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TelCove and Verizon Contract ExtensionsTelCove and Verizon Contract Extensions

1. TelCove Contract Extension1. TelCove Contract Extension

a. Background and Rationalea. Background and Rationale

b. TelCove Extension Decision b. TelCove Extension Decision CriteriaCriteria

Financial OptionsFinancial Options

Service ReliabilityService Reliability

Corporate ViabilityCorporate Viability

New TechnologiesNew Technologies

c. TelCove Extension Highlightsc. TelCove Extension Highlights

2. Verizon Extension Highlights2. Verizon Extension Highlights

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TelCove Savings to the Commonwealth: Approximately $32 millionTelCove Savings to the Commonwealth: Approximately $32 million

Agency Direct Benefits:Agency Direct Benefits:

Immediate reductions in long distanceImmediate reductions in long distance

Better service order and trouble ticket Service Level Better service order and trouble ticket Service Level AgreementsAgreements

NT1 ownership at end of contractNT1 ownership at end of contract

Reduced TSP rates and Reduced TSP rates and

Participation in VoIP and wireless technologiesParticipation in VoIP and wireless technologies

TelCove Extension TelCove Extension SummarySummary

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TelCove Extension Highlights - SummaryTelCove Extension Highlights - Summary

CurrentCurrent

Commonwealth / TelCove has been a Positive RelationshipCommonwealth / TelCove has been a Positive Relationship

82% Satisfactory Rating. Issues primarily at remote sites, 82% Satisfactory Rating. Issues primarily at remote sites, now covered by SLAsnow covered by SLAs

Commitment to Quality Services (Help desk calls down by 1/3 in past year) Commitment to Quality Services (Help desk calls down by 1/3 in past year)

Reliable Services – Voice and data troubles below pre-transition levelsReliable Services – Voice and data troubles below pre-transition levels

Guaranteed best pricing statement from TelCoveGuaranteed best pricing statement from TelCove

Bandwidth availability unimaginable 7 years agoBandwidth availability unimaginable 7 years ago

FutureFuture

Expand the reach of the network through enhanced services & new Expand the reach of the network through enhanced services & new technologiestechnologies

Continue with low pricing and add new services at mutually agreed upon pricingContinue with low pricing and add new services at mutually agreed upon pricing

Continued commitment to qualityContinued commitment to quality

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Provide the Commonwealth with an opportunity to build a strategic Provide the Commonwealth with an opportunity to build a strategic infrastructure plan to maximize the opportunity to evaluate new infrastructure plan to maximize the opportunity to evaluate new technologiestechnologies

Given the uncertainty in the regulatory environment with respect to Given the uncertainty in the regulatory environment with respect to UNE rates, this extension will afford the Commonwealth protection UNE rates, this extension will afford the Commonwealth protection from access cost increasesfrom access cost increases

Keep the Commonwealth moving forward with technologyKeep the Commonwealth moving forward with technology

Continue to provide cost effective, quality telecommunicationsContinue to provide cost effective, quality telecommunications servicesservices

TelCove: Background and RationaleTelCove: Background and Rationale

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Through a benchmarking analysis conducted against Through a benchmarking analysis conducted against telecommunications carriers’ usage rates from two similar-sized telecommunications carriers’ usage rates from two similar-sized states, it was determined that the Commonwealth’s current rates are states, it was determined that the Commonwealth’s current rates are very low in comparison to the marketvery low in comparison to the market

Type 1 building status committed to significant enhancements to Type 1 building status committed to significant enhancements to the public network infrastructure (Two or three buildings per month)the public network infrastructure (Two or three buildings per month)

Provide the Commonwealth with a perpetual license for the ISS, the Provide the Commonwealth with a perpetual license for the ISS, the ordering and invoicing system at the expiration/termination of the ordering and invoicing system at the expiration/termination of the Contract extensionContract extension

TelCove: Background and RationaleTelCove: Background and Rationale

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TelCove Criteria # 1: Financial OptionsTelCove Criteria # 1: Financial Options

Considered the Total Cost of Ownership for 3 options:Considered the Total Cost of Ownership for 3 options:

1.1. Status quo – current contract rates extended out to 2008Status quo – current contract rates extended out to 2008

Issue RFP in 2005 with the risks of higher contract rates and Issue RFP in 2005 with the risks of higher contract rates and transition costs during economic downturn.transition costs during economic downturn.

2. Extension – 5-year extension through 2011 with TelCove2. Extension – 5-year extension through 2011 with TelCove

Compared to status quo and (3) new contract, the extension is preferable:Compared to status quo and (3) new contract, the extension is preferable:

5-year extension offer versus 2 year extension = $ 1.89M / yr. savings5-year extension offer versus 2 year extension = $ 1.89M / yr. savings 5-year extension offer verses new contract = $ 4.78M / yr. Savings5-year extension offer verses new contract = $ 4.78M / yr. Savings

Final Agreement: 5-year extension expiring on February 18, 2011Final Agreement: 5-year extension expiring on February 18, 2011

Considered the Total Cost of Ownership for 3 options:Considered the Total Cost of Ownership for 3 options:

1.1. Status quo – current contract rates extended out to 2008Status quo – current contract rates extended out to 2008

Issue RFP in 2005 with the risks of higher contract rates and Issue RFP in 2005 with the risks of higher contract rates and transition costs during economic downturn.transition costs during economic downturn.

2. Extension – 5-year extension through 2011 with TelCove2. Extension – 5-year extension through 2011 with TelCove

Compared to status quo and (3) new contract, the extension is preferable:Compared to status quo and (3) new contract, the extension is preferable:

5-year extension offer versus 2 year extension = $ 1.89M / yr. savings5-year extension offer versus 2 year extension = $ 1.89M / yr. savings 5-year extension offer verses new contract = $ 4.78M / yr. Savings5-year extension offer verses new contract = $ 4.78M / yr. Savings

Final Agreement: 5-year extension expiring on February 18, 2011Final Agreement: 5-year extension expiring on February 18, 2011

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TelCove Criteria # 2: Service ReliabilityTelCove Criteria # 2: Service Reliability

Customer Satisfaction Survey – June 30, 2004:Customer Satisfaction Survey – June 30, 2004:

81.5 % satisfaction rate reported from 33 state agencies81.5 % satisfaction rate reported from 33 state agencies

Type 4 and 5 issues (Remote sites) Primary ConcernType 4 and 5 issues (Remote sites) Primary Concern

Customer Service/Installations – Customer Service/Installations – issues with installations and poor serviceissues with installations and poor service

Quality – Future Decline in customer satisfaction Quality – Future Decline in customer satisfaction addressed in extension through better SLAsaddressed in extension through better SLAs

Agencies without remote offices are satisfiedAgencies without remote offices are satisfied

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TelCove and Verizon Contract Extensions

Trouble Ticket HistoryTrouble Ticket History March 2004March 2004 February 2005February 2005

Data Actual TroublesData Actual Troubles 76 76 48 48

Non-Data (Voice, video, access)Non-Data (Voice, video, access) 645645 264 264 (Does not include administrative trouble tickets, (Does not include administrative trouble tickets,

such as password resets, billing and service order queries)such as password resets, billing and service order queries)

Service Order History Service Order History March 2004 March 2004 February 2005February 2005

Total Orders IssuedTotal Orders Issued 1959 1959 1689 1689

% completed within standard interval 86.8%% completed within standard interval 86.8%96.3%96.3%

TelCove Service Level AgreementsTelCove Service Level Agreements (SLAs) Since July, 2003 (SLAs) Since July, 2003

$ 63,115 in credits have been provided to agencies and the enterprise $ 63,115 in credits have been provided to agencies and the enterprise for missed intervals & outagesfor missed intervals & outages

TelCove Criteria # 2: Service ReliabilityTelCove Criteria # 2: Service Reliability

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TelCove Criteria # 3: Corporate ViabilityTelCove Criteria # 3: Corporate Viability

Bay Harbour Management L.C. is the current investor that controls Bay Harbour Management L.C. is the current investor that controls

TelCove. Committed to providing cash infusions if needed.TelCove. Committed to providing cash infusions if needed.

Commonwealth accounts for approximately 20% of TelCove’s business Commonwealth accounts for approximately 20% of TelCove’s business

(An asset and a challenge). (An asset and a challenge).

Asset as we were able to secure concessions probably not possible Asset as we were able to secure concessions probably not possible from a larger competitors.from a larger competitors.

A challenge and a potential asset: A challenge and a potential asset:

Should TelCove be sold or should Bay Harbour initiate a Incentive Should TelCove be sold or should Bay Harbour initiate a Incentive Stock Option (ISO), Commonwealth contract could become a valuable Stock Option (ISO), Commonwealth contract could become a valuable component of the change.component of the change.

Commonwealth has the option to continue with TelCove or successor Commonwealth has the option to continue with TelCove or successor to 2011 or continue with TelCove until new contractor is awarded the to 2011 or continue with TelCove until new contractor is awarded the business – both under the current terms and conditions of this business – both under the current terms and conditions of this contractcontract

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TelCove Criteria # 4: New TechnologiesTelCove Criteria # 4: New Technologies

Voice Over IP (VOIP):Voice Over IP (VOIP):

Product Development Group is in the final stages of creating a VOIP Product Development Group is in the final stages of creating a VOIP offering. Hardware selection scheduled foroffering. Hardware selection scheduled for 22ndnd quarter 2005quarter 2005

Internal product training began in October, 2004Internal product training began in October, 2004

Extensive facilities-based SONET network provides ideal backbone for Extensive facilities-based SONET network provides ideal backbone for customer and network-based VOIP solutionscustomer and network-based VOIP solutions

Benefits include Benefits include

1.1. reduced access costs and some long distance usage reductionsreduced access costs and some long distance usage reductions2.2. expanded disaster recovery capability, expanded disaster recovery capability, 3.3. advanced featuresadvanced features

LMDS / Wireless Last MileLMDS / Wireless Last Mile: TelCove owns many wireless last mile licenses. : TelCove owns many wireless last mile licenses. Current TelCove contract includes LMDS offering Current TelCove contract includes LMDS offering

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TelCove Extension - SpecificsTelCove Extension - Specifics

Service Level Agreements (SLAs): Service Level Agreements (SLAs):

Voice and Data Services – Penalties apply if more than 2 outages Voice and Data Services – Penalties apply if more than 2 outages occur in a calendar month and are higher than previous SLA occur in a calendar month and are higher than previous SLA penalties.penalties.

Trouble Tickets Time to Restore Service – Penalty amounts have Trouble Tickets Time to Restore Service – Penalty amounts have increased based upon the time to restore serviceincreased based upon the time to restore service

Service Order Completion – Stricter measurements apply to the Service Order Completion – Stricter measurements apply to the completion of service orders in the established interval timecompletion of service orders in the established interval time

Chronic Problems – The frequency of troubles for which an issue Chronic Problems – The frequency of troubles for which an issue is categorized as chronic has been decreased from 4 troubles to 3 is categorized as chronic has been decreased from 4 troubles to 3 troubles. troubles.

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TelCove Extension - SpecificsTelCove Extension - Specifics

Long Distance Discounts and Most favored rates guarantee providedLong Distance Discounts and Most favored rates guarantee provided

Discounts for Enterprise Services (To be determined)Discounts for Enterprise Services (To be determined)

The MARC is eliminated beginning February 19, 2009The MARC is eliminated beginning February 19, 2009

NT-1 Equipment: Upon termination of the agreement (for other than a NT-1 Equipment: Upon termination of the agreement (for other than a termination for convenience, or upon insolvency) ownership of the termination for convenience, or upon insolvency) ownership of the

NT-1 equipment will automatically transfer to the CommonwealthNT-1 equipment will automatically transfer to the Commonwealth

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TSP: Telecommunications Service Priority, where available, will TSP: Telecommunications Service Priority, where available, will be provided at 10% below the ILECbe provided at 10% below the ILEC

Public Safety Site Investments: TelCove will provide enhanced Public Safety Site Investments: TelCove will provide enhanced reliability to agreed upon selected public safety sites at no cost reliability to agreed upon selected public safety sites at no cost to the Commonwealthto the Commonwealth

Volume Discounts: Monthly recurring charges from Cat 1 and 2 Volume Discounts: Monthly recurring charges from Cat 1 and 2

agency billings once agreed upon revenue thresholds are reachedagency billings once agreed upon revenue thresholds are reached

TelCove Extension - SpecificsTelCove Extension - Specifics

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TelCove Extension - SpecificsTelCove Extension - Specifics

Perpetual license to the ISS system will be provided to the Commonwealth Perpetual license to the ISS system will be provided to the Commonwealth within 120 days of the extension amendment execution. within 120 days of the extension amendment execution. The Commonwealth will receive all source code, object code, and documentation for ISS at the The Commonwealth will receive all source code, object code, and documentation for ISS at the

termination or expiration of the contract extensiontermination or expiration of the contract extension

Technology Refresh: TelCove will fund a technology refresh for NOC equipment, Technology Refresh: TelCove will fund a technology refresh for NOC equipment, and any equipment that supports services covered by a SLAand any equipment that supports services covered by a SLA

TelCove and the Commonwealth have mutually released each other from TelCove and the Commonwealth have mutually released each other from any obligations regarding the Technology Research Facilityany obligations regarding the Technology Research Facility

Enhanced/New Technology: TelCove agrees to work with the Commonwealth to Enhanced/New Technology: TelCove agrees to work with the Commonwealth to develop agreeable pricing for new technology. TelCove will have 30 business develop agreeable pricing for new technology. TelCove will have 30 business days to provide its proposal to the Commonwealthdays to provide its proposal to the Commonwealth

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TelCove Extension - SpecificsTelCove Extension - Specifics

Within 180 days, the Commonwealth and Telcove will:Within 180 days, the Commonwealth and Telcove will:

Conduct Voice Over IP (VOIP) Pilot: Conduct Voice Over IP (VOIP) Pilot:

Define a group of users to roll out a VOIP pilot to evaluate the Define a group of users to roll out a VOIP pilot to evaluate the benefits of the product. benefits of the product.

This pilot program will run for a period of 6 months at no This pilot program will run for a period of 6 months at no additional cost to the Commonwealth, and will encompass 3 to 4 additional cost to the Commonwealth, and will encompass 3 to 4 locations and up to 500 userslocations and up to 500 users

Wireless Technology Trial:Wireless Technology Trial:

Define locations for the implementation of fixed wireless on a pilot Define locations for the implementation of fixed wireless on a pilot basis. basis.

The pilot program will run for a period of 6 months at no The pilot program will run for a period of 6 months at no additional cost to the Commonwealthadditional cost to the Commonwealth

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Verizon Extension Verizon Extension HighlightsHighlights

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Verizon Extension Highlights Verizon Extension Highlights

Option 3: Extension of Current MAN Contract with Option 3: Extension of Current MAN Contract with Addition of Managed Device Packages Addition of Managed Device Packages

New contract term to 12/31/08, effective upon signatureNew contract term to 12/31/08, effective upon signature

Enhanced 2-hour on-site maintenance in Harrisburg w/ OA Enhanced 2-hour on-site maintenance in Harrisburg w/ OA

provided sparesprovided spares

24x7 Monitoring and Management of OA MAN devices24x7 Monitoring and Management of OA MAN devices

Single Level 2 Configuration Management rate of Single Level 2 Configuration Management rate of

$154/device/month, regardless of device type$154/device/month, regardless of device type

Potential for incremental device rate reduction to OA with Potential for incremental device rate reduction to OA with

addition of DOH, L&I, and/or LCB managed servicesaddition of DOH, L&I, and/or LCB managed services

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Verizon Extension Highlights Verizon Extension Highlights

OA MAN SitesOA MAN Sites

No termination liability on maintenance and monitoring servicesNo termination liability on maintenance and monitoring services

Managed device package for OA MAN DS3 site = $946.74/monthManaged device package for OA MAN DS3 site = $946.74/month

Previous typical agency monthly recurring rate = Previous typical agency monthly recurring rate = $1,250.00/month$1,250.00/month

Includes Cisco 3845 w/ DS3 interface, installation, maintenance, Includes Cisco 3845 w/ DS3 interface, installation, maintenance, and management servicesand management services

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Verizon Extension Highlights Verizon Extension Highlights

Remote SitesRemote Sites

Managed device package for agency remote site = Managed device package for agency remote site = $450.40/month$450.40/month

Previous typical agency monthly recurring rate = Previous typical agency monthly recurring rate = $569.00/month$569.00/month

Includes Cisco 2821 w/ DS1 interface, installation, Includes Cisco 2821 w/ DS1 interface, installation, maintenance, and management servicesmaintenance, and management services

Agencies may elect maintenance and management Agencies may elect maintenance and management packaged services with a contract term between 12 and packaged services with a contract term between 12 and 36 months.36 months.

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Verizon Extension HighlightsVerizon Extension Highlights

No CPE termination liability assessed with No CPE termination liability assessed with

< 5% device disconnects over the contract term< 5% device disconnects over the contract term

Annual OA Contract Savings = Annual OA Contract Savings =

$117,167/Year ($351,501 over 3 years)$117,167/Year ($351,501 over 3 years)

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Verizon Solution Benefits to OAVerizon Solution Benefits to OA

Meets OA’s Requested ObjectivesMeets OA’s Requested Objectives

Provides immediate monthly savings to OAProvides immediate monthly savings to OA

Provides single classification/rate for MAN managed Provides single classification/rate for MAN managed devicesdevices

New contract term to 12/31/08New contract term to 12/31/08

No termination liability on maintenance No termination liability on maintenance

and management servicesand management services

Provides managed device packages for future OA MAN Provides managed device packages for future OA MAN addsadds

Provides alternative managed device packages Provides alternative managed device packages

for agency remote locationsfor agency remote locations

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Verizon Maintenance Contract Verizon Maintenance Contract Comparison for a 3-Year TermComparison for a 3-Year Term

AgencyAgency Current Monthly Current Monthly

BillingBilling Proposed Estimated Proposed Estimated

Monthly BillingMonthly BillingProjected % Projected %

SavingsSavings

RevenueRevenue $ 7,645.00$ 7,645.00 $ 5,551.43$ 5,551.43 27 %27 %

PennDOTPennDOT $ 58,701.00$ 58,701.00 $ 40,811.81$ 40,811.81 30 %30 %

DCNRDCNR $ 11,898.87$ 11,898.87 $ 8,648.40$ 8,648.40 27 %27 %

DPW/POSNetDPW/POSNet $ 51,807.00$ 51,807.00 $ 41,176.00$ 41,176.00 21 %21 %

PSP/CLEANPSP/CLEAN $ 14,089.53$ 14,089.53 $ 11,489.42$ 11,489.42 18 %18 %

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To obtain Copies of this PresentationTo obtain Copies of this Presentation

http://www.keycomm.state.pa.us/keycomm/site/default.asp