CR 05-40 Transfer of Encroachment Agreement - KMC Telecom
April 5, 2005
Council Report 2005-040
TRANSFER OF
ENCROACHMENT AGREEMENT
KMC TELECOM
Proposed Action
Staff recommends adoption of the following motion: Move that City Council approve Resolution
2005-028 granting the transfer and assignment ofthe rights and obligations ofKMC Telecom
pursuant to the terms of the Encroachment Agreement to CenturvTel.
This resolution transfers the Encroachment Agreement from KMC Telecom to CenturyTel.
Overview
The City has established encroachment agreements for telecommunication companies who wish
to use the public rights-of-way. The City entered into such an agreement in 2000 with KMC
Telecom. KMC is in the process of selling its Minnesota network to CenturyTel. KMC is
requesting that the City to transfer the rights and obligations contained in the agreement to
CenturyTel.
The encroachment agreement spells out how the company may use the rights-of-way in Hopkins.
Among the provisions that the agreement covers are the following:
. requires the company to get permits for work done in the rights-of-way;
. details how installations will be done;
. requires relocations at the company's expense if the City needs to reconstruct a street;
. requires that the right-of-way be restored after any installation
The City Attorney has reviewed this proposal.
Supporting Information
. Petition for Consent to Assign Encroachment Agreement
. Resolution 2005-028
. CenturyTel company profile
Financial Impact: $ None Budgeted: Y IN
Related Documents (CIP, ERP, etc.):
Notes:
Source:
March 16, 2005
Regulatory Affairs
1755 North Brown Road
Lawrenceville, Georgia 30043
Tel 678.985.7900
Fax 678.985.6213
www.kmctelecom.com
1S(f1 Telecom@
PHONE" DATA" INTERNET
Mr. Jim Genellie
Assistant City Manager
City of Hopkins
1010 First Street South
Hopkins, MN 55343
PETITION FOR CONSENT TO ASSIGN
ENCROACHMENT AGREEMENT
Dear Mr. Genellie:
As you are aware, KMC Telecom II, Inc. ("KMC") and the City of Hopkins, Minnesota
(the "City") entered into an Encroachment Agreement ("Agreement") which took effect
February 1, 2000 with an initial expiration of January 31, 2008 and with automatic renewals for
five year periods.
On February 2,2005, KMC and CenturyTe1 Acquisition LLC ("CenturyTe1 Acquisition")
CenturyTe1 Acquisition, LLC d/b/a KMC Telecom III, a limited liability holding company
wholly owned by CenturyTel, Inc ("CenturyTel, Inc."), entered into an asset purchase
agreement, under which CenturyTel Acquisition would acquire the metropolitan area network
transmission and switching facilities ofKMC used to provide telecommunications services, as
well as KMC's customer relationships, in sixteen markets in the following states: (i) Alabama;
(ii) Indiana; (iii) Kansas; (iv) Louisiana; (v) Michigan; (vi) Minnesota; (vii) Mississippi; (viii)
Ohio; (ix) Tennessee; (x) Texas; and (xi) Wisconsin. The Minnesota acquisition includes KMC's
network transmission facilities in the city of Hopkins.
The anticipated date for the transfer of ownership to CenturyTel is approximately July 1,
2005, or as soon thereafter as the necessary governmental approvals can be obtained. Subject to
the required governmental approvals, KMC and CenturyTel Acquisition respectfully petition the
City for consent to transfer and assign KMC's rights and obligations under the Agreement to
CenturyTel. Upon, assignment, KMC would be released from the rights, duties and obligations
of the Agreement and such rights, duties, and obligations shall extend to, be binding upon, and
inure to the benefit of CenturyTel.
Please find attached in triplicate the Resolution which authorizes the transfer and
assignment of rights and obligations ofKMC to CenturyTel d/b/a KMC Telecom III. Each of the
originals has been executed by KMC and CenturyTel. KMC and CenturyTel respectfully request
that the City acknowledge its consent to the assignment and transfer by executing and returning
two fully executed originals in the enclosed prepaid Federal Express package.
Mr. Jim Genellie
March 16, 2005
Page 2
If you have any questions or concerns, please contact me at (678) 985-6220. Thank you
for your attention to this matter.
cc: Dan Davis, Senior Vice President and General Counsel
RESOLUTION 2005-028
WHEREAS, KMC Telecom II, Inc. ("KMC") and the City of Hopkins, Minnesota
(the "City") entered into an Encroachment Agreement ("Agreement") which took effect
February 1, 2000 with an initial expiration 00 anuary 31, 2008 and with automatic
renewals for five year periods. As a result of a pending Asset Purchase Agreement
initiated by CenturyTel Acquisitions LLC ("CenturyTel") d/b/a KMC Telecom III to
purchase the network assets ofKMC in Hopkins, KMC has notified the City of its intent
to transfer and assign the rights and obligations ofKMC to CenturyTel and has requested
the consent of the City to transfer those rights and obligations pursuant to the Agreement;
and
WHEREAS, CenturyTel and KMC have jointly filed an application at the
Minnesota Public Service Commission pursuant to Minnesota Statute S237.74(12) for the
transfer of assets and customers from KMC Telecom III LLC (f/kIa KMC Telecom, LLC;
KMC Telecom III, Inc.), a wholly owned subsidiary ofKMC Telecom Holdings, Inc. to
KMC Telecom III LLC, a wholly owned subsidiary of CenturyTel Acquisition, LLC,
WHEREAS, CenturyTel is qualified to provide the same services that KMC has
been providing in Hopkins;
WHEREAS, CenturyTel agrees to adhere to all applicable provisions of the
Agreement;
WHEREAS, CenturyTel's acquisition of and continued operation ofKMC's
network assets in the City of Hopkins will result in positive benefits for the Hopkins
community in that it will promote local exchange competition.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of
Hopkins that consent to the transfer and assignment of the rights and obligations ofKMC
pursuant to the terms of the Encroachment Agreement to CenturyTel is hereby granted.
BE IT FURTHER RESOLVED that this Consent shall become effective as of
the date of the closing of the Asset Purchase ofKMC Telecom III LLC's assets in
Hopkins by CenturyTel which is anticipated to be on or near June 30, 2005. In the event
that the Asset Purchase is not closed before or within ninety (90) after June 30, 2005, this
Consent shall be null and void.
Adopted, this _ day of
,2005.
ACCEPTED AND AGREED TO:
"City"
Signature
Print Name
Title
Date
Dan Davis
Print Name
y\Mr!
Senior Vice President & General Counsel
Title
fJ11 b)~DS:
Date
a own Johnson
Print Name
Vice-President and Senior Counsel
TOe? / Lb '-2fJ~
Date
CenturyTel - Company Profile
http://www.centurytel.com!about! company Profile/index. cfm
CenturyTel, Inc. (NYSE: CTL) provides a full range of local, long distance, Internet and
broadband services to consumers in 22 states. Included in the S&P 500 Index, CenturyTel is a
leading provider of integrated communications services to rural areas and small to mid-size
cities in the United States.
Strategic Positioning
1 Pure-play rural local exchange carrier {RLEC}
Century tel is a pure-play rural local exchange carrier and is the 8th largest locai exchange
carrier in the United States based on access lines served.
2 Focus on geographically clustered markets in rural areas and smaller cities
Rural markets and small-to-mid-sized cities provide a more stable operating environment
characterized by strong demand for advanced services. CenturyTel's clustered market
approach helps drive operating efficiencies (95 percent of CenturyTel's access lines are in 12
states). The company's less dense markets typically experience less competition than
metropolitan markets.
3 Build high-quality, broadband-capable networks
Although CenturyTel serves mostly rural properties, more than 79 percent of the company's
access lines are within 18,000 feet (or a little more than three miles) of a central office or
remote terminal. Its networks position CenturyTel to meet customers' demands and needs
today and to capitalize on new broadband services as they evolve.
4 Establish fiber transport operations
The acquisition of fiber assets from Digital Teleport, Inc. and Level 3 Communications during
2003 along with CenturyTel's Michigan fiber system and additional southern fiber assets
create a central U.S. fiber system operated as LightCore which provides wholesale and retail
fiber transport services.
5 Manage business through frontline driven organization structure
CenturyTel's frontline driven organization drives market optimization by placing the overall
distribution and service delivery focus close to the customer, while support functions are
prOVided on a more efficient, centralized basis.
6 Offer bundled packages of communications services to customers
CenturyTel's bundled solutions are demand driven and designed to provide customers with
increased value, choice and convenience.
Key Growth Strategies
1 Drive revenue growth through value-added bundling of products and services
CenturyTel believes it can drive incremental revenues by increasing the penetration of long
distance, Internet access, Caller ID, Voice Mail and by expanding the availability of DSL
service.
2 Offer additional services through deployment of new technology over advanced
networks
More than 70 percent of CenturyTel's customers have access to DSL service. The company's
goal is to own and provide broadband connectivity to its customers as the service delivery
platform of the future.
3 Provide quality, fiber transport services to smaller cities and rural areas
LightCore's fiber network consists of more than 12,300 route miles, approximately two
thirds of which is currently lit, providing operating cost savings, revenue growth
opportunities and increased control of the company's transport needs in much of its central
U.S. service area.
4 Expand into complimentary business segments
CenturyTel recently formed a strategic partnership with EchoStar to provide co-branded
CenturyTel I DISH Network satellite television service and also entered into a reseller
relationship with Cingular Wireless to provide wireless voice and text messaging services.
Both relationships will allow CenturyTel to offer a more complete package of services to
customers. These products represent good opportunities to expand CenturyTel's bundled
services and further strengthen its competitive position.
The LightCore and Competitive Local Exchange Carrier (CLEC) operations work together
evaluating opportunities to expand CenturyTel's service footprint to meet customer needs.
5 Continue to pursue strategic acquisitions
The company is adept at acquiring properties, folding them into CenturyTel and driving
higher revenue streams and cash flow margins from these acquired properties. CenturyTel
expects to continue to capitalize on this strength using its disciplined approach.
2004 Achievements
. During first quarter 2004, CenturyTellaunched its integrated bundle and tiered DSL
offering.
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CenturyTel - Company Profile
http://www.centurytel.com!about! company Profile/index. cfm
. During second quarter 2004, CenturyTel achieved two milestones surpassing one million
long distance lines and 100,000 DSL connections.
. As of December 31, more than 15 percent of its residential access lines were served through
one of CenturyTel's Simple Choice bundle plans.
. CenturyTel added more than 59,000 DSL connections and more than 136,000 long distance
lines during the year.
. During fourth quarter 2004, the company generated $82.6 million of free cash flow,
resulting in nearly $462 million of free cash flow for the full year 2004.
. For the full year, the company repurchased nearly 13.4 million shares of common stock
under its share repurchase program for a total investment of approximately $400 million.
. On August 26, 2004, CenturyTel announced the formation of a strategic partnership with
EchoStar to provide co-branded CenturyTel I DISH Network satellite television service.
. On September 20, 2004, CenturyTel entered into a reseller relationship with Cingular
Wireless that will allow CenturyTel to provide wireless voice and text messaging services.
. On October 11, 2004, CenturyTel completed the conversion to its new customer care and
billing system.
Services
As of December 31, 2004, CenturyTel provides:
. local exchange services to more than 2,313,600 telephone access lines
. long distance services to approximately 1,067,800 lines
. dial-up Internet services to nearly 128,600 subscribers
. high-speed DSL Internet connections to more than 142,500 subscribers
· database management, printing, electronic pre-press and fulfillment services
Service Areas
Alabama
Arizona
Arkansas
Colorado
Idaho
Indiana
Iowa
Louisiana
Michigan
Minnesota
Mississippi
Missouri
Montana
Nevada
New Mexico
Ohio
Oregon
Tennessee
Texas
Washington
Wisconsin
Wyoming
Fourth Quarter Highlights (1) Quarter Ended Quarter Ended 0/0
(Excluding nonrecurring items) 12/31/04 12/31/03 Change
(In thousands, except per share
amounts and customer data)
Operating Revenues $ 606,234 $ 601,103 .9%
Operating Cash Flow $ 318,920 $ 319,954 (.3)%
Net Income $ 85,105 $ 89,267 (4.7)%
Diluted Earnings Per Share (2) $ .62 $ .61 1.6 %
Average Diluted Shares Outstanding (2)
138,368 149,433 (7.4)%
Capital Expenditures $ 131,719 $ 121,480 8.4 %
Telephone Access Lines 2,313,626 2,376,118 (2.6)%
Long Distance Lines (3) 1,067,817 931,761 14.6 %
DSL Connections 142,575 83,465 70.8 %
(1) These results include adjustments for nonrecurring items and other non~GAAP financial
measures. A reconciliation of these items to comparable GAAP measures is included on
the company's Web site.
(2) Diluted earnings per share and average diluted shares outstanding reflect the
application of a change in accounting related to the effect of contingent convertibie debt
on the diluted earnings per share calculation. Prior periods have been restated to reflect
this change in accounting.
(3) In first quarter 2004, the company began reporting long distance units on a line basis
instead of a customer basis. Fourth quarter 2003 has been restated on a line basis to
ensure period-to-period comparability.
Corporate Governance
CenturyTel has implemented or adopted substantially all of the NYSE and SEC governance
proposals, and conducted a thorough analysis of its governance profile. The company will
continue to monitor governance developments and make adjustments to its policies where
appropriate.
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