City Council
Staff Report
From: City Manager
Report Type: INFORMATION REPORTS
Lead Department: Utilities
Meeting Date: May 11, 2026
Report #:2604-6221
TITLE
Informational Update on the Palo Alto Dark Fiber Expansion Plan and Fiber-to-the-Premises
RECOMMENDATION
This report is for informational purposes only; no Council action is requested.
EXECUTIVE SUMMARY
This update summarizes construction milestones and program activities of the City-owned fiber backbone expansion (funded in the Fiber Optic Network System Rebuid CIP) and Fiber-to-the- Premises (FTTP) pilot. The City’s fiber network has proven to be a valuable investment in providing communication and data needs for utility facilities, public safety, City departments, and community centers. In addition, the City’s dark fiber licensing business, which serves commercial and institutional customers, has been successful by enabling customers to meet their bandwidth and data transmission requirements and raised over $30 million in reserves for fiber backbone expansion.
Construction of the FTTP service infrastructure to launch service to a pilot area is complete. The new fiber hut at Colorado Substation is energized; fiber is spliced and connected back to Equinix; and networking equipment is installed. In the pilot area, aerial construction is complete; fiber distribution cabinets are deployed and active; and multiport service terminals are attached to poles and tested. After weather-related delays earlier this year, final end-to- end system testing is completed. Activation of 20 or more early adopters in the pilot area is targeted by the end of June.
These early adopters will help staff validate contractor installation processes, service activation, customer service workflows, and network support. Staff will return to the Utilities Advisory Commission (UAC) and Council with early pilot service results, including customer, operational, and financial metrics, to help inform recommendations of the next phase(s) of the FTTP.
Three key attributes to offering Palo Alto Fiber include offering the only Palo Alto-based internet service, owned and operated by the City, with transparency and accountability customers can rely on as a City service; local, professional and responsive customer service; and providing the community another internet option which would increase competition and lower rates amongst the internet providers.
BACKGROUND
On December 19, 2022, City Council directed staff to proceed with the Fiber Backbone Expansion Plan to implement the Fiber Rebuild project and Phase 1 of the Fiber-to-the- Premises (FTTP) project without debt-financing (Staff Report #148001). Included in the Council’s motion was to a) maximize number of homes and businesses reached; b) consider promotional rates to increase subscriptions (aka ”take rate”); c) define leading indicators and metrics to determine success; and d) recommend Council accelerate expansion if metrics are positive, including a potential bond to streamline construction and compress construction time as much as feasible. The City’s fiber optic backbone network was constructed in the mid-1990s. The estimated useful life of fiber plant is typically 30 to 40 years. Rebuilding and expanding the fiber backbone is essential to maintaining and improving network reliability and security, increasing network coverage and capacity for City departments, commercial dark fiber customers, FTTP, and supporting some “smart city” initiatives for Information Technology, Office of Emergency Services, Public Safety, Public Works, Transportation and Utilities. The FTTP pilot is intended to test the City’s readiness and viability to provide a competitively priced, local, high-speed internet option. Having other available internet service may reduce overall prices in Palo Alto and enhance customer experience.
ANALYSIS
Fiber-to-the-Premises
Staff has continued advancing both construction and operational readiness for the FTTP pilot, consistent with prior Council direction and the phased approach to build Palo Alto Fiber service.
Construction of the FTTP pilot is nearly complete. As of the end of March 2026, the fiber hut at the Colorado Substation is powered and connected, aerial construction in the pilot area completed, and staff is performing final system testing. Staff is targeting activation of service for a small cohort of early adopters by the end of June 2026. These early adopters will help validate installation processes, service activation, customer service workflows, and network support. Staff anticipate returning to the UAC and Council with early service results from the pilot area, including recommendations regarding any future phase(s) of FTTP. 1 City Council, December 19, 2022; Staff Report #14800:
https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes-reports/reports/city-manager-reports- cmrs/2022/12-19-2022-id-14800.pdf
As staff has advanced the pilot, one key lesson learned has been that fiber deployment does not generate cost efficiencies when coupled with grid mod work in all areas. While there are still opportunities to coordinate where beneficial, staff learned to better identify strategic areas for alignment, such as selected undergrounding areas. Staff is actively identifying opportunities to serve new multifamily residential developments because of lower and shared construction costs.
After initial service activation, staff expects to focus on technical and operational performance, customer experience, and installation workflows. After a few months of pilot data is available, staff expects to evaluate customer metrics, financial results, and business considerations to inform options for the next phase of FTTP. Over the following six to 12 months, if supported by pilot results and future Council direction, staff would focus on an expanded pilot and/or Phase 1, operational improvements, and refinement of business strategies.
Fiber Backbone Expansion and Rebuild
In parallel with the FTTP pilot, staff is also advancing planning and implementation for the fiber backbone expansion and rebuild needed to support FTTP, municipal operations, dark fiber services, and other City initiatives. Rebuilding and expanding the backbone remains important to improve the reliability, resiliency, security, and capacity of the City’s fiber network. The original estimate of the fiber backbone expansion is $26 million. Build the backbone in phases over several years based on City and customer needs enables development of the system with largely existing staff resources.
To improve cost-efficiency for future fiber construction, staff is developing fiber-specific contracting approaches for underground work and a fiber backbone material contract for large- count fiber cable. Based on recent implementation experience, staff identified using electric contracts can result in a premium mark-up. Staff is in the process of issuing new request for proposals for fiber work only. Staff anticipates lower bid prices because contractors will not be working in the power space on the poles.
FISCAL/RESOURCE IMPACT
The Fiber Fund has an ending fund balance of $33.6 million for FY 2025, which includes, but is not limited to, $17.4 million of rate stabilization, $13.1 million of commitments and reappropriations, and $3 million loan to Wastewater Collection utility (Fiscal Year 2025 Annual Comprehensive Financial Report3). Through Council authorization through the budget process, approximately, $5.5 million of $20 million was spent for the pilot which is a subset of phase 1 including aerial construction, pole make ready, fiber hut, reinforced foundation for the hut, networking equipment, data center, and system applications. $3 million of the $5.5 million are 3Fiscal Year 2025 Annual Comprehensive Financial Report:
https://www.paloalto.gov/files/assets/public/v/1/administrative-services/financial-reporting/annual- comprehensive-financial-reports-acfr/current-2011-acfrs/city-of-palo-alto-acfr-fye-06.30.2025-final-secured.pdf one-time investment costs (i.e. fiber hut, data center, networking equipment) for FTTP pilot and future expansion. Additionally, the FY 2026-2027 proposed budget was built based on this current status update.
STAKEHOLDER ENGAGEMENT
On January 7, 2026, staff provided the UAC an update of the City’s dark fiber expansion plan and FTTP (Staff Report #2511-54455). UAC recognized a substantial portion of the fiber funds are being used to enhance the fiber backbone. Enhancing the fiber backbone will happen regardless of FTTP being offered. The goals of the FTTP pilot are technical feasibility, operational efficiency, customer satisfaction, and internet pricing. UAC requested staff to return to them a few months after FTTP is launched with take rate, financial analysis, and other data metrics from the pilot to assess the business plan and financial viability of FTTP.
On June 16, 2025, the City Council approved a new rate schedule for fiber broadband internet services (Staff Report #2411-37766). The rate structure includes a maximum price and allows flexibility for setting standard and promotional rates to remain competitive for Phase 1 customers. Staff expects to continue stakeholder coordination through regular UAC and Council updates and ongoing public engagement as pilot data becomes available.
ENVIRONMENTAL REVIEW
The FTTP project approval was analyzed under CEQA resulting in a Mitigated Negative Declaration approved by Council on June 17, 2024 (FTTP CEQA Report7).
APPROVED BY:
Alan Kurotori, Director of Utilities
5 UAC Meeting January 7, 2026; Staff Report #2511-5445:
https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=da34516b-4f8e-4af9-8bb6-6ea10ec1f235 6 Council Meeting June 16, 2025; Staff Report #2411-3776:
https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=35104f06-6925-4fe3-89c7-b0e53e6eec42 7 https://www.paloalto.gov/files/assets/public/v/1/city-manager/communications-office/palo-alto-fiber/mnd- final-docs/final-initial-study-mitigated-negative-declaration.pdf