Senate File 346 - Introduced SENATE FILE BY McCOY Passed Senate, Date Passed House, Date Vote: Ayes Nays Vote: Ayes Nays Approved A BILL FOR 1 An Act providing for the sale of Iowa communications network 2 assets, providing for related technical and substantive 3 changes, and providing an effective date. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 1739XS 83 6 rn/nh/8 PAG LIN 1 1 Section 1. SALE OF IOWA COMMUNICATIONS NETWORK ASSETS == 1 2 FINDINGS AND PURPOSE AND DEFINITIONS. 1 3 1. FINDINGS AND PURPOSE. The Iowa communications network 1 4 is a valuable state telecommunications asset and has provided 1 5 fair, reasonable, and predictable access to advanced 1 6 telecommunications technology for authorized users. With 1 7 video classrooms located statewide, authorized users are able 1 8 to equally access state=of=the=art voice, video, data, and 1 9 internet services at comparable prices statewide, regardless 1 10 of location. At a time when budgets are strained and there is 1 11 a shortage in the availability of educators, it is essential 1 12 that the educational content carried over the Iowa 1 13 communications network be preserved and enhanced. It is also 1 14 vital that secure telecommunications services provided by the 1 15 Iowa communications network to homeland security and public 1 16 defense providers be retained. The state desires to remain a 1 17 credible business partner to all current authorized network 1 18 users. To ensure that the utilization of the Iowa 1 19 communications network resource is maximized while minimizing 1 20 further investment by the state to maintain the 1 21 infrastructure, it is in the best interest of the citizens of 1 22 this state to offer some of the assets of the Iowa 1 23 communications network for sale, while retaining ample 1 24 capacity to provide authorized users required 1 25 telecommunications services now and in the future. Through a 1 26 sale of most of the fiberoptic cable and optronics, or light= 1 27 passing equipment, and retaining capacity through long=term 1 28 indefeasible right=of=use agreements, the state would continue 1 29 to provide telecommunications services and adequate capacity 1 30 into the future. Selling the Iowa communications network 1 31 assets using an intermediary professional agent specializing 1 32 in telecommunications resources to market the assets will 1 33 strengthen the ability of the state to receive a fair price 1 34 for the assets while allowing an impartial third party using 1 35 predetermined sales criteria to determine the most qualified 2 1 buyer. By using the sales proceeds to prepay remaining 2 2 construction debt and provide revenue for an equipment 2 3 replacement fund, state=provided funding for network 2 4 maintenance and upgrade will be minimized. Continued 2 5 provision of the full array of network services will appear 2 6 seamless to current authorized users when the sales process is 2 7 completed. 2 8 2. DEFINITIONS. As used in sections 1 through 6 of this 2 9 Act, unless the context otherwise requires: 2 10 a. "Advanced telecommunications services" means high= 2 11 quality voice, data, graphics, and video telecommunications 2 12 services using any technology with regard to transmission 2 13 media that utilizes high=speed, switched, broadband 2 14 telecommunications capability. 2 15 b. "Authority" means the Iowa communications network sales 2 16 authority established to oversee the sale of backbone assets 2 17 pursuant to this Act. 2 18 c. "Authorized user" means a private or public agency, as 2 19 defined in section 8D.2, except for a public or private agency 2 20 which was required pursuant to section 8D.9, subsection 1, to 2 21 certify to the commission not later than July 1, 1994, the 2 22 agency's intent to become a part of the network and which did 2 23 not provide such certification. Agencies that obtained 2 24 legislative approval to join the network after July 1, 1994, 2 25 will be treated as a public or private agency for purposes of 2 26 this definition and all provisions of chapter 8D. 2 27 d. "Backbone assets" means the backbone fiber comprising 2 28 the five fiber optic rings located outside of the Des Moines 2 29 metropolitan area and the optronic equipment associated with 2 30 those rings. 2 31 e. "Capacity" means the information=carrying ability of a 2 32 telecommunications facility. The measurement of capacity is 2 33 determined by the purpose of the facility. 2 34 f. "Certificates of participation" means the two issuances 2 35 of certificates of participation issued by the state in 1992 3 1 and 1993 to fund the construction of the owned fiber and 3 2 equipment for Parts I and II of the network as defined in 3 3 chapter 8D. 3 4 g. "Commission" means the Iowa telecommunications and 3 5 technology commission as defined in section 8D.2. 3 6 h. "Indefeasible right of use" means an indefeasible right 3 7 to use fiber, including an entire cable or a portion of the 3 8 capacity of a cable, or channels of a given bandwidth for a 3 9 defined period of time. 3 10 i. "Iowa communications network hub" means the 3 11 telecommunications facility located in the joint forces 3 12 headquarters armory, Johnston, Iowa, where the main switching 3 13 and maintenance operations of the network take place. 3 14 j. "Network" means the Iowa communications network. 3 15 k. "Network operations center" means the maintenance and 3 16 network diagnostic equipment that manages the network 3 17 infrastructure. 3 18 l. "Optronics" means the fiberoptic equipment that 3 19 activates the fiber and allows light to traverse. 3 20 m. "Professional agent" means any person having 3 21 specialized expertise required in the process of selling the 3 22 Iowa communications network including but not limited to 3 23 expertise regarding brokerage, contracting, asset valuation, 3 24 sales, or negotiation services. 3 25 n. "Prospective purchaser" means the potential purchaser 3 26 of the network that the professional agent recommends to the 3 27 authority to purchase the network assets, as provided in 3 28 section 3 of this Act. 3 29 o. "Qualified purchaser" means a prospective purchaser 3 30 that has been approved by the governor and qualified in 3 31 accordance with the provisions of section 4 of this Act. 3 32 p. "Right=of=way accommodation agreement" means a twenty= 3 33 year agreement between the network and the department of 3 34 transportation that includes an option to extend the agreement 3 35 for an additional ten years, which is definitive with respect 4 1 to the use of interstate rights=of=way and gives the 4 2 department of transportation the sole right to approve or deny 4 3 other users of the sheath, trench, or any of the ducts. 4 4 q. "Telecommunications facility" means a collection of 4 5 fibers which originates at an access point and ends at the 4 6 fiberoptic termination connector attached to the electronic 4 7 and optronic equipment necessary to transmit voice, video, or 4 8 data transmissions across the fiberoptic network. 4 9 r. "Telecommunications services" means the provision of 4 10 any of the following services: 4 11 (1) Local exchange telephone services. 4 12 (2) Long distance telephone services. 4 13 (3) Internet access services. 4 14 (4) Cable television services. 4 15 Sec. 2. IOWA COMMUNICATIONS NETWORK SALES AUTHORITY 4 16 ESTABLISHED. 4 17 1. AUTHORITY ESTABLISHED == PURPOSE == POWERS. An Iowa 4 18 communications network sales authority is established with the 4 19 sole authority to oversee the sales process regarding transfer 4 20 of ownership of the network's backbone assets to a qualified 4 21 purchaser pursuant to this Act. Subject to final approval of 4 22 the selection of the qualified purchaser and terms of sale by 4 23 the governor, the authority's operation shall not be subject 4 24 to the jurisdiction or control of any other state agency, and 4 25 the authority shall possess full and sole authority over the 4 26 Iowa communications network backbone asset sales process. 4 27 However, the authority is subject to the general operations 4 28 practices and procedures which are generally applicable to 4 29 other state agencies during the period of its operation. The 4 30 authority shall be in existence from the effective date of 4 31 this Act until a qualified purchaser has been approved by the 4 32 governor, and all sales agreements necessary to complete the 4 33 sale have been negotiated and entered into. 4 34 2. MEMBERSHIP. Membership of the authority shall consist 4 35 of the treasurer of state, the auditor of state, two members 5 1 of the Iowa telecommunications and technology commission, and 5 2 one member of the Iowa utilities board. Three members of the 5 3 authority shall constitute a quorum, and the members shall 5 4 elect a chairperson, vice chairperson, secretary, and other 5 5 officers as determined necessary. Meetings of the authority 5 6 shall be held at the call of the chairperson or when a 5 7 majority of the members so requests. The members of the 5 8 authority shall not receive compensation by reason of their 5 9 membership. 5 10 Sec. 3. PROFESSIONAL AGENT RETENTION. The authority shall 5 11 issue a request for proposals to retain a professional agent 5 12 with telecommunications asset sales experience to market and 5 13 coordinate the sales process of the backbone assets. 5 14 The governor, in consultation with the treasurer of state 5 15 and the department of management, may negotiate fair and 5 16 equitable terms of compensation for the professional agent. 5 17 The described backbone assets shall only be available for a 5 18 single private vendor, or a consortium acting as a single 5 19 private vendor, to purchase and the state shall retain an 5 20 indefeasible right of use with respect to certain amounts of 5 21 backbone capacity in optical wavelengths for a negotiated 5 22 period of seven to twenty=five years, and two optional renewal 5 23 periods of ten years each. As part of the sale, the purchaser 5 24 shall enter into indefeasible right=of=use agreements with the 5 25 state in which the purchaser shall grant the state an 5 26 indefeasible right of use with respect to backbone capacity 5 27 and optical wavelengths and Part II facilities and the dark 5 28 fiber connecting various Part III aggregation points to 5 29 network backbone=switching points. During the term of an 5 30 indefeasible right=of=use agreement, the state as holder of 5 31 the indefeasible right of use will have complete and total 5 32 ownership of the fiber or channels identified in the 5 33 indefeasible right=of=use agreement, may use the fiber or 5 34 channels as if they were a physically owned asset of the 5 35 state, and the state's interest in the fiber or channels 6 1 cannot be annulled or made void by the grantor of the 6 2 indefeasible right of use or any other party. At the end of 6 3 the term of an indefeasible right=of=use agreement and any 6 4 renewal periods, title to the equipment and fiber assets and 6 5 optical wavelength capacities covered by the agreement shall 6 6 pass completely to the purchaser. The terms of the sale of 6 7 the assets shall also include provisions committing the 6 8 commission to purchase field services, including maintenance, 6 9 provisioning, and build out, from the purchaser and committing 6 10 the commission to pay a monthly fee for fiber maintenance and 6 11 field services for the assets that are sold. The request for 6 12 proposals shall be issued no later than six months from the 6 13 date of enactment of this Act. The request for proposals may 6 14 include: 6 15 1. A detailed list of the network assets for sale. 6 16 2. A detailed description of the unfettered and 6 17 unrestricted use of specified capacities of optical 6 18 wavelengths occupying a portion of the backbone assets. 6 19 3. A procedure to determine the compensation for the 6 20 successful professional agent. 6 21 4. Parameters surrounding the sale, to be determined by 6 22 the governor, which shall include but not be limited to the 6 23 following: 6 24 a. The amount of time the state would allow the 6 25 professional agent to market the assets. 6 26 b. A provision that the governor or the governor's 6 27 designee shall have the ultimate discretion to accept or 6 28 reject an offer from a prospective purchaser. 6 29 c. A detailed framework for the indefeasible right=of=use 6 30 agreement between the state and the successful purchaser as 6 31 well as indefeasible right=of=use agreements for Part II 6 32 facilities. The indefeasible right=of=use agreements and any 6 33 other agreements necessary to complete the sale shall clearly 6 34 provide that the network and the state shall be held harmless 6 35 in the event the purchaser suffers a loss of revenue due to a 7 1 failure of any assets sold to the purchaser or to a failure of 7 2 any portion of the network being shared by the network. 7 3 d. A detailed process and procedures for routing capacity 7 4 from the backbone termination points in public buildings to 7 5 sites owned by the purchaser and sharing of alternating 7 6 current power, direct current power, and high=voltage 7 7 alternating current power needed to operate the purchaser's 7 8 equipment and related expenses in the public buildings. 7 9 e. A detailed framework for the standards required 7 10 regarding network maintenance. 7 11 f. A requirement that the purchaser offer advanced 7 12 telecommunications services equitably across the state, 7 13 specifically serving areas where those types of services are 7 14 not yet available. 7 15 g. A requirement that the purchaser grant the network the 7 16 right to participate in future upgrades of the backbone 7 17 electronics statewide in the fiberoptic network outside the 7 18 Des Moines metropolitan area. 7 19 h. The criteria to be used as a basis for determining the 7 20 successful purchaser. 7 21 i. An analysis of a prospective purchaser's financial 7 22 stability with particular attention to assessing the 7 23 prospective purchaser's potential vulnerability to bankruptcy. 7 24 j. A requirement that during the negotiations process, the 7 25 prospective purchaser shall offer the state reasonable surety 7 26 of long=term economic viability. Such surety may include a 7 27 requirement of posting bond or some other financial 7 28 compensation to guard against the purchaser's inability to 7 29 meet the financial terms of the agreement. The purchaser 7 30 shall guarantee that the state's indefeasible right=of=use 7 31 agreements shall be protected in the case of the bankruptcy of 7 32 the purchaser. 7 33 The authority shall select the professional agent 7 34 submitting the proposal that provides the best overall value 7 35 to the state. The public interest requires that the 8 1 authority's ability to enter into a contract with a 8 2 professional agent not be delayed; therefore, the decision of 8 3 the authority shall be final. Notwithstanding the provisions 8 4 of chapter 17A a professional agent not selected by the 8 5 authority shall not be entitled to a contested case hearing or 8 6 to otherwise challenge the decision of the authority. 8 7 Sec. 4. MARKETING OF THE NETWORK ASSETS. Using the 8 8 parameters included in the request for proposals, the selected 8 9 professional agent shall develop a process to market and sell 8 10 the assets designed to maximize the state's proceeds from the 8 11 sale. During the marketing period, using the predetermined 8 12 parameters, including meeting financial qualifications, the 8 13 professional agent shall identify a prospective purchaser and 8 14 submit the prospective purchaser to a qualification process 8 15 designed to verify the purchaser's ability to adequately 8 16 operate and maintain the backbone network. This verification 8 17 process shall include the following: 8 18 1. Verifying that the purchaser has proven experience 8 19 operating a telecommunications network. 8 20 2. Verifying that the purchaser has the ability to 8 21 purchase the network outright or has the collateral to secure 8 22 financing of a loan to purchase the network. 8 23 3. Other criteria as established by the general assembly 8 24 or the governor. 8 25 4. Verifying that the purchaser agrees to the requirement 8 26 that other telecommunications companies providing services 8 27 since January 1, 2009, be allowed to enter into a buyers 8 28 consortium and share in the purchased assets or facilities in 8 29 proportion to terms established in the consortium agreement 8 30 which shall guarantee or result in equal opportunity for 8 31 access by consortium members. 8 32 5. Verifying that the purchaser is an entity that agrees 8 33 to guarantee equal access to the purchased assets to any 8 34 telecommunications company that has been providing services to 8 35 Iowa customers since January 1, 2009. Such equal access means 9 1 that the purchaser shall not do any of the following regarding 9 2 a telecommunications company providing services to Iowa 9 3 customers since January 1, 2009: 9 4 a. Discriminate by refusing or delaying access to the 9 5 purchased assets. 9 6 b. Degrade the quality of access or service provided. 9 7 c. Fail to disclose in a timely manner, upon reasonable 9 8 request and pursuant to a protective agreement concerning 9 9 proprietary information, all information reasonably necessary 9 10 for the design of network interface equipment, network 9 11 interface services, or software that will meet the 9 12 specifications of the purchaser. 9 13 d. Unreasonably refuse or delay interconnections or 9 14 provide inferior interconnections. 9 15 e. Discriminate in favor of itself or an affiliate in the 9 16 provision and pricing of, or extension of credit for, any 9 17 service. 9 18 6. Any telecommunications company as described in 9 19 subsection 5 may file a written complaint at any time with the 9 20 utilities board established in chapter 476 requesting the 9 21 board to determine compliance by the purchaser with the 9 22 provisions of this section or any board rules implementing 9 23 this section. Upon the filing of such complaint, the board 9 24 may promptly initiate a formal complaint proceeding and give 9 25 notice of the proceeding and the opportunity for hearing. The 9 26 formal complaint proceeding may be initiated at any time by 9 27 the board on its own motion. The board shall render a 9 28 decision in the proceeding within ninety days after the date 9 29 the written complaint was filed. 9 30 Upon verification by the professional agent of the 9 31 purchaser's ability to adequately operate and maintain the 9 32 backbone network, the authority shall make a recommendation 9 33 regarding a purchaser and the terms of sale to the governor. 9 34 The governor shall have the right of final approval of the 9 35 purchaser and the terms of sale. 10 1 If the professional agent is unable to identify a 10 2 prospective purchaser able to adequately operate and maintain 10 3 the backbone network, the professional agent shall submit a 10 4 report to the authority explaining the reasons supporting this 10 5 conclusion. 10 6 Sec. 5. POSTSELECTION PROCEDURES. 10 7 1. Once the governor has approved a purchaser and the 10 8 terms of sale, the authority shall enter into a contract with 10 9 the purchaser for sale of the assets. The authority shall 10 10 enter into a memorandum of understanding regarding procedures 10 11 for operation of the network until the sale is finalized with 10 12 the proposed purchaser. The memorandum shall indicate that 10 13 the purchaser, in good faith, intends to finalize the purchase 10 14 and shall pay a termination penalty if the purchaser does not 10 15 finalize the purchase. 10 16 2. Any outstanding debt or liens upon the network assets, 10 17 including the certificates of participation, shall be 10 18 discharged out of the state's proceeds of closing, so that the 10 19 purchaser receives marketable title to the assets. Prepayment 10 20 of the certificates of participation shall be made prior to 10 21 closing the sale of assets or as part of closing the sale, and 10 22 shall be accomplished in a way that does not jeopardize the 10 23 tax=exempt status of the certificates of participation. 10 24 3. The state and the purchaser shall also negotiate their 10 25 relevant interest in right=of=way accommodation agreements and 10 26 leases and easements for uses of rights=of=way. The 10 27 negotiations may specify that the purchaser shall have the 10 28 option of paying the entire sale price in a single lump sum 10 29 payment at the time that the sale is finalized, or 10 30 alternatively may pay for the backbone assets at the time that 10 31 the sale is finalized and make an annual payment for use of 10 32 the rights=of=way. 10 33 4. The purchaser shall immediately establish points of 10 34 presence near the existing network switching centers and 10 35 establish fiber extensions and connectivity between them. The 11 1 purchaser shall physically locate in the vicinity of the joint 11 2 forces headquarters armory in Johnston, Iowa, and establish 11 3 fiber connectivity between the network hub and the vendor's 11 4 location. Duplicate racks of backbone core equipment shall be 11 5 provided by the purchaser and installed by the network to 11 6 carry traffic while the network backbone is transferred to the 11 7 purchaser. The purchaser shall purchase the equipment 11 8 required in this process for the network and pay any and all 11 9 related expenses associated with this conversion effort. 11 10 5. The authority shall enter into indefeasible right=of= 11 11 use agreements with the purchaser in which the purchaser shall 11 12 grant the state an indefeasible right of use with respect to 11 13 the backbone optical wavelengths and Part II facilities and 11 14 the dark fiber connecting various Part III aggregation points 11 15 to network backbone=switching points. The indefeasible right= 11 16 of=use agreements and any other agreements necessary to 11 17 complete the sale shall clearly provide that the network and 11 18 the state shall not be held liable in any manner in the event 11 19 the purchaser suffers a loss of revenue due to a failure of 11 20 any portion of the network being shared by the network. 11 21 6. The authority shall enter into any other agreements 11 22 necessary to complete the sale, including agreements 11 23 committing the commission to purchase field services, 11 24 including maintenance provisioning, and build out, from the 11 25 purchaser and committing the commission to pay a monthly fee 11 26 for fiber maintenance and field services for the assets that 11 27 are sold. The request for proposals shall be issued no later 11 28 than six months from the date of enactment of this Act. 11 29 Sec. 6. PROGRESS REPORTS. The authority, in consultation 11 30 with the governor, shall submit to the general assembly 11 31 periodic progress reports at three=month intervals from the 11 32 effective date of this Act. The reports shall indicate the 11 33 extent of progress, during the reporting period, in issuing 11 34 the request for proposals; retaining a professional agent; 11 35 marketing efforts by the professional agent; identification, 12 1 qualification, and selection of a purchaser; and the 12 2 postselection process of finalizing the sale, entering into 12 3 indefeasible right of use agreements, and maintaining the 12 4 network. 12 5 Sec. 7. Section 8D.2, Code 2009, is amended by adding the 12 6 following new subsection: 12 7 NEW SUBSECTION. 2A. "Indefeasible right of use" means an 12 8 indefeasible right to use fiber, including an entire cable or 12 9 a portion of the capacity of a cable, or channels of a given 12 10 bandwidth for a defined period of time. 12 11 Sec. 8. Section 8D.3, subsection 3, paragraph i, Code 12 12 2009, is amended to read as follows: 12 13 i. Evaluate existing and projected rates for use of the 12 14 system and ensure that rates are sufficient to pay for the 12 15 operation and required equipment upgrade and replacement of 12 16 the system excluding the cost of construction and lease costs 12 17 for Parts I, II, and III. The commission shall establish all 12 18 hourly rates to be charged to all authorized users for the use 12 19 of the network and shall consider all costs of the network in 12 20 establishing the rates. A fee established by the commission 12 21 to be charged to a hospital licensed pursuant to chapter 135B, 12 22 a physician clinic, or the federal government shall be at an 12 23 appropriate rate so that, at a minimum, there is no state 12 24 subsidy related to the costs of the connection or use of the 12 25 network related to such user. 12 26 Sec. 9. Section 8D.11, Code 2009, is amended by adding the 12 27 following new subsection: 12 28 NEW SUBSECTION. 1A. The commission may use indefeasible 12 29 right=of=use agreements to acquire and dispose of property, 12 30 equipment, and services as provided in section 8D.13, 12 31 subsection 4. 12 32 Sec. 10. Section 8D.13, subsection 2, Code 2009, is 12 33 amended to read as follows: 12 34 2. For purposes of this section, unless the context 12 35 otherwise requires: 13 1 a. "Part I" means the communications connectionsbetween13 2 to central switching and institutions under the control of the 13 3 board of regents, nonprofit institutions of higher education 13 4 eligible for tuition grants, and the regional switching 13 5 centers for the remainder of the network. 13 6 b. "Part II" means the communications connectionsbetween13 7 to the regional switching centers and the secondary switching 13 8 centers. 13 9 c. "Part III" means the communications connectionbetween13 10 to the secondary switching centers and the agencies defined in 13 11 section 8D.2, subsections 4 and 5, excluding state agencies, 13 12 institutions under the control of the board of regents, 13 13 nonprofit institutions of higher education eligible for 13 14 tuition grants, and the judicial branch, judicial district 13 15 departments of correctional services, hospitals and physician 13 16 clinics, agencies of the federal government, and post offices. 13 17 Sec. 11. Section 8D.13, subsection 3, Code 2009, is 13 18 amended to read as follows: 13 19 3. The financing for the procurement costs for the 13 20 entirety of Part I except for the communications connections 13 21betweento central switching and institutions under the 13 22 control of the board of regents, and nonprofit institutions of 13 23 higher education eligible for tuition grants, and for the 13 24 video, data, and voice capacity for state agencies and for 13 25 Part II and Part III, shall be provided by the state. The 13 26 financing for the procurement and maintenance costs for Part 13 27 III shall be provided by the state.A local school board, 13 28 governing authority of a nonpublic school, or an area 13 29 education agency board may elect to provide one hundred 13 30 percent of the financing for the procurement and maintenance 13 31 costs for Part III to become part of the network. The basis 13 32 for the amount of state financing is one hundred percent of a 13 33 single interactive audio and interactive video connection for 13 34 Part III, and such data and voice capacity as is necessary.13 35 If a school board, governing authority of a nonpublic school, 14 1 or area education agency board elects to provide one hundred 14 2 percent of the financing for the leasing costs for Part III, 14 3 the school district or area education agency may become part 14 4 of the network as soon as the network can reasonably connect 14 5 the district or agency. A local school board, governing 14 6 authority of a nonpublic school, or an area education agency 14 7 board may also elect not to become part of the network. 14 8 Construction of Part III, related to a school board, governing 14 9 authority of a nonpublic school, or area education agency 14 10 board which provides one hundred percent of the financing for 14 11 the leasing costs for Part III, may proceed as determined by 14 12 the commission and consistent with the purpose of this 14 13 chapter. 14 14 Sec. 12. Section 8D.13, Code 2009, is amended by adding 14 15 the following new subsection: 14 16 NEW SUBSECTION. 3A. If the state sells assets of the 14 17 network pursuant to sections 1 through 5 of this Act, and 14 18 retains backbone capacity from another telecommunications 14 19 provider, publicly owned facilities that house primary and 14 20 secondary switching facilities shall provide access to that 14 21 provider in the geographical area to the primary and secondary 14 22 switching facilities housing the fiberoptics termination 14 23 equipment by means of established fiber entry ducts, and to 14 24 the building grounding system. The provider's access to the 14 25 primary and secondary switching facilities shall be 14 26 coordinated through the network's staff. 14 27 Sec. 13. Section 8D.13, subsection 4, Code 2009, is 14 28 amended to read as follows: 14 29 4. The commissionshall develop the requests for proposals14 30 may enter into contracts and indefeasible right=of=use 14 31 agreements that are needed for the Iowa communications network 14 32 to function with sufficient capacity to serve the video, data, 14 33 and voice requirements of state agencies and for educational 14 34 telecommunications applications.The commission shall develop 14 35 a request for proposals for each of the systems that will make 15 1 up the network. The commission may develop a request for 15 2 proposals for each definitive component of the network or the 15 3 commission may provide in the request for proposals for each 15 4 such system that separate contracts may be entered into for 15 5 each definitive component covered by the request for 15 6 proposals.Therequests for proposalscontracts entered into 15 7 by the commission may be for the purchase, lease=purchase, or 15 8 lease of the component parts of the network consistent with 15 9 the provisions of this chapter, may require maintenance costs 15 10 to be identified, and the resulting contract may provide for 15 11 maintenance for parts of the network. The master contract may 15 12 provide for electronic classrooms, satellite equipment, 15 13 receiving equipment, studio and production equipment, and 15 14 other associated equipment as required. The indefeasible 15 15 right=of=use agreements entered into by the commission may be 15 16 long=term agreements and may retain the right to use portions 15 17 of capacity of any fiberoptic cable that the commission sells 15 18 to a third party. The indefeasible right=of=use agreements 15 19 may include provisions requiring the commission to contribute 15 20 to the cost of maintenance and upgrades of the network. 15 21 During the term of an indefeasible right=of=use agreement, the 15 22 state as a party to the indefeasible right=of=use agreement 15 23 shall have complete and total ownership of the fiber or 15 24 channels identified in the indefeasible right=of=use 15 25 agreement, may use the fiber or channels as if they were a 15 26 physically owned asset of the state, and the state's interest 15 27 in the fiber or channels cannot be annulled or made void by 15 28 the grantor of the indefeasible right of use or any other 15 29 party. At the end of the term of an indefeasible right=of=use 15 30 agreement and any renewal periods, title to the equipment and 15 31 fiber assets and optical wavelength capacities covered by the 15 32 agreement shall pass completely to the purchaser. 15 33 Sec. 14. Section 8D.13, subsection 5, unnumbered paragraph 15 34 1, Code 2009, is amended to read as follows: 15 35 The state shall lease all fiberoptic cable facilities or 16 1 facilities with DS=3 capacity for Part III connections for 16 2 which state funding is provided. The state shall lease all 16 3 fiberoptic cable facilities or facilities with DS=3 or DS=1 16 4 capacity for the judicial branch, judicial district department 16 5 of correctional services, and state agency connections for 16 6 which state funding is provided. Such facilities shall be 16 7 leased from qualified providers. The state shall not own such 16 8 facilities, except for those facilities owned by the state as 16 9 of January 1, 1994. Notwithstanding any other provision of 16 10 this section, the state may negotiate the acquisition of a 16 11 Part III connection following the termination of a lease with 16 12 a qualified provider if offered by the vendor for such a Part 16 13 III connection, if the commission determines it to be in the 16 14 best interest of the network. 16 15 Sec. 15. Section 8D.13, subsection 6, Code 2009, is 16 16 amended by striking the subsection. 16 17 Sec. 16. Section 8D.13, subsection 11, Code 2009, is 16 18 amended to read as follows: 16 19 11. The fees charged for use of the networkand state 16 20 communicationsshall be based on the ongoing operational and 16 21 depreciation expenses of the network and of providing state 16 22 communications. For the services rendered to state agencies 16 23 by the commission, the commission shall prepare a statement of 16 24 services rendered and the agencies shall pay in a manner 16 25 consistent with procedures established by the department of 16 26 administrative services. 16 27 Sec. 17. Section 8D.14, subsection 1, Code 2009, is 16 28 amended to read as follows: 16 29 1.ThereAn Iowa communications network fund is created in 16 30 the office of the treasurer of statea fund to be known as the 16 31 Iowa communications network fundunder the control of the Iowa 16 32 telecommunications and technology commission.There shall be 16 33 deposited into theThe fund shall be comprised of Iowa 16 34 communications network fund proceeds from bonds issued for 16 35 purposes of projects authorized pursuant to section 8D.13, 17 1 funds received from leases pursuant to section 8D.11, and 17 2 other moneys by law credited to or designated by a person for 17 3 deposit into the fund. Amounts deposited into the fund are 17 4 appropriated to and for the use of the commission. 17 5 Notwithstanding section 12C.7, interest earned on amounts 17 6 deposited in the fund shall be credited to the fund, and 17 7 interest received by the state as a result of investing the 17 8 contents of the fund shall be credited to the fund for use by 17 9 the commission. Notwithstanding section 8.33, moneys 17 10 deposited into and appropriated from the fund that remain 17 11 unencumbered or unobligated at the close of the fiscal year 17 12 shall not revert but shall remain available for expenditure 17 13 for the purposes designated until the close of the succeeding 17 14 fiscal year. 17 15 Sec. 18. NEW SECTION. 8D.15 IOWA COMMUNICATIONS NETWORK 17 16 EQUIPMENT UPGRADE AND REPLACEMENT TRUST FUND. 17 17 An Iowa communications network equipment upgrade and 17 18 replacement trust fund is established, separate and apart from 17 19 all other public moneys or funds of the state, under the 17 20 control of the treasurer of state and the department of 17 21 management. The fund shall be comprised of the proceeds from 17 22 the sale of Iowa communications network assets, including 17 23 certain state=owned fiberoptic cable and related equipment 17 24 located outside the Des Moines metropolitan area, and the 17 25 portion of the fees charged to authorized users for 17 26 depreciation. Contents of this fund shall only be used to 17 27 replace failed or obsolete network equipment owned by the 17 28 state and equipment included in indefeasible right=of=use 17 29 agreements in which the network obtains statewide transport 17 30 capacity, and shall not be used for any other purpose. The 17 31 treasurer of state and the department of management shall 17 32 jointly verify an annual estimate by the commission of the 17 33 amount needed for equipment replacement pursuant to this 17 34 section, and releases of moneys pursuant thereto shall require 17 35 an annual appropriation by the general assembly to the 18 1 commission. The commission may solicit or accept gifts, 18 2 including donations and bequests, to be deposited into the 18 3 fund for use in accordance with the purposes of the fund. 18 4 Interest received by the state as a result of investing the 18 5 contents of the fund shall be credited to the fund for use by 18 6 the commission. 18 7 Sec. 19. EFFECTIVE DATE. This Act, being deemed of 18 8 immediate importance, takes effect upon enactment. 18 9 EXPLANATION 18 10 This bill provides a mechanism for the sale of Iowa 18 11 communications network (ICN) assets with specified retained 18 12 rights by the state, and provides for related technical and 18 13 substantive changes to the provisions of Code chapter 8D. 18 14 FINDINGS AND PURPOSE. The bill contains a statement of 18 15 findings and purpose section relating to legislative intent 18 16 regarding the sale, noting that the ICN is a valuable state 18 17 telecommunications asset, that it provides equal access to 18 18 users of state=of=the=art voice, video, data, and internet 18 19 services at comparable prices statewide, and that it is 18 20 essential that the educational content it carries, and the 18 21 public defense functions it serves, be retained. The bill 18 22 provides that in order to ensure that ICN utilization is 18 23 maximized while minimizing further investment by the state to 18 24 maintain infrastructure, it is in the best interest of the 18 25 citizens of the state to offer some ICN assets for sale, while 18 26 retaining the capacity to provide services to users. The bill 18 27 provides that this would be accomplished through the sale of 18 28 most of the fiberoptic cable and optronics, or light=passing 18 29 equipment, while retaining capacity through long=term 18 30 indefeasible right=of=use agreements, thereby continuing to 18 31 provide telecommunications services and adequate capacity into 18 32 the future. 18 33 DEFINITIONS. The bill provides a definitions section. 18 34 Included among the defined terms are definitions of 18 35 "authority" as referring to an Iowa communications network 19 1 sales authority established to oversee the sale of the 19 2 backbone assets; "indefeasible right of use" (IRU) as an 19 3 indefeasible right to use fiber, including an entire cable or 19 4 a portion of the capacity of a cable, or channels of a given 19 5 bandwidth for a defined period of time; a "professional agent" 19 6 as a person having specialized expertise required in the 19 7 process of selling the Iowa communications network including 19 8 but not limited to expertise regarding brokerage, contracting, 19 9 asset valuation, sales, or negotiation services; a 19 10 "prospective purchaser" as the potential purchaser of the 19 11 network that the professional agent recommends to the 19 12 authority to purchase the network assets; and a "qualified 19 13 purchaser" as a prospective purchaser that has been approved 19 14 by the governor and qualified in accordance with provisions 19 15 specified in the bill. 19 16 AUTHORITY ESTABLISHED. The bill provides that the Iowa 19 17 communications network sales authority is the sole authority 19 18 to oversee the sales process regarding transfer of ownership 19 19 of the network's backbone assets to a qualified purchaser. 19 20 The bill provides that subject to final approval of the 19 21 selection of the qualified purchaser and the terms of sale by 19 22 the governor, the authority's operation shall not be subject 19 23 to the jurisdiction or control of any other state agency. The 19 24 bill provides, however, that the authority is subject to the 19 25 general operations practices applicable to other state 19 26 agencies during the period of its operation, and that this 19 27 period of operation shall be from the effective date of the 19 28 bill until a qualified purchaser has been approved by the 19 29 governor, and all sales agreements necessary to complete the 19 30 sale have been negotiated and entered into. The bill provides 19 31 that membership of the authority shall consist of the 19 32 treasurer of state, the auditor of state, two members of the 19 33 Iowa telecommunications and technology commission, and one 19 34 member of the Iowa utilities board. 19 35 PROFESSIONAL AGENT RETENTION. The bill provides that the 20 1 authority shall issue a request for proposals to retain a 20 2 professional agent with telecommunications asset sales 20 3 experience to market and coordinate the sales process of the 20 4 backbone assets. The bill provides that the governor, in 20 5 consultation with the treasurer of state and the department of 20 6 management, shall be authorized to negotiate fair and 20 7 equitable terms of compensation for the professional agent. 20 8 The bill provides that the backbone assets shall only be 20 9 available for a single private vendor, or a consortium acting 20 10 as a single private vendor, to purchase and that the state 20 11 shall retain an indefeasible right of use with respect to 20 12 certain amounts of backbone capacity in optical wavelengths 20 13 for a negotiated period of seven to 25 years, and two optional 20 14 renewal periods of 10 years each. The bill provides that as a 20 15 part of the sale, the purchaser shall enter into indefeasible 20 16 right=of=use agreements with the state in which the purchaser 20 17 shall grant the state an indefeasible right of use with 20 18 respect to backbone capacity and optical wavelengths and Part 20 19 II facilities and the dark fiber connecting various Part III 20 20 aggregation points to network backbone=switching points. The 20 21 bill provides that during the term of an indefeasible right= 20 22 of=use agreement, the state as the holder will have complete 20 23 and total ownership of the fiber or channels identified in the 20 24 indefeasible right=of=use agreement, may use the fiber or 20 25 channels as if they were a physically owned asset of the 20 26 state, and that the state's interest in the fiber or channels 20 27 cannot be annulled or made void by the grantor of the 20 28 indefeasible right of use or any other party. The bill 20 29 provides that at the end of the indefeasible right=of=use 20 30 agreement and any renewal periods, title to the equipment and 20 31 fiber assets and optical wavelength capacities covered by the 20 32 agreement shall pass completely to the purchaser. The bill 20 33 provides that the terms of sale shall include provisions 20 34 committing the commission to purchase field services, 20 35 including maintenance, provisioning, and build out, from the 21 1 purchaser and committing the commission to pay a monthly fee 21 2 for fiber maintenance and field services for the assets that 21 3 are sold. The bill provides that the request for proposals 21 4 shall be issued no later than six months from the bill's date 21 5 of enactment. 21 6 The bill provides a list of potential subject areas for 21 7 incorporation into the request for proposals, including, among 21 8 others, a procedure to determine the compensation for the 21 9 successful professional agent. The bill provides that the 21 10 parameters surrounding the sale, to be determined by the 21 11 governor, shall include, but not be limited to, the amount of 21 12 time the state would allow the professional agent to market 21 13 the assets, a provision that the governor or the governor's 21 14 designee shall have ultimate discretion to accept or reject an 21 15 offer, and a detailed framework for IRU agreements between the 21 16 state and a purchaser, including the provision that the state 21 17 shall be held harmless in the event the purchaser suffers a 21 18 loss of revenue due to a failure of any assets or any portion 21 19 of the network being shared by the network. The bill provides 21 20 that the framework shall also include a process and procedures 21 21 for routing capacity and sharing of power currents needed to 21 22 operate the purchaser's equipment and related expenses, a 21 23 framework for the standards required regarding network 21 24 maintenance, a requirement that the purchaser offer advanced 21 25 telecommunications services equitably across the state and 21 26 specifically serving areas where those types of services are 21 27 not yet available, a requirement that the purchaser grant the 21 28 network the right to participate in future upgrades, purchaser 21 29 selection criteria, an analysis of a prospective purchaser's 21 30 financial stability, and a requirement that during the 21 31 negotiations process, the prospective purchaser shall offer 21 32 the state specified reasonable surety of long=term economic 21 33 viability and shall guarantee that the state's IRUs shall be 21 34 protected in the case of the bankruptcy of the purchaser. 21 35 SELECTION PROCESS FOR QUALIFIED PURCHASER. The bill 22 1 provides that the authority shall select the professional 22 2 agent submitting the proposal that provides the best overall 22 3 value to the state, and that using the parameters included in 22 4 the request for proposals, the selected professional agent 22 5 shall develop a process to market and sell the assets designed 22 6 to maximize the state's proceeds from the sale. The bill 22 7 provides that during the marketing period, using the 22 8 predetermined parameters, the professional agent shall 22 9 identify a prospective purchaser and submit the prospective 22 10 purchaser to a qualification process designed to verify the 22 11 purchaser's ability to adequately operate and maintain the 22 12 backbone network. The bill provides that the verification 22 13 process shall include verifying that the purchaser has proven 22 14 experience operating a telecommunications network, has the 22 15 ability to purchase the network outright collateral to secure 22 16 financing, and additional criteria established by the general 22 17 assembly or the governor. The bill also provides that there 22 18 shall be verification that the purchaser agrees to the 22 19 requirement that other telecommunications companies providing 22 20 services since January 1, 2009, be allowed to enter into a 22 21 buyers consortium and share in the purchased assets or 22 22 facilities in proportion to terms established in the 22 23 consortium agreement which shall guarantee or result in equal 22 24 opportunity for access by a consortium member, and that the 22 25 purchaser is an entity that agrees to guarantee equal access 22 26 to the purchased assets to any telecommunications company that 22 27 has been providing services to Iowa customers since January 1, 22 28 2009. The bill provides that this equal access means that the 22 29 purchaser shall not, with regard to a telecommunications 22 30 company providing services to Iowa customers since January 1, 22 31 2009, discriminate by refusing or delaying access to the 22 32 purchased assets; degrade the quality of access or service 22 33 provided; fail to disclose all information reasonably 22 34 necessary for the design of network interface equipment, 22 35 network interface services, or software that will meet the 23 1 specifications of the purchaser; or unreasonably refuse or 23 2 delay interconnections or provide inferior interconnections, 23 3 discriminate in favor of itself or an affiliate in the 23 4 provision and pricing of, or extension of credit for, any 23 5 service. The bill provides that a telecommunications company 23 6 entering into a consortium may file a written complaint at any 23 7 time with the utilities board established in Code chapter 476 23 8 requesting the board to determine compliance by the purchaser 23 9 with these provisions. 23 10 The bill provides that after verification by the 23 11 professional agent of the purchaser's ability to adequately 23 12 operate and maintain the backbone network is given, the 23 13 authority shall make a recommendation regarding a purchaser 23 14 and the terms of sale to the governor, and that the governor 23 15 has the right of final approval of the purchaser and the terms 23 16 of sale. The bill provides that if the professional agent is 23 17 unable to identify a prospective purchaser able to adequately 23 18 operate and maintain the backbone network, the professional 23 19 agent shall submit a report to the authority explaining the 23 20 reasons supporting this conclusion. 23 21 NETWORK OPERATION PENDING SALE. The bill provides that the 23 22 authority shall enter into a memorandum of understanding 23 23 regarding procedures for operation of the network until the 23 24 sale is finalized with the prospective purchaser, which shall 23 25 include a provision that the purchaser in good faith intends 23 26 to finalize the purchase and shall pay a termination penalty 23 27 if the purchase is not finalized. 23 28 ADDITIONAL CONDITIONS OF SALE. The bill provides that any 23 29 outstanding debt or liens upon the network assets shall be 23 30 discharged out of the state's proceeds so that the purchaser 23 31 receives marketable title to the assets, and that prepayment 23 32 of certificates of participation, defined in the bill, shall 23 33 be made prior to closing the sale of assets or as part of 23 34 closing the sale, and accomplished in a manner not 23 35 jeopardizing the certificate's tax=exempt status. The bill 24 1 provides that the state and the purchaser shall negotiate 24 2 their relevant interest in rights=of=way and leases and 24 3 easements for uses of rights=of=way, that the purchaser shall 24 4 have the option of paying the entire sale price in a single 24 5 lump sum payment at the time that the sale if finalized or 24 6 alternatively may pay for the backbone assets at the time that 24 7 the sale is finalized and make an annual payment for use of 24 8 the rights=of=way, and that the purchaser shall immediately 24 9 establish points of presence near the existing network 24 10 switching centers and establish fiber extensions and 24 11 connectivity between them. The bill provides that the 24 12 purchaser shall physically locate in the vicinity of the joint 24 13 forces headquarters armory in Johnston, Iowa, and establish 24 14 fiber connectivity between the ICN hub and the vendor's 24 15 location, and that duplicate racks of backbone core equipment 24 16 shall be provided by the purchaser and installed by the 24 17 network to carry traffic while the network backbone is 24 18 transferred to the purchaser. The bill provides that the 24 19 purchaser shall purchase the equipment required in this 24 20 process for the network and pay any and all related expenses 24 21 associated with the conversion effort. The bill provides that 24 22 the authority, in consultation with the treasurer of state and 24 23 the governor, shall submit to the general assembly periodic 24 24 progress reports at three=month intervals from the effective 24 25 date of the bill indicating progress in issuing the request 24 26 for proposals; retaining a professional agent; marketing 24 27 efforts by the professional agent; identification, 24 28 qualification, and selection of a purchaser; and the 24 29 postselection process of finalizing the sale, entering into 24 30 indefeasible right=of=use agreements, and maintaining the 24 31 network. 24 32 CODE CHAPTER 8D AMENDMENTS. The bill provides for a 24 33 conforming definition and references to IRUs in Code chapter 24 34 8D and conforming terminology changes and provisions regarding 24 35 changes in ownership of the network. 25 1 NETWORK ACQUISITIONS, DISPOSAL, AND ACCESS. The bill adds 25 2 a provision that the commission may use IRU agreements to 25 3 acquire and dispose of property, equipment, and services, and 25 4 deletes outdated language regarding a local school board, 25 5 governing authority of a nonpublic school, or area education 25 6 agency board election to provide financing costs for Part III 25 7 of the network. The bill provides that if the state sells 25 8 assets of the network pursuant to the procedure specified in 25 9 the bill and retains backbone capacity from another 25 10 telecommunications provider, publicly owned facilities that 25 11 house primary and secondary switching facilities shall provide 25 12 access to that provider in the geographic area to the primary 25 13 and secondary switching facilities housing the fiberoptics 25 14 termination equipment in established fiber entry ducts, and to 25 15 the building grounding system. The bill provides that the 25 16 provider's access to the primary and secondary switching 25 17 facilities will be coordinated through the network's staff. 25 18 The bill provides that the state may negotiate the acquisition 25 19 of a Part III connection following the termination of a lease 25 20 with a qualified provider if offered by the vendor for such a 25 21 Part III connection if the commission determines it to be in 25 22 the best interest of the network. 25 23 NETWORK COSTS AND BILLINGS. The bill provides for the 25 24 inclusion of depreciation costs in the determination of rates 25 25 for use of the system, and deletes outdated language which had 25 26 required reports relating to the impact of changing technology 25 27 on potential costs and capabilities of the system, and 25 28 relating to a department of education study of new techniques 25 29 in distant teaching. 25 30 IOWA COMMUNICATIONS NETWORK FUND INTEREST AND UPGRADE AND 25 31 REPLACEMENT TRUST FUND. The bill further provides for the 25 32 retention of interest received by the state from the Iowa 25 33 communications network fund established in Code section 8D.14, 25 34 and for the establishment of an Iowa communications network 25 35 equipment upgrade and replacement trust fund. The bill 26 1 provides that the new trust fund shall be separate and apart 26 2 from all other public moneys or funds of the state, and shall 26 3 be under the control of the treasurer of state and the 26 4 department of management. The bill provides that the trust 26 5 fund will be comprised of the proceeds from the sale of ICN 26 6 assets, including certain state=owned fiberoptic cable and 26 7 related equipment located outside the Des Moines metropolitan 26 8 area, and the portion of the fees charged to authorized users 26 9 for depreciation. The bill provides that contents of the fund 26 10 shall only be used to replace failed or obsolete network 26 11 equipment owned by the state and equipment included in IRU 26 12 agreements in which the network obtains statewide transport 26 13 capacity. The bill provides that the treasurer of state and 26 14 the department of management shall jointly verify an annual 26 15 estimate by the commission of the amount needed for equipment 26 16 replacement pursuant to new Code section 8D.15, and that 26 17 releases of moneys pursuant to the estimate shall require an 26 18 annual appropriation by the general assembly to the 26 19 commission. The bill provides that the commission may solicit 26 20 or accept gifts, including donations and bequests, to be 26 21 deposited into the fund for use in accordance with the 26 22 purposes of the fund, and that interest received by the state 26 23 as a result of investing the contents of the fund shall be 26 24 credited to the fund for use by the commission. 26 25 The bill takes effect upon enactment. 26 26 LSB 1739XS 83 26 27 rn/nh/8.1