Existing customers and new not-for-profit customers will receive a 10% discount against that baseline.  The proposed new price schedules in full are provided in the attachment to this memo.

 

Staff proposes to begin immediately accepting orders for new products, with service actually starting in October or November.

 

As a result of lowering the Utility’s costs to purchase Internet bandwidth, staff proposes to lower prices for the Dedicated Internet Bandwidth product.  Past pricing for this product has limited revenue growth, and this downward adjustment will allow the Utility to become more competitive while still retaining acceptable margins.

 

Staff proposes to introduce a Wholesale Internet Bandwidth product.  By winning just a few customers in this product set, the Utility will be able to purchase very large amounts of Internet bandwidth and obtain significant economies of scale.  This will have the effect of lowering overall average cost of bandwidth and creating more attractive margins.  This will allow the Utility to generate the cash necessary to continue expanding and improving the network.

 

Dark Fiber price levels will be significantly increased.  The Utility’s historical severe under pricing in this product set has hurt its ability to effectively lease additional Ethernet circuits to customers.  While the proposed price schedule indicates a list price for dark fiber, staff proposes that in actual practice each dark fiber lease be individually negotiated.  Each dark fiber lease will then be brought to Commission for final approval.

 

For years staff has assumed that the Utility’s pricing for the Point-to-Point Ethernet Circuit product has been severely underpriced.  In recent months, staff has obtained specific information about price points at which other providers offer a 100 Mbps point-to-point Ethernet circuit:

 

      Provider A, wholesale price........................... $1,900  per month

      Provider A, retail price.................................. $3,000  per month

      Provider B, retail price.................................. $2,300  per month

 

In contrast, the Communications Utility currently offers that product at $415.86 per month which will increase by the annual U.S. Government’s Gross Domestic Product Implicit Price Deflator Index (GDPIPDI).  So staff proposes to raise pricing for this product for any new customers or new circuits (existing customer’s existing circuits will remain at the $415.86 level increased by the GDPIPDI).

 

Previously only one product has been offered in this product area:  100 Mbps point-to-point Ethernet circuit.  The new equipment that the Utility is purchasing will allow introduction of a tiered product to better meet differing customer needs.  All price points will remain significantly below market levels, allowing the Utility to continue effectively competing for customers.

 

To allow customers opportunity to adjust their network plans and budgets to the Utility’s new price points, staff proposes that the Utility accept orders through the end of calendar year 2010 for 100 Mbps point-to-point Ethernet circuits at the new monthly price.

 

Installation Charges are proposed for all products.  This is standard practice within the telecommunications industry.  Apart from any costs to physically extend the network to a customer’s site, the proposed installation price points approximately reflect the City’s personnel costs to install new service.  Staff is proposing installation charges that are comparable to those assessed by other telecommunications providers for similar products.

 

It is also a common practice for telecommunications providers to charge a one-time fee related to equipment placed on the customer’s premises and used to provide the service in question.  The Utility is not proposing to introduce such charges at this time.

 

 

 Options:

1.  Approve the resolution, or

2.  Such alternative action as the Commission may deem appropriate.

 

 

 

 

Fiscal Impact:

For Dedicated Internet Bandwidth and Wholesale Internet Bandwidth, staff anticipates combined annual revenue of $158,588 during the coming fiscal year versus costs of $67,112, yielding a direct margin of $91,476.  These amounts are reflected in the proposed coming fiscal year budget.

 

Staff anticipates a slightly elevated level of new orders for Point-to-Point Ethernet Circuits, but has not attempted to incorporate that expectation into the proposed coming fiscal year budget.  Any increase in revenue in this product area will significantly contribute to net income.

 

Although the proposed budget for the coming fiscal year does not assume a significant increase in Dark Fiber revenue, staff has recently become aware of two specific opportunities that could result in significant new revenue.

 

 

Submission Date and Time:    8/19/2010 3:15 PM____

 

Department: ______________________

Prepared by:  ______________________                      

Attachments:         Yes____   No ______

Advertised:   ____Not Required ______                     

Dates:   __________________________                     

Attorney Review :       Yes___  No ____

                                                

_________________________________           

Revised 6/10/04

 

Reviewed by: Dept. Head ________

 

Finance  Dept. _________JB_______                                     

                              

Deputy C.M. ___________________                                                                         

Submitted by:

City Manager ___________________

 

Account No. _________________

 

Project No. ___________________

 

WF No. ______________________

 

Budget  ______________________

 

Available _____________________


 

RESOLUTION NO._______________

 

A RESOLUTION OF THE CITY COMMISSION OF THE CITY OF LEESBURG, FLORIDA, AUTHORIZING A NEW RATE STRUCTURE FOR EXISTING AND ADDITIONAL RATES FOR LEASED ETHERNET CIRCUITS, FOR LEASED DARK FIBER PAIRS, FOR RETAIL INTERNET SERVICE, AND FOR WHOLESALE INTERNET SERVICE TO THE EXISTING TELECOMMUNICATIONS RATE SCHEDULE; AND PROVIDING AN EFFECTIVE DATE.

 

BE IT RESOLVED BY THE CITY COMMISSION OF THE CITY OF LEESBURG, FLORIDA:

 

            THAT staff is hereby authorized to change pricing for existing products offered by the City’s Communications Utility and to add pricing for new products offered by the City’s Communications Utility as stated on the three-page price schedule attached to this resolution; and,

 

             THAT this resolution shall become effective immediately.

 

PASSED AND ADOPTED by the City Commission of the City of Leesburg, Florida, at a regular meeting held the __23rd___ day of _August________ 2010.

 

 

 

                                                                            __________________________________

                                                                             Mayor

 

ATTEST:

 

 

___________________________________

City Clerk