Date of Meeting: August 4, 1997

Subject: Request Authorization to Contract with ioNET of Oklahoma for Wholesale Internet Dial-up Service to be Resold to Residential Customers as a Service of the Stillwater Electric Utility.

Background: For the past two years, there have been efforts to create a Stillwater Electronic Village similar to that created in Blacksburg, Virginia at http://www.bev.net/welcome/. The Blacksburg homepage was funded by a grant from the National Science Foundation and Bell Atlantic and assistance from Virginia Polytechnic Institute and State University.

Stillwater's efforts began with the formation of the "Stillwater Connectivity Committee" of the Stillwater Chamber of Commerce. This committee sought to enhance the Chamber's on-going effort to market Stillwater as a "Telecommunication Community." The committee applied for grant funds from Southwestern Bell Telephone to assist in the start-up costs to create the "Stillwater Electronic Village." Stillwater did not receive funding because the selection panel reasoned Stillwater had sufficient resources of its own to accomplish the project.

The Chamber's Connectivity Committee continued looking for funding sources and attempted to solicit volunteers from local "high-tech" firms and other organizations with computer expertise.

A separate committee was formed about the same time consisting of the computer and management information personnel from the Oklahoma State Vo-Tech Office, Stillwater Medical Center, Meridian Technology Center, Stillwater Public Schools, Stillwater Electric Utility, and Oklahoma State University. They explored ways to improve the rates of data transmission available in the community. The effort eventually resulted in what is now known as the Stillwater Fiber Optic Network Alliance. Their goal is to have a fiber-optic loop in the community connecting all the public schools, government buildings, and electric utility substations.

Meanwhile, efforts continued to create a Stillwater Electronic Village. Cowboy.Net ( Lenape Information Systems ), the only locally-based internet service provider at that time, proposed an electronic village called the "Stillwater Intranet," http://www.stillwater.ok.us/. In contrast to the internet or world wide web, the intranet would be a local area network primarily for items of interest to Stillwater residents. Since 1995, Cowboy.Net has provided free space for the Chamber of Commerce, the Stillwater School System, City of Stillwater, and others to post their homepages. Cowboy.Net has worked to increase its customer base so that it could afford to provide other services but has been limited by competition from other internet service providers (ISP) like (AOL) and by other market factors discussed later in this report.

In 1996, another Chamber committee was formed entitled "The Technology Assessment Committee." Again, the stumbling block was funding. Should it be funded privately? Or is it appropriate to use tax dollars? Formation of a non-profit organization to raise funds was discussed. The committee issued their final report on May 19, 1997. The report recommended the Chamber continue its efforts to take the lead in promoting technology in the community: "We believe effective, local, commercial use of a community network is critical to the long-term health and viability of Stillwater. Therefore, we strongly encourage the Stillwater Chamber of Commerce to move forward to establish the Stillwater Electronic Village."


At a June 27, 1997 special public meeting, the City Commissioners and Trustees of the Stillwater Electric Utility heard presentations from two companies in response to the Request for Proposals (RFP) to provide a fiber-optic network as envisioned by the Stillwater Fiber-Optic Alliance. The RFP requested two proposals. One was for a fiber-optic network. The other was for internet services. In the RFP, the City retained the right to consider the two parts together as one proposal or to act on each one separately. After hearing the presentations from Southwestern Bell Telephone and Brooks Fiber Properties, Inc. and after hearing the recommendations of the Stillwater Fiber-Optic Network Alliance, individual negotiations were authorized with Brooks Fiber and ioNET of Oklahoma.

The balance of this report explains the proposal for the Stillwater Electric Utility to sell dial-up internet service and provides a contract for review by the utility's trustees.

Discussion:

Source of Revenue for Stillwater Electronic Village

ioNET of Oklahoma's response to the RFP provides wholesale internet service at the rate of $12.00 per customer per month for residential dial-up with unlimited usage. IoNET's retail rate for the same service is $19.95, a rate that is the current national average. This provides a $7.95 spread for the City to cover billing costs, delinquencies, and counter time with customers completing applications for service. City costs are estimated not to exceed $1.00 per customer. This leaves $6.95 to be applied as follows:

  1. $1.00 per customer per month contributed for the development of the Stillwater Public School Intranet to connect the students, parents, and teachers into the computer system recently purchased by the School Board.
  2. $4.95 per customer per month to be used in the development of the Stillwater Electronic Village.
  3. $1.00 per customer per month discount for Stillwater Electric Utility customers and residents within Stillwater's city limits.

To insure recovery of all costs, the first proceeds from the sale of services would be used to establish a delinquency reserve. The reserve would not exceed ten percent of the current monthly billings for service.

Important Factors for Success

For this proposal to be successful several factors are necessary:

  1. Community Support: this effort depends on residents selecting ioNET in order to achieve a benefit for the schools and the community as a whole.
  2. Quality Service: ioNET must provide excellent dial-up service and other value-added services to earn customer loyalty.
  3. Content. More organizations need to provide information for the homepage. A successful homepage is one that is frequently updated with information of interest to the residents.
Advantages of the Proposal


  1. It potentially solves the problem of a revenue source to develop the Stillwater Electronic Village.
  2. No tax funds are used. All funding comes from the users of the service.
  3. Provides a method to coordinate the development of the Electronic Village through the internet service provider so no additional city staff is necessary.
  4. ioNet has the technical staff to provide coordination among the contributors to the Stillwater homepage.
  5. Provides an incentive to the internet service provider to develop a state-of-art Stillwater homepage in order to increase the number of users of its system.
  6. The ISP service remains a private enterprise but is in partnership to achieve a public purpose: the Stillwater Electronic Village.
  7. Provides an incentive to the Stillwater resident to use the service to support the Stillwater Community and Public School intranet.
  8. Provides a discount to customers of the Stillwater Electric Utility with a monthly fee lower than other providers.
  9. The lower monthly rates should increase the number of users. This, in turn, may increase the funds available.

Disadvantages of the Proposal

  1. Customers may not switch to ioNET. Heavy e-mail users would have to change their e-mail address. Those with web pages would have to change their internet address.
  2. Relies on one company for its success in the creation of the Stillwater homepage in the first year of operation.
  3. Computer usage is not yet universal. So the number of customers will not be large.
  4. Local internet providers will consider this proposal as governmental interference in the marketplace. This may result in one or more ISP's no longer providing service in Stillwater.

Most of the disadvantages have minor consequences. The first is probably not a problem for people with two or more years of computer experience. A complete and understandable set of instructions for switching could help new users. IoNET has a 24 hour help desk with a 1-800 number.

Relying on one company in the first year could be a problem but is not anticipated with ioNET. IoNET has to make a three year financial commitment to purchase data transmission lines and modem equipment. So ioNET's management wants this to be a successful long term relationship. All the development funds (excluding the one dollar/month/customer) goes to ioNET. What is done in years two through five of the contract depends on our satisfaction with ioNET's services in creating the electronic village.

The actual number of computer and internet users is unknown in Stillwater. National averages would suggest thirty to forty percent of the households have a computer. It is anticipated usage will increase as the cost of computers declines, multimedia applications are added, and data transmission speeds increase on the internet.

Concerns from Cowboy.Net, a long term local ISP, and ProValueNet, a new ISP since November of 1996, are understandable. Both have invested time and resources in their businesses. This concern is addressed in the next section of this report.

Internet Service Providers - The Challenge of the Stillwater Market

Stillwater's market is limited by a large portion of the population who receive internet service for free if they are university faculty. These residents are able to dial-in from home through the university for their service. This further limits the ability of a local internet service provider to generate sufficient funds to provide value-added services like an electronic village.

Another financial challenge to becoming profitable is the rapid change in the speed of the modems in the last two years. As each new modem speed becomes available, the ISP must buy new equipment capable to handle the faster modem speeds. This is now further complicated by competing standards for the new 56 bps modems.

Local ISP's also face tough competition with national providers who often provide 30 days of free service in hopes of building "market share." Customers often switch from provider to provider to get the next 30 days free.

Added to this are the regional bell telephone companies who have begun selling internet service through their subsidiary company. In the Stillwater area, it is called Southwestern Bell Internet Services. This service has been in Tulsa for some time and just started in Stillwater in July of 1997.

With these factors in mind, many who watch this industry have concluded consolidation will occur rapidly within the next year. Without large numbers of customers, the smaller ISP's won't survive. They will either have to combine with other small ISP's and/or be bought out by a larger provider. CompuServe is one large provider that is already having serious difficulties.

While this Stillwater proposal adds further pressure on the local ISP's, it should not make a difference in the long term outlook for the smaller providers. It does, however, show there is a window of opportunity for this proposal that exists now but not in the future. Once the industry becomes consolidated with a few national companies, those companies will not care about partnering with Stillwater to develop the Stillwater Electronic Village. Stillwater is fortunate to have this opportunity and to be in a position to take advantage of it with a regional ISP, ioNET of Oklahoma. IoNET is unique in its offer to contract with Stillwater.

In the final analysis, the Stillwater Electric Utility is not "getting into the business" of internet service. IoNET must still compete, buy equipment, and take the risks. The Stillwater Electric Utility is partnering with the private business to provide billing services in return for community benefits. This is something any other ISP can do with any other utility or local business with an ability to send and collect bills. A "level playing field" remains for all the ISP's.

Recommendation:

The Stillwater Electric Utility has a unique opportunity here to bring together the efforts of numerous committees and local citizens to develop both the technological capacity of the community's citizen's and to develop the telecommunications infrastructure.

Currently change is slow to adopt the technology available. People do not understand what is possible unless they have experienced some of that technology in the workplace. Lack of training is also a problem. Interest is low until one finds a way for the technology to benefit them. By helping the Stillwater Public School System develop their intranet for the teachers, parents, and school children, learning and awareness is improved for a significant portion of the community; for both the "haves" and "have-nots", of all ages.

By having a coordinated effort through ioNET to build a community electronic village, there will be an effort to provide training and to demonstrate what can be done both for businesses and citizens. Training could be provided to various civic clubs and associations to build homepages or e-mail systems to coordinate the activities of their members. Think how much time could be saved if a group's officers could periodically survey their members prior to the next meeting, send change of date notices, and other time-consuming efforts using the community intranet! The future includes electronic banking and other conveniences that save us time and money. This proposal provides some funding to help jump start the adoption of technology.

This proposal also ties in with the effort to build a fiber-optic network in the community. The fiber-optic network increases the likelihood of attracting new business in the high tech category and businesses that use this technology. By having a community that is actively involved in the development of an electronic village, additional interest is created for companies looking at sites to expand.

And finally, this proposal supports the city's vision statement found at http://www.ci.stillwater.ok.us/vision.htm and the Stillwater city manager's mission statement found at http://www.ci.stillwater.ok.us/extras/goodbye.htm . And the proposal supports the plans of the Stillwater Public Schools, Stillwater Chamber of Commerce, Stillwater Medical Center, and the Oklahoma State Department of Vo-Tech.

Attached is the proposed contract. Approval is recommended.

Report Prepared on July 31, 1997

Report Reviewed by:
Mike Herron, Stillwater Electric Director
Mary Ann Karns, City Attorney
Marcy Alexander, Finance Director

Prepared and recommended by:



______________________
Carl Weinaug
General Manager, Stillwater Electric Utility
City Manager, City of Stillwater

Attachments: Proposed Contract

FINAL for August 4, 1997 Commission Meeting
Internet Service Agreement


  1. DECLARATION OF PURPOSE

    WHEREAS
    , the Stillwater Utility Authority is a municipally-owned utility providing electric service to the residents of Stillwater; and

    WHEREAS, the Stillwater Electric Utility pays "dividends" to the City of Stillwater which are used to improve the quality of life in the community; and

    WHEREAS, the City of Stillwater seeks to improve the opportunities for its citizens to communicate, share information, and participate in local and government affairs; and

    WHEREAS, the citizens and businesses within Stillwater would benefit by having access to and assistance in the development of a "Stillwater Electronic Village" to facilitate communication among all residents, businesses, governmental units, public schools, and community organizations; and

    WHEREAS, such communication would assist in the preservation and enhancement of the Stillwater community spirit; and

    WHEREAS, the World Wide Web and new telecommunication and computer technology provide an opportunity to make the communication process dramatically more efficient to the benefit of all; and

    WHEREAS, there have not been sufficient revenues or a collaborative process available among competing internet service providers to create the "Stillwater Electronic Village;" and

    WHEREAS, multiple community efforts toward the same purpose over the past two years have been unsuccessful due to the absence of a means to generate funds from the users of the service or a means to coordinate the development of a "Stillwater Electronic Village; and

    WHEREAS, the Stillwater Electric Utility is developing a community fiber-optic network to bring a state-of-the-art broadband telecommunication network to the citizens of Stillwater; and

    WHEREAS, the existence of the fiber-optic network in Stillwater will enable and promote the utilization of new technologies requiring high data transmission speeds and thereby substantially expand the full range of communication within the community, within the Stillwater Electronic Village, and on the World Wide Web:

    NOW, THEREFORE, THE STILLWATER ELECTRIC UTILITY, AS A SERVICE TO ITS CUSTOMERS AND THE RESIDENTS AND BUSINESSES LOCATED IN STILLWATER, ENTERS INTO AGREEMENT WITH ioNET OF OKLAHOMA TO PROVIDE INTERNET ACCESS SERVICES AND TO DEVELOP A STILLWATER ELECTRONIC VILLAGE USING A PORTION OF THE PROCEEDS FROM THE SALE OF INTERNET SERVICES BY THE STILLWATER ELECTRIC UTILITY.
  2. TERM
    This agreement is entered into on August ___, 1997 by and between ioNET of Oklahoma, Inc. (hereinafter referred to as "ioNET"), and the Stillwater Electric Utility through the Stillwater Utility Authority (hereinafter referred to as "SEU"). It shall be for a period of five years and shall automatically renew thereafter for one year periods unless either ioNET or the SEU provide the other six months advance notice of intent to terminate.
  3. ioNET SERVICES
    A. Residential, Non-Commercial Service
    ioNET shall provide non-commercial dial-up internet and associated data services for resale by the SEU to residential customers of the Stillwater Electric Utility, Stillwater Water Utility, and residents of the City of Stillwater. The service for resale by the SEU is for individual personal use and will not to be used in place of appropriate commercial dedicated service offerings for connecting servers, for illegal purposes, or in violation of any provision of ioNET's acceptable Use Policy. IoNET reserves the sole right to determine appropriate use for this service.
    Dial-up service shall consist of modem and IB ISDN access from any of ioNET's current and future served cities. The service shall be accessible by standard modems/computers utilizing software provided by ioNET. The software will be industry standard and support the majority of computing platforms. ioNET will provide the installation software at no cost to the SEU. Should it become necessary to charge residential customers for the software, it shall be recovered through the activation fee.
    IoNET shall be responsible for the cost of providing the dialup service to the SEU including lines, equipment, and maintenance.
    B. Stillwater Electronic Village
    ioNET shall provide internet and associated data services for the purposes of creating the "Stillwater Electronic Village".
    ioNET shall set the standards for input of data, and coordinate the design and layout of the Stillwater Electronic Village to provide a state-of-the-art series of pages and links using Java applets, streaming audio and video, and other multimedia techniques.
    ioNET shall develop a "chat room" for the listing of opinions on community issues.
    ioNET shall provide free hosting of the City of Stillwater web pages, the Stillwater School District web pages, and the Stillwater Electronic Village homepages on ioNET's servers. Each of these sites shall have a "counter" showing the number of "hits" for the site.
    ioNET shall provide the necessary technical assistance to accomplish the relocation of the sites from their present locations to ioNET's servers.
    IoNET shall use its best efforts to promptly connect new customers and limit service disruptions.

  4. ioNET WHOLESALE RATES

    Dialup Internet access: $12.00 per month per account billed through SEU plus a one time $15.00 activation fee.
    In the event ioNET's direct or indirect costs to provide the dial-up internet service increase by more than 10% during the term of this agreement, ioNET may petition the SEU for a commensurate increase for services billed to the SEU. If sufficient documentation is presented to justify the request, the SEU's consent shall not be unreasonably withheld.
  5. CITY BILLING RESPONSIBILITIES

    Through the City utility system, the SEU will provide billing to the end user and take responsibility for collection of all customers signed up by the SEU. SEU will promptly provide ioNET with completed sign-up information for each new customer. Names, addresses, and telephone numbers of SEU customers shall not be rented, leased, sold or distributed to any other party or used for any other purpose unless consent is given by the customer.

    Existing ioNET customers as of the date of this agreement will remain direct ioNET customers unless they request to be customers of the SEU. Customers who switch to SEU billing will be considered customers of the SEU.
  6. BILLING AND PAYMENT
    1. ioNET Billing to SEU
      IoNET will invoice the SEU monthly for customer's internet access with payment terms of NET 15 from invoice date. Invoices not paid within payment terms will be subject to a 2% interest charge per month. Any services will be billed one month in advance of services rendered. The SEU will notify ioNET of cancellation of service within 5 days.
      ioNET will bill ioNET's commercial customers directly.

    2. SEU Billing its Customers
      The SEU shall determine its schedule of billing and termination policies. Billing
      may be done in advance for one month's service and termination of service may occur on the last day of the month in which service is paid if payment is not received for the next month's service before the end of the month.

    3. Disputed Bills
      The SEU shall not be responsible for unpaid bills resulting from disruptions of service from ioNET's hardware or software occurring more than five percent of the total monthly hours of service.
  1. CUSTOMER SERVICE LOCATIONS
  1. Technical services to all ioNET internet service users and customer service to nonresidential, commercial customers will be provided by ioNET. ioNet will make a best effort to redirect any requests from Stillwater residents or electric utility users for sign-up and billing service to the SEU. Customers who are neither residents of the City nor users of the SEU or who specifically request to be billed directly by ioNet will be billed by ioNet.
    1. MARKETING
      1. ioNET
        ioNET will actively solicit Stillwater businesses by offering a wide range of marketing sales and connectivity solutions including the establishment of commercial sites on the web, electronic store design, purchasing capabilities, and transaction processing.
        ioNET will be solely responsible for all marketing other than that done by the SEU during customer sign up for utility service.
        ioNET shall use the following words in all its advertising and marketing in the Stillwater area: ioNET of Stillwater - a joint venture with the Stillwater Electric Utility to develop the Stillwater Public School and Community Intranet.
        All use of the Stillwater's logo will need approval of the SEU prior to its use.
        ioNET will provide the necessary sales training to SEU personnel and/or provide sales personnel during Fall enrollment to sign up customers for the SEU.
      2. SEU
        The SEU agrees to aggressively solicit its residents and SEU customers for ioNET internet service and to provide ioNET with the necessary documentation requirements for ioNET to provide said service.
        SEU efforts may include providing space in utility mailing when available, space for training of SEU employees, space for joint educational efforts and seminars for existing and potential customers, and space at city hall during fall and spring enrollment periods. At the request of the SEU, ioNET shall provide assistance during school enrollment periods. ioNET will provide at its cost all forms, documents, brochures, advertising, and training necessary for the SEU to perform the sign up function.
        All use of ioNET's logo by the SEU will require approval of ioNET prior to its use.
    2. STILLWATER ELECTRONIC VILLAGE
      The Stillwater Electronic Village shall be dedicated exclusively to the residents and to the businesses, organizations, and agencies whose main offices are located in the Stillwater city limits and/or are customers of the Stillwater Electric Utility. At the discretion of the SEU any portion of this site may be restricted to customers of the ioNET service or may be restricted in accessibility through the use of passwords to gain access.
      The SEU will compensate ioNET for the creation, development and management by paying ioNET, during the first twelve months of this agreement, the difference between the rate ioNET charges the SEU and the rate the SEU charges its customer (minus the one dollar per account per month for the Stillwater Public School Intranet). This amount shall be referred to as the "Development Fund."
      The SEU shall determine which services are to be provided from the Development Fund and shall prioritize the order of the provision of the services. Any money remaining in the Development Fund at the end of the first year of this agreement shall be returned to the SEU.
      The one dollar reserved per month per account for the development of the Stillwater Public School Intranet will be paid quarterly to the Stillwater School District by the SEU and shall be used as directed by the School Board to develop their homepages with ioNET or to purchase equipment to develop the intranet between the parents and teachers. At the end of the first year, the SEU may, at its sole option, continue its contribution to the development of the Stillwater Public Schools Intranet or may use that money for some other purpose.
      A monthly report showing the allocation and expenditure of the funds shall be provided to the SEU by ioNET.
      All work products resulting from the Development Fund for the Stillwater Electronic Village shall be the property of the SEU. Upon termination of the agreement, ioNET will be responsible to provide the work product in appropriate form for easy transfer and use as deemed appropriate by the SEU.
      .
    3. SERVICES TO STILLWATER FIBER-OPTIC NETWORK MEMBERS
      IoNET agrees to provide the City of Stillwater, the Stillwater Utility Authority, the Stillwater School District, the Stillwater Medical Center, and the Oklahoma State Department of Vo-Tech with a 10 % discount against current company rates for all consulting, programming, graphic design, web service, and other service offerings provided by ioNET. These discounts will apply to all promotions and services offered in the Stillwater services area. See Appendix A for current rates and alliance discount schedule.
    4. EXCLUSIVE PROVIDER
      For the term of the contract, the SEU is the exclusive provider of ioNET services within the city limits and to all customers of the Stillwater Electric Utility except those who reside on or receive service while on property owned by Oklahoma State University
      Likewise, for the term of this contract, ioNET is the exclusive provider of internet services to the SEU for resale purposes within the city limits and to all customers of the Stillwater Electric Utility.
    5. ADVERTISING
      Placing advertising on the Stillwater Electronic Village and Stillwater Public School Intranet will be subject to mutual agreement by the SEU and ioNET in a separate agreement.
    6. SEVERABILITY

      If any portion of this Agreement shall be declared void for any reason, the remainder of the agreement shall remain in full force and effect.

TERMINATION OF AGREEMENT

The following are causes for termination of the agreement:

  1. In the event the revenues received are insufficient to cover the costs of the SEU in complying with the terms of this agreement, the SEU may terminate the agreement upon sixty days notice to ioNET.
  2. The SEU fails to provide prompt notice to ioNET when new customers are enrolled or customers request termination of service.




____________________________ ____________________________
Mayor, City of Stillwater, Oklahoma President, ioNET of Oklahoma