~I~~C3I~ ~~TI~T~

Gibson. Dunn & Crutrher LI.P

200 Park Avenue
New York, NY 10166-0193
T'el 212.351.~i000
www.gibsondunn.com

Rantly M. Mastro
Direct: +1 212.351.3825
Fax: +1 212.351.5219
RMastroC gibsondunn.com
Client: 00000-00000

December- 8, 2014
SUBMISSION FOR THE HEARING RECORD
LaLira Ringelheim, Clerk
Franchise and Concession Review Com~ittee
125 Worth Street
New York, NY 10007
Re:

Ne~v York Cit.>> De/~art~rient of'Infort~2ution. Techn.olo~>y c~n.cl Teleconii~T.unicatiolis

Matter of CityBridge, LLC

Dear Ms. Ringelheim:

The New York City Department of Information Technology and Telecomml~nications
("DoITT") has Coday recommended the Franchise and Concession Review CommiCtee
("FCRC")to approve a proposed 12-year franchise agreement valLied in the hundreds of
millions of dollars between the City of New York and CityBridge, LLC("CityBridge") Under
which CityBridg~ exclusively woL~ld dismantle zxisting pay telephone facilities anti replace
them with commLinications structLlres offering free Wi-Fi service and, at some strti~ctLires,
tree public "pay" telephone service thereby eliminating all competition in the provisioning
of payphone services and other telecommunications services from the City's public right of
way.
Our law firm, Gibson, Dunn & CrLitcher LLP("GDC"), ar~d specifically, ia~y partner, Mylan
Denerstein, and I represent T~lebeam Telecommunications Corporation("Telebeam"). On
behalf of Telebean~, we provide this written sLlbmission in opposition to this franchise
recommendation. We respectfully urge the FCRC to reject this proposed agi-ee~nent because,
for the reasons explained here, its provisions violate the law--federal, state, and localand,
even apart from that, because the process followed by DoITT in reaching Cliis
recommendation is tainted by apparent unfair favoritism and conflicts of inteiest.
My significant prior' experience in City and federal government service informs my
understanding of the gravity of the apparent procedural and substantive flaws in this
proposed agreement. In particular, from 1994 to 1998, I served as Mayon Rudolph Ginliani's
Chief of Staff and then as New York City's Deputy Mayor for Operations. In those
capacities, T oversaw the City's franchising process and was the Deputy Mayor to whoan
DoITT reparted. And as Deputy Mayor,I was authorized to act on the Mayor's behalf. Since
then, in private practice, I have represented many clients challenging gove~nmental actions,
including franchise decisions,

Laura Rii~gelheim, Clerk

December 8, 2014

Page 2

Simply put, the FCRC should not approve this proposed agreement because the process
behind it and its terms violate the l~lw. Fifst, the proposed agreement resulted from a
Request For Proposals("RFP") process apparently tainted by irnpe~-missible favoritism acid
bias in the award process. Serious allegatios }gave arisen concerning the rElationship
between the Control Groupa consulting firm that is one of the companies comprising the
prevaili~~g CityBridge consortiLimand Mayor de Blasio's administration, many of which
have been publicly reported. In particLllar, according to published accoL~nts, Robert
Richardson, a former senior executive at the Control Group, left the Control GroL~p at the end
of Jtiily 2014 to take a senior technology policymal<ing post tc~ "help direct technology
strategy from City Hall" ut the suin.e tiriie tl2.at DoITT was deliberating on t:he responses to
the RFP. Sec' Exll. A. Indeed, the New York Daily News reported jl~st this past Satuiday,
December 6, 2014, that e-mails "show Richardson was involved in Control Group's bid for
the Wi-Fi job," and he then interviewed for his current high-level City government job
"while the bidding continued." See Exh. B. Richardson's 2014 move to City Hall placed
him at the NYC Technology Development Corporation and plainly provided him the
opportunity to work with DoITT officials on technology ~~~attersa fact that aequiles special
significance here given that, prior to joining the Control Group, Richardson held a
management position at DoITT.' AddiCionally, on information and belief, when Richardson
left DoITT to join the C~ritrol Group in September 20"l 2, he contacted ahigh-level DoITT
official nn behalf of Contro] GT~oup in a manner implic~iting Section 2604(d)(2) o~f the New
York City Charter (piohibiting a public servant from appearing before the City agency
served by the public servant within a period of one year after City employment endsj, and
that contact was reported to the New York City Department o~f Investigation.
Moreover, Control Group has been a valued supporter of Mayor de B~lasio's Administration
predating its participation in this RFP. For example, while Richa~~dson worked at Control
Grotiip, he participated in a March 201A session addressig use of technology to ensure a
smooth rollout of the 1VIayor's signatw-e expansion of ple-kindergarten enrollment. See Exh.
In July 2012, while Richardson worked al DoI'T1,tl~e agency iss~ied a Req~iest For Inforn~atioi~("I2FI"j,
presaging the 2014 RFP, nn the "FuC~ue of P~iblic Pay Telephones on New York City Sidewalks a~~d
.Potential Alternative or Additional Forms of Telecommunications F<lcilities on New York City Sidewalks."
To the exCent Richardson ~~ersonally and subsean~ially participated in the pre}~aratioil o~P that RFI or in
evaluating responses to it, he is barred from receiving compensation For privaCe-sector seiviees rendered "in
relation to" the RFI, which would ii~c(ude any work he clid on behalf oi'the Control Group o~~ its response
to the RFP. See Charter 2604(dj(4~j (former public servants are. permanently barred from appearing,
whether in a paid or unpaid caE~acity, "before the city, or receiving] eomper~sation for auy services
rendered, in relalio~~ to any particular matter involving the wine party or parties with respect to which
particular matter such person had participated personally and substantially as a public servant through
cleeisior~, approval, recomn~end~ition, investigation oi ocher similar aceivities.").

t~l~(~1~1T ~l~l`~~
Laura Ringelheim, Clerk
December 8, 2014
Page 3

C. In a May 2014 speechwhile Control Group was presumably working on its proposal in
i-espo~lse to ehis RFPthe Mayor himself called special lttention to the Control Group's
efforts as a "partner[]" in tine City's pre-kindergarten expansion. See Exh. D. (There is no
indication on the public record that the New York City Conflicts o~f Inteiest Board advised
Control Group that it could participate in the RFP while sevin~ as a "partner[]" to the
Administration in this manner.)
In light of Richarclson's role at Control GroL~p (especially in connection with the CityBridge
proposal), Control Group's Unique relationship with this Administration (especially in
connection with its high-priority pre-kindergarten pr~~~rarn), and Richardson's other apparent
prior lapses, there are now serious questions about the bona fides o~ this process thae need to
be investigated further before Chis body acts on DoITT's recommendation. Richardson's
course of conduct and cLirrent high-level position within the Administration have raised
]ebitimate cone~,rns that CityBridge prevailed in this RFP process through favoritisn~i grid
biasconcerns that responsibly have to be allayed before any final decision is made here.
See Exh. E. bldeed, it is flatly impermissible to award franchises t~iinted by favoritism and
bias: Public employees "must make certain that their conduct does not raise suspicion or
give the appearance that they aie in violation of their public trL~st," il~eaning that they must
"prevent favoritism" in public contracting, among other iesponsibilities under Procurement
Policy Board Rule 7 -03(a)(]). FurthenY~ore, the New York City comptroller s audit
responsibilities incl~lde addressing "un~air~ness, favoritism, or impropriety" in contracting.
Sect, e.g., Procurement Policy Board Rule ~-03(a)(21). Indeed, orie of the central motivating
forces behind New York procurement law is "to guard against favc~ritisn~, impsovidence,
extravagance, fraud and corruption." Assoc. Ge~ti. Coil.tjs. gfAs~~i. v. N.Y. State Tlafuvvuy
Ac~tl~z., 88 N.Y.2d 56, 68 (1996).
This proposed agreement is of significant scope, duration, and importance to the beneral
public. Given the stakes, the FCRC should not risk undermining public confidence in the
integrity of the proceedings by approving Che proposed agreement withotiit at the very least
conducting a thorough and meaningful factual investigation into the distressing and
suspicious circurnstances concerning Richardson's employment history and the Control
Gloup's close ties to the Administration to ensLlre that the proposed agreement is not the
result of improper influence.
Second, this paoposed agicement violates the Telecommnnicatiot~s Act of 1996, PLib. L. No.
104-104, 1 '10 Stat. SC, in which Congress eliminated the monopoly franchises of local
telephone service providers by enacting 47 L7.S.C. ~ 253, which "prohibits state and local
regulation that impedes the provision of `telecomm~nieations service."' Verizc~11 Coni~nc'ns
Inc. v. FCC,535 U.S. 467,491 (2002)(citation omittedj. As Telebeam has explained in its
complaint seeking declaratory relief against the City under Section 253, filed in the United

Laura Ringelheim, Clerk

December 8, 2014
Page 4

States District Count for the Eastern District of New York on Deeembei- 4, the City cannot
force Telebean and other cLU-rent payphone franchise holders to exit the market in favor of
CityBiidge as a monopoly service provider. The City is doing so in violation oi~ federal law,
which pre-empts the City's purported action here. See generally N.J. Payphoize Assn v.
Town of West New Yo~~k, 299 F.3cl 235, 247 (3d Cir. 2002). Notably, prior to the release of
the RFP, the managi~~g member company of the CityBriclge consortiLnn, Titan Outdoor LLC
("Titan"), explained that very point to DoITTnamely, that Section 253 forbids the singlefranchisee monopoly scheme cenn~al to the RFP. See Eah. F. Telebearn's complaint
(attached as Exhibit Gj alleges multiple independent violations of Section 253 based on the
RFP and resL~lting award, and rather than compounding the legal error in the RF'P p1-ocess so
far, the FCRC should, at a mini~nLim, defer any action on tl~e proposed agreement until the
City has answered the ~illegations in the federal action.'
Tlai~d, even iF (contrary to federal I~w) it were somehow permissible under Section 253 to
pursue asingle-franchisee model in the telecommunications setting, DoITT exceeded its
authority ~lnder the City C1larter in proceeding to reach a determination on an RFP based on
such a model without specific aL~thorization from the City Council. Section 363(a) of the
Charter' provides that a franchise shall be awal-ded only in accordance with the pl-ovisions of
an authorizing resolution adopted by the Council. The RFP here purported to cobble
together Che necessary authorization from two such i-esolut.ions: Resohition 2309 of 2009
(which atilthorizes the granting of franchises for the installation of public pay telephones and
associated egLlipment on, over, and under the inalienable property of the City), and
Resolution 191 oi' 2010(which authorized the granting of franchises for installation of
telecommunications equipment and facilities on, over and Under the inalienably property of
the City in connection with the provision of mobile telecommunicltions services from the
public right of way). BL~t neither of those Resolutions can be construed to ati~thorize a sin~lefranchise~ model Yiere. Indeed, on JL~Iy 29, 2014, a letter signed by 24 members of the City
Council called DoITT's attention to exactly that fatal flaw, stressing that. the "creation of any
telecommLlnications and technology monopoly" would work a "LlsuTping of the Council's
The monopolistic cl~aracler ol'the proposed agreemenC is ~~ot cured by the provision in S<;ction 3.5 oi'tlie
proposed agreement allowing the City Lo seek other provideas after afour-year exclusivity period Following
the "effective date" of the agreement (defined as a date whe~~ approvals are received fron~~ government
commissions, which could take, upon information ai d belief, 12 to 18 months). Companies cannot put
Clleir business operations on bold based on tl~e mere possibility thaC, iii more than i'ow~ ye~irs, they may he
given a chance to takeover Prom ashen-e~~trer~ched inc~irnbent monopolist. Once City13~idge ohtains
owneisl~ip oP the existing payphones from Telebe<un ai d others, Telebeam will be forced to wind down iCs
operations and teriY~inate its employees. By the time four years pass ai'ter the "et'i'ective date," CilyBridge
will have no competitcs, leaving New Yorkers with only one provider with no incentive to innovate or ro
increase cost el'fectivencss.

Laura Ringelheim, Clerk

December 8, 2014
Page 5

role," and emphasizing the need for the agency to "withdiaw the RI~'P, and submit ~u1
appropriate, new ALlthorizing Resolution to the Council." Sic: Exh. H. Disrespecting the
separation of powers and the explicit command of the Charter, DolTT' nevertheless
proceeded Co issue a determination on the RFP as Chough the City Council's views could he
brushed aside.
FLirther invalidating DoITT's interpretation of the Resolutions is the principle that such
enactments must be construed to avoid serious constitti~tional questions, see, e.~., Mutter of
Jacob, 86 N.Y.2d 6.51, 667 (1995)--and the City has set a course in direct conflict with the
restriction on federal and state constitutional restrictions on inadequately co~~~pensated
takings. 'Thy proposed agreement calls for forcing Telebeam to sell its existing payphone
assets so that CityBridge can take them and bLlild on their, which will force Telebeam out of
businessai d Telebeam has an enterprise value as an existing business that no amount of
after-the-fact money damages will be able to redress once its operations have wound down.
Because the proposed agreement would reverse established policy after private industry has
already committed to its investments, it operates in retroactive fashion to strand the very
investments the federal government has encouraged (thiough SecCion 253 and ot:l~er
provisions of the Telecommunications Act) and r~lises grave constitutional concern Linder
Pepin. Cent. Trans~~~. Co. v. Ne~v York, 438 U.S. 104, l07 (1978), and Ecr.sterrz F,nteis. v. Apfel,
524 U.S. 498, 522-23 (1998](a regulation "may so frustrate distinct investment-backed
expectations as to amount to a `taking"'). Rather than avoiding the constitutional takings
problems, the City has interpreted the Resolutions to create those problemswhich is
unacceptable under clewly-established law.
Foci~-t/z, the record presents several obvious shortcomings in CityBrid~e's proposal never
addressed by DoITT, rendering the City's selection of CityBridbe ~lrbiti~a~y and capricious
especially when those numerous failures are considered in eombination.j As an initial
matter, the City has failed to undect:ake any reasoned evaluation of the responses to this RFP
by assessing their comparative strengths and weaknesses, including such coiiceins ~s prior
financial perfolmance, consumer service experience, technological capabilities, or other
relevant factors. The City's lack of a reasoned explanation as to Titan's participation is only
one example of this wide- f~iilure. Section 10.6 of the proposed agreement installs Titan as
the managing member of the CityBridge consortiLlm, bL~t the City has f~iiled to explain how
that choice can be squared with Titan's documented failure to comply with its obligations
under another high-profile public contract:one for advertising with the Metropolitan Transit
Authority(MTAj. After- Titan defaulted on that contract with MTA by failing to pay about
$20 million owed for 2009 and 2010 advertisements, MTA drew on Titan's bank guarantee
Cf: Rigle v. Dnir~~es, 78 A.D.3d 1249, 1251 (3d Dep't 2010}(considering agency errors cui~~a~il<itivelyj.

~I~iSC~N DUI~II~T
Laura Ringelheim, Clerk
December 8, 2014
Page 6

to cover the debt and terminated Titan's contract. See Exh. I. For its part, in 2012, the Los
Angeles County Metropolitan Transportation Authority identified Titan's contractual failure
in New York as a weakness that ultimately contributed to that agency's choice of a
competitor for an advertising contract: Even though Titan purported to offer a higher fixed
revenue amount, the agency staff recognized that "[t]he greatest risk factor in awarding
Metro's revenue-generating advertising contracts is the possibility of the selected vendor
becoming unable to pay Metro its guaranteed revenue," and Titan's track record in New
York increased that risk. See Exh. J. But the record does not disclose any steps the City took
here to assure itself that Titan would not repeat its prior weak performance, or that the
proposed agreement as a general matter will be practicable even when an economic
downturn reduces advertising revenues. This failure is all the more surprising given that
Titan currently owes hundreds of thousands of dollars in fines and penalties issued by DoITT
for violations of Environmental Control Board Code sections governing the operation of
payphones. See ECB Notice of Violations Database, NYC Open Data,
https://data.cit, o~vork.us/City-GovernmentlECB-Notice-of-Violations/v6h5~vss(search
for records with issuing agency UoITT).
Among other relevant factors, the City has also failed to consider the inadequacy of the data
privacy and data security features of CityBridge's plan. CityBridge structures will include
USB ports for wireless phone charging, but because "25 percent of malware (malicious
programs) is spread today through USB devices," there is a palpable risk that such a USB
port will be exploited to distribute malware that could misappropriate private information
stored on a connecting smartphone, such as the "personal bank account numbers" or other
private or sensitive data. See Ex. K. Furthermore, Titan's track record on data privacy
contains a recent and undeniable blemish: Published reports in October 2014 disclosed that
Titan had previously installed on many of its telephone booths so-called "beacons" that
acquired user dataincluding what websites they visited on their smartphones. See Ex. L.
Notably, although DoITT allowed Titan to "install the devices in 500 phone booths
throughout Manhattan without any formal approval process because the company said it was
using them for maintenance purposes only," Titan acknowledged it was using the data for
non-maintenance purposes as well. See id. Titan's access to the data acquired through the
beacons raises troubling questions whether it was able to exploit that data in preparing the
CityBridge proposal. Additionally, the City gave no explanation in reaching its
determination on this RFP how it would prevent a recurrence of such a data privacy mishap.
Furthermore, the City's rosy characterization of CityBridge's plans has glossed over evident
practical problems that those plans fail to address. In particular, the City did not address the
critical role that existing payphones have played in allowing New Yorkers to communicate
during emergencies. For example, during the August 2003 blackout and power outages
following Hurricane Sandy, payphones continued to operate because they receive electricity

GI~S01~ ~UNI~1
Laura Ringelheim, Clerk
December 8, 2014
Page 7

through the telephone line and do not require external power sources to complete telephone
calls. But the City made no findings to show that CityBridge's plans account for such
realities. CityBridge's structures, for example, will have exterior aluminum walls, which
experience teaches will not endure exposure to elements and street usage (including exposure
to snow, winter street salts, and pet wastes, among other things). That is why the industry
abandoned aluminum as a standard material in 1997 and now prefers stainless steel.
Additionally, CityBridge has stated that visitors will be able to charge their wireless phones
by plugging into open USB ports in the structures, but the City has evidently not addressed
how those open ports would continue to function after exposure to weather elements or after
vandalism (such as insertion of debris into an open port). Nor did the City address the
accessibility problem stemming from CityBridge's plan to omit handsets from its structures.
The unrealistic assumption behind that aspect of the plan appears to be that users will supply
their own equipment for that purposebut there is no evidence that all members of the
public are prepared to do so. Taken as a whole, the evidence before the City did not support
its determination, and it failed to give a reasoned explanation of that determination.
Continuing reliable payphone service and widening Wi-Fi access are important, but the
proposed agreement's installation of a single monopoly franchise breaks radically from the
settled understanding that competition in the marketplace is vital for consumer well-being. If
approved, the CityBridge arrangement will send the wrong signal about the openness of New
York City to competitive forces, discouraging investment by companies offering new
technology not only in the Wi-Fi and wireless communications product markets but
potentially in other areas as well.
DoITT's RFP and its determination that CityBridge should become the exclusive provider of
public payphone service in the City are rife with procedural and substantive flaws. The
proper course for the FCRC is to conduct further fact finding and legal review of these and
other flaws, and to have further investigation conducted here, rather than rush to judgment by
approving this ill-conceived proposed agreement.
Respectfully,

Randy M.

astro