November 26, 1998

To:Economic Development Committee

From:Chief Administrative Officer

Subject:Feasibility of Establishing a Telecommunications Authority and Related Matters Respecting Rights-of-Way Access and Use

Purpose:

Council has directed the Chief Administrative Officer to examine the feasibility of the City establishing a telecommunications authority. In order to provide context, the use of City rights-of-way and road allowances for telecommunications infrastructure is reviewed and an overview of the legislative environment for municipalities is provided. This report recommends an approach for the City to deal with its operational matters in the short-term while setting the stage for a strategic approach to telecom network development. An initial focus on the City's own rights-of-way uses for telecommunications purposes and responding in a coordinated manner to external organizations is the recommended starting point.

Financial Impact and Implications:

There are no immediate or direct financial implications arising from the recommendations of this report. The future access and use of municipal rights-of-way by telecommunications providers and their affiliates will require the City to develop more comprehensive principles, policy and procedures respecting the use of its property, assets and infrastructure.

Recommendations:

It is recommended that:

(1)the City of Toronto not establish a telecommunications authority, as defined at this time, since regulation of the industry is under federal jurisdiction and no authority exists for municipalities to establish a body of this type;

(2)protection of City interests and its own use of the rights-of-way be maintained without imposing a five-year term for Agreements with telecom providers;

(3)Council authorize the Chief Administrative Officer to form an inclusive inter-departmental working group for the purpose of exchanging information and facilitating coordination, internal and external planning with respect to telecom initiatives; and

(4)the inter-departmental working group report to the Corporate Services Committee through the Chief Administrator's Office on City needs and uses for its own infrastructure, best uses of these assets in the interests of the public and businesses, as well as longer-term strategic matters;

Council Reference/Background:

At its meeting of July 29, 30 and 31, 1998, the City of Toronto Council adopted Clause 2 of Report No. 16 of the Strategic Policies and Priorities Committee, Amendment to Agreement to Facilitate the Expansion of Access Rights to Municipal Road Allowances - MetroNet Communications Group Incorporated. Specifically, the Report extended the City's Municipal Access Agreement with MetroNet to the new boundaries of the amalgamated City of Toronto. The former agreement of 1997, permitted MetroNet to enter public street allowances for the purposes of installing, maintaining and operating a fibre optic telecommunications network, only within the boundaries of the former City of Toronto.

In the context of Council's desire to maintain open and fair access to the public highway and City infrastructure for any qualified party, Council also directed that public tendering be used to lease spare City-owned conduit capacity for telecommunications purposes. In addition, the Chief Administrative Officer (CAO) was directed to:

- report to the Economic Development Committee on the desirability, structure and terms of reference for a telecommunications Authority for the City of Toronto; and

- report on whether any telecommunications network Agreement with a term longer than five years should be signed until such an Authority has been established.

The Telecommunications Environment:

The telecommunications industry has, in recent years, been undergoing significant change and growth in terms of technological advances and the convergence of mediums. At the same time, the operating environment of the industry has been changing to one of increased deregulation. Competition began in long-distance telephone services during the early 1990's, with local competitive carriers receiving approval in 1997. Demands for increased bandwidth and a range of voice, video and data services continue to contribute to the pressure within the industry to develop new networks based largely on fibre optic technology.

Located on or within the public road allowances and other rights-of-way in the City of Toronto is an infrastructure of active, spare and decommissioned water pipes, sewer pipes, gas mains, television cable, Hydro poles and attachments and traffic control system duct and conduit structures, for example. Some of this infrastructure is City-owned and was originally installed for its own service delivery purposes. Public utilities and the private sector own other of the infrastructure, both active and inactive. Telecommunications companies often wish to access and use/modify these systems for network development. This option mitigates the construction costs and disruption to pedestrian and traffic flow that is usually involved when installing new telecommunications networks.

Cable, gas, phone and electric companies and their affiliates are among those expected to approach the City to access its rights-of-way and/or to use City-owned or other existing infrastructure. Some are interested in telecommunications development and others wish to use existing City-owned infrastructure for businesses such as heating and cooling, utility related operations, or water and sewer provision.

City of Toronto Involvement with Telecommunications Companies:

The municipality performs two key roles in enabling the placement and installation of telecom systems. First, companies need to acquire consent to access municipal rights-of-way such as the road allowances and, second, they may wish to negotiate for the use of the City's own infrastructure, or that of others.

The stated goals of the City in responding to companies involved in telecommunications development/delivery have been to:

- foster the development of a state-of-the-art telecommunications infrastructure to benefit the business community;

- obtain enhanced and valuable fibre optic services accruing directly to the City; and

- enhance economic development while realizing direct revenue for the City.

Overview of Major Telecommunications Agreements:

In 1997, first with the former City of Toronto and two months later with the former Municipality of Metropolitan Toronto, a telecom agreement was finalized with MetroNet Communications Group Inc. (MetroNet). This agreement was the result of a Request for Proposals process to enter/access public street allowances for the purposes of installing, maintaining and operating a high-speed, fibre optic telecommunications network. The MetroNet Agreement involves the modification, refurbishment and leasing of a decommissioned high-pressure water main system in the downtown core, as well as other City-owned decommissioned pipes. Thus benefits accrue to the company by reducing its construction costs and benefits the municipality in terms of economic development, direct return for the use of the public highway, and services for the City (dark fibre and preferred network rates).

Similarly, in June of 1998, Council approved a pilot project arrangement with Consumers' Gas to allow it to lease a portion of its decommissioned (abandoned) system of gas mains to MetroNet for the installation of telecommunications equipment within the road allowances of the City. The approval of the City was required respecting this new use of existing infrastructure within the municipality's rights-of-way. MetroNet's use of the Consumers' Gas pipes results in less capital cost and faster expansion; the City experiences far less street disruption for underground work on existing conduit; and Consumers' Gas obtains returns on an unused asset.

In approving these initiatives, Council ensured marketplace competition as well as protecting the interests of the City of Toronto through performance requirements, approved third party sub-leases, and construction and workmanship responsibilities, for example. Similarly, several former municipalities, now a part of the City of Toronto, have agreements with Rogers Cablesystems with respect to access to the public highway for the installation of cable television equipment.

Principles Underlying City Telecommunications Agreements:

It has been the goal of the City in seeking to develop a standard form Municipal Access Agreement to simultaneously promote and protect the interests of the public, competitive business development and the municipality. The Municipal Access Agreement of the City is consistent with a model telecommunications agreement developed and endorsed by the Federation of Canadian Municipalities (FCM) and the principles of FCM to ensure that municipalities are:

- able to control the number and type of aboveground and the location of below-ground telecommunications infrastructure;

- are not subject to any financial burden due to the manner of use of rights-of-way by telecom companies;

- not responsible for the costs of relocating telecom infrastructure if so required for planning or other reasons deemed necessary by the municipality;

- are not liable for economic loss, legal costs or physical restoration costs for disruption of telecom services arising from municipal actions; and

- entitled to receive revenues (as do the federal and provincial governments) greater than their direct costs as compensation from those accessing municipal property for profit.

Legislation/Regulation Applying to Telecommunications and to Municipal Rights-of-Way:

(a)Federal Jurisdiction Respecting Telecommunications:

The regulation of the telecommunications industry is under the jurisdiction of the Federal Government. The Telecommunications Act, 1993, gives telecommunications service providers and operators such as MetroNet, Bell Canada, Cantel and cable television companies, the right to enter into and break up the public highway for the purpose of constructing, maintaining, or operating their equipment. The carrier must obtain municipal agreement to do this prior to the construction of a transmission line. Where such agreement cannot be obtained by a company on terms and conditions satisfactory to it, the company may apply to the Canadian Radio-Television and Telecommunications Commission (CRTC) for an order permitting it to install the equipment on such terms as the CRTC may order.

(b)Municipal Jurisdiction:

Under the Ontario Municipal Act, municipalities have the authority to regulate the use of the public highway, and to authorize and regulate, for example, the installation (putting-up, laying-down), construction and maintenance, of infrastructure including that for telecommunications. There are also municipalities such as the former City of Toronto that have additional special legislation allowing the municipality to require persons wishing to place and maintain telecommunications equipment in the public highway and road allowances to enter into an agreement with the City.

(c)Provincial Transfer of Responsibilities:

As part of the transfer of provincial-municipal responsibilities undertaken during 1997, the Province of Ontario is now receiving the revenues from Gross Receipt Taxes (GRT) that were formerly paid to municipalities. This represents a loss to the City of the 5 percent GRT formerly paid to it by Bell Canada. Without this source of revenue or alternate mechanisms to enter into agreements to collect fees, which reflect a reasonable return to the City from telecom operators to offset the cost of maintaining rights-of-way, municipal taxpayers bear the cost of accommodating telecommunications companies (as opposed to the users of telecom services).

(d)Legislative Changes Respecting Telecommunications Uses:

In February of 1998, the Ontario Government passed regulation, O. Reg. 34/98 to the Municipal Act. The regulation attempts to preclude municipalities from using their powers under Section 220.1 (the "user fee" provision) to impose fees, except for permit or administrative fees, on telecommunications common carriers with respect to locating those works within the public highway. The regulation applies only to rights-of-way access matters and not to municipal charges for the rent or lease of City-owned equipment or infrastructure.

More recently, the province passed Bill 35, the Energy Competition Act as part of the deregulation of the electricity industry. The Bill includes provisions providing electricity transmitters and distributors with the right to access municipal highways without municipal consent for the purposes of installing equipment. It also permits them to use such easements for the provision of telecom services (without compensation) or to enter into agreements with third parties for that purpose.

Impacts of Legislative Changes Respecting Telecommunications:

As directed by Council at its meeting of July 29, 30 and 31, 1998, the Commissioner of Works and Emergency Services shall be reporting on the form and provisions of a standard municipal access agreement extending across the new City of Toronto. The impact of legislative changes on the nature and content of the standard agreement may be discussed at that time, anticipated as being early in 1999.

Bill 35 permits telecom providers and their affiliates to use easements in place for the transmission of electricity for telecommunications purposes. The extent to which this provision may be viewed as an alternative to seeking consent from municipalities for access to the public highway has yet to be determined.

Feasibility of Establishing a City Telecommunications Authority and of Limiting Agreements:

In order to prepare this report, senior staff of the Chief Administrator's Office convened three meetings with City staff from Finance, Legal, Information Technology, Economic Development and Works. As a result of this collaborative and informative process, it has been determined that the municipality (or the Province) does not have the ability to legislate in the federal area of telecommunications by seeking to regulate the operations of the telecom industry. The extent of municipal authority is to grant access to the public highway upon such terms and conditions as may be agreed to, and to grant permission for construction. The telecom industry is under federal jurisdiction and a federal authority, the Canadian Radio-Television Telecommunications Commission (CRTC), regulates private telecom providers by determining the level of service provided and the rates to be charged to customers, for example. Accordingly, telecom matters such as dictating areas in the City where a company should provide service, are beyond the constitutional authority of the municipality.

The proposal to establish a Telecommunications Authority implies the desire to create a body with regulatory powers vis-à-vis telecommunications providers that is over and above that already exercised by the City with respect to regulating access and construction within the public highway. As indicated above, such attempts to regulate the telecommunications industry would impinge upon an area of federal jurisdiction. Furthermore, it would be outside the jurisdiction of the Province to grant such powers and beyond the jurisdiction of the City or any such "Authority" to exercise them.

If the suggestion is to create a body that will merely assume the decision-making authority of City Council with respect to those matters presently within its jurisdiction, such an initiative is unnecessary. In any event, given the Provincial policy towards the use of municipal property by telecom providers illustrated by statutory provisions such as O. Reg. 34/98 and Bill 35, it is highly unlikely that the Province would grant the legislation required to establish such a body.

It is, therefore, recommended that the City of Toronto not establish a telecommunications authority, as defined at this time, since the regulation of the telecom industry is under federal jurisdiction and no authority exists for municipalities to establish a body of this type.

The Chief Administrative Officer was also asked to report on whether any City telecommunications network Agreement with a term longer than five years should be permitted in the absence of such an authority. According to staff familiar with the industry and the process of negotiating such Agreements, telecommunications companies must commit significant capital investment for their network installation. Companies require time, commonly ten years or more, to offset their construction and operating costs and to realize reasonable returns. It is, therefore, recommended that protection of City interests and its own use of the rights-of-way be maintained without imposing a five-year term for Agreements with telecom providers.

Recommended Approach for Managing Telecommunications Issues:

Telecommunication facilities require a network of towers, antennas and associated structures. With increased demand for mobile telephone services, the Internet and the accompanying de-regulation of the telecom industry, there has been a significant increase in the demand for such facilities. Many of these facilities require the use of municipal rights-of-way and City-owned facilities (buildings, water towers and vacant land, for example). Cities have a number of direct interests in regulating rights of way as follows:

- Public ownership and trust;

- Economic development;

- Protecting the safety of the travelling public;

- Preserving the integrity and work life of rights-of-way;

- Cost-recovery/compensation from access to rights-of-way; and

- Revenue generation from the use of municipal facilities.

Both the Association of Municipalities of Ontario (AMO) and the Federation of Canadian Municipalities (FCM) have passed resolutions requesting clarification from the federal government on access and management issues regarding municipal rights-of-way. In summary, AMO wishes to see legislation recognizing the costs borne by cities with respect to the use of rights-of-way by private organizations and the right of municipalities to recover legitimate costs and to share in profits generated by such use. FCM is working at the federal level to address similar issues through its Sub-Committee on Telecommunications, chaired by Councillor Moscoe from the City of Toronto. Options include appearing before the CRTC to ask for a determination of the rights of municipalities under the Telecommunications Act.

At present, different areas of the City of Toronto are involved in separate aspects of telecom issues. Each is aware to varying degrees of developments in the industry and approaches to the City for the use of its rights-of-way. Furthermore, each of these areas has different perspectives and operational responsibility for telecom matters. For example, Economic Development participates in a community development initiative to provide promotional and networking information to new media companies. The interest of this group in provider-friendly City access policies requires consideration with a number of other cross-departmental City responsibilities such as accessibility, availability, usage regulations and preservation of the condition of City property. Balancing and coordinating these potentially competing priorities, along with those of the public, will be best achieved in a collaborative forum of City staff.

The City needs to deal with its operational matters in the short-term while setting the stage for a strategic approach to telecom network development. It is, therefore, recommended that the Chief Administrative Officer form an inclusive, inter-departmental working group for the purpose of exchanging information and facilitating coordination, internal and external planning with respect to telecom initiatives. In this manner, all involved staff will be apprised of both internal and external telecommunications issues arising across departments and recommendations to Standing Committees and Council will be better coordinated internally.

In addition, articulation and agreement on principles recognizing the valid interests of all internal and external stakeholders will place the City in a stronger position to manage its own rights-of-way uses and infrastructure. The Commissioner of Works and Emergency Services was directed by Council at its meeting of July 29, 30 and 31, 1998 to develop a comprehensive policy for the use of public rights-of-way for developing a telecom infrastructure network. That department also has the lead role in preparing a standard Municipal Access Agreement for the approval of Council. These directives are areas of primary interest to many areas of the City and will require the type of collaboration available in the recommended inter-departmental working group.

It is, therefore, recommended that the inter-departmental working group report to the Corporate Services Committee through the Chief Administrator's Office on City needs and uses for its own infrastructure, best uses of these assets in the interests of the public and businesses, as well as longer-term strategic matters.

An overview of the potential role, responsibilities and tasks of the inter-departmental working group is attached to this report as Appendix 1 for further development in early 1999.

Conclusion:

This report has considered the issue of establishing a telecommunications authority and concluded that it would be premature for the City to pursue this avenue. The jurisdictional authority for regulation of telecom providers by the municipality does not exist beyond that already in place to permit access upon such terms and conditions as may be agreed to, and construction in its rights-of-ways. Furthermore, long-term Agreements now in place between the City and telecom providers/affiliates protect the interests of the City and allow the City to use its own property if so needed. Accordingly, it is not recommended that any future Agreements be limited to a term of five years despite the absence of a Telecommunications Authority.

This report has also explained that the deregulation of the telecommunications industry has resulted in an increase in the number of companies competing to utilize municipal rights-of-way. In turn, this has resulted in a need at the City to monitor usage rights of the various interests and to ensure internal and external communication, planning and coordination. To this end, it has been recommended that an inter-departmental working group be established whose responsibilities will include identifying the current and potential uses by the City of its own infrastructure. It has also been recommended that the working group report to the Corporate Services Committee on telecom matters of immediate cross-departmental import while also working towards a longer-term strategic approach to telecom network development.

Michael R. Garrett

Chief Administrative Officer

APPENDIX 1

Potential Roles, Responsibilities and Tasks of the Inter-Departmental Working Group on Telecommunications

- Monitor, plan and coordinate internal and external telecommunications initiatives;

- Define and integrate City interests and responsibilities including:

-Public ownership and trust;

-Economic development;

-Protecting the safety of the travelling public;

-Preserving the integrity and work life of rights-of-way;

-Cost-recovery/compensation from access to rights-of-way; and

-Revenue generation from the use of municipal facilities.

- Develop a telecommunications plan in collaboration with telecom providers to manage and regulate the City's rights-of-way including:

-Goals and objectives, short-term and strategic long-term (e.g. single platform);

-Responsibilities and control vis-à-vis other government levels; and

-Facilities, property, infrastructure and assets covered;

- Recommend principles, policies and procedures for Council approval including:

-Design, location and assessment goals;

-Principles such as equal treatment and opportunity for providers, uniform right-of-way regulations and co-location encouragement;

-Policies to reinforce principles such as standards, availability of municipal facilities for development and expedited access;

-Network master plan and provider construction schedule requirements;

-Performance and impact measures;

-Leasing policies and rates for the use/rental of City facilities/property/assets;

-Rates, exclusive use, restoration, decommissioning and term/tenure of use; and

-Fair and just cost-recovery and compensation.

- Review and recommend telecom development control policies including:

-Application procedures;

-Alterations and additions;

-Visual and environmental assessment and impact guidelines; and

-Application requirements and community matters such as notification, site sensitivity and scale of facility.

-Promote economic development and telecommunications development including:

-Publication of City initiatives, policies and procedures on Internet;

-Mapping of telecom network coverage, geographical areas and capacity;

-Creation of an inventory of connected buildings; and

-Provision of an inventory of buildings in the City available to telecom companies.