Objectives

To determine whether New York City received all the revenues specified in the contract terms and whether the Department of Information Technology and Telecommunications (DoITT) monitored the contract to ensure that Links (technologically advanced telecommunication structures) were installed and maintained to ensure user privacy and Link availability according to contract terms. The audit covered the period from February 1, 2015 to May 5, 2020.

About the Program

DoITT is the technology core of New York City government, working with City agencies and entities, delivering technology, evaluating emerging technologies, procuring citywide IT services, and other IT-related functions. Pursuant to the New York City Charter, DoITT administers telecommunication franchise contracts providing fiber, cable television, Wi-Fi hotspots, and mobile telecom equipment installed on NYC streets. DoITT’s Division of Franchise Administration is responsible for granting franchises for public communications structures (PCSs), enforcing performance requirements of franchise agreements to ensure the delivery of universal broadband for all New Yorkers, and ensuring adequate compensation to the City.

In December 2014, the City, through DoITT, entered into a Franchise Agreement (Agreement) with a consortium of technology, media, and connectivity providers (Consortium) to replace an aging network of public pay telephones (PPTs or payphones) with technologically advanced telecommunication structures, otherwise known as Links, that offer free, high-speed Internet access as well as free phone service; a touchscreen tablet interface to access City services, including 911 emergency and NYC311; free cell phone charging; and digital advertising and public service announcements.

The LinkNYC franchise is regulated by the Agreement between the City and the Consortium, its attachments, appendices, exhibits, and amendments, as well as Chapter 6 of the Rules of the City of New York. Pursuant to the Agreement, each PCS that provides telephone service is deemed a PPT and is generally subject to the PPT rules with the same force and effect as a PPT.

Links were to be built at no cost to the City and were projected to generate over $500 million in revenue over the program’s first 12 years. The Agreement detailed the required annual fee schedule as well as the Link installation schedule over the contract period, and established performance requirements for the Consortium to ensure the Links are clean and in good working order.

Key Findings

DoITT did not sufficiently monitor, oversee, and enforce the Consortium’s compliance with the Agreement terms, including the collection of almost $70 million due to the City from the Consortium; that the required number of Links were installed according to the specified distribution schedules and equitably distributed in the five boroughs; that Links were activated by the stipulated time frames; that a Gigabit Center was established in each of the five boroughs; and that liquidated damages were assessed and collected for late activation. Our audit identified significant shortfalls, in terms of both revenue to the City and services, that occurred as a result. Among the issues identified were the following:

• Effective September 17, 2018, DoITT entered into a one-year forbearance agreement with the Consortium to suspend its required annual payment. However, when the forbearance period ended, the Consortium did not resume payments. DoITT sent a letter to the Consortium stating the amounts due and requesting payment. However, DoITT has not taken the actions specified in the Agreement to collect the outstanding revenue of approximately $60.3 million, plus $8.63 million in interest, that has accrued through March 2020.
• By July 20, 2020, 3,153 structures were required to be installed and operational. However, as of May 2020, the Consortium has installed only 1,869 Links, and only 1,816 of these are activated. Links were also installed significantly past the required time frame and were not always operational.
• Links have been installed in only 86 (46 percent) of the total 185 NYC ZIP codes; 99 ZIP codes are currently devoid of Links, and their residents thus unserved.
• For 2015, the first year of the contract, the Minimum Annual Guarantee of $20 million should have been paid; however, the Consortium remitted $18,315,269 based on revenue, resulting in an underpayment of $1,684,731.
• Of 227 Links we sampled, 172 (76 percent) had cleanliness and/or operation issues, including: dirty/grimy tablet screens; physical damage; and defective screens/screen icons, telephones, and USB charging ports.

Key Recommendations

• Exercise any and all rights necessary to hold the Consortium accountable for non-compliance, as appropriate, including the collection of revenue and interest for payments owed and the assessment and collection of liquidated damages for late activation and repairs.
• Establish policies and procedures for the review of the Consortium monthly revenue reports and related payments, including but not limited to documenting results of reviews and recording advertisements during Link site inspections.
• Increase monitoring of the daily “health” of all Links, not just those noted as having issues or the subject of public complaints.
• Execute the installation and activation terms of the Agreement, as warranted, and ensure that future installations are done on an equitable basis.