2700 Blairstone Rd., Suite E

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Jan. 31, 2014

MyFloridaNet - 2 Business Case

Version 4.1

TABLE OF CONTENTS

1. EXECUTIVE SUMMARY ........................................................................................................................................6

1.1 Purpose .......................................................................................................................................................6

1.2 Detailed Description of Services .................................................................................................................6

1.3 Current Service Performance .....................................................................................................................7

1.3.1 SLA Categories ....................................................................................................................................8

1.3.2 SLA Report Generation & Review .......................................................................................................8

1.4 Goals for Proposed Outsourcing ................................................................................................................8

1.5 Outsourcing Authority ................................................................................................................................9

1.6 Descriptions of Available Options ........................................................................................................... 10

1.7 Recommendation .................................................................................................................................... 11

2. BACKGROUND ................................................................................................................................................. 12

2.1 Current MFN Service Layers and Additional Data Services ..................................................................... 12

2.1.1 MFN ................................................................................................................................................. 12

2.1.2 Core Access Methods ...................................................................................................................... 13

2.1.3 Service Features .............................................................................................................................. 14

2.1.4 Service Levels ................................................................................................................................... 14

2.1.5 Customer Premises Equipment (CPE) .............................................................................................. 14

2.1.6 MFN Lite .......................................................................................................................................... 15

2.1.7 Interstate ......................................................................................................................................... 15

2.1.8 Tallahassee 2GMAN Service ............................................................................................................ 15

2.1.9 MFN Primary Data Center (PDC) Service ......................................................................................... 15

2.1.10 Florida Information Resource Network (FIRN) ................................................................................ 15

3. OPTIONS & COST BENEFIT ANALYSIS ............................................................................................................... 16

3.1 Technology Considerations ..................................................................................................................... 16

3.2 Cost Drivers Analysis................................................................................................................................ 18

3.2.1 Enterprise Cost Savings ................................................................................................................... 18

3.2.2 Cost Reductions versus Cost Avoidance .......................................................................................... 18

3.2.3 Cost Savings Sources ....................................................................................................................... 19

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3.3 Telecommunications Market Conditions and Trends/Service Capabilities ............................................. 21

3.3.1 Introduction ..................................................................................................................................... 21

3.3.2 Flat Rate versus Mileage based Access ........................................................................................... 22

3.3.3 Fixed Term vs. Month-to-Month Pricing ......................................................................................... 26

3.3.4 Balancing Shared Network Resources versus Dedicated Networking ............................................ 28

3.3.5 Regulatory Implications Pertaining to the Local Loop ..................................................................... 31

3.3.6 Description of Current Telecommunications Market Conditions and Technologies ...................... 38

3.3.7 Bandwidth / Service Feature Growth Considerations ..................................................................... 40

3.4 Evaluation of the Options ........................................................................................................................ 41

3.4.1 Descriptions of Available Options ................................................................................................... 41

3.4.2 Assumptions for Options ................................................................................................................. 42

3.4.3 Advantages and Disadvantages ....................................................................................................... 44

3.4.4 Analysis Methodology ..................................................................................................................... 45

3.4.5 Potential Improvements .................................................................................................................. 46

3.4.6 Potential New Service Features ....................................................................................................... 47

3.4.7 Potential Elimination of Services ..................................................................................................... 47

3.5 Cost Benefit Analysis for Each Option ..................................................................................................... 47

3.6 Financial Model Base Case ...................................................................................................................... 48

3.7 Option 1 - Outsource ............................................................................................................................... 48

3.7.1 Frame Relay, Ethernet and Broadband Services ............................................................................. 48

3.7.2 FIRN ................................................................................................................................................. 51

3.7.3 Growth Forecast .............................................................................................................................. 52

3.7.4 Customer Premise Equipment (CPE) ............................................................................................... 53

3.7.5 Flat Rate vs. Mileage Based Pricing ................................................................................................. 53

3.8 Option 1 Financial Analysis ...................................................................................................................... 53

3.8.1 Vendor Payment Analysis ................................................................................................................ 55

3.8.2 Operating Cost Analysis ................................................................................................................... 56

3.8.3 Cost Analysis – Adherence Schedule to Achieve Estimated Savings under Current Vendor .......... 56

3.8.4 Cost Analysis – Adherence Schedule to Achieve Estimated Savings with New Vendor .................. 56

3.9 Option 2 - Combination Insource/Outsource .......................................................................................... 58

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3.9.1 Outsourced Operational Functions ................................................................................................. 58

3.9.2 Insourced Operational Functions .................................................................................................... 60

3.10 Option 2 Financial Analysis ...................................................................................................................... 61

3.10.1 Vendor Payment Analysis ................................................................................................................ 62

3.10.2 Operating Cost Analysis ................................................................................................................... 62

3.10.3 Cost Analysis – Adherence Schedule to Achieve Estimated Savings ............................................... 64

4. RECOMMENDED OPTION & DETAILED DISCUSSION ....................................................................................... 66

4.1 Summary of the Two Options Considered In This Business Case ............................................................ 66

4.2 Summary Comparison of the Two Options ............................................................................................. 67

4.2.1 Option 1 – Outsource ...................................................................................................................... 67

4.2.2 Option 2 – Combination Insourcing and Outsourcing ..................................................................... 67

4.3 Recommendation .................................................................................................................................... 70

4.3.1 Business Case Recommendations Summary ................................................................................... 71

4.3.2 Suggested Procurement Evaluation Criteria ................................................................................... 72

5. STATE BUSINESS PROCESS & POLICIES ............................................................................................................ 73

6. PERFORMANCE METRICS REVIEW ................................................................................................................... 73

7. PROJECTED TIMEFRAME .................................................................................................................................. 76

8. PUBLIC RECORDS COMPLIANCE ...................................................................................................................... 77

9. CONTINGENCY PLAN........................................................................................................................................ 77

10. TRANSITION PLAN........................................................................................................................................ 79

10.1 Transition Plan ......................................................................................................................................... 79

10.2 Resources................................................................................................................................................. 79

10.3 Knowledge Transfer ................................................................................................................................. 80

10.4 Migration Project Management Planning ................................................................................................ 80

10.4.1 Communication Plan ........................................................................................................................ 80

10.4.2 Engineering Review ......................................................................................................................... 81

10.4.3 Provisioning Planning ...................................................................................................................... 81

10.5 Network Operations Center .................................................................................................................... 81

10.6 Administrative Services ........................................................................................................................... 82

11. AMERICAN WITH DISABILITIES ACT OF 1990, AS AMENDED ....................................................................... 82

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12. CONTRACTUAL PROVISIONS ........................................................................................................................ 82

13. APPENDIX..................................................................................................................................................... 83

13.1 MyFloridaNet Core Network ................................................................................................................... 83

13.2 Business Case Interview List .................................................................................................................... 84

13.3 Figures ..................................................................................................................................................... 86

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1. EXECUTIVE SUMMARY

1.1 Purpose The Department of Management Services (DMS) plans to issue a competitive procurement for a newly structured telecommunications infrastructure service and support contract. This procurement is intended to establish a multiyear strategic partnership to reduce the cost of services and increase the long-term value to the state.

Inspired Technologies, Inc. was contracted to develop this business case in accordance with Chapter 287.0571, Florida Statutes, which stipulates contracting with private sector vendors whenever vendors can more effectively and efficiently provide services and reduce the cost of government. The statute further requires business cases be evaluated for feasibility, cost-effectiveness, and efficiency before the state agency proceeds with any outsourcing of services.

This document focuses specifically on services that are directly related to establishing a recommendation path for the best and most appropriate Wide Area Network (WAN) telecommunications service model to replace the current statewide telecommunications infrastructure contract, a Multi-Protocol Label Switching network solution called MyFloridaNet (MFN). These services will be used by State of Florida agencies and may be used by additional entities described in sections 282.704-282.706, Florida Statutes. The department’s MFN contract ends on Sept. 17, 2016. The competitive procurement will establish the foundation for all of DMS’ subsequent improvement projects within the telecommunications infrastructure framework. The Department of Management Services anticipates replacement of these services hereafter referenced as “MFN-2.”

In summary, this document provides substantive information that can be utilized to make informed decisions for the future procurement of MFN-2.

1.2 Detailed Description of Services

Section 287.0571 (4)(a), F.S. - A detailed description of the service or activity for which the outsourcing is proposed.

The Department of Management Services is proposing a new procurement for services and activities that are currently outsourced to AT&T with inclusion of the existing Florida Information Resource Network (FIRN) as additional service volume for the procurement. Services in the MFN portfolio are described as follows:

• MyFloridaNet - is a comprehensive solution providing a rich and flexible enterprise communications infrastructure dedicated for the exclusive use of State of Florida customers. The enterprise infrastructure is based on a core network using routers and Multi-Protocol Label Switching (MPLS) technology managed by a Network Operations Center (NOC) to provide security and robust connectivity. The result is a highly available (HA) and highly reliable (HR) statewide communication network (together HA/HR). MyFloridaNet is made up of layers of service and support that provide the telecommunications capability, infrastructure, and services through the implementation of:

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o Core Access Methods o Service Features o Service Levels o Customer Premises Equipment (CPE) o MFN Lite o Primary Data Center (PDC) o Regional Metropolitan Area Network (MAN) o Interstate Transport

• Florida Information Resource Network (FIRN) - The current FIRN contract is separate from MFN; however it utilizes the structure of MFN to support its service delivery. FIRN supports data communications connectivity and Internet access for K-12 schools. Schools pay for FIRN services almost exclusively using federal subsidies known as “E-rate” (averaging 70 percent). E-Rate subsidies come from the Federal Universal Service Fund (FUSF), which is financed through fixed fees charged to every user of interstate telecommunications services throughout the USA. The remainder of the cost not paid for by the FUSF program is paid by the school using its budget resources. FIRN also includes some E-Rate qualified features, like email and special filtering.

Further detailed discussion of the MFN service portfolio can be reviewed in Section 2, Background.

1.3 Current Service Performance

Section 287.0571 (4)(b), F.S. - A description and analysis of the State agency’s current performance, based on existing performance metrics if the State agency is currently performing the service or activity.

MyFloridaNet is a highly available and highly reliable network (HA/HR) backed by stringent network performance and operational service level commitments. These commitments require guaranteed response times and other performance measurements, with associated user credits for service provider non-compliance. The MFN service levels are designed to ensure stated performance and delivery expectations are met. Credits for non-compliance with required service levels are applicable on a per incident basis, and apply to all MFN provided access types except Digital Subscriber Lines (DSL).

MyFloridaNet service includes pro-active Service Level Agreements (SLA’s) with automatic credits. Should a trouble condition be experienced, or a service threshold exceeded, a trouble ticket is proactively opened by the MFN Network Operations Center (NOC). Once a trouble ticket has been issued by the NOC, the MFN customer and MFN representatives work together to restore service outages and/or resolve service issues. In the event an SLA violation occurs, appropriate credits are applied to the impacted MFN customers account and are capped at 100 percent of the service impacted areas’ monthly billing. MyFloridaNet subscribers have the ability to monitor and verify SLA adherence via the Web-based MFN Network Management System.

The Department of Management Services SUNCOM meets with the incumbent provider on a monthly basis to review outage and performance degradation reports as part of managing these service levels. Any applicable service provider non-performance penalties are credited to the user’s monthly invoice for the affected site.

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1.3.1 SLA Categories

The Service Levels are divided into four categories which align with elements of the MFN network, as listed in the bullets below:

• Core • Access & CPE • Internet Gateway • Operational

Core - Service levels for the MFN core (the MPLS backbone network/routers) are measured in terms of service outage or performance characteristics as defined in the matrix in Section 6, Figure 12 – Performance Metric Table. One-minute, one-hour, and two-hour restoral thresholds are defined with associated user credits for service provider non-compliance. The Core also provides latency, packet loss and jitter service levels with four-hour and eight-hour restoral performance targets.

Access & CPE - Service levels for access and Customer Premises Equipment (CPE) are measured by defined service outage or performance characteristics. Access and CPE is subject to four-hour and eight-hour restoral performance targets, as well as service levels for latency, packet loss, and jitter.

Internet Gateway – Service levels for Internet Services are measured in terms of service outage as defined in the matrix in section 6. One-minute, one-hour, and two-hour restoral thresholds are defined with associated user credits for service provider non-compliance.

Operational - General network operations and administration service levels are applied on a per incident basis, for the following activities:

• Installations • Moves, adds and changes • CPE configuration changes • Service outage notification • Service degradation notification • Initial problem identification

1.3.2 SLA Report Generation & Review The performance degradation raw data is extracted from information provided by the MFN vendor. Support ticket data is pulled by the MFN NOC Support Staff on the first of each month (Month 1) for the prior month. This data is utilized for the creation of the MFN SLA Violations report. The metrics and performance measures established are consistently being met as per the agreements in place today. Based on feedback from the MFN customers, service performance of the network and support layers is widely acceptable.

1.4 Goals for Proposed Outsourcing

Section 287.0571 (4)(c), F.S. The goals desired to be achieved through the proposed outsourcing and the rationale for such goals.

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The Department of Management Services’ primary goals include identification of options for consideration and evaluation to identify the option that provides the best long-term value to the state, allows for a reduced cost of services, and is adaptable to future network growth demand, customer needs, processes and law changes. The state also has an objective to meet the needs of the enterprise with a best-in-class statewide network solution that provides the highest levels of availability, reliability, technological expansion, ease of implementation and continued evolution. The current implementation of MFN is a very mature service offering that is utilized throughout the State. As a result agencies have built systems and processes that rely heavily on the continued technological structures that are in service today. The degree or intensity to which agencies are using MFN is widely variable depending on specific agency telecommunication needs.

The Department of Management Services’ performance objectives for MFN-2 are stated by the following guiding principles:

• Improve the core customers service offering and support • Improve customer service offerings to all Other Eligible Users (OEU)1 • Improve pricing structures for all service layers • Establish best-in-class statewide network solution • Establish best value to the state through strategic sourcing, standardization, and process improvement • Manage administrative costs through improved efficiencies of organizational oversight responsibilities • Improve service layer capabilities based on DMS customer needs

The MFN-2 procurement should address the following:

• Ending/transition of the current MFN contract to ensure no customer impacting events take place • Improve the cost structures for all service layers to DMS customers • Provide improved service features based on evolving technological needs • Competitively procure MFN-2 through negotiation to drive best value • Drive down the current cost (approximately $40 million annually)

1.5 Outsourcing Authority

Section 287.0571 (4)(d), F.S.- A citation to the existing or proposed legal authority for outsourcing the service or activity.

Section 282.702(8), F.S., authorizes DMS to establish a telecommunication solution. Specifically, this section allows DMS “To control and approve the purchase, lease, or acquisition and the use of telecommunications services, software, circuits, and equipment provided as part of any other total telecommunications system to be used by the state or its agencies.” Based upon this authorization, DMS procured a telecommunications solution known as MFN. The Department of Management Services is seeking to continue services to state agencies through a competitive procurement of MFN-2 based on the recommendation of this business case.

1 Other eligible users of State Term Contracts include those local government entities identified in Rule 60A-1.005, Florida Administrative Code.

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1.6 Descriptions of Available Options

Section 287.0571 (4)(e), F.S. - A description of available options for achieving the goals. If State employees are currently performing the service or activity, at least one option involving maintaining State provision of the service or activity shall be included.

This business case examines two options specifically for the scope of continued support, integration, and installation of telecommunication services and ancillary features/capabilities following the expiration of the current MFN contract in Sept. 2016—that has been identified as “MFN-2.” The options evaluated are to perform an outsourced competitive solicitation, and the combination of both outsource and insource.

These options were evaluated and included in this business case because they are within the scope for outsourcing as required by Chapter 287.0571, F.S. and they represent common procurement options utilized by the state for similar needs.

Forms of procurement reviewed in this business case:

Competitive Procurement - Section 287.057, F.S., and Department of Management Services (DMS) Rule 60A-1, Florida Administrative Code, provides:

Invitation to Negotiate (ITN) – Used when the agency knows the desired end result, but is not sure how to get there; or, there are many ways to get to the end result; or, the qualifications of the provider and quality is more important than price. This option works best when highly technical and/or complex services are being acquired. The price structure for services is negotiated. Note: MFN was originally procured via ITN.

Invitation to Bid (ITB) – Used when the agency knows exactly what it wants. Price is the determining factor in the award.

Request for Proposal (RFP) – Used when the agency has a general idea of what it wants. Services and price are evaluated.

Combination of Insource and Outsource - through the migration of service processes currently provided by incumbent vendor to the state DMS using resources that are state employees full-time equivalent (FTE) positions; and outsourcing elements of operations that fall outside of the physical or technical capabilities of DMS, such as procurement of long-haul fiber transport, local loop access transport, maintenance & repair, etc.

Insource - Is an organization’s termination of the contracting for a business function and the commencement of performing it internally. Insourcing is a business decision that is often made to maintain control of critical functions or competencies that are essential to the organization’s mission. Insourcing is widely used to reduce costs across the organization’s fiscal structures. Within the context of this business case, this represents the opportunity to bring essential services inside DMS that were traditionally performed by an outsourced vendor.

Outsource - Is the contracting out of business processes and services to a third party. Within the context of this business case, this represents establishing a portfolio of processes and services by a third-party vendor who is for-profit in support of needs that are beyond the capability of the DMS resources.

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1.7 Recommendation The Department of Management Services is nearing the end of a 10-year period of outsourcing the implementation, provision and support of MFN. This business case examines options for the future path of MFN taking into consideration the statutory requirements and evaluates whether to continue to outsource these services, or pursue providing a prescribed level of services using a combination of state agency resources and outsourced services.

It is recommended that DMS issue an outsourced competitive procurement as an Invitation to Negotiate (ITN) for a newly structured MFN-2 services and support contract.

The business case examines all aspects of the fiscal components, qualitative/quantitative benefits and advantages, risks, disadvantages, pros and cons, assumptions, constraints, projected schedule, and sequence of key activities or events. Throughout the document, there are numerous recommendations and discussion points for consideration. These statements have been summarized in section 4.3.1 Business Case Recommendations Summary.

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2. BACKGROUND

MyFloridaNet is a comprehensive solution providing an enterprise communications infrastructure dedicated for the exclusive use of State of Florida customers. The enterprise infrastructure is based on a Multi-Protocol Label Switching (MPLS) technology providing improved security and robust connectivity resulting in a highly available (HA) and highly reliable (HR) statewide communication network.

2.1 Current MFN Service Layers and Additional Data Services

2.1.1 MFN

Inspired Technologies has confirmed the following view of MFN, through its own research and independent knowledge and expertise. MyFloridaNet is a comprehensive Wide Area Networking solution providing enterprise communications infrastructure dedicated for the exclusive use of State of Florida customers. The enterprise infrastructure is based on a Multi-Protocol Label Switching (MPLS) technology which provides secure and robust connectivity resulting in a highly available (HA) and highly reliable (HR) statewide communication network.

MyFloridaNet’s core solution features dual Juniper Networks M320 series routers in each Local Access and Transport Area (LATA) based node location. Each core node is configured for high availability, ensuring an individual component failure will be non-interruptive. These nodes are interconnected by a combination of redundant 10 gigabit Ethernet backbone circuits providing large bandwidth with full protection against core link failure (See 13.1 MyFloridaNet Core Network diagram). The MFN solution has proven project management, security, engineering, life cycle, and capacity management staff who understand the state’s business functions.2

The technology at the core of MFN, known as MPLS is considered the current standard for the best enterprise data networks, as consistently confirmed in responses to the DMS Request for Information3. When MFN was procured and implemented, its objective was to combine all of the best features of several existing data services contracts into one, with more features, better security, and higher reliability at lower cost. Through MFN, customers can get equipment and local access to a dedicated enterprise network and the Internet with the independent ability to design and manage their sub-networks, make connections, and monitor their security, regardless of their location within the state.

Based on customer requirements, MFN provides services such as network core, metropolitan access network (MAN), primary data center (PDC), interstate, local loop access, customer premises equipment

2 Excerpts taken from ATT MFN RFI Response 2013 Final.pdf 3 Department of Management Services RFI No. DMS-12/13-024 Florida Telecommunications Services Environment

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(CPE), security, network management tools, design and engineering for a complete turn-key solution with flat-rate pricing statewide.4

2.1.2 Core Access Methods

MyFloridaNet access connectivity originates at an individual user's location and terminates at the Provider Edge router, creating an on-ramp to the MFN core. MyFloridaNet customers have the flexibility to choose an appropriate access type based upon the specific applications and needs at any given site.

For example, customers may choose Frame Relay access at one location, Ethernet access at one, and Digital Subscriber Line (DSL) at yet another. Because MFN provides interoperability across multiple access types, these locations will work together seamlessly.

The following are MFN access technologies currently available:

2.1.2.1 Satellite

Customers can select satellite access to connect into the MFN core and access MFN resources. The MFN satellite service provides an additional alternate access method into the MFN core network.

2.1.2.2 Frame Relay

Frame Relay is a packet-mode service which enables the sharing of text, graphics and other types of data at speeds from 64 Kilobits Kbps to 45 Mbps. It is one of the two most highly utilized access methods, in addition to Metro Ethernet, due to its cost effectiveness and inherent ability to support Dual Core Access.

2.1.2.3 Metro Ethernet

Metro Ethernet uses the same protocols/standards as 10 Mbps Ethernet and 100 Mbps Fast Ethernet, as well as complying with IEEE 802.3z (Gigabit Ethernet) frame format, including full duplex operation and flow control methods. It is available at speeds ranging from 2 Mbps to 1000 Mbps. It is one of the two most highly utilized access methods, in addition to Frame Relay, due to its cost effectiveness and inherent ability to support Dual Core Access, as well as QoS.

2.1.2.4 Dedicated

Dedicated local loop access is available at 64 Kilobits per second (Kbps) to 155 Megabits per second (Mbps). Dedicated local loop access to the Provider Edge (PE) router supports QoS, but does not inherently support Dual Core Access at no charge.

4 Note that as later described, mileage banding is introduced for circuits above 12 Mbps, but that banded pricing remains flat-rated on a statewide basis. However, beyond specified mileages “ICB” or Individual Case Basis pricing applies.

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2.1.2.5 Digital Subscriber Line (DSL)

DSL carries a digital signal over the unused frequency spectrum available on the cables running between the telephone company's central office and the customer premises. Digital Subscriber Line is a best effort service and does not support Dual Core Access, QoS, or stringent performance SLAs. However, DSL can be a very cost effective solution for non-mission critical locations.

2.1.3 Service Features

Prominent characteristics of the MFN are listed below:

• Dual Core Connectivity • Quality of Service (QoS) • Security • Internet & Firewall • Extranet Connectivity • Web-Based Network Management

2.1.4 Service Levels

High availability and high reliability of MFN is ensured through the use of contractual stringent network performance and operational service level commitments. These commitments are based upon guaranteed response times and other performance measurements, with associated customer credits for service provider non-compliance. The MFN service levels are designed to ensure that required performance and delivery expectations are met. Service levels are applicable on a per-incident basis, and apply to all MFN-provided access types except DSL.

MyFloridaNet provides the following Service Level Agreements:

• Core • Access and CPE • Internet Services • Operational

2.1.5 Customer Premises Equipment (CPE)

MyFloridaNet customers are offered flexibility in Customer Premises Equipment (CPE). MyFloridaNet is structured so that any CPE from a supported vendor can be obtained once the particular CPE product has been tested and approved by the MFN quality assurance and design engineers. Additionally, CPE will be removed and added from the approved CPE list in response to End of Life announcements and new product releases.

Customer Premises Equipment selection for bandwidth greater than 200Mbps is based on an Individual Case Basis. The Department of Management Services will conduct an engineering review with the customer to recommend the appropriate CPE. Customer Premises Equipment maintenance and installation is not available for CPE purchased outside of the MFN.

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2.1.6 MFN Lite

MyFloridaNet Lite is designed for SUNCOM customers with little or no requirement for MFN backbone or Internet access. There are two different plans offered under MFN Lite: Local Only and Flex Port. MFN Lite offers a subset of regular MFN service and is available only with Ethernet access.

2.1.7 Interstate

MyFloridaNet Interstate connectivity allows agencies and their associated entities, to gain easy, secure, “Out of State Florida” access to the MFN core. MyFloridaNet Interstate connections may be given access to an agency’s private Virtual Routing and Forwarding (VRF), the state’s Common Services VRF or Public VRF depending on the connection requirements and will have access to standard MFN Web-based Network Management System tools. The service may be provided with a customer managed or MFN managed router with private line and Frame Relay access methods.

2.1.8 Tallahassee 2GMAN Service

The 2GMAN Service is a high-speed data service, which uses a shared fiber network to allow for the interconnection of Local Area Networks (LAN) across selected metropolitan areas and offered in Tallahassee only. The 2GMAN Service provides bandwidth speeds of 1.544 Mbps, 10Mbps, 100Mbps, 200Mbps, 400Mbps, 600Mbps, 800Mbps, 1000Mbps, 2Gbps, 5Gbps and 10Gbps access from the Eligible User’s LAN to the shared Tallahassee 2GMAN network.

2.1.9 MFN Primary Data Center (PDC) Service

MyFloridaNet Primary Data Center (PDC) Service provides reliable, high-speed connectivity between the three primary data centers; Southwood Shared Resource Center (SSRC), North West Regional Data Center (NWRDC) and Northwood Shared Resource Center (NSRC). The service provides connectivity to enable data sharing, disaster recovery and application sharing services among all three PDCs. Currently, two PDCs (SSRC and NSRC) have been implemented and will provide such services. Depending on the type of service selected, MFN PDC provides access to the MyFloridaNet Infrastructure and the 2GMAN.

2.1.10 Florida Information Resource Network (FIRN)5

The current FIRN contract is separate from MFN; however, it utilizes the structure of MFN to support its service delivery. The Florida Information Resource Network supports data communications connectivity and Internet access for K-12 schools and libraries. Schools pay for FIRN services almost exclusively using federal subsidies known as “E-rate” (averaging 70 percent). E-Rate subsidies come from the Federal Universal Service Fund (FUSF), which is administered by the Federal Communications Commission (FCC), and financed through fixed fees charged to every user of interstate telecommunications services throughout the USA. The remainder of the cost not paid for by the FUSF program is paid by the school using its budget resources. The Florida Information Resource Network also includes some E-Rate qualified features, like email and special filtering.

5 Excerpts taken from “DivTel Business Model and Value 2-3”, Page 19

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3. OPTIONS & COST BENEFIT ANALYSIS

Section 287.0571 (4)(h), F.S. A cost-benefit analysis documenting the direct and indirect specific baseline costs, savings, and qualitative and quantitative benefits involved in or resulting from the implementation of the recommended option or options. Such analysis must specify the schedule that, at a minimum, must be adhered to in order to achieve the estimated savings. All elements of cost must be clearly identified in the cost-benefit analysis, described in the business case, and supported by applicable records and reports. The State agency head shall attest that, based on the data and information underlying the business case, to the best of his or her knowledge, all projected costs, savings, and benefits are valid and achievable. As used in this section, the term “cost” means the reasonable, relevant, and verifiable cost, which may include, but is not limited to, elements such as personnel, materials and supplies, services, equipment, capital depreciation, rent, maintenance and repairs, utilities, insurance, personnel travel, overhead, and interim and final payments. The appropriate elements shall depend on the nature of the specific initiative. As used in this paragraph, the term “savings” means the difference between the direct and indirect actual annual baseline costs compared to the projected annual cost for the contracted functions or responsibilities in any succeeding State fiscal year during the term of the contract.

Consideration of options for procurement of MFN-2 was performed after careful review of telecommunications markets and trends, from both a Florida perspective and nationally. Based on this understanding of markets and trends, further analysis reviewed a variety of factors, for example: budgets, resources, stability, reliability, cost, risks, time to implement, and simplification opportunities. A cost/benefit analysis was completed for the options under consideration, to provide DMS and the State of Florida with a financial quantification to permit an informed choice in the MFN-2 procurement.

3.1 Technology Considerations Given the technological landscape, there are numerous options in which MFN-2 service delivery can be achieved. In order to fully understand the options, the following key drivers were evaluated for consideration:

• Reliability • Resilience • Availability • Best Practice / Good Practice • Scalability • Requirements • Cost • Up Time Requirements • Ease of Implementation

Although reliability may be one of the most widely used adjectives in telecommunications industry, it also has the potential to be misused, to the point that any vendor can claim that its product provides carrier class reliability without having to prove that assertion. However, given today’s technological viewpoints into delivery capability, service providers understand the value of real-world performance data. Historically, “five nines” or 99.999 percent uptime has been considered the ultimate in availability. Five nines translates to approximately just five minutes and 35 seconds of total system downtime in a calendar year. MyFloridaNet maintains this level of service reliability at the core level today.

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The dependability of the telecommunications infrastructure is vital to the ongoing needs for DMS’ customer base. The resilience levels engineered into the network topology play a critical role in the ability to provide and maintain an acceptable level of service in the face of faults and challenges to normal operations. Each organization must therefore balance the risks to their organization from a telecommunications failure with the cost of providing enhanced resilience. Availability associated with the service implementation is a key success driver in conjunction with the expectations that are set for prearranged levels of operational performance that are measureable for the success of implementation. The impact of the loss of critical telecommunications services on an organization is the same regardless of the cause of the disruption. It is therefore vitally important for organizations to take appropriate measures to ensure their telecommunications systems are robust enough to continue to provide the critical services in the face of any disruption.

Best Practice is defined as those measures that can be taken to guarantee reliability and resilience, irrespective of cost. Good Practice can therefore be defined as those measures which can be taken to provide a degree of resilience commensurate with the risk strategy. The risk strategy is directly reflective of the cost components that drive the decisions of how much risk is acceptable for a given implementation scenario. It is important for an organization to understand when Best Practice is necessary, and when Good Practice is more appropriate. In telecommunications engineering, scalability is the ability of a network to handle growing utilization volume in a graceful manner or be enlarged to accommodate that growth without significant impact to service delivery. It is increasingly important to understand, plan, and prepare for the ever growing demand for data service delivery across the telecommunications landscape. With the advent of new applications and service requirements needs by the state agencies, the growth demand is only going to increase over time, and may be especially necessary to support transition from legacy Frame Relay to newer Ethernet based transport technologies. As the cost of telecommunication service delivery appears to be decreasing, there is a structural shift in where that cost structure is moving. Historically, costs of services were born out of traditional network components related to the delivery architecture of customer premise equipment (CPE), local access, long haul transport, and routing configuration. Today, those costs are directly tied to the use of the service where cost is structured to recognize not the physical layer, but the use layer of the network topology. The cost structure of this layer therefore requires significant analysis to ensure the viability of the state’s needs in direct support of ever growing demand for faster and broader data throughput availability.

Increasing network complexity and functionality requires increased support. As the design and implementation are factored into the end goal of service establishment, the majority of DMS customers require a high level of engineering and implementation support due to the complexities of telecommunication service delivery models. For example, High Availability network requirements that represent 99.999 percent uptime requirements require vastly different physical and logical engineering as compared to a network requirement to support best effort Internet transport services. Taking these two ends of the spectrum into consideration, the reasoning for the increased engineering and implementation support is due in large part to fiscal constraints being felt by the state’s agencies through economic budget reductions. For example, the fiscal constraints being placed upon agencies directly impacts their ability to maintain adequate expertise for high level technical network

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engineering, security specialists, and break/fix support technicians. Therefore, by establishing clear and concise ease of implementation processes that directly reflect reduction in risk, cost, resources requirements, and the customer base will be attracted to these solutions more readily. This provides a path for a shorter implementation timeline to contain risk and reduce in-house subject matter expert commitments. The goal of reduced implementation complexity would ultimately lead to lower costs overall and a significant decrease in implementation risk. This will allow for ease of continuing business as usual while migrating and adding new customers through future growth.

3.2 Cost Drivers Analysis

3.2.1 Enterprise Cost Savings

An “enterprise customer” in the telecommunications context is the group of very large customers at the top of the scale that have extensive operations in terms of volume and geography. The Department of Management Services negotiates with telecommunications vendors on behalf of Florida’s state agencies and other eligible entities, using the aggregated demand as an enterprise. SUNCOM’s business model is designed to save money for state agencies in four general ways:

1. Getting services at the best price. 2. Achieving enterprise economies of scale. 3. Helping agencies get the right service and technology. 4. Helping agencies get the right amount of service.

3.2.2 Cost Reductions versus Cost Avoidance

Cost savings come in two forms; cost reductions and cost avoidance.

3.2.2.1 Cost Reductions

Cost reductions occur periodically when there is a change to terms and/or technologies associated with SUNCOM MFN services that enables lowering prices to SUNCOM MFN customers. The reduction is derived from technological advancements, marketplace changes, new or amended contracts and redesigning services. The general trend is cost reduction, and therefore these reductions tend to become permanent on a go forward basis. Pursuit of cost reductions requires continued attention to technology and technology trends, user-required capabilities, and vendor contracts.

3.2.2.2 Cost Avoidance

Aggregating State of Florida enterprise demand provides the opportunity for substantial cost avoidance, as compared to individual agencies procuring services individually. The state can realize cost savings through the utilization of SUNCOM MFN centralized contract services management/procurement. The savings are derived from the costs that would be incurred if SUNCOM MFN did not exist in its current form; a single procurement encompassing all core network and access capabilities from a single vendor. Without SUNCOM MFN, all of the services it provides would be purchased individually by separate government entities without

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the procurement expertise, negotiating leverage, technical support at each agency, and economies of scale associated with enterprise demand aggregation.

3.2.3 Cost Savings Sources

SUNCOM MFN cost savings come from a variety of sources:

3.2.3.1 Fixed Cost Billing

Fixed cost billing is for a service that has a known cost that does not vary irrespective of use of the service—for example, utilizing a telecommunications access path that has a fixed cost that does not vary from month to month regardless of the amount of data that traverses the service layer.

3.2.3.2 Economies of Scale

Volume Discounts

Volume discounts are achieved from the enterprise demand for aggregation of services in one contract. Through one procurement process, vendors provide standardized services to all MFN customers.

State Enterprise Economies of Scale

The state’s consolidated procurement of telecommunications services eliminates the need for multiple separate procurements by individual state agencies. An agency ordering of services through SUNCOM’s existing contracts avoids substantial duplication of procurement efforts and expertise throughout the enterprise.

The standardization of SUNCOM MFN brings economies of scale through a common technical approach. Without it, the technical approach of every state agency would tend to be unique, which would tend to drive up costs significantly. Also, the technical requirements of interconnecting agencies with different technology platforms into a common network would increase effort and drain resources. When problems arise, diagnosis and resolution would be more difficult and lengthier without a consistent technical approach. As staff move between agencies and/or agencies reorganize over time, standardized knowledge of the SUNCOM MFN telecommunications model is transferred thus avoiding costly relearning and potential downtime when services or modifications to existing services are required to be handled by agency staff. Thus, the experience factor becomes a valuable commodity in support of the SUNCOM MFN model of service.

Vendor Economies of Scale

Vendor economies of scale are achieved through SUNCOM’s ability to aggregate service offerings and integrate administrative support functions through centralized contract procurement and implementation management. When the vendor is utilized in an integrated fashion it provides the opportunity to reduce risk for the vendor and SUNCOM MFN, which can be leveraged for lower costs and prices. The processes for ordering, installing, invoicing,

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collecting payment and trouble management are standardized under SUNCOM MFN. This provides service uniformity into highly reliable and repeatable business processes that can be measured for effectiveness.

3.2.3.3 Vendor Billing Consolidation

Individual billing of agencies would tend to require extra efforts by both the vendor and the agency for bill inquiry, and bill validation/audit and dispute processes, along with payment processes. Under the present consolidation of billing under SUNCOM, vendors send a single bill to DMS, which is paid on a consolidated basis in a lump sum. SUNCOM handles the bill inquiry and dispute processes on behalf of the agency. This process creates a central clearing house for payment to the vendor.

Furthermore, the aggregated billing data can be used by DMS and its stakeholders for strategic planning, negotiations and policy analysis. Without aggregated demand and billing data, the state is potentially at a disadvantage during negotiations in which vendors are better informed than the state about enterprise requirements, trends and opportunities. It would be more difficult for policy makers to get comprehensive and accurate reports on the state’s telecommunications needs and usage.

3.2.3.4 Specialization and Expertise

The enterprise procurement approach provides for an experienced core staff with daily, full time responsibility for assisting agencies in procuring telecommunications services, and staying up to date on telecommunications technologies. Under an individual agency procurement approach, each state agency would need to design, procure and manage telecommunications services from the ground up. Depending on the size of the agency, the support requirements could range from several full time employees to part time. The downside to this approach is these processes come in periodic cycles, which can introduce inefficiency due to non-familiarity of the requirements brought about by the infrequency of execution.

3.2.3.5 Interoperability

Standardization from enterprise procurement fosters interoperability, which is the framework for agencies to work together smoothly in the context of telecommunications. Interoperability avoids wasteful extra efforts to overcome incompatibilities between uses of different technology platforms by Florida agencies.

3.2.3.6 Security

MyFloridaNet implements network security at an enterprise level for all customers. This allows a common network on which agencies can communicate with each other with a designated security level. MyFloridaNet security implementation also provides each agency the opportunity to use MFN tools to monitor security conditions pertaining to the agency’s networking.

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3.2.3.7 Service Level Agreements and Quality of Service

The MFN contract includes specified Service Level Agreement (SLA) and Quality of Service (QoS) levels, and incorporates strict financial penalties for failure to meet the designated service levels. It is important to establish the correct blend of SLA/QoS as appropriate for a given service layer within the procurement structure to provide support for flexibility in reducing the cost structures for services. This blend of SLA/QoS also drives the performance measurement expectations that are established in the technical specifications, procurement expectations for installation and support services. It should be noted that not all service layers have QoS as those are tied to technical delivery of data over a given physical transport medium.

3.3 Telecommunications Market Conditions and Trends/Service Capabilities

Section 287.0571 (4)(g), F.S. A description of the current market for the contractual services that are under consideration for outsourcing.

3.3.1 Introduction

This analysis is intended to meet the statutory requirement of section 287.0571(4)(g) of the Florida Statutes, which requires “a description of the current market for the contractual services that are under consideration for outsourcing.” Information used for this analysis was gained through a number of methods and sources including:

• Extensive interviews and discussions with DMS staff and management over the course of the project;

• Review of extensive data and information provided by DMS staff and management regarding MFN and SUNCOM operations and billing6;

• Information and perspectives provided by state agency Chief Information Officers and IT managers through meetings hosted by DMS;

• Inspired Technologies’ own experience and research; • Substantive information provided April 16, 2013, by respondents to DMS’ Request for

Information (RFI) regarding Florida’s Telecommunications Services Environment. 7 The RFI sought the latest information regarding the telecommunications market to support future state telecommunications procurements to evolve from the existing MFN to a successor network or networks. In addition, state agencies provided responses to DMS’ “MFN Customer Survey –

6 The Department of Management Services provided substantial and detailed billing data for MFN customers over time which was very helpful to assess utilization and trends. 7 The Department of Management Services issued a “Request for Information regarding Florida’s Telecommunications Environment” in Spring 2013. The goal was to provide DMS with “the latest information on the telecommunications services environment within Florida for the purpose of replacing … MFN with a new network (MFN-2).” Telecommunications providers who responded were AT&T, Level 3, FPL FIberNet, Sprint, HCH Enterprises, Cox, Brighthouse, Florida Cable TV Association, Comcast, and CenturyLink.

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Business Case” in September and October 20138. These survey responses were very useful to the ultimate clarification of the issues.

The original MFN procurement was focused on driving cost efficiencies from merging five separate statewide networks to a single enterprise network, which centralized order processing from agencies through DMS for services and capacity, and merged monthly invoicing for the MFN down to a single bill from the network provider to DMS. MyFloridaNet is a data transport network that provides robust infrastructure to meet state agency needs for voice, video and data service capabilities. The transition to the enterprise network from the previous networking took great time and care to accomplish while maintaining citizen-facing services to the public—this transition was successfully accomplished.

The MFN enterprise network is currently provided under a contract with AT&T (“Current Contractor”) which has been renewed with an expiration date of Sept. 17, 2016. AT&T is the prime contractor, and other incumbent local exchange companies (ILECs) are subcontractors to AT&T.

The telecommunications marketplace in Florida is viewed as competitive, especially for enterprise network services. The Department of Management Services desires to have a competitive procurement process and outcome for the successor network or networks to MFN to be identified as MFN-2. There are a number of key matters that must be assessed and incorporated into the procurement to achieve this outcome. These key matters are addressed below in the same structure as DMS’ RFI. The RFI responses make clear that decisions on these key matters will have significant influence on which and how many potential vendors will be able to respond to the procurement. Those that provided responses to the RFI were AT&T, Level 3, Sprint, FPL FiberNet and HCH Enterprises (“Backbone Providers/Aggregators”); Cox Business, Brighthouse Cable, Comcast (sales materials only), and the Florida Cable Telecommunications Association or FCTA (“Cable”), and CenturyLink (Incumbent Local Exchange Company or “ILEC”). RFI respondents provided useful information and sometimes conflicting comments and recommendations. The conflicting recommendations tended to be consistent with the respondent’s position in the industry, such as new entrant Competitive Local Exchange Carrier (CLEC) or cable provider. The analysis of each area of the following sections highlights specific topics and outcomes of the review.

The following topics were analyzed as options for MFN-2 on a going forward basis:

3.3.2 Flat Rate versus Mileage based Access

The present rate structure for MFN access circuits (or “loops”) is the general use of flat monthly rates that do not vary depending on location within the state. Distance is not a factor at all for pricing of

8 Agency survey responses were received from Agency for Health Care Administration, Agency for Persons with Disabilities, Department of Environmental Protection, Department of Corrections, Department of Revenue, Department of Transportation, Department of Juvenile Justice, Department of Agriculture and Consumer Services, Florida Department of Veterans Affairs, Public Safety Bureau in the Division of Telecommunications, Fish and Wildlife Conservation Commission and, Department of Legal Affairs. Inspired Technologies is very appreciative of the time senior IT management at these agencies took to respond to this survey, and the information provided informs many of the conclusions reached in this report.

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circuit capacities of 12 Mbps and below. For circuits above that capacity, flat rate pricing is applied up to certain mileage limits, at which limit “Individual Case Basis” (or “ICB”) pricing is applied in two tiers. For bandwidth between 15 and 45 Mbps, circuits exceeding 25 miles in length are ICB—while circuits below that length have a stated, flat rate price. For bandwidths above 45 Mbps, circuits exceeding 10 miles in length are “ICB”— while circuits below that length have a stated, flat rate price.

MFN Pricing Tier

• 56kbps to 12Mpbs - Flat Rate • 15Mbps to 45Mbps - Flat Rate within 25 miles • 90Mbps to 1000Mbps - Flat Rate within 10 miles

The RFI explored certain issues with statewide flat rate pricing model. At the highest level these issues include:

• Are there undue cost disparities between areas (e.g., rural and urban) which are masked by statewide pricing?

• Are there undue cost disparities from varying lengths of circuits which are masked by flat rate pricing?

• To what extent are cost disparities from statewide pricing exacerbated by flat rate pricing? • What rate structure should be used for MFN-2 to best track with underlying loop cost drivers? • Is population density a good proxy for cost, or are there other indicators which are reliable

proxy for cost of service?

3.3.2.1 RFI Response Summarization

• Separate mileage charges are becoming less of a practice for Ethernet services; • Flat rate pricing is important for rural areas; • Statewide flat rate pricing relies on internal averaging to keep prices lower for rural

locations; • Mileage or one-time charges may be more applicable for rural locations with lesser

demand; • The pricing model for several industry participants for Ethernet services tends toward site-

specific pricing; • Flat rate pricing may be a more simplified structure, but does not necessarily guarantee

the lowest cost in aggregate; • Flat rate pricing should be abandoned; • The most competitive prices in the market tend to be in locations where CLECs provide

facilities based service in addition to the ILEC; • Pricing zones should follow vendors’ network coverage to delineate where sufficient

competition exists, and where more ubiquitous pricing could be sufficiently guaranteed;

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• Population density is one important cost factor, but there are other factors, and population density is not always a definitive proxy for cost or availability of competitive loop facilities;

• There is no single metric that reflects cost in a particular geography; • Cost modeling based on population density is a dated model, and is not always used for

Ethernet access; • The best price available is in previously operational CLEC locations, with the next best

price for locations where the CLEC is “near-net” and could build; and, • A database or tool will be required to map addresses to pricing zones to support a change

from flat rate pricing.

3.3.2.2 Analysis The question of what are the true “cost-drivers” for local loops is an issue that has been the subject of significant research and debate in the telecommunications industry regulatory forums for several decades. In these regulatory forums, the industry and its regulators have devoted significant time and expense to “cost modeling”, to estimate the costs of broadband capable networks and network connections. Based on regulatory decisions and requirements, cost modeling is intended to be “forward looking” since this is the basis for economic decision making. As such, characteristics of the existing networks have limited relevance.

The leading cost modeling effort is known as the “Connect America Cost Model” or CACM, as being built by CostQuest Associates. The CACM Model Methodology has recently been updated9, and provides information regarding “cost-drivers” for local loops. The modeling methodology makes it clear there are numerous factors which affect loop cost, including such items as:

• Technology Mix (e.g., copper, fiber, hybrid); • Placement mode and structure costs (e.g., underground, buried, or aerial); • Terrain factors (e.g., presence of rock, depth to rock, rock hardness, depth to water, soil

type, etc.); • Density of demand; • Cable distances, and location of the premises in relation to fiber splitter, DSLAM or

equivalent; • Unit costs and sizes of cable and terminating equipment, from all traffic and demand; and, • Labor and contractor costs, as well as property taxes and other operating and overhead

expenses related to the corporate organization.

9 Connect America Cost Model: Model Methodology, CACM Version 3.2, Document Version 3.2, And Revised Aug. 27, 2013.

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Density and distance are often discussed as being relatively important cost-drivers for local loops, but they are not the only cost-drivers. These multiple cost factors listed above are no doubt what various respondents to the RFI had in mind when stating “there is no single metric that reflects costs in a particular geography”10, and “the presence of a population does not necessarily guarantee the presence of a network capability”11.

Furthermore, it should be noted that important cost-sharing opportunities are emerging as fiber-optic facilities are being placed near to cell towers and Community Anchor Institutions (CAI). In particular, placement of Fiber to the Tower (FTTT) to support growth in wireless data traffic due to the evolution to 4G LTE has been ongoing for some time now, and is making fiber more generally available in more and more locations. Costs can be shared where structure and fiber is shared between and among “broadband” services and special access networks such as for Community Anchor Institutions and cell towers, including MFN-2.

Finally, there is strong indication that separate mileage charges are becoming less of a practice for Ethernet services, as the network transitions from copper-based circuit switching to fiber optic-based Internet Protocol networking.

As bandwidth demands increase, locations that are served today through limited access capabilities will require evaluation on an ICB basis to determine best method to expand services, e.g., location is limited to a T-1 level of service and request is for 10MB Ethernet. state agencies and eligible users are increasingly requiring and using higher capacity local loop connections. Figure 3, Section 3.7.3, Growth Forecast, shows relative growth in volume for higher capacity circuits over time. It appears the continued application of the present rate structure will lead to expanding the application of Individual Case Basis (ICB) prices for access loops. Therefore, the break points for ICB pricing—mileage limits and capacity limits—should be reviewed for possible negotiation points in the MFN-2 procurement. The expansion of ICB pricing should only occur post migration of MFN-2 services.

The statewide flat rate structure does tend to average costs across the entire state, including whatever cost disparities may exist between rural and urban areas of the state, in particular. While distance/loop length and population density are not the only cost-drivers for local loops, such factors remain important. From a policy standpoint state agencies have been emphatic in meetings and survey responses in their strong support for continuation of statewide flat rates, and opposition to mileage charges for access loops. Stated reasons for the strong support of continuation of the statewide flat rate structure include:

• State agencies have statewide missions and tend to have sites across the state. Staffing at remote locations may not be very high, but are still necessary to serve the public. Pricing should be the same to serve all citizens;

10 CenturyLink Response to RFI. 11 Level 3 Response to RFI.

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• Statewide flat rate pricing was one of the biggest achievements of the MFN procurement, and this should not be discarded;

• Many agencies have significant rural or remote operations. Accordingly there would be budget impacts of moving to mileage based loop rates;

• Increased costs to serve rural locations from use of mileage based loop rates would come at an extraordinarily bad time as agencies are being pressed to increase bandwidth to meet new and increasing demands, of which medical records, veteran’s claims, and public safety (NG 911) are notable examples; and

• Statewide flat rate pricing supports greater predictability in budgeting.

State agency response to the survey indicates a substantial presence of rural circuits and rural communications needs, as follows:

• Department of Corrections: almost 300 circuits, two-thirds of which are rural; • Department of Environmental Protection: 150 connections, of which 75 percent are rural; • Department of Juvenile Justice: 128 connections, one-third are rural; • Department of Transportation, Office of Information Systems: 93 connections, 75 are rural

(this does not include other DOT offices such as ITS); • Department of Agriculture and Consumer Services: 85 percent rural; • Fish and Wildlife Conservation Commission: almost all are rural; and • Public Safety Bureau: extensive number of rural connections.

The continuation of statewide flat rate pricing for access loops is assumed in the financial and cost/benefit analysis within this business case.

3.3.3 Fixed Term vs. Month-to-Month Pricing

Month-to-month (MTM) pricing is used by DMS for MFN with the view that it is consistent with statutory requirements that disallow paying for services not rendered, e.g., forcing DMS to pay for the whole term if an agency were to move or downgrade prior to the end of a term. The Department of Management Services perceives there is a low risk to vendors from MTM pricing since client locations are stable, downgrades of service are rare, and special construction charges are paid which offsets vendor risks. Fixed Term versus MTM pricing issues include:

• What are the pricing implications if DMS moves away from MTM pricing, and permits fixed term pricing?

• What other implications for pricing should DMS consider for the upcoming procurement?

3.3.3.1 RFI Response Summarization

• Pricing should be based on whether a competitor’s facility exists in the area. Where competitors’ facilities do not exist, contract lengths should be sufficient for a provider to recover the cost of building a new facility;

• Facilities built to new locations generally cannot be justified with only a MTM commitment;

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• To encourage more bidders, DMS should come up with a mechanism for providers that do not already have a facility in place to bid and recover the cost of the new facility over time.

• Very few connections incur special construction charges; • 12 month term with no installation charges is viable in addition to MTM; • Transient locations have large impact on cost recovery for fiber based services; • The industry uses access commitments of 12, 24, and 36 months. Use of such terms would

reduce risk and enable better pricing. Longer more stable pricing options should be pursued;

• Buying on longer terms will generally lead to lower prices. Moving away from MTM contracts enables the providing company to spread the cost of service delivery over a longer period of time;

• Building level pricing through CLECs is used in addition to tariff based LEC pricing; and • The more services, e.g., Time Division Multiplexing (TDM) and applications, that can be

provided and consumed by the agency, the less likely it is that the agency will need multiple connections. Designing the procurement to be conducive to consolidation versus separating various TDM services from IP services is a key factor.

3.3.3.2 Analysis

It is clear that the industry uses term pricing, and that the DMS approach of month-to-month pricing increases risk of non-recovery of costs from a provider perspective. Providers state that use of standard access terms of 12, 24, or 36 months would reduce risk and enable better pricing. The Department of Management Services perceives that month-to-month pricing adds little risk for the providers, given the large volume of MFN connections, and the relative few connections that terminate within a short period of connection, since agency connections are viewed as being very stable. This is confirmed by analysis of actual MFN disconnection data from DMS billing records. There are exceedingly few circuits in place that are disconnected shortly after installation, especially considering that MFN has more than 4500 local loops.12 As indicated by DMS data, over the course of the past year only 22 circuits were disconnected shortly after installation (See Section 13.3, Figure 13, MFN Disconnections, in Appendix). This is less than 0.5 percent of all MFN circuits. All of these circuits are in urban areas where the facility is available for reuse. Many of the circuits are larger capacity.

Many RFI respondents also noted that facilities built to a new location generally cannot be justified based on a MTM business case analysis, and that a mechanism should be employed in the procurement to facilitate new providers to bid to build necessary loop connections. This is

12 Note that AT&T states it has “experienced notable orders of expensive fiber based solutions that were installed for only brief periods.” AT&T RFI Response, page 6.

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also related to the fact that the best pricing will be available in places where the customer location is on or near a competitive network.

It is feasible for DMS to contract with the vendor on a term basis, while maintaining MTM pricing to its customers. Consideration should be given to eliminating MTM pricing as a procurement requirement, in favor of providing a commitment under the MFN-2 agreement that some large percentage (such as 98 percent) of local loops, serving urban and rural, will be provided under a term commitment, rather than month-to-month. “Early” terminations in the small percentage level (2 percent or less) would not cause any financial consequence from the state to the provider. Percentages over that 2 percent level would incur contractually specified financial consequences. Providers should be satisfied with an overall term commitment, consistent with the length of the contract, for the great majority of local loops. This should be sufficient to drive price reductions from the present MTM price structure for all local loops, from use of a term pricing structure that is common in the industry. It is important to note that while term commitment provides the opportunity for reduced pricing, there are existing limitations within the state procurement system that must be realized, e.g., funding as a requirement to appropriation, state does not pay for services not received. The cost benefit analysis that is modeled reflects the continuation of month-to-month billing with no term commitments.

Furthermore, some agencies favor having the option of lower rates in exchange for a term commitment, such as 12-month term. Facilitating this agency option should be explored in the MFN-2 procurement. But agency survey responses indicate most agencies view MTM pricing as very important for budgetary reasons.

3.3.4 Balancing Shared Network Resources versus Dedicated Networking

There is a balance of factors between requiring committed, dedicated network and operational resources for MFN, versus allowing use of public network resources on a shared basis. Provisioning MFN-2 using shared public network resources can gain reduced prices from economies of scale. On the other hand there is a view that dedicated network resources allow network reliability, functionality and security to be directly managed against defined service standards. Issues regarding this balance of factors include:

• Are there still administrative and technical concerns that can be overcome only by using dedicated resources?

• What price related impacts should DMS consider in drafting the procurement document where design or administrative components are committed to exclusive use by SUNCOM customers rather than shared among a broader customer base?

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3.3.4.1 RFI Response Summarization

• There is little to no incremental cost to a dedicated network over implementation using the public infrastructure.

• In general the use of dedicated components in a design can exponentially increase costs, implementation time lines, and contractual hurdles.

• It is no longer necessary to completely separate the network. • Committed resources and functionality can be provided within a shared network

environment. • Meeting the state’s unique requirements using the public network presents its own set of

issues. • The Department of Management Services has made numerous change requests to date

for the MFN network. These changes would not have been feasible if the state was procuring commercial MPLS services from one or more providers.

• Dedicated network approach has allowed upgrades to keep MFN “state of the art,” elastic in nature, and allowed addition of network technologies and services as the need has arisen.

• There are numerous advantages to dedicated networking, including: o Ability to rapidly deploy new technologies such as BFD for emergency services, Get

VPN, and customized solutions; o Dedicated Lab enables rapid testing and vetting of customer requested solutions that

integrate elements of both core and CPE o Dedicated head count allows engineering staff to be completely familiar with network

elements both from the provider and from the customer. Also facilitates lines of communication by providing direct access to tier 3/4 support to customers

o Dedicated personnel allow much easier compliance with CJIS and other security requirements.

o Tightly integrated solutions and technologies that overlay the dedicated core, such as emergency services voice networks, SIP trunks, hosted voice solutions which can all be connected directly to the dedicated infrastructure in carrier grade space

o R/O access to customers on all dedicated equipment o Institutional knowledge over many years of experience with the state’s networks,

administrators and requirements o Ability to fully integrate new initiatives such as NG 911 projects into the dedicated

core/local loop/CPE providing elements otherwise unavailable such as the “emergency voice” QoS profile that differentiates emergency service traffic from that of other users

o Extremely flexible QoS parameters customizable by the end user. MyFloridaNet has hundreds of possible QoS configurations as opposed to a half dozen or so ‘profiles’ available on commercial networks.

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o Dedicated allow for multiple MPLS VPNs on a single local loop where commercial typical does not.

• Lower bandwidth and/or greater number of smaller locations push the design more toward a shared infrastructure where economies of scale can be leveraged for lower costs.

• Consideration of both shared and dedicated components is recommended. Locations where dedicated facilities are required should be clearly identified in the procurement. Design of the network should segment any public safety or critical functions to a fiber based dedicated network that provides full geographic and network diversity.

• SLAs are expensive to implement, monitor and report on • Options should be considered for best effort bandwidth versus committed rate or real

time. Especially with the provision of business grade service, lesser performance can be acceptable at a far improved price.

• The more services, e.g., TDM and applications, that can be provided and consumed by the agency, the less likely it is that the agency will need multiple connections. Designing the procurement to be conducive to consolidation versus separating various TDM services from IP services is a key factor

3.3.4.2 Analysis

Analysis shows the main factors in the use of shared or dedicated network resources is centered on the type of SLA’s that are required by the state agencies. Each agency has dependent needs in support of their various missions that require services that are deemed essential and others that can classified as non-essential. Essential services typically require dedicated network services layers to ensure uninterrupted delivery of capabilities. Non-essential services have characteristics that allow for network downtime or unavailability and could be delivered over shared network resources. The key is the balance between the two in delivery of services throughout the network topology. To service these network characteristics, the SLA arrangements can be best described through tiers of service with best effort being the lowest delivery measurement.

State agencies were surveyed to determine the extent to which an agency would move access circuits to best efforts to obtain cost savings, the agency’s view of the importance of SLA standards, and the agency’s interest in different tiers of SLA. The key point here is the examination of how service affects SLA constraints over dedicated and shared public infrastructures. To that point, the analysis focuses on these constraints as they drive the decision to utilize the specific physical layer.

While many agencies stated that they could not utilize best efforts SLA due to agency requirements for uptime, response time, availability, etc. there were a number of agencies that indicated interest in having the option of best efforts SLA for non-mission-critical locations and communications in order to save money. The responses suggest that it would be important to have some minimum SLA level established, which is a very useful observation

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that should guide discussion and potential procurement of best efforts access capacity. At a reasonable minimum SLA level there is no question that some agencies would move many existing connections to best efforts in pursuit of cost savings that are appropriate in light of the agency’s operations. This should be explored in the MFN-2 procurement.

State agency survey responses uniformly stated SLA requirements were very important. The agencies in several cases believe strict SLA requirements to be less important for rural connections, and also for agency locations which are staffed 8 a.m. – 5 p.m., Monday – Friday. Strict SLAs are by their nature seven days a week, 24 hours a day, and 365 days a year (7/24/365), which is perceived to cost more than it is worth for those types of locations. This leads directly to the concept of choice from tiers of SLA, of which best effort would be the bottom rung. There is significant interest among the agencies in the ability to choose SLA levels for particular locations, under the understanding that less stringent SLA tiers would cost less. Therefore, SLA tiers for access service layers should be explored for the upcoming MFN-2 procurement.

3.3.5 Regulatory Implications Pertaining to the Local Loop

There have been and continue to be substantial changes in the regulation of telecommunications service providers who provide MFN, and those who responded to the RFI as potential vendors for MFN-2. Telecommunications providers operate under dual regulation: interstate services are regulated by the Federal Communications Commission (FCC) and state services are regulated by the Florida Public Service Commission (FPSC). At both jurisdictional levels substantial deregulation has occurred such that the provisioning and pricing of MFN and MFN-2 can be viewed as an essentially deregulated offering. However, service providers operate under the interconnection requirements which are embodied in FCC and state regulations and requirements pursuant to the Federal Telecommunications Act of 1996.

In late 2011, the FCC fundamentally altered the framework under which interconnecting service providers compensate each other for access to the other’s network (transition to Bill and Keep)13. In the same action the FCC redirected the Universal Service Fund (USF) mechanism to support only broadband service expansion into areas which are un-served (rather than supporting all high cost areas for voice services). These FCC actions occurred as an important regulatory debate began at the national level over necessary transition steps from the circuit-switched, copper based Public Switched Telecommunications Network (PSTN) to provisioning of the PSTN over Internet Protocol (IP) networking which relies upon soft switches and fiber optic facilities. Of note,

AT&T has moved to effectively raise the price on some of its dedicated data and voice lines for businesses […] The telecom giant notified customers earlier this month that it would no longer offer extended contracts – and the discounts that come with them – to companies using these high-capacity connections known as “special access lines”. […] AT&T said that as of November 9, it will stop offering contracts longer than 36 months for older types of connections, known as TDM, because it plans to phase out the technology by 2020. Last year, AT&T said it would invest

13 Federal Communications Commission FCC 11-161

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over $14 billion over three years to expand wireless networks and transition its network from TDM to more efficient Internet protocol-based technology. AT&T still needs FCC approval before it can stop offering TDM systems.14

It is in the environment of transition from copper/circuit switched networking to IP networking that consideration is being given to unbundling the MFN-2 “core” from the local loop connection for modular procurement with contractual connectivity and performance requirements. Issues as expressed in the DMS RFI regarding unbundling of the procurement of MFN-2 core from local loop connections include:

• What level of concern should exist that firms capable of providing the MFN-2 core may not be capable to administer local loop agreements, process orders and charges for them, and rebill to DMS?

• Do remaining regulatory requirements still provide for shared use of local loop transport infrastructure, and is there any relevant distinction between copper and fiber facilities in such regulatory requirements?

• Can an incumbent vendor gain leverage over other potential vendors by providing a bundled network offering, given ownership of substantial local loop facilities statewide?

• Has deregulation impacted past perceived benefits of bundled networking, such as the ability to pinpoint vendor performance accountability where stringent end-to-end SLAs are used?

• Are there compelling reasons to avoid a procurement for unbundled local loop connections using an unbundled structure?

• What is the impact of an unbundled local loop connection structure on SLAs, network performance, and pricing?

• What are the pros and cons of bundling versus unbundling? • How can ubiquitous service delivery best be provided within a wide array of customer needs ranging

from High Availability/High Reliability public safety to less stringent SLAs? • What standards and restrictions should be considered to address the local loop connection in both

bundled and unbundled strategies to ensure end-to-end operability, reliability and security? • What standards and restrictions should be considered to address the MFN-2 core in both bundled

and unbundled strategies to ensure end-to-end operability, reliability and security? • Given changes in the telecommunications environment since the original MFN procurement, is it

reasonable to expect overall pricing for MFN-2 to be lower assuming it is procured on an equivalent basis (e.g., bundled, with the same SLA provisions)?

• What is the optimal balance between the number and location of MFN-2 core nodes and low cost local loop connections?

• Are MFN-2 core nodes in each Local Access and Transport Area (LATA) required to obtain low cost local loop connections?

14 “Rivals Protest AT&T Rate Shift”; The Wall Street Journal, B3; Oct. 23, 2013.

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• With local loop technologies such as Ethernet and proliferation of local loop providers, can low cost pricing be obtained without increasing the number of MFN-2 core nodes statewide?

• Does increasing the number of MFN-2 core nodes make local loop connections shorter? • Does increasing the number of MFN-2 core nodes improve competition by facilitating the ability of

additional service providers to participate? • With regard to special construction:

o Did deregulation affect these investments? o Is there a way to avoid additional special construction charges if MFN-2 is not awarded to the

incumbent? o What options exist for a non-incumbent provider to avoid special construction charges by re-

terminating the existing loop? o Are there options available to waive special construction charges to build out facilities again?

• Are there deregulation related impacts that should be considered where there are design or administrative components associated with exclusive use by SUNCOM?

• Are mutual local loop exchange agreements between vendors in their common best interests when selling to the consumer market?

• Under a bundled solution, would DMS pay a premium for services being provided under a single vendor? and,

• Are there any other deregulation implications that should be considered in the procurement?

3.3.5.1 RFI Response Summarization • “Pros” of Unbundling

o Should lead to more aggressive pricing via competition, ability to shop portions of a service to multiple carriers

o Permits seeking most cost effective solutions within SLA requirements o Offers ability to reward good performance/punish bad performance o Pricing flexibility and strength of vendors’ footprints can be better utilized o Potential gain of service diversity

• “Cons” of Unbundling o Potentially more pricing complexity o More vendor performance management and coordination effort required of customer—

coordination of troubleshooting and network maintenance, requires additional staffing o Certain performance measurements would not include the loop o Additional ordering complexities, each vendor will have its own process o Customer is ultimately responsible for connection and operation of overall service o “No way” to implement true end-to-end SLAs o Loss of “one throat to choke” o Loss of single invoice

• The IXC can provide single billing of bundled MPLS port and local loop access. • Currently active circuits from incumbent can be “grandfathered” in for new provider.

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• Procurement should allow providers to bid regionally on loops and supply them to the backbone provider.

• Forming a consortium like the current MFN vendor can require more resources then even some of the largest providers can muster—foster participation of numerous other providers by separating bidding for the loop portions of the network.

• The Department of Management Services can meet pricing goals with two or three vendors. • Core optimization can occur while selecting “best in class” local access from a variety of

providers in different geographic areas across the state. An aggregator should be used. • SLAs can be guaranteed on the portion purchased (core, loop, or core and loop). • There is no reason a provider could not manage multiple buying options. Each provider

could be managed to a baseline set of SLAs. • Do not distinguish between physical or virtual local loop requirements in the procurement. • Do not specify a bundled network in the procurement, evaluate bundled and unbundled

proposed options to make the best choice. A bundled solution would likely be at a premium price.

• LATAs: o LATA boundaries should not be a criterion, since it would tend to exclude cable

companies, whose boundaries are based on municipal or county boundaries; o Because of IP technology, geographic boundaries such as LATAs should not be used; o LATAs are geographic fictions and should not be used in IP world; o Redundant nodes in each LATA reduces backhaul and minimizes points of failure; o Do not use LATA boundaries as artificial barrier for design, but position core nodes

where local access is driven by demand; o Consider primary node placement based on available competitive providers within each

LATA; o Where highest capacity requirements exist, add locations to increase competition and

diversify connections. • Special Construction Charges (SCC):

o Should be minimal as there is a high probability existing facilities can be reused; o Local provider in some cases is willing to absorb build out costs if facilities can be used

to serve other adjacent customers; o SCC’s can be waived if sufficient term agreement is provided; o Reductions in operating expenses (e.g., copper-related) may offset SCCs; and, o Identifying existing fiber and meet points can significantly reduce construction costs and

efforts.

3.3.5.2 Analysis

At a high level, past regulatory events in the telecommunications industry should have little to no incremental impact on the MFN-2 procurement. Substantial deregulation of telecommunications providers and services has occurred at both the state and federal level.

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There are several large competitors in enterprise networking, who rely on local loop access facilities from both internal and external sources. The incumbent local exchange companies (ILECs) have built networks to serve all customers under previous regulation and these networks still exist. These networks of the ILECs (AT&T, CenturyLink, Verizon, FairPoint, et al) together have the capability to serve all customers in Florida. Through a consortium approach, the ILECs have the capability therefore to provision all MFN local loops “internally,” as is done under the current MFN contract. CLECs, which for this analysis includes cable providers, built networks later and were not required to serve all customers, but instead were allowed to build facilities to serve customers selectively (although cable providers began with municipal franchise areas). The Telecommunications Act of 1996 (TA 96) precipitated and supported new entrant CLECs into telecommunications markets, and enabled existing cable providers to upgrade, expand and make additional use of their existing networks. Facilities based CLECs are naturally more prevalent in the more populated areas as driven by business cases and economics.

Various respondents to the RFI suggest how this bears on the MFN-2 procurement. The greatest network economies are where traffic can be aggregated and served on a “shared” basis, and economies recede the closer the network gets to the customer location. The closer the local loop facility gets to the customer location, the less network facilities can be shared and or aggregated among other customers to achieve economies. CLECs do not have local loop access facilities deployed at this time to all customer locations statewide, and therefore in some circumstances would need to build or lease facilities from other carriers (most predominantly, ILECs) to serve all MFN locations. At this point, further network development relies upon business cases and economics rather than regulatory requirements.

All entities are required to interconnect networks on non-discriminatory terms and conditions under TA 96. Technical network interconnection standards and related business practices are very well established in the industry. However, there is an issue being debated before the FCC which bears directly on interconnection practices. Some large telecommunications providers are contending that the interconnection provisions and requirements of TA 96 apply only to copper-based circuit switched networks (or “the old” PSTN), and not to IP networks (of which MPLS is a variant). Therefore, under this contention, ILECs are not obliged to interconnect on an IP-to-IP basis under TA 96 non-discriminatory terms and conditions, or even to interconnect at all. This issue remains unresolved at the FCC and is not likely to be resolved soon.

A further aspect of this copper/circuit switched versus IP networking debate is that AT&T and Verizon are seeking approval at both the state and federal level to be able to cease maintenance and provisioning associated with copper/circuit switching network facilities at the company’s discretion. This issue also remains unresolved at the FCC and is not likely to be resolved soon. From a business standpoint, vendor access providers continue to provide MFN-2 local loop access via copper facilities. However, consideration should be given to the

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circumstance where a vendor other that the current vendor is awarded the contract, and the new vendor may need to procure certain loop facilities from an ILEC. Consideration should be given to the incorporation of a strong reciprocal condition in the procurement that any bidder must commit as a condition of bidding to providing non-discriminatory interconnection with local loop access facilities, regardless of technology, and also commit to making network interconnections at an IP-to-IP level where requested—regardless of whether the bidder is ultimately awarded MFN-2 contracting. This will ensure a fair and open competitive environment for all vendors.

In this environment consideration is being given to whether the MFN-2 procurement can be separated to allow additional vendors to bid only the local loop access portion of the network, or only the core backbone network—or both. There likely would be difficulties in maintaining strict SLA levels in a framework where access is unbundled from the core network. “Finger pointing” often arises when a service outage or performance problem arises, and different providers are involved in providing an end-to-end telecommunications service. Deregulation has not averted this issue, nor has technology. Currently there are three categories of SLAs: Core Network (availability and technical performance parameters), Access and CPE (availability and technical performance parameters), and Operational (installation intervals, moves, adds and changes, CPE configuration, service outage notification, service degradation notification, and initial problem identification). While the SLA categories are measured and monitored separately, a single vendor is responsible for overall SLA performance for the MFN currently. If access and CPE were to be unbundled from the MFN core it is likely that additional performance management and coordination efforts would be required. Also, additional ordering complexities associated with multiple local loop access vendors could arise. These downsides could perhaps be offset by more aggressive pricing from competing loop vendors—where such competition exists (more typically in more urban areas).

Survey responses from state agencies are emphatic that unbundling of the core network from the local loop should not occur in this procurement for reasons similar to the above. Bundled procurement of the loop and the core network eliminates finger-pointing among different providers in the event of a service problem, minimizes outages, costs and delays, and reduces complexities. Furthermore, state agencies have scaled their operations to this mode, and would not have the resources to handle the issues that would tend to arise from separate providers for core network and access loops. For these reasons, the financial and cost/benefit analyses assume bundled procurement of the core network and access loops.

There has been some question of the role and importance of Special Construction Charges in the development of MFN-2. SCCs are intended to apply to locations where it is determined facilities are not available for installation of service. Construction of facilities will generally require additional time and the customer may incur additional expenses. While in theory this is always a possibility, it appears that Special Construction situations are very rare, with perhaps one instance in the past two years. Given ubiquitous or nearly ubiquitous network

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development, it does not appear that future needs for Special Construction Charges will be significant. Furthermore it does not appear there is a base of Special Construction that potentially could be stranded under MFN-2 procurement. Agency survey responses confirm this. Special construction charges may play a role in mitigating the risk of uncontrolled loop costs for the vendor. Given the above, it is recommended that Special Construction continue to be allowed and be handled on an ICB as necessary. However, Special Construction should only occur as post migration of MFN-2 services.

Local Access and Transport Areas (LATAs) are geographic areas that were used to demarcate the division of assets between AT&T and the “Baby Bell” companies at Divestiture of the Bell System, at Jan. 1, 1984. There were a variety of factors that were used to determine LATA boundaries, including operating company territories, state boundaries, division of network assets given goals and objectives deemed appropriate at the time, and location of Class 4 switches at that time, etc. LATAs had ratemaking, competitive and jurisdictional significance at that time but significance dissipated some years ago, to the point that “interLATA” and “intraLATA” call distinctions are no longer recognized or relevant in the market or to regulation. LATA boundaries did not and do not pertain to the networks and operations of CLECs. LATA boundaries were developed when the PSTN was circuit switched, which is no longer applicable given the evolution to IP networking. The lack of applicability of LATAs to definition of markets can be seen from the demise of the original, largest interLATA carriers—AT&T and MCI—which no longer independently exist. LATAs can perhaps be referenced in the MFN-2 procurement, but should not drive network design or bidding requirements. Placement of MFN core nodes should be driven by capacity requirements, demand, and networking considerations, rather than LATA boundaries.

With regards to the core routing infrastructure, the density and relationship to LATA’s is directly dependent on the comfort level for redundancy and interconnection design philosophy. Theoretically, the entire MFN network could be established with 1 Core router. However, it is prudent to establish an infrastructure with fail over capabilities and resiliency. It is recommended that DMS evaluate the placement and number of core routers based upon negotiated interconnection value with the prospective vendor. If the density provides a reduced cost structure through sheer numbers, then that could be utilized to drive down the access cost components as well as long haul interconnectivity. Requiring high numbers of nodes in the procurement specification should be avoided as this could inadvertently inject higher cost structures from the prospective vendor to recover the cost of deployment of necessary infrastructure to support the core routing design. The cost analysis does not specifically identify core routing infrastructure equipment as this is modeled as a “service”, thus the equipment to deliver the service offering is embedded in the cost structures as appropriate.

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3.3.6 Description of Current Telecommunications Market Conditions and Technologies

MyFloridaNet is provisioned using Multi-Protocol Label Switching (MPLS) technology which has been considered the current standard for enterprise networks. Multi-Protocol Label Switching provides requisite levels of security, Quality of Service, and a highly available highly reliable (HA/HR) network. Access to the core network is provided by a variety of local loop connection types including Metro-Ethernet, DSL, Frame Relay and Satellite.

Issues for MFN-2 procurement include:

• Is MPLS still the appropriate technology for enterprise networking? • Are there any new technologies visible that might replace MPLS? • What new local loop technologies are being deployed in the industry? • What local loop technologies are reaching the end of their service lives, and when? • What types of technologies are offered by the responding firms?

3.3.6.1 RFI Response Summarization

• There is a general move away from copper, circuit switched technologies toward IP technology. Increasingly copper facilities lack bandwidth and efficiency.

• Loop technologies reaching the end of technological lives include: ATM; Frame Relay; SONET; DS3; OC3; and Time Division Multiplexing (TDM).

• MPLS is still very viable transport technology, and provides ability to segment traffic. • MPLS is leading and appropriate technology for enterprise networks. MPLS provides

advanced transmission capabilities and self-healing. MPLS provides robust protection and restoration mechanisms, and provides the ability to control where and how traffic is routed, to manage capacity, prioritize different services and prevent congestion.

• MPLS benefits include: o Supports traffic engineering for more efficient use of network bandwidth; o Provides Layer 2 switching and Layer 3 routing support; o QoS capabilities which provide different priorities for different forms of traffic; o Provisioning of required bandwidth along with traffic priorities; o Point to multipoint, or multipoint connectivity; o Can support existing ATM and Frame Relay services; o Reduced network congestion; o Scalable, easy to add network locations.

• Users in remote locations have come to expect the same network performance as those at headquarters. Multi-Protocol Label Switching supports this expectation.

• Most if not all telecommunications providers have moved their core networks to MPLS. • Multi-Protocol Label Switching is being enhanced to include increased use of Ethernet

technology.

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• Metro-Ethernet is simpler, easier to configure solution. Ethernet is growing precipitously as replacement for legacy service technologies.

• Ethernet offers a wide range of port and logical bandwidth options. • SIP is becoming an alternative form of traffic segmentation and control for voice services

over an IP based local loop network. • The network provider can use IP loop technology to provide virtual segmentation of traffic,

rather than SUNCOM MFN, to simplify the State of Florida’s management of traffic and need for future upgrades. o Layer 2 and Layer 3 Ethernet connections o Resilient Packet Ring (RPR) o 4 queues of Class of Service (CoS)/QoS o Session Initiation Protocol (SIP) over Ethernet

• Multiple nodes per LATA are not needed. Network aggregators can be used. Impacts vary between bundled versus unbundled approaches.

• Customer provided fiber can be leveraged. • Loop Technologies:

o Wireless technology is an emerging access option, but typically where wireline solutions are not available, due to radio characteristics that include being subject to interference and environmental signal degradation issues.

o Hybrid fiber/coaxial cable loops can be used. o Wavelength services are available, 1GigE, 2.5Gbps, 10Gbps, 10GigE, and 40Gbps. This

can scale as network capacity needs grow. o Fiber optic cable continues to be the most reliable medium for connectivity. Fiber is a

future proof technology.

3.3.6.2 Analysis

Respondents were generally very consistent in their RFI responses regarding technology and market conditions. Multi-Protocol Label Switching is foreseen to be the continued standard for enterprise networking, and Ethernet is growing as the primary replacement for prior technologies such as Frame Relay. Some state agencies identified additional desired technology availability or application such as Layer 2, point-to-point unmanaged circuits for special use needs like Disaster Recovery one-way back-ups, Multi-cast QoS, and IP Multimedia Subsystem session.

There is a move away from copper-based circuit switched technologies toward IP technologies due to the substantial benefits provided by MPLS and Ethernet. Additional local loop access options such as “broadband” (e.g., DSL or CATV fiber/coax hybrid) will support moving some existing Frame Relay circuits for which best effort service quality is acceptable to Ethernet connectivity at considerable savings to the agency. Such a transition is included in the financial analysis.

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Frame Relay is clearly identified as a legacy service. Frame Relay access loops are declining in number, and Ethernet loops are increasing. Frame Relay access loops are more costly than Ethernet loops. It appears that a major factor in the retention of Frame Relay access loops is the lack of infrastructure to support Ethernet. The MFN-2 procurement should have as a goal, the full availability of Ethernet capacity for agencies that want to get off Frame Relay facilities for cost, support and bandwidth reasons.

State agency responses to the survey make clear that agencies are facing significant drivers for increased bandwidth, such as:

• Federal and state legislative mandates, especially Medicaid; • Cost and reliability; • Continued migration to “the cloud”; • IRS security audits; • More and more data, and more and more security requirements; • Increased file size and additional resources required to maintain current levels of service;

and, • HIPAA files are getting larger every year, and are being shared with various healthcare

entities. Files associated with Veterans’ benefit claims are also very large. Network speeds up to 45 Mbps per location will become necessary to keep up.

State agency responses to the survey indicate a variety of additional uses of MFN that must be considered for the MFN-2 procurement. The overarching theme is more bandwidth as it is undeniable communications requirements are becoming vastly more bandwidth intensive. These additional uses and needs occurring now include:

• Use of cloud services, including Office 365; • Higher resolution Geographic Information Systems files; • Content streaming for training; • Voice over IP; • Public safety, NG 911; • SIP; • Larger routers/CPU; • Video and video conferencing, “Go to Meeting” with audio and video; • Statewide file sharing; • Storage services; • Additional security; • More comprehensive disaster recovery options; • Back up data center connections; and, • Online conferences and collaboration.

3.3.7 Bandwidth / Service Feature Growth Considerations

State agency feedback which foresees increased bandwidth requirements is considered in the financial and cost/benefit analysis.

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The state agency survey responses provided the following answers to the question of bandwidth growth and desired new service features, and how it would impact the next iteration of MFN-2 in terms of possible new services and capabilities:

• Intrusion Prevention Systems (IPS)/Intrusion Detection Systems (IDS), more robust alerting features; • Security related services/capabilities such as: Security Operations Center, DMS point of contact for

security matters; security audit services; risk management and mitigation; incident response on network;

• MFN over wireless/mobile; • MFN over Digital Subscriber Line (DSL)/Cable; • Enhanced security with no cost increase; • Additional network optimization; • Enhanced network tools; • Affordable satellite for use during emergencies; • Proxy services; • Bandwidth ramp-up after hours for backup; • For higher speed tiers, latency ceiling of 50 millisecond (ms); • Recovery Point Objective (RPO) more robust in detail and provided more frequently for

outages/downtime, and • Automated emailing of Request for Oversight (RFO) or better ticketing systems.

While all of these topics may not directly tie to bandwidth growth or an evolution of new service feature, it is important to see how DMS customers view the bandwidth and service features in the futures.

3.4 Evaluation of the Options The following is the evaluation of options available to the state for services similar to MFN:

3.4.1 Descriptions of Available Options

Section 287.0571 (4)(e), F.S. - A description of available options for achieving the goals. If State employees are currently performing the service or activity, at least one option involving maintaining State provision of the service or activity shall be included.

This business case examines two options specifically for the scope of continued support, integration, and installation of telecommunication services and ancillary features/capabilities following the expiration of the current MFN contract in September 2016—that has been identified as “MFN-2”. The options evaluated are to perform an outsourced competitive solicitation, and the combination of both outsource and insource.

These options were evaluated and included in this business case because they are within the scope for outsourcing as required by Chapter 287.0571, F.S., and they represent common procurement options utilized by the state for similar needs.

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Forms of procurement reviewed in this business case:

Competitive Procurement - Section 287.057, F.S., and Department of Management Services (DMS) Rule 60A-1, Florida Administrative Code, provides:

Invitation to Negotiate (ITN) – Used when the agency knows the desired end result, but is not sure how to get there; or, there are many ways to get to the end result; or, the qualifications of the provider and quality is more important than price. This option works best when highly technical and/or complex services are being acquired. The price structure for services is negotiated. Note: MFN was originally procured via ITN.

Invitation to Bid (ITB) – Used when the agency knows exactly what it wants. Price is the determining factor in the award.

Request for Proposal (RFP) – Used when the agency has a general idea of what it wants. Services and price are evaluated.

Combination of Insource and Outsource - through the migration of service processes currently provided by incumbent vendor to the state DMS using resources that are state employees full-time equivalent (FTE) positions; and outsourcing elements of operations that fall outside of the physical or technical capabilities of DMS, such as procurement of long-haul fiber transport, local loop access transport, maintenance & repair, etc.

Insource - Is an organization’s termination of the contracting for a business function and the commencement of performing it internally. Insourcing is a business decision that is often made to maintain control of critical functions or competencies that are essential the organization’s mission. Insourcing is widely used to reduce costs across the organization’s fiscal structures. Within the context of this business case, this represents the opportunity to bring essential services inside DMS that were traditionally performed by an outsourced vendor.

Outsource - Is the contracting out of a business processes and services to a third-party. Within the context of this business case, this represents establishing a portfolio of processes and services by a third-party vendor who is for-profit in support of needs that are beyond the capability of the DMS resources.

3.4.2 Assumptions for Options

Assumptions for the options presented are as follows:

3.4.2.1 Outsourcing

• Timeline: o MFN-2 contract executed: July, 2015. Ten-year term, with renewal at five years.

Twenty-four-month transition begins generally per DMS Key Milestones. Twenty-four-month transition to provide adequate cushion.

o MFN contract extension expires, migration from MFN complete, transition ends: July, 2017, new pricing fully realized.

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o First renewal period: July, 2020. o End of MFN-2 contract: July, 2025.

• State agencies have limited resources to perform a reconfiguration of existing services; • Funding sources are established based on known rate structures; • Ability to bulk buy services will result in cost saving across the service layers; • Ability to utilize new technology as the vendor's operational environment evolves over the

life of the contract; • Industry accepted service level agreement implementation; • Industry accepted access service layers to core infrastructure; • Industry accepted customer premises equipment; • Industry accepted core routing equipment; • Industry accepted network monitoring and reporting services; • Industry accepted security services capabilities; • Vendor customer services will be uniform for all service layers; and • Vendor will provide improved capabilities over life of contract based on improvements

established within the vendors services portfolio

3.4.2.2 Combination Insource / Outsource

• Timeline: o MFN-2 insourcing and outsourcing begins: July, 2015. Twenty-four-month transition

begins generally per DMS Key Milestones. Twenty-four-month transition used to provide adequate cushion.

o MFN contract extension expires, migration from MFN complete, transition ends: July, 2017, new pricing fully realized.

• The Department of Management Services will be required to obtain and establish new resources as appropriate based upon service implementation; o Infrastructure network engineering o Infrastructure management and monitoring o Infrastructure provisioning/installation/maintenance o Infrastructure circuit grooming and management o Customer Services Representatives o Billing Specialists o Quality Assurance Analyst o Project Management o Contract Management o Field Services Technicians

• State agencies have limited resources to perform a reconfiguration of existing services; • Funding sources are established based on known rate structures; • Loss of ability to bulk buy services will result in higher costs across the service layers due to

support services contract fragmentation; • Evolution of technology will the responsibility of DMS; thus keeping MFN current with

capabilities with be directly dependent on technical knowledge and capabilities of the DMS resources;

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• Service level agreements will require DMS intervention to mitigate numerous contract

responsibilities coupled with services the DMS performs through insourcing; • Access service layers to core infrastructure will require extensive monitoring and negotiated

integration agreement to ensure standardization; • Customer premises equipment will require standardization based on DMS technical

specification; • Core routing equipment would become an outsourced component; SLAs will need to be

carefully implemented; • Network monitoring and reporting services will require extensive integration across various

service layers that are established through possible separate contracts; and • Security services capabilities will require integration across various service layers that are

established through possible separate contracts

3.4.3 Advantages and Disadvantages

Section 287.0571 (4)(f) - An analysis of the advantages and disadvantages of each option, including, at a minimum, potential performance improvements and risks.

Advantages and disadvantages for the options presented are as follows:

3.4.3.1 Option 1: Outsourced

Advantages • Provides the least disruptive environment for MFN customers; • Continues current operating mode, practices, and service provisioning and alternatives; • Minimizes additional capital expenditures by DMS and MFN-2 customers; • Achieves the goal of improving overall savings to MFN customers and reduced costs to DMS; • Facilitates evolution of technologies through ITN purchasing power; • Addition of FIRN volumes to ITN can enhance DMS purchasing power; • Provides greater assurance of achieving required SLA through unified ITN procurement

managed by selected vendor; • Facilitates negotiation with single party for re-pricing at various points over time; and • Maintains existing insourced functions for DMS operations in an evolutionary mode.

Disadvantages • Limits the flexibility in procurement of services to MFN customers; • Maintains an environment where a single or few vendors control the majority of MFN’s

services; and • Potential for implementation and transition risks for new provider selected via ITN.

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3.4.3.2 Option 2: Combination Insource/Outsource

Advantages • Enables DMS to procure individual and specialized services across multiple vendor contracts; • Provides opportunities for DMS to positively influence the evolution of specific technology

services more quickly in the interest of MFN customers; and • Allows DMS to diversify its product and service portfolio with a combination of insourcing

core services and outsourcing those services that are outside of DMS’ capabilities.

Disadvantages

• Results in price increases to MFN customers as a result of higher costs for nearly all services currently provided by the MFN vendor, due to separate procurements for facility and operation elements;

• Requires additional operational expense to be borne by DMS, in Direct Salaries & Benefits, Direct Overhead and MFN Common Costs;

• Requires diligence and effort by DMS staff to manage SLAs and QoS, in the face of likely finger pointing by separate vendors, with consequent customer impacts;

• Requires additional operational expense in transition costs to move from single vendor into a multi-vendor environment and manage operations;

• Requires new capital expenditures of approximately $1.1 million to support the combination insource/outsource environment; and

• Potential for implementation and transition risks for new provider(s) selected via contract procurement methodologies that are chosen

3.4.4 Analysis Methodology

Total Economic Impact (TEI) methodology is utilized in all phases of the analysis and business case definition. This methodology is designed to capture and properly communicate the value of Information Technology initiatives in a common business language. In so doing, TEI considers four elements of any initiative:

• Benefits • Costs (sometimes referred to as total cost of ownership, or TCO) • Flexibility • Risk

Figure 1 shows the TEI methodology conceptually. Benefits, flexibility, and costs are considered, through the filter of risk assessment, in determining an expected return on investment for any given initiative.

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Figure 1 - The Total Economic Impact Methodology15

Using this methodology, the approach to providing this business case will provide best case and risk adjusted scenario analysis for options under consideration. This will serve as broad scope of information of the ideal or optimal implementation of a best case implementation. Additionally, further analysis and definition of a risk adjusted business case analysis, which is the most likely scenario based upon environmental constraints, discrete risks, and uncertainty is incorporated. While we believe it is important to understand the best case scenario, the risk adjusted scenario takes into consideration quantifiable variables that provide insight into risks, assumptions, and expectations with respect to the business case definition process. The risk adjusted scenario will expand and expose all issues for a procurement and implementation of the scale and complexity of MFN-2. By having both best case and most likely scenarios analyzed provides DMS and key stakeholders an unprecedented level of quantitative information informed decision making in the planning and control of the business change and subsequent benefits realization for procurement of MFN-2.

3.4.5 Potential Improvements

Potential improvements to be addressed in the new MFN-2 procurement, include:

• Prime vendor can utilize multiple sub-contracted access vendors to improve competition where the service layers allow for diversity of choice;

• Ability to negotiate services segmented such that DMS customers procure services based on select need, e.g., Lite Services;

15 Source: Forrester Research, Inc.

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• Flat rate as a pricing structure; • Improved CPE options for DMS customers; • Improved service and support capabilities from vendor; • Improved SLA to include flexible options based on type of service being provided, e.g., Service

offering being delivered over dedicated or public/commercial vendor infrastructures; and • Improved Security features

3.4.6 Potential New Service Features

Potential new services to be addressed in the new MFN-2 procurement include:

• Expanded services features utilizing new technology and expanded bandwidth capabilities, e.g., providing access to core routing through public broadband service layers like DSL and cable modems;

• Improved access to MFN-2 features, e.g., security, reporting, etc.; • Core based IDS service; • Enterprise SIP based Call Control Plane; • Continued expansion of regional Metro-Network service layer based upon vendor capabilities; • Expand broadband access service layer utilizing best effort commercially available

telecommunications platforms; and • Dynamic Encryption Services

3.4.7 Potential Elimination of Services

Where possible and financially viable, the eventual decommission of legacy Frame Relay service layer will provide reduced cost and improved service layer capabilities through the implementation of Ethernet based technologies.

3.5 Cost Benefit Analysis for Each Option The Department of Management Services uses a margin percentage to markup costs from the MFN provider and related CPE to recover internal DMS costs. This markup for MFN and FIRN services is generally 7 percent currently, with a 3 percent margin used for some optional services and features16, as well as CPE. The optional services and features of MFN and FIRN are immaterial to the financial analysis, but CPE is treated as material.

The financial analysis compares the two options and provides financial metrics to determine which options will:

1. Reduce overall costs for DMS in procuring and managing services; 2. Provide an opportunity to reduce costs for agencies utilizing MFN services; and 3. Provide the greatest benefit for the least cost

The MFN-2 procurement will likely provide new choices to state agencies and other MFN-2 customers. Under the MFN contract, customers are constrained to a single MFN SLA structure, and broadband/DSL connections to MFN were minimal in number. It is generally understood that some agencies will prefer a lower level SLA as a trade-off for lower prices and budget impact. Similarly, some agencies will find a broadband/DSL connection acceptable as a trade-off for lower prices and budget impact. The impact of these newly available choices is not

16 FIRN optional services include such things as content filtering, email, data storage, firewall management and encryption.

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included in the financial analysis, since both the specific choices, and agency response to those choices and options is not known at present.

3.6 Financial Model Base Case This business case analysis first establishes a baseline of DMS’s current business and financial environment, determined from historical and current data provided by DMS staff. In modeling the various business case options, it was crucial to first determine a base case scenario that captured market trends in services and build these into a comprehensive Service Forecast over the 10-year period from the date of MFN-2 contract execution (planned for July 2015 under DMS Key Milestones), corresponding to fiscal year 2015-16 – fiscal year 2024-2517 A key component of establishing the baseline was the modeling of customer connections based on the current conditions of the telecommunications market. In this process, it was important to include the four major data transport services, including Frame Relay, Ethernet, Broadband and FIRN, which currently represent approximately 95 percent of revenues attributable to MFN.

3.7 Option 1 - Outsource This option model represents the evaluation of existing MFN service offerings cost structures, trends, and projections for an outsourced procurement option for MFN-2.

3.7.1 Frame Relay, Ethernet and Broadband Services

Data provided for this analysis indicated that in the period between fiscal year 2011-12 – fiscal year 2013-14, there was a 5.5 percent annual reduction in total MFN Frame Relay connections. Ethernet connections increased during the same period, but to a lesser degree than the reductions in Frame Relay connections. The difference between the two has been attributed to agency consolidation over the past several years, which has reduced the number of physical locations throughout the state that utilized Frame Relay connections. This analysis estimated that approximately half of the Frame Relay reductions were due to agency consolidation and the other half to migration into Ethernet-based services. Therefore, this model utilizes 2.77 percent reduction per year for the first three years, then 17 percent reduction after year three to model the base decline in Frame Relay connection in the period between fiscal year 2015-16 – fiscal year 2024-25.

This trend of decline in Frame Relay is particularly true for lower-speed Frame Relay services, generally 3Mbps and below. Traditional Frame Relay, provisioned over T-1 connections does not scale well, either functionally or economically, to provide the higher bandwidths required by customers. Therefore, in markets where Ethernet has become available, carriers have in many cases begun to deploy these services in place of provisioning additional T-1 Frame Relay connections to customers.

The increase in Ethernet-based services parallels a general trend in Florida’s telecommunications environment, as well as nationally. In financial terms, deployment of new capital investment is required

17 This Report uses the State of Florida fiscal year and Fiscal Year Ending (FYE) terminology. The state’s fiscal years begin on July 1 of each year, and end on June 30 of the following year.

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each time a carrier deploys Ethernet-based services. Ethernet requires upgrading network technology due to the fact that most Ethernet services provided to the commercial market are over fiber-optic connections. Expansion of this upgraded network technology platform requires that a carrier build new facilities from its current fiber-optic distribution point to the customer premises. The network technology platform expansion to replace legacy Frame Relay connections has been affected by investment costs which can increase depending on the distance of the customer location from the nearest fiber-optic distribution point. In rural areas, distances are often greater than in urban areas, which influences when carriers will upgrade legacy, copper-based Frame Relay connections to fiber-based Ethernet connections based on normal planning. This is an important factor to consider in the migration of MFN Frame Relay connections to Ethernet connections. It should be noted that over recent years more and more fiber has been deployed, including Fiber to the Tower projects, with the consequent proliferation of additional fiber and fiber-optic distribution points. DMS can use its purchasing power to accelerate further development of the fiber infrastructure to support modern broadband provisioning for MFN-2 with the additional benefit that this infrastructure could also support the same for Florida’s businesses and consumers as the vendor community expands its capabilities.

In a competitive procurement, the DMS will have the opportunity to positively influence accelerated transition of legacy MFN Frame Relay, to more modern broadband provisioning alternatives, such as Ethernet and Broadband. MFN-2 should provide an advanced, high-bandwidth platform for state agencies, local governments, educational institutions and other eligible entities. As part of the ITN negotiation, DMS should encourage respondents to make Ethernet connections more broadly available to facilitate State agency conversion of legacy Frame Relay connections to more modern, scalable connections, utilizing either Ethernet or Broadband platforms on an appropriate transition. Doing so is a key requirement to help DMS and MFN-2 meet agency requirements for higher bandwidth connections, as documented in DMS’s surveys of key agency users of the current MFN network18.

Currently, 84 percent of all Frame Relay connections are between 64K – 3 Mbps. Providing an upgrade path to even the lowest tier of Ethernet-based services will provide many agencies with improved speeds. Beyond this baseline, agencies will have the opportunity to grow beyond that lowest tier of connection, allowing them to easily upgrade their bandwidth when needed. Strategically, it would benefit DMS to negotiate costs for Ethernet services that will incentivize agencies to switch from Frame Relay. At the current price points, it would be challenging for current agencies utilizing Frame Relay connections at or below 2 Mbps to switch to higher speed Ethernet services. However, with a considerable cost reduction in the Ethernet product line, negotiated through the ITN, DMS could potentially reduce the pricing and markup for Ethernet-based services. This could potentially allow agencies to begin switching from 2 Mbps and below Frame Relay connections to higher bandwidth 2Mbps and 4Mbps connections, at price points not significantly higher than comparable Frame Relay services. Doing so would upgrade the underlying transport agencies utilize to connect into MFN and enable them to have a platform for future upgradeability with few physical technology issues. The

18 See discussion of the Agency Survey Responses above, at page 32.

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Department of Management Services should negotiate flat rate pricing for these services in the future ITN, at pricing comparable to Frame Relay services.

A key issue that may hamper the conversion of Frame Relay connections to Ethernet connections is the cost incurred by carriers to enable Ethernet connections for all MFN customers. As discussed above, Ethernet connections can require new “special construction,” to provide a fiber-optic line to an MFN customer. The cost of fiber optic deployment to support modern broadband provisioning varies depending on several factors and is heavily reliant on physical distance and type of demographic area (rural vs. urban). Greater distances are generally more costly. Rural areas are generally are lower density and have a lack of existing fiber-optic plant, whereas urban areas are generally higher density with greater availability of fiber-optic plant. Carriers will not likely commit to providing an Ethernet availability for every MFN customer’s rural locations, but may be inclined to support conversion of customers in many cases – specifically where availability of Ethernet-based services already exists and in urban areas.

Where expanded fiber optic deployment cannot reasonably be expected to support Ethernet availability, broadband connections may provide a potential alternative for legacy Frame Relay connections, at a lower price point for the customer. Broadband connections are defined in this Study as high-speed access technologies including various forms of DSL, Cable, Wireless, Microwave and Satellite. Broadband connections would provide a suitable migration path for legacy Frame Relay connections, particularly in the lower bandwidth tiers and in markets where Ethernet was not available. SUNCOM has introduced a small number of broadband connections to customers in the past, approximately 100 DSL circuits as of fiscal year 2012-13.

Broadband is provided by a wider scope of service providers, including cable operators, competitive local exchange carriers and wireless providers. By enabling the use of alternative shared access capabilities to the MFN-2 core service layer, this could have a positive impact on availability and pricing of MFN-2 services in areas where Ethernet services are not available for customers that require a high-speed connection. The diversity of suppliers would increase availability for MFN-2 customers and may positively influence pricing as multiple providers would be able to bid on MFN-2 connections, under a prime Contractor. Under the current MFN contract, supply of access connections is limited to AT&T in Florida. For a new competitive procurement, DMS can positively influence the availability of access services by requiring broadband providers to be included in the pool of access providers.

Several considerations must be accounted for in expanding the broadband access platforms to MFN customers. Service Level Agreements (SLAs) for broadband connections are many times less restrictive compared to SLAs governing performance and availability for MFN’s traditional services, Frame Relay and Ethernet. For some agencies, MFN’s high availability/high reliability SLA may not be a requirement, but for others, such as law enforcement, criminal justice and health care, strict guarantees on performance and availability are required. This may limit the expansion of broadband services into agencies that require strict SLAs. The competitive procurement can also address this issue, by negotiating “business class” broadband services as an option for these types of agencies, providing a

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higher performance SLA to agencies that require these strict guarantees. The service tiers will require appropriate pricing, as stricter SLAs will necessitate higher prices generally.

Inclusion of terms in the competitive procurement that increase the opportunity to convert Frame Relay connections including OEU to Ethernet and Broadband connections will provide benefits to MFN’s customers enabling greater choice of services at potentially lower prices. The schedules below provide estimates of the anticipated reductions in Frame Relay connections and the corresponding growth in Ethernet and Broadband connections for current connections and overall.

Figure 2 – Percentage Change – Low-Speed Frame Relay Transition to Ethernet and Broadband

3.7.2 FIRN

FIRN is currently a standalone service in that it is provided through DMS but outside of the existing MFN contract. FIRN currently provides 176 connections to educational institutions within the state, in bandwidths between 64Kbps and 1000Mbps. These services include the District Area Network (DAN) Internet services and a host of additional value added services. In general, FIRN provides transport, Internet and value added services to school districts eligible for funding under the USAC E-Rate program.

In negotiation under the MFN-2 ITN, DMS should consider the benefits of incorporating existing and future FIRN services into the scope of the procurement. Doing so will provide a greater overall volume of services to ITN respondents which could result in reduced costs for the total volume of services in the new contract. Similarly to MFN, FIRN connections are a mix of Ethernet and Frame Relay. It would also behoove DMS to facilitate conversion of FIRN Frame Relay services to Ethernet, enabling modernization

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of FIRN services for school districts across the state. Doing so will also provide legacy FIRN Frame Relay customers with a migration path that enables them to more easily grow their bandwidths to meet online testing requirements, such as the FCAT 2.0 and Florida End-of-Course Assessments, which are transitioning to online and computer-based administration in the next several years.

3.7.3 Growth Forecast

Based on analysis of the four relevant SUNCOM products (Frame Relay, Ethernet, Broadband and FIRN), Figure 3 illustrates the total anticipated growth schedule over the 10-year period from fiscal year 2015-16 to fiscal year 2024-25, incorporating the following factors:

1. General increases in Ethernet connections and bandwidth tiers, as customers require higher bandwidth services in their organizations over the long-term;

2. Specific increases in the Ethernet 2Mbps and 4Mbps connections as a result of incentives to migrate customers off of lower-speed Frame Relay connections, accomplished through future cost reductions in the 2Mbps and 4Mbps Ethernet products through negotiations in the ITN;

3. Specific increases in the Broadband connections as these services provide lower-cost alternatives to low-speed Frame Relay and Ethernet connections; and

4. Incorporation of FIRN Internet Access and DAN products into the MFN-2 contract.

Figure 3 – Total Growth of Frame Relay, Ethernet, Broadband & FIRN Products (Number of Connections)

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3.7.4 Customer Premise Equipment (CPE)

Customer Premise Equipment is generally rented by MFN customers on all products, including Frame Relay, Ethernet and Broadband. Customer Premise Equipment rental is a significant revenue source for MFN and DMS currently charges a 3 percent markup on CPE rental across these three product lines. Revenues from CPE Rental make up 13.6 percent of MFN’s revenues across Frame Relay, Ethernet and Broadband.

In general, current industry pricing for CPE that supports Frame Relay is more costly than CPE that supports Ethernet and/or Broadband services. In analyzing DMS’ embedded average unit costs for these services, this Study found the opposite, which may be due to the type of Ethernet CPE utilized in MFN and the years in which this equipment was first deployed. Pricing for Ethernet CPE has decreased year-over-year in the equipment market, due to widespread growth of Ethernet-based services and reduction in manufacturing costs for optical and electrical components.

Based on DMS’ future ITN, there is an opportunity to reduce these costs through careful specification of CPE requirements to support MFN’s current and future services. Coupled with the strategy to migrate Frame Relay customers to Ethernet (where possible), DMS has the opportunity to continue the use of a standardized Ethernet-based CPE for all MFN customers, at a lower price point than is being charged by the prime vendor today. The migration of the majority of MFN’s customers off of legacy Frame Relay connections and onto Ethernet connections will reduce the support requirement for more costly Frame Relay CPE, yielding more value to MFN customers at a lower cost. A larger volume of Ethernet-based CPE will simplify operations and maintenance as well, as it will lessen multi-vendor technology requirements with ITN respondents.

3.7.5 Flat Rate vs. Mileage Based Pricing

The present rate structure for MFN access circuits (or “loops”) is the general use of flat monthly rates. These flat monthly rates do not vary depending on location within the state.19 For the reasons stated earlier, state agencies have expressed in meetings and survey responses their strong support for continuation of statewide flat rates, and opposition to mileage charges for access loops. The introduction of mileage based rate structures will impose budgetary impacts in terms of planning and appropriation across the MFN customer base. The current pricing structures should be extended into MFN-2 procurement to ensure stability of the pricing model going forward.

3.8 Option 1 Financial Analysis Based on analysis of MFN and FIRN current services and anticipated future growth, the following cost reduction opportunities are likely to be achievable in DMS’ future ITN under Option 1. The following factors were considered in developing the cost reduction opportunities:

1. Continued development of increasingly cost effective telecommunications technologies; 2. General telecommunications market price erosion for MFN-2 services;

19 See description of the MFN access pricing model at page 19.

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3. The Department of Management Services continues to provide billing and pre-sales engineering functions;

4. Assumed MFN Contract expiration at Sept. 17, 2016, with two extension periods to July, 2017. Design and planning work necessary for migration of circuits begins July 15, 2015 under the DMS MFN-2 key milestones;20

5. The Department of management Services opportunity for price reductions at the first renewal period at July 2020;

6. Purchasing Power of DMS for a very stable customer base in an MFN-2 competitive procurement; 7. Composition of the state agency customer base, and utilization trends over recent years 8. Consolidation of FIRN Services into MFN-2; 9. Migration of legacy Frame Relay connections to Ethernet and Broadband connections; and 10. Migration of legacy Frame Relay CPE to Ethernet CPE

Based on analysis of these cost reduction factors, DMS should expect a modeled cost reduction in the range of 10 - 20 percent (See 3.9.1 Cost Analysis – Vendor Costs) from its current contract in a competitive procurement, for the following products and services:

MFN Products and Services

• Frame Relay • Ethernet • Broadband • Optional Services (Security/Monitoring)

FIRN Products and Services

• District Area Network • Internet Access • Optional Services

It is the opinion of the Business Case author that DMS will have the opportunity to further reduce pricing at the renewal of the MFN-2 contract. This Business Case includes a possible 10 percent reduction in pricing at the first renewal in July 2020. This is a hypothetical scenario based on the expectation of growth of services, which will position DMS in a positive position to negotiate further pricing improvements.

Assumptions behind the potential cost drivers utilized in the financial model for Option 1 include:

1. To estimate continued price erosion in the marketplace, wholesale telecommunications market pricing for similar products and services in a volume-based contract is estimated at 10 percent by the date that DMS plans to execute the new MFN-2 contract, July 2015;

2. The Department of Management Services should expect to realize savings of 10 percent each year during the transition years of fiscal year 2015-16 and fiscal year 2016-17;

3. Incorporation of FIRN volume into the MFN-2 contract, which consolidates an additional 176 current Ethernet connections and a projected additional 9 Ethernet connections through fiscal year 2015-16, for

20 MyFloridaNet2 Timeline – Key Milestones; DMS MyFloridaNet Team; Aug. 8, 2013.

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a total of 185 FIRN Ethernet connections, as well as FIRN additional services21. FIRN currently makes up approximately 15 percent of MFN’s current vendor costs. This 15 percent would consolidate into the MFN-2 vendor contract to increase total volume of services supplied by the vendor (and resultantly provide a 15 percent increase in total revenues through the MFN-2 contract to the vendor). This incorporation could lead to a 5 percent reduction in overall pricing as a result of the additional FIRN volume, consolidated into the MFN-2 contract;

4. Additional volume growth across MFN-2’s various products and services leading to a larger basket of services to negotiate greater discounts on bulk purchasing, estimated at 5 percent; and

5. Assumptions 1-4 are added together to provide a potential 20 percent cost reduction in the future MFN-2 competitive procurement in fiscal year 2015-16.

3.8.1 Vendor Payment Analysis

Figure 4 provides the projected vendor payments for MFN-2 products including Frame Relay, Ethernet, Broadband and FIRN, as well as other products incorporated under the current MFN contract. These projected payments include growth in bandwidth and circuit volumes, as well as transition from Frame Relay provisioning to Ethernet. Based on this Study’s analysis, DMS can expect savings in a range of 10 - 20 percent in vendor pricing through Option 1. Figure 4 also illustrates the cost curves for total vendor payments and the impact of the MFN-2 competitive procurement in fiscal year 2015-16. This cost curve assumes that the incumbent provider continues to maintain the MFN contract pricing model through migration while the resulting price reductions are achieved through the MFN-2 procurement and negotiations.

Figure 4 - Vendor Payment Reductions Resulting from Outsource Option

21 FIRN additional services include content filtering, data storage, district support, email, emergency web page, encryption, enhanced router, firewall chassis, firewall management.

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3.8.2 Operating Cost Analysis

Option 1 assumes DMS’s operating cost structure, which includes the cost for direct and in direct services are utilized within the model in total based on the percentages in support of MFN only from the total SUNCOM service portfolio, e.g., many staff are utilized for expertise and support across the entire SUNCOM service portfolio and report their time as appropriate. Current DMS personnel cover functions, which are limited in comparison to the insourced functions under Option 2. Current insourced functions at DMS include billing, ordering and pre-sales engineering, along with help desk and NOC support functions. These insourced functions generally “front end” corresponding functions of the MFN vendor. The analysis assumes that DMS can continue to manage MFN-2 with existing staffing and resource levels, and that DMS continues to provide existing insourced functions. A 2.5 percent annual increase in costs is built into the forecasts, to account for inflationary impacts to DMS over the period.

3.8.3 Cost Analysis – Adherence Schedule to Achieve Estimated Savings under Current Vendor

Based on the scenario in which there is no change in the vendor providing services under the new MFN-2 contract, it is anticipated that minimal network changes will be required for existing MFN services under the contract. The migration for service offerings that have improved pricing structures is to be expected, but this will be at the discretion of DMS's customer base. The Department of Management Services should expect a re-pricing of services from the current vendor at the execution of the MFN-2 contract and implementation of the new cost structure beginning on July 2015.

3.8.4 Cost Analysis – Adherence Schedule to Achieve Estimated Savings with New Vendor

MyFloridaNet is a large statewide enterprise network with approximately 4200 connections22, including the planned combination of MFN and FIRN onto MFN-2. Under the planned ITN, either the current provider or a new provider will be awarded the MFN-2 contract. The Department of Management Services intends to provide a transition period of 20 months between award and execution of the MFN-2 contract by July 15, 2015, and expiration of the MFN contract extension period on March 16, 2017. An MFN contract extension appears to be needed to handle a service migration from the current expiration of the MFN contract at Sept. 17, 2016, to March 16, 201723. Although the individual tasks associated with transitioning the network to a new provider are normal to the industry (e.g., provisioning and testing a new circuit), the large number of different service providers and loop connections for MFN/MFN-2, and the prospective inclusion of FIRN under MFN-2, adds a layer of effort (skilled technicians for installation and testing of each connection) and complexity to any transition of providers.

22 June, 2013 billing data shows 176 FIRN Internet access circuits, 125 District Area Network connections, 2974 MFN Frame Relay access circuits, and 784 Ethernet circuits for a total of 4,059. In addition, there were approximately 100 broadband connections. 23 MyFloridaNet2 Timeline – Key Milestones; DMS MyFloridaNet Team; Aug. 8, 2013.

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Therefore, the cost analysis includes a 24 month transition supported by a slightly longer MFN contract extension to provide a cushion.

Ideally the tasks to transition to a new provider would occur completely within the defined transition period between MFN-2 contract award, and expiration of the MFN contract; however, given the volume of work and complexity of the transition, there is risk that the transition period will not be sufficiently long. If the transition period extends beyond the expiration of the MFN contract, the current contractor has the legal right to charge tariffed rates for the services currently being provided under the MFN contract. In that case the State of Florida would bear cost increases on a month-to-month basis, for each circuit/service that has not been transitioned to the new MFN-2 provider.

Major tasks associated with the transition include:

• Establishment and turn-up of the MFN-2 core network; • Accommodating customer choice in circuit design and network planning, including change of service

technology (such as Frame Relay to Ethernet), addition of additional service capabilities, and increased bandwidth;

• Accommodating transition of FIRN circuits to the MFN-2 network; and • Individual design of 4200 MFN-2 circuits, and related provisioning and testing of the circuits; cutover

of circuits upon successful testing.

Customers with mission critical needs, such as Florida Department of Law Enforcement (FDLE) and Department of Highway Safety and Motor Vehicles (DHSMV) , will require that circuits be tested before cutover. Therefore, hot cut practices will not be applicable for the transition to MFN-2. Instead, these agencies will likely require parallel services to be deployed, meaning that new circuits will need to be provisioned side-by-side with the original circuits, allowing agencies to test the new services prior to full implementation. Doing so means that DMS must coordinate a ramp-down and ramp-up period with the original vendor and new vendor. If this is accomplished prior to expiration of the current MFN contract, DMS may be able to avoid transition costs, but it is likely that not all transition will be completed by March 16, 2017. After this date, it can be expected that the vendor will charge tariffed rates for any remaining services, which poses significant financial risk to DMS.

The Study utilized the MyFloridaNet2 Timeline – Key Milestones24 document provided by DMS to gain an understanding of the key milestones that must be achieved by DMS to ensure that the potential savings are realized in the event that a new vendor is selected for the MFN-2 contract, but as noted above used

24 MyFloridaNet2 Timeline – Key Milestones; DMS MyFloridaNet Team; Aug. 8, 2013. Reference included in Appendix A.

July, 2015: MFN-2 Contract Executed,

Transition Begins

July, 2017: MFN Transition Complete

July, 2020: MFN-2, First Renewal

July, 2025: End of MFN-2 Contract

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a 24 month transition period rather than the 20 month transition period contained in the DMS Key Milestones.

3.9 Option 2 - Combination Insource/Outsource Under Option 1, DMS operates essentially as a contracting, procuring entity. Under Option 2, DMS operates similar to a competitive telecommunications provider—a Competitive Local Exchange Carrier, otherwise known as a CLEC. Competitive Local Exchange Carriers generally mix their own facilities and operational capabilities with facilities and operational capabilities procured from other service providers. Thus for Option 2, DMS would enhance its own internal or “insourced” capabilities, while continuing to procure facilities and capabilities from other service providers, but at a reduced level. The Department of Management Services currently provides billing and pre-sales engineering functions, and resource levels would be substantially increased under Option 2 to add capabilities for functions such as engineering, provisioning and maintenance, and network operations.

Under this model, various options exist to insource and outsource functions, which are dependent on DMS’ internal capabilities, willingness to increase operational burden and incur additional costs, including the funding of capital expenditures for the implementation of the insource/outsource model. The insource/outsource operation would utilize existing telecommunications industry facilities such as core networking and access networks, and does not imply duplicate investment in those facilities on a broad scale. It does, however, segment the current MFN network into various components, including:

• Core Transport and Colocation • Multi-Vendor Access Procurement • Network Operations, including Engineering Provisioning, Billing and Customer Service • Equipment Procurement • Other Ancillary Functions

3.9.1 Outsourced Operational Functions

In an insource/outsource environment, most of the network architecture and field services components would be outsourced to multiple vendors. These various functions and the financial requirements for each have been broken down further in the sections below:

Core Vendor Contract for Transport and Colocation

The Department of Management Services will be required to operate and maintain a core network architecture spanning the 10 LATAs throughout the State of Florida. This architecture will include all functions of operating a multi-LATA network interconnected by core routing and switching platforms. Under this model, DMS would have the opportunity to contract for facility and transport services under a bulk contractual vehicle, which may include the current MFN vendor. The vendor would provide core transport, colocation, routing/switching and other key functions included as part of MFN’s current core.

A potential issue with doing so is DMS’ loss of purchasing power through a single vendor providing core and access services. By segmenting core and access, the total contract value will be split into multiple

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components as compared to a single-vendor solution. For that reason, it will likely result in a higher cost core and access infrastructure than is provisioned currently.

Contracts with Multiple Access Vendors

Under Option 2, the state could allow multiple access vendors statewide or on a per LATA basis, allowing for purchasing access at the best possible prices. In this option, DMS could procure this access directly, such that DMS would maintain a portfolio of access providers among ILEC, CLEC, cable operator and alternative access vendors. Doing so could potentially enable greater choice to DMS in procurement of access products. (Under Option 1, the MFN-2 vendor would continue to maintain control of procuring access products in each respective region that it does not own facilities.)

However, the multiple access vendor model likely would increase costs. Based on consideration of the MFN-2 vendor’s purchasing power against that of DMS, it is anticipated that the MFN-2 vendor would have more volume purchasing power with access providers than DMS would on its own. In a multi-vendor environment, DMS may procure a relatively small amount of access products from a portfolio of access providers, but these amounts would be less significant than the total amounts purchased by the MFN-2 vendor for all customers. This assumes that the MFN-2 vendor is a major telecommunications provider that currently maintains type-II interconnection agreements with access providers.

Therefore, use of multiple access providers could potentially cause an increase in access product pricing for DMS under Option 1, which would also potentially result in pricing increases to agencies utilizing MFN. The Department of Management Services may, however, positively influence the diversity of access providers in an ITN as part of the negotiation for the MFN-2 contract. Doing so could have positive impact in including new access providers into the MFN-2 portfolio of services while still maintaining the volume purchasing benefits of the MFN-2 prime vendor.

Combined Network Element Outsourcing

This analysis concludes that a significant cost increase would be incurred by DMS under the Option 2, the combined insource/outsource model. This increase is a result of the reduction in DMS’ volume purchasing power in both the core component and access component of MFN-2, through the segmentation of these contracts into separate procurements. It is also anticipated that this increase in costs will negatively impact customer growth, and as such, growth schedules for MFN services have been adjusted accordingly. Growth of MFN’s connectivity products and services could remain flat after 2016, with only minimal growth (produced by state agencies that are required to utilize MFN). This would be detrimental to further MFN development and is not recommended in this cost benefit analysis.

Contracts for Customer Premise Equipment

Various contracts for CPE would be required to procure and support end user devices. A portfolio of CPE equipment would be established based upon the types of services provisioned to the customer base. CPE devices supporting Frame Relay, Ethernet and Broadband services would each be required for DMS to support customers through the MFN-2 contract. This would require either a capital fund to be

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established by DMS for CPE equipment, if it were to own and operate the CPE or additional operational funding to lease the equipment, either directly to DMS or as a pass-through to the customer.

Outsourcing management of CPE would require contract vehicles with both “help desk” organizations and mobile support personnel who would be dispatched to repair and replace customer CPE. “Turf” vendors would also provide provisioning and installation services to MFN customers activating new services on the network. These services would require on-call staffing, vehicles, installation and testing equipment and would have to be regionally located throughout the State of Florida.

3.9.2 Insourced Operational Functions

There are a variety of CLEC operational functions that would need staffed for by DMS to support provision of MFN-2 services. They include such full-blown functions as:

Comprehensive Bill Generation & Management

This includes personnel and systems necessary to support and maintain billing data for each customer for each service, and to render periodic bills to customers. The Bill Inquiry functions will also have to be supported for the questions that come from customers regarding their billing, and well as any charges that ultimately end up in dispute. These systems require integration with the customer service and ordering/provisioning systems. The Department of Management Services currently provides billing services in rebilling services from the current vendor, but not at the level that would be required to handle a multi-faceted sub-contracting structure for Option 2.

Engineering

The Department of Management Services will be required to manage the engineering function for MFN-2, which will result in an increase to staffing and systems levels internally for the organization. DMS will require an engineering function to identify suitable core, access and other services required to provide connectivity to MFN customers. This includes circuit design, cross-connect design, IP design and other functional areas that are currently handled by the vendor.

These functions inject new cost into the DMS organization by increasing current staff count and providing new systems that enable DMS to support the engineering function, such as business support and operations support systems.

A sales engineering function will also be required to ensure that DMS’ products and services meet customer requirements and customers are able to integrate with DMS’ network. The sales engineering function will coordinate with DMS’ business development team to provide technical support to sales in specifying services to customers.

The DMS engineering function today is limited to pre-sales engineering.

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Provisioning and Network Operations

Utilizing an insource/outsource, DMS will be required to manage more comprehensive network operations functions, such as provisioning, customer troubleshooting and multi-vendor support, including both core, type-II, CPE and services support.

3.10 Option 2 Financial Analysis Based on analysis of MFN and FIRN current services and anticipated future growth, the following scenario is likely to be achieved under Option 2. The following factors were considered in developing the Option 2 combination insource/outsource model:

1. Segmentation of Core and Access components such that these two components had different impact on MFN’s costs in a future insource/outsource model;

2. Transition and start-up costs in a multi-vendor environment impacting overall costs; 3. Assumed MFN Contract expiration at Sept. 17, 2016; 4. General telecommunications market price erosion for MFN-2 services; 5. Composition of the state agency customer base, and utilization trends over recent years; 6. Lack of consolidation of FIRN Services into MFN-2; 7. Migration of legacy Frame Relay connections to Ethernet connections; 8. Migration of Frame Relay CPE to Ethernet CPE; 9. Additional operational burden required in an insource/outsource model, addition of staff and related

resources to add necessary substantial new operational functions; and 10. New capital expenditures required in the insource/outsource model.

Assumptions behind the potential cost drivers utilized in the financial model for Option 2 include:

1. A cost increase for DMS in a core and access multi-vendor environment. The cost increase is based on reductions in volume purchasing discounts that are now spread across a core vendor and multiple access vendors. This results in an anticipated 20 percent cost increase for DMS in MFN-2, which combines the impact of multiple smaller vendor contracts for core and access services;

2. No cost reductions for incorporation of FIRN services into a bulk-purchasing contract with other MFN-2 services. This variable removes any potential cost reductions from FIRN’s impact in a volume purchasing contract;

3. Annualized wholesale telecommunications market price erosion, accounting for cost reductions that DMS could receive in renegotiations in later years of the contract period. Reductions could be achievable under the contracts and this analysis has forecasted that DMS could achieve a 10 percent reduction in 2020;

4. Operating cost increases of at least 100 percent projected during the period between fiscal year 2015 and fiscal year 2025 as a result of additional operational burden in the combination insource/outsource option. Increases in staffing, NOC, billing, maintenance all contribute to these increases. Transition period operating costs are also included in this category; and

5. New capital expenses of approximately $1.5 million between fiscal year 2015 and 2025 as a result of additional insourced functions. Capital expenses include Business Support Systems/Operational Support System (BSS/OSS), NOC systems and related improvements that would need to be procured in Option 2.

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3.10.1 Vendor Payment Analysis

Figure 5 provides the projected vendor payments for MFN-2 products including Frame Relay, Ethernet, Broadband and FIRN, as well as other products incorporated under the current MFN contract. These projected payments include growth in bandwidth and circuit volumes, as well as transition from Frame Relay to Ethernet. Based on the analysis, DMS can expect cost increases of at least 20 percent + in vendor payments through the Option 2 combination insource/outsource. Figure 5 also illustrates the cost curves for total vendor payments and the results of Option 2.

Figure 5 - Vendor Payments for MFN-2 Using Combination Insource/Outsource (Option 2)

3.10.2 Operating Cost Analysis

Figure 6 illustrates the potential operating cost increases to DMS under Option 2. Operating costs are projected to double in the combination insource/outsource model as DMS staff assumes new operational functions and DMS requires additional operating structure. Projected increases (which would need to be approved through the state legislative budget processes) for direct and in-direct services are utilized within the model in total based on the percentages in support of MFN only from the total SUNCOM service portfolio, with the expectation that more staff would be required depending on the operational implementation for Option 2, e.g., many staff are utilized for expertise and support across the entire SUNCOM service portfolio and report their time as appropriate.

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A breakdown of the increases in operational resources is included in the MFN-2 Business Case Cost Benefit Model to this analysis. Figure 6 - Operating Costs Resulting from Combination Insource/Outsource Option

In addition, a new projected category of operating costs is anticipated in the combination insource/outsource model, which entails system resources, operational enhancements and transition costs that will be incurred by DMS in the migration from the current MFN contract to the MFN-2 Option 2. Lastly, DMS will likely incur capital costs in conjunction in Option 2, which result from DMS taking on larger operational functions such as NOC services, provisioning and expanded billing. Projected capital costs are illustrated in Figure 7. Capital costs would include such items as hardware and software platforms necessary to manage the MFN-2 customer base, since DMS will be responsible for maintaining services directly instead of through an outsourced vendor(s).

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Figure 7 - Capital Cost Increases Resulting from Insource/Outsource Option

3.10.3 Cost Analysis – Adherence Schedule to Achieve Estimated Savings

MyFloridaNet is a large statewide enterprise network with approximately 4200 connections, including the planned combination of MFN and FIRN onto MFN-2. Under the combination insource/outsource model, multiple providers would be awarded segments of the MFN-2 contract. The Department of Management Services intends to provide a transition period of 20 months between award and execution of the MFN-2 contract by July 15, 2015, and expiration of the MFN contract extension period on March 16, 2017. An MFN contract extension appears to be needed to handle a service migration from the current expiration of the MFN contract at Sept. 17, 2016, to March 16, 2017.25 This is intended to provide for transition during the time in which new providers are procured and service is provisioned under multiple MFN-2 contracts. Although the individual tasks associated with transitioning the network to a series of new providers are normal to the industry (e.g., provisioning and testing a new circuit), the large number of different service providers and loop connections for MFN/MFN-2, and the prospective inclusion of FIRN under MFN-2, adds a significant layer of effort (skilled technicians for installation and testing of each connection) and complexity to any transition of providers. In addition, breaking the current MFN-2 network into a scenario whereby a core vendor and multiple access vendors manage different portions of the entire MFN-2 network, DMS will be required to manage significantly more

25 MyFloridaNet2 Timeline – Key Milestones; DMS MyFloridaNet Team; Aug. 8, 2013.

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complexity than if a single vendor managed the transition of the network and services. In the event that DMS chooses to insource NOC, provisioning, turn up, testing and other operational functions, DMS will be required to coordinate and actively manage the transition of MFN into a multi-vendor environment. For these reasons the cost analysis extends the assumed transition period to 24 months, to provide additional cushion.

Ideally the tasks to transition to a new provider would occur completely within the defined transition period between MFN-2 contract award, and expiration of the MFN contract. However, given the volume of work and complexity of the transition, there is significant risk that the transition period will not be sufficiently long. If the transition period extends beyond the expiration of the MFN contract, the current contractor has the legal right to charge tariffed rates for the services currently being provided under the MFN contract. In that case the State of Florida would bear significant cost increases on a month-to-month basis, for each circuit/service that has not been transitioned to the new MFN-2 provider.

Major tasks associated with the transition include:

• Establishment and turn-up of the MFN-2 core network; • Procurement of multiple access vendors to provide circuits to replace current MFN access circuits • Establishment of interconnection facilities between the MFN-2 core network and access networks

with the multiple access vendors; • Accommodating customer choice in circuit design and network planning, including change of service

technology (such as Frame Relay to Ethernet), addition of additional service capabilities, and increased bandwidth;

• Accommodating transition of FIRN circuits to the MFN-2 network through multiple access vendors • Individual design of 4200 MFN-2 circuits, and related provisioning and testing of the circuits; cutover

of circuits upon successful testing; • Migration plan to maintain customer service levels after the MFN-2 network has been fully tested;

and • BSS/OSS procurement and integration with multiple outsourced vendors.

Customers with “mission critical” needs, such as FDLE and DHSMV, will require that circuits be tested before cutover. Therefore, “hot cut” practices will not be applicable for the transition to MFN-2. Instead, these agencies will likely require “parallel” services to be deployed, meaning that new circuits will need to be provisioned side-by-side with the original circuits, allowing agencies to test the new services prior to full implementation. Doing so means that DMS must coordinate a “ramp-down” and “ramp-up” period with the original vendor and new vendor. If this is accomplished prior to expiration of the current MFN contract, DMS may be able to avoid transition costs, but it is likely that not all transition will be completed by March 16, 2017. After this date, it can be expected that the vendor will charge tariffed rates for any remaining services, which poses significant financial risk to DMS.

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4. RECOMMENDED OPTION & DETAILED DISCUSSION The recommended option for this portion of the business case is in accordance with Section 287.0571(4), F.S., which outlines the requirements for contracting with private sector vendors as they can effectively and efficiently provide services and reduce the cost of government. This statute requires analysis of feasibility, cost-effectiveness, and efficiency before proceeding with outsourcing of services.

A detailed analysis for this decision provides the following key findings:

1. An analysis of the telecommunications market concluded that the core features which MFN is currently providing is still regarded as best fit of technological capability and service delivery across the service areas for the State of Florida;

2. MyFloridaNet, through its years of implementation, still has room for improvement based on lessons learned and technology advancements from its inception to today;

3. A lack of resources within DMS from the perspective of customer service representatives and customer’s awareness has limited the expansion and/or full utilization of the capabilities of MFN from the perspective of increased adoption and migration to new technologies that yield improved cost savings, e.g., agency resources having time to work with DMS to embrace new technology options like the elimination of Frame Relay services in favor of broadband access over Internet transport via secure VPN;

4. Establishing a lower cost best effort capability such as broadband service, has the potential to extend the service layer to organizations that do not need a dedicated connection service layer with high availability / high reliability service level agreements. This would be established through the use of public Internet based services at the organizations discretion, e.g., Cable Internet service;

5. The option to extend competitive outsourcing of the access service layer, (“last mile”, “local loop”), to multiple vendors will potentially increase the cost structures due to fragmentation of bulk purchase buying power for services under a prime vendor;

6. The option to segment service layers to multiple vendors as opposed to single vendor will present SLA challenges for DMS in support of its customer base;

7. Improved customer awareness of the service offering portfolio in terms of capabilities will extend the adoption of MFN to a broader customer base;

8. Improved pricing structures to DMS customers will provide the opportunity for growth of MFN as demand for bandwidth increases over time; and

9. The assumption of growth of bandwidth demand improves the bulk buying power of the state.

4.1 Summary of the Two Options Considered In This Business Case Support services for Florida’s telecommunications networking, MFN, have been outsourced to various vendors through the evolution of the telecommunication marketplace via various contract procurements since 1975. Since 1975 there have been numerous iterations of telecommunication complexities and vendor combinations in support of MFN. The current incumbent vendor is AT&T, which has provided services as defined in the MFN contract since 2006.

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None of the options considered in this business case contemplate that any services or activities currently being performed by DMS resources will be outsourced to an outside vendor. However, option 2 stipulates replacing vendor services with DMS resources as appropriate based on the business model employed for a combination of both insource and outsourced service operations.

The two options are:

1. Outsource existing service operations of MFN as they exist today with additional integration of services as appropriate, such as inclusion of such as the addition of FIRN services under the MFN-2 service portfolio.

2. Combination Insourcing and Outsourcing through the migration of service processes currently provided by incumbent vendor to DMS. This would require adding resources that are state employees full-time equivalent (FTE) positions; and outsourcing elements of operations that fall outside of the physical or technical capabilities of DMS, e.g., procurement of long-haul fiber transport, local loop access transport, maintenance repair.

Each of these two options has been evaluated with regard to the following attributes as supported by Section 3 Options and Cost Benefit Analysis:

• Estimated or measured direct and indirect costs for labor, hardware, and software; • Qualitative and quantitative benefits and advantages; • Risks, disadvantages, pros and cons; • Assumptions and constraints; and • The schedule and sequence of key activities or events.

4.2 Summary Comparison of the Two Options The two options cannot begin until the proposed solution has been approved and the required funds have been authorized in the Appropriation for the relevant fiscal year(s). Appropriated funds are available at the start of the following fiscal year calendar (July 1-June 30) after state budget approval.

4.2.1 Option 1 – Outsource

For this option, DMS would release an ITN to qualified vendors and negotiate a new contract for the identified MFN-2 service portfolio.

4.2.2 Option 2 – Combination Insourcing and Outsourcing

The Department of Management Services would request the establishment and funding for state full-time equivalent (FTE) positions as appropriate. Upon approval, DMS would establish an internal MFN-2 support services organization composed of these full-time state employees based upon the choice of service layers to insource and outsource. These positions would be incorporated into the department’s Legislative Budget Request (LBR) for funding each fiscal year. The level and appropriateness of outsourcing will be determined by what services are deemed attainable through the state resources.

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Figure 8 - Options Summary Comparison

MFN-2 Options Estimated Cost Annually Findings

Option 1 - Outsource

Estimated range of 10 - 20 percent reduction in vendor pricing beginning in July 2015, assuming incumbent is awarded.

Estimated range of 10 – 20 percent reduction in vendor pricing over a period of migration starting July, 2015 through July 2017, assuming a new vendor is awarded.

Best value, lowest risk. Volume purchasing will provide

opportunity for reduced pricing Minimizes additional operational

costs for DMS. Potential high transition costs if

new vendor is selected and key milestones are not met.

Minimal transition costs if existing vendor is selected.

Option 2 - Combination Insource/Outsource

Estimated 10 - 20 percent Increase in vendor pricing beginning in July 2015.

100 percent Increase in MFN-related operating costs beginning in July 2015.

$1.5 million in new capital spending between July 2015 – 2025.

Highest risk and highest execution complexity in the near term.

Requires new state FTE positions. Requires new capital investment. Requires additional operational

burden. Potential high transition costs if

key milestones are not met.

This space intentionally left blank

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Figure 9 illustrates the total costs of Option 1 and 2 comparatively over the period fiscal year 2013-14 – fiscal year 2024-25. Total costs include vendor payments, DMS operational costs and additional capital costs resulting from the implementation of Option 2. This takes into consideration the current steady state of services under the current MFN contract up until the period of implementation of a given option in fiscal year 2015-16.

Figure 9 – Comparison of Total Costs Between Option 1 and Option 2 (In Millions)

Figure 10 – Comparison of Total Costs Between Option 1 and Option 2 (Table, In Millions)

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Figure 11 illustrates the markup required to cover DMS’s operating costs over the period fiscal year 2013-14 – fiscal year 2024-25, based on Options 1 and 2. It also assumes current reserves are kept intact and that no further reserves are budgeted. Markup currently collected by DMS in excess of operating costs contributes to the overall ability for consideration of lowering of markup in Options 1 and 2.

Figure 11 – Markup Required to Cover Operating Costs – Option 1 versus Option 2

4.3 Recommendation

It is recommended that DMS issue an outsourced competitive procurement as an Invitation to Negotiate (ITN) for a newly structured MFN-2 services and support contract.

Option 1 – Outsource, provides the least amount of risk to the state while allowing competitive market forces to lower total cost of service delivery. Savings and cost reductions in Option 1 will be driven by DMS’ negotiations in the ITN, the selected vendor and the actual implementation of MFN-2.

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4.3.1 Business Case Recommendations Summary

The following recommendations are provided as a single summary from throughout the business case. They represent key points that should be reviewed and considered as DMS moves forward with its chosen path for MFN-2.

1. Statewide flat rate pricing of access circuits should continue, although consideration could be given to recognizing mileage through limited banding of rates. At a minimum the current mileage banding should be extended into MFN-2 procurement. The break points for ICB pricing—mileage limits and capacity limits—should be reviewed for possible negotiated improvement in the MFN-2 procurement. There may be an opportunity to extend the mileage limit (to greater than 25 miles for Frame Relay and 10 miles for Ethernet) below which the base flat rate pricing applies;

2. Consideration should be given to eliminating month-to-month pricing as a procurement requirement and options should be explored for agencies to commit to term pricing directly in return for lower rates. The option of providing a commitment under the MFN-2 contract that some large percentage (such as 98 percent) of local loops, serving urban and rural, could be provided under a term commitment, rather than month-to-month. “Early” terminations in the small percentage level (for example, 2 percent or less) would not cause any financial consequence from the state to the provider. Percentages over that 2% level would incur negotiated contractually specified financial consequences. There are state procurement limitations that must be taken into consideration in reviewing this further, e.g., legislative appropriation, state not paying for services not received;

3. There is interest among the agencies in the ability to choose SLA levels for particular locations, under the understanding that less stringent SLA tiers would cost less. Therefore SLA tiers should be included in the upcoming MFN-2 procurement. The competitive procurement can also address this issue, by negotiating “business class” broadband services as an option for these types of agencies, while still providing a higher performance SLA to agencies that require these strict guarantees;

4. Consideration should be given to the incorporation of a strong reciprocal condition in the procurement that any bidder must commit as a condition of bidding to providing non-discriminatory open and competitive interconnection with local loop access facilities, regardless of technology, and also commit to making network interconnections at an IP-to-IP level where requested;

5. Bundled procurement of the loop and the core network eliminates finger-pointing among different providers in the event of a service problem, minimizes outages, costs and delays, and reduces complexities. Therefore bundled procurement should continue;

6. Special construction should continue to be handled on an individual case basis as necessary. However, special construction should only occur as post migration of MFN-2 services. This will be seen in the migration of legacy Frame Relay services to newer Ethernet based services;

7. The Department of Management Services should evaluate the placement and number of core routers based upon negotiated interconnection value with the prospective vendor. Requiring high numbers of core nodes in the procurement specification should be avoided as this could inadvertently inject higher cost structures from the prospective vendor to recover the cost of deployment of necessary infrastructure to support the core routing design;

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8. The overarching theme of the procurement should be more bandwidth as it is undeniable communications requirements are becoming vastly more bandwidth intensive;

9. The Department of Management Services should continue to utilize MPLS as its core routing technology over a dedicated infrastructure.

10. The utilization of dedicated services should be established based on SLA requirements based on customer needs. The use of shared services should be reviewed and used where SLA requirements are established at the best effort levels where applicable based on customer needs;

11. The time is ripe for DMS to use its purchasing power to accelerate further development of the fiber infrastructure to support modern broadband provisioning for MFN-2 with the additional benefit that this infrastructure will also support the same for Florida’s businesses and consumers. As part of the ITN negotiation, DMS should encourage respondents to make Ethernet connections more broadly available to facilitate state agency conversion of legacy Frame Relay connections to more modern, scalable connections, utilizing either Ethernet or Broadband platforms on an appropriate transition.

12. The Department of Management Services should negotiate flat rate pricing for these services in the future ITN, at pricing comparable to Frame Relay services;

13. The MFN-2 procurement should have as a goal the full availability of Ethernet capacity for agencies that want to get off Frame Relay facilities for cost, support and bandwidth reasons;

14. The Department of Management Services should use the benefits of incorporating existing and future FIRN services into the scope of the procurement, to expand the volume base for the MFN-2 procurement; and

15. The Department of Management Services should take the opportunity to negotiate the continued use of a standardized Ethernet-based CPE for all MFN customers, at a lower price point than is being charged by the prime vendor today.

4.3.2 Suggested Procurement Evaluation Criteria

The following are recommendations for consideration as the evaluation criteria that could be used in the development of the ITN. This information is intended to provide insight into options that may strengthen DMS’ ability to choose the appropriate vendor in the best interest of the state.

Evaluation Criteria Description Recommended Percentage

Technical Solution Technical solution meets or exceeds the technical specification of the procurement

30 percent

Corporate Viability & Abilities Fiscal strength of corporation and historical ability to deliver services as prescribed in the procurement

5 percent

Terms and Conditions Acceptance of State Terms and Conditions 5 percent Pricing Pricing model across all service requirements 30 percent Support Services Ability to provide support services for

administrative and technical aspects of the procurement

20 percent

Service Level Agreement Service level agreements meet or exceed both technical and administrative requirements of the procurement

10 percent

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5. STATE BUSINESS PROCESS & POLICIES

Section 287.0571 (4)(i), F.S. A description of differences among current State agency policies and processes and, as appropriate, a discussion of options for or a plan to standardize, consolidate, or revise current policies and processes, if any, to reduce the customization of any proposed solution that would otherwise be required.

In the context the of the MFN service portfolio, there are no impacts to existing state agency processes or policies that are not currently being managed effectively by DMS. The intended service delivery maintains a current steady state of services to all MFN customers and as such the new MFN-2 procurement does not present any additional burden on the state.

6. PERFORMANCE METRICS REVIEW

Section 287.0571 (4) (j), F.S. A description of the specific performance standards that must, at a minimum, be met to ensure adequate performance.

The current contract contains 16 Performance Metrics (SLAs) listed below in Figure 12 – Performance Metric Table, which are divided among the following areas: Core, Access & CPE, Internet Services, Operational, and Migration. These metrics should be maintained in the new contract. Additional metrics to assess the quality of the service delivered should also be implemented with the new contract.

The new contract should review the opportunity to classify the metrics as critical, key, or general service levels.

Figure 1 - Performance Metric Table

SLA Performance

Target Liquidated Damages Measurement

CORE

Core Network (PE-PE) Failure

Based on restoral & outage hours specified under liquidated damages

25 percent MRC of Service* if outage > 60 seconds

Measured & calculated per incident based on the operational tools provided.

50 percent MRC of Service* if outage > 1 hour 100 percent MRC of Service* if outage > 2 hours

Latency ≤ 55 ms round trip → PE-PE Router

15 percent MRC of Service* if performance target is unmet > 4 hours. 25 percent MRC of Service* if performance target is unmet >8 hours.

Use a 1400 byte packet size. Measured per incident every 5 minutes on the 3 most recent polls. Jitter

≤ 20 ms round trip → PE-PE Router

Packet Loss ≤ 0.5% → PE-PE Router

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SLA Performance

Target Liquidated Damages Measurement Access & CPE

Access & CPE Failure

Based on restoral & outage hours specified under liquidated damages

15 percent MRC of Service* if outage > 4 hours Measured & calculated per incident based

on the operational tools provided. 100 percent MRC of Service* if outage > 8 hours

Latency

≤ 75 ms round trip for ≥ T1 speeds & 420 ms round trip for 56kbps speed for both CE-PE router and CE-Internet GW

15 percent MRC of Service* if performance target is unmet > 4 hours. 25 percent MRC of Service* if performance target is unmet >8 hours.

Use a 40 byte packet size with link utilization < 65 percent. Measured per incident every 5 minutes on the 3 most recent polls.

Jitter

≤ 30 ms round trip for both CE-PE router and CE-Internet GW

Packet Loss

≤ 1 percent for both CE-PE router and CE-Internet GW

Internet Gateway (up to the MyFloridaNet Internet Gateways)

Internet Access Failure (DNS, FW, and Content Filtering etc...)

Based on restoral & outage hours specified under liquidated damages

$2,500 if outage > 60 seconds

Measured per incident based on the operational tools provided.

$25,000 if outage > 1 hour $50,000 if outage > 2 hours

Internet Gateway (Beyond the MyFloridaNet Internet Gateways)

Internet Access Failure

Based on restoral & outage hours specified under liquidated damages $2,500 if outage > 60

seconds

Any outage beyond the MFN Internet gateway the following current Internet SLA credits and the additional measurement listed below shall apply: 1. Each Florida Internet Probe (FIP) in each MFN Internet Complex will poll six (6) Internet Hosts once every sixty (60)

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SLA Performance

Target Liquidated Damages Measurement

$25,000 if outage > 1 hour

seconds. A poll is defined as an “HTTP GET”. 2. The SLA is measured per incident every sixty (60) seconds. 3. The six (6) Internet Hosts will be an agreed upon set of hosts that represents general Internet connectivity. In conjunction with a confirmed service disruption, the SLA will be violated if all six (6) Internet Hosts are simultaneously unreachable from all three (3) FIP probes at the same time. There will be a maximum of one (1) incident per 24 hour period.

$50,000 if outage > 2 hours

Operational

Install, Moves, Adds, Changes

64kbps to T1 = 25 business days

25 percent MRC of Service* if performance target not met.

Measured & calculated per incident based on the operational tools provided. The Install, Moves, Adds and Changes set of installation SLAs apply only after the 18 month migration. Responders will not be liable where facilities do not exist for access types (excluding Ethernet) greater than 12Mbps. There are separate liquated damages if the migration is not complete within 18 months.

> T1 to 45Mbps = 40 business days

> 45Mbps = 90 business days

CPE Configuration Changes

≤ 2 hours

10 percent MRC of Service*

Measured & calculated per incident based on the operational tools provided. Changes can be made during or after working hours. Clock begins with the requested change entered into the ticketing system.

Service outage notification 15 minutes

10 percent MRC of Service*

Measured & calculated per incident based on the operational tools provided.

Service degradation notification 30 minutes

10 percent MRC of Service*

Measured & calculated per incident based on the operational tools provided.

Initial Problem Identification 2 hours

10 percent MRC of Service*

Measured & calculated per incident based on the operational tools provided.

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SLA Performance

Target Liquidated Damages Measurement

Migration

Frame Relay and RTS Service Migration

18-month migration

$1 million per month recurring if migration not completed within 18-month performance target.

See the ITN for more details on migration requirements. Eighteen-month migration period starts when contract is signed.

*MRC of Service = MRC of (Core Port + CPE + Access) for each site

7. PROJECTED TIMEFRAME

Section 287.0571 (4)(k), F.S.) The projected timeframe for key events from the beginning of the procurement process through the expiration of a contract.

The procurement to contract expiration timeline is suggested to be a minimum of 10 years, with a renewal/evaluation interval at year five, at which time new negotiations for service features and reduced pricing should take place. This period of contract would allow sufficient time to realize cost savings and optimization of telecommunication advancements. It is estimated that once the Invitation to Negotiate (ITN) responses are received. The Department of Management Services will need six to nine months for completion of the ITN documents, response evaluation, negotiations, and contract execution.

In addition to the six to nine months for completion of the procurement process, the timeline suggested in this Business Case includes an additional 24 months for transition, if necessary, to a new service provider. In the event the current contractor is awarded, the anticipated migration period would be minimal.

Key Events26:

• Obtain legislative direction and finalize ITN; • Complete ITN solicitation and DP100; • Release ITN to public; • Complete procurement process and develop recommendation to award. Once the negotiations are

concluded, DMS can complete a fiscal impact analysis and provide an update in time for the 2015 legislative process;

• Post Intent to Award; • Prepare and execute contract. If there is a protest, the migration will not be completed on time

resulting in a delay in the project; • Migration of 4,500 sites over a 20-month migration period. In the event that the incumbent were to be

awarded, the anticipated migration period would be minimal; • If necessary, request an MFN contract extension; • Migration complete;

26 MFN-2 Key Milestones Timeline 8-15-13.pub

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• Steady state of services; post migration; • Process service requests as required; daily; • Evaluate renewal and negotiate pricing reduction is possible; • Steady state of services; post renewal; • Process service requests as required; daily; and • End of contract period.

8. PUBLIC RECORDS COMPLIANCE

Section 287.0571 (4) (l), F.S. A plan to ensure compliance with the public records law.

The procurement and a subsequent awarded contract should state that any and all records produced are subject to Ch. 119, Florida Statutes. The service provider shall allow DMS access to all documents, papers, letters, or other material subject to Ch. 119, Florida Statutes for which public record requests are made or received by the department.

9. CONTINGENCY PLAN

Section 287.0571 (4) (m), F.S. A specific and feasible contingency plan addressing contractor nonperformance and a description of the tasks involved in and costs required for its implementation.

The procurement of MFN-2 should include language drafted in consultation with DMS legal counsel and DMS procurement staff. The contract should outline a plan, subject to negotiation process, to address contractor non-performance.

The procurement should maintain provisions to address the termination for cause in the event of non-performance by the Contractor and remedies for non-performance consistent with those available in rule 60A-1.006, F.A.C.

The Department of Management Services should include provisions in the new contract for financial consequences in the event the service provider does not meet established and measured performance expectations. The provisions should provide incentive for a Contractor to cure any problems with performance before an event of default occurs.

Suggested Remedies for DMS for Default and Obligations upon Termination:

• Terminate this Contract by providing the service provider with appropriate written notice of the effective date of termination;

• Seek Equitable Relief and/or Institute legal proceedings against the Contractor to collect payment of any money owed including, but not limited to re-procurement costs, system replacement costs, and liquidated damages; and initiate proceedings to have Service Provider placed on the Suspended Vendor list;

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• Once placed on the Suspended Vendor list, state agencies will be advised not to do business with the Service Provider without written approval from State Purchasing until the state receives reimbursement for all re-procurement costs; and

• Upon prior notice to the Service Provider, after the expiration of any cure periods, perform any term, condition, or covenant that has been breached by the Service Provider at the reasonable expense of the Service Provider.

General Suggested Termination Rights:

• The ability to terminate individual service areas to allow the Agency to insource components when they are able to perform those duties in the best interest of the state; and

• Service Provider must provide termination assistance services, detailed below.

Recommended Termination Assistance Services:

• Service Provider must cooperate fully with DMS and any new service provider;

• All processes and procedures performed by the Service Provider must be explained and appropriate documentation provided for each service layer under contract;

• Answer questions related to the migration and transition of services; and

• Termination Assistance Services rendered prior to the termination date of the contract will be at no additional cost to DMS. Services rendered after termination of the contract will be at a reasonable rate, established in writing.

Financial Consequences Suggestion:

Financial consequences language including amounts should be included in the ITN and awarded contract. This language should be developed in consultation with DMS legal counsel and DMS Purchasing staff. Two specific areas to address:

• Should the service provider fail to achieve service operation as defined by a mutually negotiated and acceptable implementation plan through the ITN process; as a result of activities/tasks directly within the service provider’s control, then the service provider shall pay an appropriate amount based upon the contractually agreed upon service level agreement until service operation is deemed acceptable by measured contract stipulations per the agreed upon plan; and

• Should the Service Provider fail to achieve the Performance Metrics prescribed in the contract, as a result of activities/tasks directly within Service Provider’s control, then the Service Provider shall pay DMS liquidated damages for each Performance Metric not met.

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10. TRANSITION PLAN

Section 287.0571(n), F.S. A State agency’s transition plan for addressing changes in the number of agency personnel, affected business processes, employee transition issues, and communication with affected stakeholders, such as agency clients and the public. The transition plan must contain a reemployment and retraining assistance plan for employees who are not retained by the State agency or employed by the contractor.

Section 287.0571(n), F.S., requires a Business Case to address issues that may arise when work currently being done by state employees is transferred to a contractor. If, at the completion of the current MFN contract, DMS decides to contract with a new vendor, the following steps are advised to ensure a smooth transition of service. In the event that the current contractor is awarded, the transition plan would only require publishing the new MFN service model with pricing. It is assumed this is an administrative process that is routinely performed given the current MFN contract has gone through numerous amendments with this type of activity already being performed, so there is no impact to the existing process.

10.1 Transition Plan The Transition Plan suggestions below outline key activities that must be completed while working with the DMS and the incumbent vendor, AT&T should this be required. To ensure a complete and successful ramp up of a team that can provide implementation, engineering, and support services for MFN, the new service provider should be required to provide a detailed migration plan that takes the following into consideration:

• Resources • Knowledge Transfer • Migration Project Management Planning

o Communications Plan o Engineering Review o Provisioning Planning

• Network Operations Center • Administrative Services

10.2 Resources

The service provider will confirm the resources needed to provide the support services based upon the technical specifications agreed upon in the ITN. On-boarding of resources is the assignment of resources by both the vendor and DMS and getting them engaged as a complete project team. It is important to note that it is the responsibility of both DMS and the service provider to engage in this process at a focused and high level of assignment for the duration of the transition period. Any inconsistencies in resources may inject high degrees of risk to the migration plan.

The new service provider should be committed to identifying the best resources to fulfill the needs of the project plan. It is anticipated that due to the large number of DMS customer sites, the service provider should be prepared to assign several dedicated technical project managers and engineering teams. The DMS project team should work with the service provider to define a Staffing Plan that outlines (per resource role) the required skill set and desired on-boarding date that meets the expectations of the Transition Plan. The Staffing Plan should be

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documented and accepted by DMS prior to execution. The on-boarding date for the resources will correspond with the needs of the Knowledge Transfer activities to ensure that resources are on-boarded to fully participate in the activities with the AT&T service resources as appropriate.

10.3 Knowledge Transfer

Knowledge Transfer activities are critical to the success of any transition plan. Knowledge Transfer should consist of three major components: Job Shadow, Reverse Job Shadow, and Policy/Procedure Training. The Department of Management Services should provide resources to lead and facilitate the Knowledge Transfer work activities. The new service provider should be responsible only for participation as per the ITN agreement for migration. During the Knowledge Transfer work effort, AT&T will still be the sole party responsible for support and maintenance of the MFN service layers that are operational through the migration period.

The activities to be completed for each service layer within MFN should be documented in Knowledge Transfer Plans. The service provider should monitor the Knowledge Transfer Plans on a weekly basis to confirm that resources are completing their Knowledge Transfer activities in a timely manner. A weekly presentation to DMS should occur to ensure compliance with this task.

10.4 Migration Project Management Planning

The new service provider is responsible along with DMS for ensuring that the project management plan meets the expectations of the MFN customers.

10.4.1 Communication Plan

The Department of Management Services, along with both the current Contractor and the new service provider, should implement a Communication Plan that identifies and addresses the concerns of all key stakeholders during the Transition period and the life of the contract. The Communication Plan outlines the following:

• Communication Event • Communication Vehicle • Stakeholders Impacted • Communication Start Date • Communication End Date • Frequency of Communication • Owner of the Communication

The purpose of the Communication Plan is to document identified communication needs and processes that will be used to address theses. The communications objectives are to:

• Identify key stakeholders • Provide communications timely and accurately • Provide feedback mechanisms to ensure feedback is appropriately reviewed • Adjust the communication plan as necessary to improve gaps identified through the process

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10.4.2 Engineering Review

It is critical that a comprehensive technical engineering review take place with DMS as the facilitator between the current Contractor and the service provider. All technical aspects of the physical, logical, and technical definitions for the current MFN network must be documented. This documentation should be utilized in the transition planning phase with the service provider’s project managers and engineering teams.

Careful consideration should be given to MFN customers whereby critical public services are provided to ensure no impact to the state’s public takes place. Adequate planning and testing are critical steps to ensure that no service interruptions occur.

Additionally, it is also noted that due to economic conditions, the state has gone through a number of downsizing efforts since the inception of MFN. With that in mind, a number of MFN customers do not have adequate network engineering staff to provide a high level of support. To ensure this is not detrimental to the process, the service provider should be made aware and compelled to provide additional resources as necessary to ensure complete coverage of service transition at the service provider and customer levels.

10.4.3 Provisioning Planning

Proper provisioning planning is the identification of all physical components and assets required to delivery each service to an MFN-2 customer. In the case of transition, this will encompass over 4500 locations throughout the state. The service provider’s project management team must address each MFN – 2 customers provisioning needs adequately to avoid service interruption. It is recommended that DMS and the service provider establish a separate project plan or sub-plan that is unique to each customer that outlines the following:

• CPE requirements • Service type • Service requirements • Service configuration, to include all routing definitions • Service nature, e.g., critical public service, general use, best effort, etc. • MFN Customer involvement capabilities, e.g., does the customer have network engineering staff

available • Critical dates that preclude migration of service, such as Legislative Session, Public events, etc.

10.5 Network Operations Center The transition of the Network Operations Center (NOC) services is one of the most critical customer facing tasks in the plan. The Department of Management Services must ensure that both the current Contractor and a new service provider maintain a steady state service availability for all aspects of the NOC service layer as prescribed in the ITN. The AT&T NOC must remain fully functional and staffed up until the final cut over of all service layers to the new service provider’s network topology.

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10.6 Administrative Services The administrative functions required by the service provider are determined by the ITN. However, the transition of customer service, account services, and billing services are critical in nature to the transition plan. A full definition of the requirements for customer service, and account team interaction should be addressed in the ITN and subsequent transition plan. The billing aspects should be defined such that DMS does not incur significant rework of its billing and reconciliation processes.

11. AMERICAN WITH DISABILITIES ACT OF 1990, AS AMENDED

Section 287.0571 (4) (o)F. S. A plan for ensuring access by persons with disabilities in compliance with applicable State and federal law.

The Americans with Disabilities Act (ADA) prohibits discrimination on the basis of disability in employment, state and local government, public accommodations, commercial facilities, transportation, and telecommunications. To ensure that the service provider is compliant with state and Federal ADA laws, the procurement should request that the service provider outline a plan to identify and address any ADA concerns.

12. CONTRACTUAL PROVISIONS This business case does not address specifics of the contractual provisions as set forth in section 5 of 287.0571, F.S., as they will be fully defined in the ITN document that is released to the vendor community. The ITN will take into consideration all other sections of the business case to aid in the development of the contextual language as appropriate.

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13. APPENDIX

13.1 MyFloridaNet Core Network

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13.2 Business Case Interview List DMS Participants

Representative Contact email address Abdul Majid Abdul.Majid@dms.myflorida.com Amir Qureshi Amir.Qureshi@dms.myflorida.com Andy Lundberg Andy.Lundberg@dms.myflorida.com Betsy Wonsch Betsy.Wonsch@dms.myflorida.com Bill Hand Bill.Hand@dms.myflorida.com Carlton Wells Carlton.Wells@dms.myflorida.com Danette McBride Danette.McBride@dms.myflorida.com Denise Adkins Denise.Adkins@dms.myflorida.com Doug Whitfield Doug.Whitfield@dms.myflorida.com Ed Peters ed.peters@dms.myflorida.com Freddy Martinez Freddy.Martinez@dms.myflorida.com Jason Pustejovsky Jason.Pustejovsky@dms.myflorida.com Joe Wright Joe.Wright@dms.myflorida.com John Ford John.Ford@dms.myflorida.com John Starling John.Starling@dms.myflorida.com Kevin Langston Kevin.Langston@dms.myflorida.com Mahmoud Sondossi Mahmoud.Sondossi@dms.myflorida.com Michael Bennett Michael.Bennett@dms.myflorida.com Nicholas Platt Nicholas.Platt@dms.myflorida.com Paul McGinniss Paul.McGinniss@dms.myflorida.com Rhonda Ballew Rhonda.Ballew@dms.myflorida.com Suzanne Woodcock Suzanne.Woodcock@dms.myflorida.com Tabitha Hunter Tabitha.Hunter@dms.myflorida.com Wink Infinger wink.Infinger@dms.myflorida.com

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Agency Representatives Sent Survey

Representative Contact email address Coleman Ayers Coleman.Ayers@freshfromflorida.com Craig Vollertsen Craig.Vollertsen@freshfromflorida.com Dennis Cook Dennis.Cook@ahca.myflorida.com Chris Thompson christopher.thompson@ahca.myflorida.com Andrew Van Clief asvc@citrus.state.fl.us Rodger Reynolds reynoldsr@flcourts.org Scott Higgins higginss@flcourts.org Adam Jones Adam.Jones@dep.state.fl.us Charles Ghini Charles.Ghini@myfloridacfo.com Eric Larson ERIC.LARSON@MYFLORIDACFO.COM Roy McCall Roy.McCall@djj.state.fl.us

Sherry Sellers Sellers.sherry@mail.dc.state.fl.us Bob Dillenschneider bob_dillenschneider@doh.state.fl.us Bret Hart bret.hart@flhealth.gov Bryan Chrisp bryan_chrisp@doh.state.fl.us Christopher Collinge chris_collinge@doh.state.fl.us Jason Cleveland jason_cleveland@doh.state.fl.us Chuck Hartsfield HARTSFIC@dor.state.fl.us

Damu Kuttikrishnan KuttikrD@dor.state.fl.us

Clinton Stevens clinton.stevens@dot.state.fl.us Leingle Vickery leingle.vickery@dot.state.fl.us Kevin Smith Kevin.smith@em.myflorida.com Mark-Allen West Mark-Allen.West@eog.myflorida.com Tom Doughty tom.doughty@eog.myflorida.com Denver Gordon denvergordon@fdle.state.fl.us Joey Hornsby joeyhornsby@fdle.state.fl.us Joel Gallay gallayj@fdva.state.fl.us Steve Hubbard Steve.Hubbard@myfwc.com Joseph Mongiovi JosephMongiovi@flhsmv.gov Bruce Slager bruce.slager@leg.state.fl.us Gary Richards richards.gary@leg.state.fl.us Deborah Stevens Deborah.stevens@myfloridalegal.com Keith Barfield keith.barfield@myfloridalegal.com

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CIO Members

Representative Contact email address Mark Ervin Mark_Ervin@apd.state.fl.us

Susan Brown Susan.Brown@doah.state.fl.us

Kathy Ott Kathy.Ott@MyFloridaLicense.com

Marcus Slager Marc_Slager@dcf.state.fl.us

Dean Izzo Dean.Izzo@deo.myflorida.com

David Stokes David.Stokes@fldoe.org

Steve Grantham GranthamS@elderaffairs.org

Thomas Morris MorrisT@sao8.org

Bob Endres Endress.Bob@flsenate.gov

Randy O'Bar Randy.Obar@flalottery.com

Colonel Daniel Johnson Daniel.Johnson1@us.army.mil

Vivian Challen ChallenV@pd13.state.fl.us

Chris Church CChurch@psc.state.fl.us

Gene Kovacs Gene.Kovacs@fldoe.org

Chad Hutchinson Chad.Hutchinson@DOS.MyFlorida.com

Scott McPherson Scott.Mcpherson@myfloridahouse.gov

Robert Lange Bob.Lange@gal.fl.gov

Mike Russo MikeRusso@flhsmv.gov

13.3 Figures Figure 2 - MFN Disconnections

State Agency Capacity City Carrier Department of Economic Opportunity 100 Mbps Ethernet Tallahassee CenturyLink Department of Children and Families 10Mbps Ethernet Wildwood CenturyLink Southwood Shared Resource Center 1Gbps Ethernet Tallahassee CenturyLink Southwood Shared Resource Center 2Mbps Ethernet Tallahassee CenturyLink AHCA 200Mbps Ethernet Tallahassee CenturyLink Department of Children and Families 3Mbps Frame Panama City AT&T Department of Corrections 4Mbps Ethernet Tallahassee CenturyLink Department of Corrections 6Mbps Frame Ocala CenturyLink Division of Emergency Management 8Mbps Ethernet Tallahassee CenturyLink Department of Education T1 Frame Sanford AT&T Department of Education T1 Frame Tallahassee CenturyLink FDLE - CJNET T1 Frame Ponte Vedra Beach CenturyLink Division of Motorist Services T1 Frame Tallahassee CenturyLink St. Johns Water Management T1 Frame West Palm Beach AT&T

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South Florida Water Management T1 Frame Fort Pierce AT&T

Discretionary Entity Capacity City Carrier Leon County - Elections 100Mbps Ethernet Tallahassee CenturyLink Leon County - Tax Collector 10Mbps Ethernet Tallahassee CenturyLink City of Tampa 100Mbps Ethernet Tampa Verizon City of Tampa 100Mbps Ethernet Tampa Verizon City of Tampa 100Mbps Ethernet Tampa Verizon Lynn University 1Gbps Ethernet Boca Raton AT&T Lynn University 1Gbps Ethernet Boca Raton AT&T

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