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Community Broadband Strategies for Financial Success

CML’s 91st Annual Conference June 18 – 21, 2013 Vail, Colorado

Joanne Hovis, President, CTC Technology & Energy

American models for public fiber • Institutional: government fiber as an economic development platform for the private sector • Public-facing: government fiber to the home where the private sector has not acted

Existing US institutional model • Middle mile/anchor networks (I-Nets) • The economics work, based on 15 years of data: – Low cost to construct and operate – Incremental cost construction opportunities – Reduced operating costs and dramatic savings – Platform for innovation – Platform for last-mile buildout

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Building a Business Plan • Avoided costs – Core government functions – Education and other (independent) anchors

• Revenue support – Internal anchor revenues – E-rate and Health Care Connect – Spare conduit/fiber/service capacity for leasing

I-Net strategy Has Proven Record, Solid Economics • 15 years of models and data re savings • Future-proof investment • Immediate, quantifiable benefits to government operations, schools, libraries

• Capital support: incremental builds – E-rate and Health Care Connect

Cumulative Payments, Fiber Construction (High Estimate) vs. Minimal Leased Services

Cumulative Payments, Fiber Construction (Low Estimate) vs. 10 Gigabit Service

Cumulative Payments, Fiber Construction (Low Estimate) vs. Gigabit Services

Additional potential funding sources • • • •

E-rate Health Care Connect Lease fees Service fees

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E-Rate (USF Schools and Libraries) • Administered by Universal Service Administrative Company under FCC • Created in ’96 (Section 254 of ‘96 Act); first granted funds in ’98 • >$2.25B/annum (insufficient) • Subsidizes dark fiber, services, and fiber lateral construction • Funding level is based on degree of rurality and level of poverty

Calculating the Discount Poverty, as measured by % of students eligible for free/reduced school lunch program

Discount level in rural areas/ urban areas

Less than 1%

25%, 20%

1 to 19%

50%, 40%

20 to 34%

60%, 50%

35 to 49%

70%, 60%

50 to 74%

80%

75 to 100 %

90%

Health Care Connect

Health Care Connect Funding

• New program (December 2012 order) that allocates funding from the Universal Service Fund to subsidize service to health care institutions • Replaces and reforms Rural Health Care program created by ‘96 Act (widely considered poorly designed) • Adopts the E-Rate model with variation

• $400M/annum cap for now • 65 percent subsidy • Local government networks are eligible to provide services to subsidized entities • Rural health care institutions can apply, as can teaching institutions and non-rural entities who are part of a consortium

Your government network as economic platform, creating: • Open platform for new applications and new providers • Middle-mile connection points for alternative last-mile systems • Competitive market and price restraints on incumbents • Opportunity for small business providers

Economic platform network vision • Efficiency and economic viability – Multi-use, multi-sectoral – Regional, multi-community (or modest in scale—can be a single connection to a business park)

• Fiber “middle mile,” wireless “last mile” – Fiber projects to “anchors” with commitments/ interest of last-mile wireless partners – Meet anchor needs and enable last-mile providers to meet public needs

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State and regional middle mile • Connect backbone to last mile (analogous to major regional roads) • BTOP projects are open access • State/local/education /private ownership and operation

City digital roads

City facilities

Business park

Connection to Internet POP © CTC 2013

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City digital roads

City digital roads

City facilities

City facilities

Private sector Business parks

Business parks Hospitals

Hospitals

Schools and libraries

Schools and libraries

Connection to Internet POP

Connect to City to buy cheap bandwidth

Connection to Internet POP 21

Serve schools, libraries, and hospitals

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Residences and small businesses

City digital roads

Other anchor institutions

Private sector

Private sector

City digital roads

Other anchor institutions

Private sector

Larger businesses

City facilities

Office parks and development areas

Larger businesses

City facilities

Office parks and development areas

Private sector

Private sector

Business parks

Business parks Hospitals Schools and libraries

Connection to Internet POP 23

Hospitals Schools and libraries

Connect to City to buy cheap bandwidth

Serve schools, libraries, and hospitals

Connection to Internet POP 24

Connect to City to buy cheap bandwidth

Serve schools, libraries, and hospitals

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Leasing/Service Strategies • • • • •

Conduit Lease

Conduit lease Fiber lease Wholesale services Retail services Hybrid/multiple offerings

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Fiber Lease

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Wholesale Services

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Retail Services

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Providing Service to the Public • Fiber or HFC to the home • Nearly 100 existing networks – Primarily rural (and conservative)

• Range of models, though majority are retail service providers (voice, video, and data) • Create infrastructure where none exists and offer different pricing and speed – Usually, the only true high bandwidth option

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Challenges and Benefits

A Conservative Strategy

• Public broadband driven by benefits that don’t accrue to the enterprise • Public broadband metrics for success have been defined by carriers

• Fiber as core of network and key investment • Wireless as extension and for mobility • Build when you can • Utilize your processes, assets, team

– Cash flow and profit—these are commercial metrics – Public metrics are off the financial statements

• Sewer, water, ROW, housing development 32

• Interdepartmental collaboration is crucial

For more ideas….

– Install conduit during road construction (or other CIPs, including sewer, water) – Design space on new tower or new building rooftop – Include power, HVAC in key telecom areas during construction and remodel

• How to build a business model for your fiber network http://ctcnet.us/GovernmentFiberNetworks AfterBTOP.pdf • Feel free to contact me with questions • [email protected] • Twitter: @joannehovis • www.CTCnet.us

• Every municipal project has the potential to provide long term cost savings on your municipal broadband project

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©2006 CTC

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