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Thank you for your interest in the proposed, Fibrant long-term lease agreement between the City of Salisbury and Hotwire Communications. Below you will find multiple lease-related documents, including the proposed lease, an independent accountant report, a list of Frequently Asked Questions, as well as information on Hotwire Communications and Fibrant.

Please review the documents at your leisure in advance of the primary election on Tuesday, May 8.

Fibrant Lease Agreement

SUMMARY OF MATERIAL PROVISIONS OF PROPOSED FIBRANT LEASE AGREEMENT

The following summary describes certain material provisions of the Transition Management Agreement and Lease dated April 3, 2018 (the “Lease Agreement”),between The City of Salisbury (the “City”) and Hotwire Communications, Ltd., d/b/a in North Carolina as Hotwire Communications of North Carolina, Limited Partnership (“Hotwire”.) The summary is qualified in its entirety by reference to the Lease Agreement, which may be viewed and downloaded from the following link to the City’s website: salisburync.gov/FibrantVote. Copies of the Lease Agreement may be obtained from the office of the City Clerk upon payment of a photocopying and processing fee of $ .10 per each page over 20 pages. This summary may not contain all of the information about the Lease Agreement that may be important to you. The City encourages you to read the Lease Agreement in its entirety for a more complete understanding of the lease arrangements.

Basic Lease Terms

The Lease Agreement provides, among other things, for a lease by the City, as lessor, to Hotwire, as lessee, of the City’s Fibrant optic-fiber-to-the-premises network that provides telephone, video, and internet services to residences, businesses, and other entities in the City and certain other areas. Following are certain basic terms of the lease:

Leased Assets

The City will lease to Hotwire the City’s full right, title, and interest in the entire Fibrant System, including the following leased assets:
  • the Fibrant Network Operations Center (“NOC”) premises, occupying approximately 5,144 square feet on the main level of the City’s Customer Service Center at 1415 S. Martin Luther King Jr. Avenue, and all furnishings and equipment used by the City in operating the NOC;
  • all “Head End” equipment used by the City (including central control devices, “middleware,” servers, remodulation equipment, and other equipment”), and approximately 2,552 square feet on the main level of the Customer Service Center housing the Head End;
  • all the City’s Satellite Dish premises, occupying a portion of the City’s Communications Center property at 310 Hill Street, and the antennae, satellite dishes, and related electronics and equipment used by the Fibrant System at the site;
  • all “Outside Plant” of the Fibrant System, comprising fiber optic cable, conduits, and other equipment and components used in connection with the Fibrant System;
  • all “Customer Premises Equipment” (including terminals, modems, and certain wiring) used for providing communications services to customers and subscribers; and
  • the City’s fleet of approximately 15 vehicles used in connection with the Fibrant System

Term

The initial term of the Lease Agreement will be 20 years, commencing on July 1, 2018, or, if later, the date all conditions precedent to the Lease Agreement have been satisfied or waived. Hotwire will have the option to renew the lease for one additional 20-year term, provided that it satisfies certain conditions during the initial term, including the making of certain minimum rent payments during the three-year period prior to expiration of the initial term.

Rent

Hotwire will pay rent to the City, quarterly, in an amount equal to certain agreed percentages of Hotwire’s Communication Service Revenue received in its operation of the Fibrant System. The percentages are set forth in the following table:

Communication Service Revenue Percentage
Video Service 10%
Internet Service 30%
Voice Service 10%
Data Center Service 20%; subject to certain credits
Data Transport Service 25%
Dark Fiber Service 30%
Other Services 10%; subject to adjustment
in certain circumstances

“Communication Service Revenue” means the funds received by Hotwire from subscribers and customers, but excluding (A) any amount collected for governmental excise, sales, or similar taxes and other governmental authorized fees and surcharges (such as local portability fees) that are invoiced to the customer, (B) rent charged to customers for rental of equipment, and (C) non-recurring, one-time charges to a customer.

Hotwire will be entitled to certain credits against its obligation to pay rent, including a credit for Hotwire’s cost of installing “Drops” (fiber connections from a pole or underground cable to the premises of a customer or subscriber) and NIDs (network interface devices that connect the Outside Plant to Customer Premises Equipment), plus a 15% administrative fee. Hotwire also would be entitled to a credit of $11,000 per quarter in consideration of Hotwire’s maintenance of certain dark fiber retained by the City and used for the City’s internal communications purposes and the costs of capital improvements incurred by Hotwire to provide certain Data Center Services.

The Lease Agreement provides that either the City or Hotwire could request a renegotiation of revenue percentages allocated to “Other Services,” which would include communication services that become available in the future, if the applicable percentage in the table is inconsistent with the economic relationship of the parties at the time the Lease Agreement is executed. If the parties are unable to agree, the disagreement may be submitted to an Independent Telecommunications Expert for a determination of the appropriate percentage adjustment.

Hotwire also will be responsible for paying, or reimbursing the City, for certain charges that may be incurred by the City in connection with the Fibrant System, including fees for easements and pole attachment agreements, certain insurance premiums, certain costs for the provision of electricity and HVAC services, and certain taxes and regulatory and governmental fees.

The Lease Agreement provides certain audit rights for the City to verify rent and additional charge amounts.

THE LEASE AGREEMENT DOES NOT REQUIRE ANY MINIMUM OR GUARANTEED LEVEL OF RENT PAYMENT.

Use of Fibrant System Assets

Hotwire will have the exclusive right, and will be required, to use the Fibrant System Assets for marketing, offering, provision, routing, and delivery of Communication Services to businesses, residents, consumers, and other users only within the Grandfathered Fibrant Service Area. “Grandfathered Fibrant Service Area” includes the corporate limits of the City of Salisbury (as of April 1, 2011, or as expanded through annexation); the municipalities of Salisbury, Spencer, East Spencer, Granite Quarry, Rockwell, Faith, Cleveland, China Grove, and Landis and the “corridors between those cities,” as well as certain economic development sites, public safety facilities, governmental facilities, and educations schools and colleges located outside the municipalities. The Grandfathered Fibrant Service Area is defined in the Lease Agreement by reference to Section 160A-340.2 of the North Carolina General Statutes.

Communication Services

The Lease Agreement provides that Hotwire will provide Voice, Data Center, Data Transport, Internet, Video, “Dark Fiber,” and other communication services. Hotwire will provide such services in accordance with Legal Requirements, Prudent Communication Service Industry Practice, Competitive Requirements, and Service Level Standards.
  • “Prudent Communication Service Industry Practice” means the standard of operating and maintenance practice, at any particular time, methods and acts, that, in light of the relevant facts, is generally engaged in or approved by a significant portion of the owners of distribution systems that are similar to the Fibrant System, that would have been expected to accomplish the desired result consistent with good business practice, reliability and safety, and in compliance with all Manufacturer’s Recommendations.
  • “Competitive Requirements” means the offering and provision of Communication Services of a type and quality, and at a price, that are in all respects (i) competitive with the services offered by providers from time to time offering Communications Services in the City of Salisbury or other areas of Rowan County served by the System Assets; and (ii) no less favorable than the type, quality, and price of Communications Services offered by Hotwire or its Affiliates in other locations where Hotwire or such Affiliates offer Communications Services, taking into account differences in pricing of third-party content and products.
  • “Service Level Standards” means the customer service level and performance standards set forth in Appendix 3 to the Lease Agreement, covering, among other things, service availability, timely response to and cure of trouble reports, customer service orders, customer hold time, customer service records, emergency 911 telephone service standards, video programming service standards, virus protection, and internet bandwith and service availability.
The Lease Agreement requires Hotwire to pay a penalty of $1,000 per day for failure to comply with Service Level Standards after a five-day resolution period and, in addition, to provide credits to subscribers for any day in which a communication service is not available.

System Maintenance

Hotwire will be responsible, at its expense, for maintaining the Fibrant System Assets (except with respect to Customer Services Center roof and structure and certain pre-lease obligations regarding pole attachments), including repairing fiber cuts on a timely basis and replacing worn out or defective assets. All such maintenance and repair is to be done in accordance with Prudent Communication Service Industry Practice and with Engineering Standards set forth in the Lease Agreement.

“Engineering Standards” means standards and specifications for the construction, installation, repair, or replacement of Capital Improvements, and the use of materials and equipment, that are (i) in accordance with Required Licenses, Legal Requirements, Prudent Communication Service Industry Practice, System Insurance Requirements, System Contract Requirements, and Manufacturer’s Recommendations; (ii) requiring no less quality, precision, and care than the engineering standards applied by Hotwire or its Affiliates in distribution systems similar to the Fibrant System; (iii) do not degrade the structural integrity of the Fibrant System or any material System Asset, and (iv) in the case of any Capital Improvement that would reasonably be expected to cost $200,000 or more, the construction, installation, repair, or replacement thereof will be (A) effected pursuant to detailed plans and specifications approved by the City, and (B) conducted under the supervision of a qualified architect or engineer selected by Hotwire and approved by the City, such approval in each case not to be unreasonably withheld, conditioned, or delayed.

The City will remain responsible, at its expense, to maintain the roof and structural portions of the Customer Service Center and the HVAC Equipment serving the Customer Service Center, including any necessary capital improvements. In addition, the City will be responsible for correcting, repairing, or otherwise taking actions required to re-locate, repair, or replace certain pole attachments that may have been installed incorrectly prior to the date of the Lease Agreement.

Capital Improvements

Hotwire will be responsible, at its expense, for the construction, installation, repair, and replacement of all capital improvements to the Fibrant System, to the extent required by Prudent Communication Service Industry Practice, Engineering Standards, and Competitive Requirements. Without limiting the foregoing, Hotwire will be responsible to install Drops and NIDS (subject to Hotwire’s entitlement to a credit against rent with respect to such installations), improvements to the Outside Plant, and Customer Premises Equipment. Drops and NIDS and improvements to Outside Plant and Customer Premises Equipment will automatically become the property of the City. Other capital improvements, such as improvements to the NOC, Head End, and Satellite Dish Equipment, will remain Hotwire property. The City will have the option to purchase such improvements at termination of the lease for their fair market value as agreed, or if not agreement is reached, as determined by an independent appraiser.

Insurance, Casualty, Condemnation

The Lease Agreement requires Hotwire to maintain certain commercial general liability and other insurance and provides for the allocation of insurance proceeds in the event of casualty and the proceeds of any condemnation proceeding.

Default by Hotwire

The Lease Agreement lists actions or occurrences that would constitute an “Event of Default” by Hotwire, some of which require notice from the City and provide Hotwire with a period of time in which to cure such Event of Default. Events of Default include, among others, the following:
  • Failure to pay rent or other charges required of Hotwire;
  • Certain bankruptcy filings or similar arrangements by Hotwire;
  • Attachments of Hotwire’s rights in the Fibrant System assets;
  • Breach by Hotwire of its representations and warranties in the Lease Agreement in any material respect;
  • Actions or omissions by Hotwire that cause the City to be in violation of certain North Carolina statutes, or lose the City’s exemption from the application of certain statutes, including the provision of Communication Services outside the Grandfathered Fibrant Service Area; and
  • Failure by Hotwire to perform any other term, covenant, or condition of the Lease Agreement in any material respect that adversely affects the City.
Upon the occurrence of an Event of Default, the Lease Agreement provides certain remedies to the City, including among others the right to terminate the Lease Agreement and recover from Hotwire liquidated damages in an amount equal to the greater of the Rent payable for 12 full calendar quarters immediately preceding such termination and the maximum amount payable under the Surety Bond ($3,000,000 as described below).

Default by City

If the City defaults in its obligations under the Lease Agreement, including its obligation to make exclusive use of the Fibrant System available to Hotwire, Hotwire will be entitled to recover damages from the City in an amount determined by the Superior Court of North Carolina in Rowan County.

Surety Bond

The Lease Agreement requires Hotwire to provide a Surety Bond in the form of a “Contract Bond (Miscellaneous – Not Construction)” of Travelers Casualty and Surety Company of America in the amount of $3,000,000, to be paid to the City in the event of failure by Hotwire to carry out its undertakings, covenants, and agreements in the Lease Agreement.

Early Termination Rights

The Lease Agreement provides that the City may terminate the Lease Agreement in certain events, including a termination at any time after December 31, 2020, upon 180 days’ written notice to Hotwire if Hotwire fails to pay to the City Rent in amounts equal to the applicable Yearly Rent Target for any two years in a 3-year period. The Yearly Rent Targets are amounts agreed by the City and Hotwire and set forth in Appendix 7 to the Lease Agreement. In addition, the City would be permitted to terminate the Lease Agreement upon the occurrence of any transaction or transactions that result in control, directly or indirectly, of Hotwire by any other provider of Communication Services within the Grandfathered Fibrant Service Area. Following any termination of the System Lease, Hotwire will, at the City’s request, provide certain transition services in respect of the Fibrant System for a period of up to 18 months. In consideration for such transition services, the City would pay to Hotwire, as a management fee, 110 per cent of Hotwire’s reasonable and documented operating costs (including Hotwire’s “standard allocated costs”) and expenses of providing such services.

Conditions Precedent to Commencement of Lease

The obligations of the City and Hotwire to perform the Lease Agreement are conditioned upon the satisfaction or waiver of certain conditions, including among others the following:
  • approval by a majority of those voting in a “vote of the people” (Referendum) of the City as required by Section 160A-321 of the North Carolina General Statutes;
  • the City will have completed the refinancing of all amounts outstanding under its Installment Financing Contract with STI Institutional and Government, Inc., dated September 14, 2016;
  • the absence of judgements, court orders, or laws that prohibit, prevent, or make illegal the performance of the System Lease; and
  • the absence of a “material adverse event” with respect to Hotwire.

Other Covenants, Agreements and Arrangements

The Lease Agreement also sets forth the terms and conditions of certain other understandings between the City and Hotwire with respect to the Fibrant System, including among others the following:

Assignment and Subletting; Change of Control; Right of First Refusal

The Lease Agreement prohibits Hotwire from assigning, transferring, or conveying the Hotwire Lease without the prior written consent of the City, which consent will not be unreasonably withheld, conditioned, or delayed; provided, however, that Hotwire may assign or sublease to a wholly owned subsidiary or an Affiliate (as defined in the Lease Agreement) of Hotwire. The City may sell or convey its interest in the Fibrant System Assets; provided, however, that the City must provide to Hotwire a “Right of First Refusal” to acquire the Fibrant System Assets if the City seeks to sell or assign at any time during the first 12 years of the initial term of the System Lease. The Right of First Refusal allows Hotwire to acquire the Fibrant System Assets for the same consideration that the City would receive from any other purchaser and upon the same terms and conditions of sale.

Assignment of Contracts

The City will assign to Hotwire, and Hotwire will assume, certain contracts and agreements of the City with respect to the Fibrant System, including all agreements between residential, commercial, or other customers of the Fibrant System and the City. Certain agreements between the City and third-party providers of services will not be assigned to Hotwire and the City may be required to pay fees to such providers in connection with termination of the agreements.

Representations and Warranties

The City and Hotwire make certain representations and warranties to each other in the Lease Agreement, including with respect to the due organization of each Party, authorization and valid execution of the Lease Agreement, absence of conflicts with law or other agreements, absence of pending lawsuits, and with respect to certain financial statements of Hotwire.

Independent Arbiter Procedure

In the event of disagreements between the City and Hotwire as to certain matters, including the reporting of revenues used as the basis for determining rent payments, the Fair Market Value of capital improvements, and “reopeners” with respect to revenue percentages applicable to future “Other Services,” the Lease Agreement provides an “independent arbiter procedure” for the resolution of such disagreements. The decisions of the applicable independent arbiter in such matters would be binding and conclusive absent manifest error.

Transition Management

During a “Transition Management Period” commencing on the date of Lease Agreement and ending on the Lease Commencement Date, the City will appoint Hotwire as manager of the Fibrant System. During such period, Hotwire will manage the Fibrant System and will provide certain services requested by the City, including supervision of sales, marketing, pricing, and branding of Communication Services, procurement of television content and other third-party services, supervision of billing and collection, and supervision of customer service functions.. Hotwire will make available to the City a fulltime Transition Management Officer during this period. The City will remain responsible during the Transition Management Period for the compensation of Fibrant Employees and other operating costs of the Fibrant System. Hotwire will be responsible for compensation of the Transition Management Officer and other expenses incurred by Hotwire in providing such management services. During the Transition Management Period, the City will pay Hotwire a management fee equal to $25,000 per month and 50 percent of any “third-party contract savings” achieved by Hotwire on the City’s behalf. If the Lease Agreement is not approved in the Referendum, then the Transition Management Period will end on July 31, 2018, in which case Hotwire will continue providing certain consulting services to the City for a period of three years, subject to the right of either Hotwire or the City to terminate the consulting agreement upon 90 days’ written notice at any time after December 31, 2019. The City will pay to Hotwire a consulting fee of $5,000 per month, plus 50 percent of the third-party contract savings achieved during such consulting period.

Press Releases

About Hotwire



Hotwire Communications, a privately owned all-fiber service provider, has been providing fiber-based telecommunication services since 2000. Hotwire offers a full-suite of services to residential, commercial, hospitality, government, and educational customers in multiple states, primarily in the Southeast. Hotwire is the Nation's Fastest Major Internet Service Provider (ISP) of 2017 according to PC Magazine and Netflix ranks Hotwire the #1 fastest ISP in the United States.

In addition, Hotwire also leads the way in bringing 4k video and other advanced technologies into its customers' homes. Hotwire is headquartered in Fort Lauderdale, FL with regional offices in Florida, Georgia, North Carolina and Philadelphia.

Visit Website

About Fibrant

Fibrant Logo

Fibrant offers high-speed Internet up to 10 Gbps, high-definition uncompressed video, data center, phone and local ad insertion services. This small telecommunications company provides big solutions to both residents and businesses in it's hometown of Salisbury, NC. About two years ago, Salisbury improved the download speed of its city-owned internet service to 10 gigabits per second, making it one of the fastest systems in the country.

When you live in Salisbury, NC, you can have both the history, culture and friendliness of a small city plus the lightning-fast fiber-optic internet speeds of a gigabit city!

Visit Website

Legal Documents

 TitleDescription
Resolution to Adopt Agreement for Fibrant SystemSigned resolutions to approve agreement regarding Fibrant system.
Lease Agreement (Execution Copy)This agreement provides for a lease by the City to Hotwire Communications of the Fibrant System for a 20-year term, with one 20-year renewal option, effective only upon a favorable vote in a May 8, 2018 referendum, and other matters set forth in the lease
Communication Consultant ReportReport prepared by CTC Technology, the consulting firm engaged by the City to assist in the RFP process regarding Fibrant. The report contains CTC’s recommendations relating to the Hotwire Communications lease arrangement.
Hotwire ProjectionsProjections provided by Hotwire Communications in the proposal submitted in response to the City’s Request for Proposals in January 2017. Under the Lease Agreement, Hotwire will pay rent to the City based on percentages of revenues it receives.
Independent Accountant ReportReport prepared for the City by Baker Tilly, an independent accounting firm. The report summarizes Baker Tilly’s review of the revenue projections provided by Hotwire Communications, Fibrant’s historical costs, and other factors.

Frequently Asked Questions

What is a referendum?

A referendum is the process by which eligible voters are given the opportunity to directly approve or disapprove a law or governmental action.

What is being voted on in the referendum?

Voters will be asked to approve the proposal by the City to lease the Fibrant network to Hotwire Communications, Ltd. on the terms approved by the City Council.

Hotwire will be obligated to continue to provide Fibrant services to businesses and residences within the City of Salisbury’s service area, and to meet certain performance standards set forth in the lease.

Why is the City holding a referendum?

The referendum is required by Section 160A-321 of the North Carolina General Statutes for a municipality to lease any city-owned enterprise, such as the Fibrant communication system.

What is the date of the Fibrant referendum?

Tuesday, May 8th 2018

Who is eligible to vote on the Fibrant referendum?

All persons eligible to vote for Salisbury City Council.

What is the status of the lease agreement between the City and Hotwire?

Salisbury City Council voted to adopt the lease agreement with Hotwire Communications on Tuesday, April 3, and the agreement has been signed. The lease agreement is available online at www.salisburync.gov/FibrantVote.

What controls are in place to ensure that Hotwire services meet performance standards and rates are competitive?

Hotwire has agreed to continue providing communication services (cable TV, internet, and telephone) in accordance with practices of similar fiber-optic systems, in a manner that would be competitive with other providers in Salisbury, and generally as good as those used by Hotwire in its other locations.

Hotwire has agreed to service-level standards regarding service availability, timely response to trouble reports, etc.

Hotwire will be providing information as to rates and packages independently.

What will happen to our @fibrant.com email addresses?

Hotwire will support the Fibrant email addresses through the end of the year and will assist customers in setting up and transferring their emails to a new service.

Will Hotwire raise the rates for services?

Hotwire has advised the City that rates on services will not increase when Hotwire takes over the system. Additionally, Hotwire, as lessee, has agreed to continue providing communication services (cable TV, internet and phone) in accordance with practices of similar fiber-optic systems, in a manner that would be competitive with other providers in Salisbury and generally as good as those used by Hotwire in its other locations, and in compliance with service level standards regarding service availability, timely response to trouble reports, etc. Hotwire will be providing information as to rates and packages independently.

What will the real savings [to the city] be?

After the first transition year, in which the City does not expect to benefit from any cost savings because of transition-related expenses, the City would realize savings in the second lease year estimated at approximately $800,000. The savings come from (1) an annual rent payment of approximately $1.1 million (if Hotwire meets its revenue projections), plus (2) Hotwire’s payment of all Fibrant operating expenses (Fibrant had an operating deficit of $200,000 during the City’s 2017 fiscal year), minus (3) approximately $500,000 in additional interest payable on Fibrant’s outstanding debt, which will be required to be refinanced. If projections and expectations are met, the annual savings would increase as Hotwire increases its rent payments and the debt, which matures in 2029, is retired.

In the first five years of operation the City hopes total savings for the City to be at least $7.3 million, which includes capital expenditures the City would have been required to make absent the lease.

What will the real cost be if say in 20 years the City takes it back and Hotwire didn't update the hardware?

Hotwire is required by the lease agreement to make all required capital improvements to the system. At termination of the lease agreement, the City would have the option to acquire such improvements at fair market value, as determined by an appraisal.

What happens to all of the service trucks? And who pays for them?

Fibrant’s vehicles, such as its service trucks, are leased to Hotwire in the same manner as all other system assets, in consideration of the rent payment.

What are the basic terms of the proposed lease?

  • The City proposes to lease the entire Fibrant system to Hotwire for an initial term of 20 years, with one optional renewal at Hotwire’s discretion for an additional 20 years.
  • Hotwire will pay rent to the City on a quarterly basis, determined as a percentage of Hotwire’s gross revenues received for providing communication services through the Fibrant system, and subject to certain credits.
  • Hotwire will be responsible for operating expenses, including maintenance expenses of the Fibrant system, and for making required capital improvements.
  • A summary of certain material provisions of the Lease Agreement is available at www.salisburync.gov/FibrantVote. The full Lease Agreement also is available at www.salisburync.gov/FibrantVote. Copies of the Lease Agreement may be obtained from the office of the City Clerk upon payment of a copying charge of $.10 for each page after 20 pages.

How does the proposed lease agreement differ from a management agreement?

In the lease, Hotwire would be responsible for all operating expenses associated with providing communication services from the Fibrant system, including fees for third-party content and services, maintenance expenses, and personnel costs, as well as for capital improvements to the system. Hotwire would operate the system and be entitled to receive all revenues from its operation. Under a management agreement, the City would continue to receive Fibrant revenues and be responsible for operating costs and capital expenditures, and would pay Hotwire a separate management fee.

Why does the City need to lease the entire system to Fibrant as opposed to paying Hotwire to manage the system?

The lease arrangement better allows Hotwire to take advantage of cost savings that it can achieve through its larger scale and company-wide resources. In addition, Hotwire would agree to be responsible for capital upgrades to the Fibrant System in a long-term lease arrangement, relieving the City of capital improvement expenditures that the City’s consultants believe would be $5 million over the next few years.

Why not just sell the entire Fibrant system to Hotwire Communications and get out of the broadband business all together?

Hotwire did not propose an outright purchase of the Fibrant System in response to the City’s Request for Proposals distributed in January 2017. The City did receive some indications of interest in an outright purchase of the Fibrant system by other organizations, but concluded, with the advice of its consultants, that Hotwire’s proposal provided the best opportunity for the City to improve the finances of the Fibrant System, while ensuring continued high-quality communication services.

What were the challenges with Fibrant?

There were various challenges with Fibrant early on. Some of the issues were reliability due to the technology selected, vocal opposition within the community and ineffective marketing of the utility to businesses outside of Salisbury.

As Fibrant entered the marketplace, the cost of business internet was reduced significantly by both AT&T and Time Warner. This had a significant impact on the projected business revenue, but was good overall for local businesses. Also, the cost of video increased significantly from the original projections as programmers began to rapidly increase their cost. This reduced profit margins in video revenue.

Looking back, the City had a lofty goal of building and developing a fiber optic utility system to all residents in Salisbury, eliminating any digital divide. The timing of Fibrant’s inception unfortunately coincided with the worst recession in U.S. history since the Great Depression. In addition, the North Carolina legislature hindered expansion goals for our broadband utility. If Fibrant were implemented today, most likely the City would have entered in to a public/private partnership.

How much is the debt owed on the utility?

$25.1 million of the principal is outstanding from the 2016 tax-exempt debt refinancing. In addition, $6.8 million in principal amount is owed to the Salisbury-Rowan Utilities Water/Sewer Enterprise Fund. The City would remain responsible for repayment of all such debt and Hotwire would assume no responsibility for such debt.

Why are funds owed to Salisbury-Rowan Utilities (SRU)?

Funds were borrowed from the Water/Sewer Enterprise Fund to cover a portion of operating costs of the Fibrant system during the start-up phase. The City has made repayments to the Water/Sewer Fund during the last three fiscal years.

How will the lease with Hotwire affect the City’s tax-exempt financing?

The City would be required to refinance its approximately $25.1 million in principal amount of its tax-exempt financing for Fibrant into a taxable financing. The City expects the refinancing to result in increased interest expense. The current tax-exempt interest rate is 2.06% per year; the City expects that the refinanced taxable rate would be approximately 4% per year, roughly twice the current rate, subject to financial market conditions. This would add approximately $500,000 per year in interest costs initially, with the amount reducing annually as the principal is paid down.

I live in Salisbury, if this referendum passes, how would it affect my taxes?

If the referendum passes, the City does not expect to require an increase on the property tax rate for the 2018-2019 fiscal year.

If the referendum fails, the City would continue to examine alternatives for improving the finances of the Fibrant System; however, depending on other budget considerations, a tax increase might be necessary at some point to continue funding the operating expense shortfall and debt service requirements of the Fibrant System.

Will there be an expansion of Fibrant/Hotwire?

So long as the City continues to own the Fibrant system, notwithstanding the lease of the system to Hotwire, North Carolina legislation enacted in 2011 imposes certain restrictions on the operation of the Fibrant system. Because of these restrictions, it is unlikely that the Fibrant service area could be expanded beyond the corporate limits of the City.

What do we know about Hotwire Communications?

Hotwire Communications, a privately owned all-fiber service provider, has been providing fiber-based telecommunication services since 2000. Hotwire offers a full-suite of services to residential, commercial, hospitality, government, and educational customers in over twenty states. Hotwire is PC Magazine’s Fastest ISP of 2017, Netflix’s fastest ISP, and the recipient of the National Cable Television Cooperative’s Innovator Award for its concierge style customer service. In addition, Hotwire also leads the way in bringing 4k video and other advanced technologies into its customers' homes. Hotwire is headquartered in Fort Lauderdale, FL with regional offices in Florida, Georgia, North Carolina and Philadelphia.

Will Hotwire raise our service rates?

Hotwire, as lessee, has agreed to continue providing communication services (cable TV, internet and phone) in accordance with practices of similar fiber-optic systems, in a manner that would be competitive with other providers in Salisbury and generally as good as those used by Hotwire in its other locations, and in compliance with service level standards regarding service availability, timely response to trouble reports, etc. Hotwire will be providing information as to rates and packages independently.

If the referendum passes, will Hotwire Communications change our Fibrant offerings?

It is too soon to know if or what changes will be made to the existing Fibrant offerings if the referendum passes. What we do know is that Fibrant customers will receive the same high-quality fiber communications services from Hotwire Communications that they have received from Fibrant.

Will the Fibrant bill still be included on the City utility/water bill?

The City no longer will bill for broadband services. Hotwire will bill separately for its services.

If the referendum passes, when would Hotwire Communications take over operations?

It is anticipated that the long-term lease agreement take effect on July 1st, 2018, the first day of the City’s fiscal year, or as soon thereafter as the refinancing of the City’s tax-exempt installment financing is completed and certain other conditions are satisfied.

Can anything be done to improve Fibrant’s finances other than having a private company take over management or operation of the system assets?

The City has made a determination, with the advice of its consultants, that it would not likely be able to continue operating the Fibrant System in a way to improve its financial performance to the extent of the proposed lease.

Why not just default on the debt?

Defaulting on the outstanding debt would result in very serious consequences for the City. The installment financing for Fibrant is secured by a deed of trust and security agreement on several City properties, including the Customer Service Center, and all equipment financed with the original debt issuance in 2008.

Default would permit the lender to foreclose on such assets. In addition, the City’s credit rating and ability to borrow in the future would be seriously damaged. Finally, when a municipality defaults on any debt service payment, the Local Government Commission, a division of the Department of the State Treasurer, has the authority to seize the City’s books and records and “assume full control of all its financial affairs.” This authority includes vesting the Local Government Commission with the powers of the City Council as to the levy of taxes, expenditure of money, adoption of budgets, and all other powers conferred upon the City Council by law.

If I have more questions about this referendum, whom should I contact?

To learn more about the Fibrant referendum, visit salisburync.gov/FibrantVote, email FibrantVote@salisburync.gov or call (704) 638-5321.

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